To describe our computer age, there is probably no better term than that of fast pace. What turns out to be a trend today could be old news tomorrow. While commercial structures such as markets and shopping malls used to be tied to a time and place, they have increasingly moved online over the past decade. That’s where e-commerce comes in the principle of a “pipeline”: dealers select certain companies as suppliers and thus specify the range from which consumers can then choose.
The flow of goods and services is therefore controlled on the supplier side. An example of this is the online mail order company Zalando, which offers a wide range of brands. But if you think of Amazon, Google, eBay and Co., it becomes clear that another trend is now dictating the market.
Online platforms are promising business models that not only serve those who want to take advantage of an offer, but also those who offer it. As electronic infrastructures, they allow the kind of free interaction between merchants, service providers and consumers that make platform companies like YouTube, Facebook and Airbnb work in the first place. For example, tourists can only book accommodation on Airbnb if their owners offer it online and the latter only benefit if there are tourists looking for accommodation.
The fact that platforms are used equally by the supply and demand side sets them apart from traditional forms of trading. Google now serves as a search engine, Facebook as a social network and eBay as an online marketplace. This begs the question.
What Exactly Is An Online Platform – And What Isn’t?
By definition, not every technological platform is a platform company. The latter use the platform business model and help sell products and services, generate content and so on. You don’t make them yourself. Nevertheless, online platforms create value, for example by facilitating the exchange of goods and services, supporting both the supply and demand side and enabling direct interaction between all participants.
Network effects arise when the benefits of a platform for each individual participant increase as more participants join it. In this way, every participant becomes a value-added object for others at the same time. A principle that is essential for social media platforms.
Bringing suppliers and buyers together on one and the same platform is therefore a clear market opportunity. However, platform companies always stand between them as so-called intermediaries and represent their own interests. Does this circumstance also entail risks?
From Monopoly To Fear Of Interchangeability
If a platform lists a large number of providers, the services and products of these providers become more transparent and easier to compare – a clear advantage for consumers. But retailers, service providers and companies are becoming interchangeable at the same time. Providers lose direct access to end customers because the platform acts as an intermediary between the two market players. The platform company in turn ensures attractiveness and an increasing number of users. Because what consumers really want is the best possible offer for them.
Furthermore, the operators of a platform can participate in possible transactions and thus retain part of the margin. This means a loss for manufacturers, service providers and dealers. They have to tolerate the loss if they want to continue to be represented on the platform. So while online platforms are increasingly gaining a monopoly position on the market, the classic market is experiencing decline.
On the part of the platform company, there is the problem at the beginning that the costs for setting up and developing a successful platform business are higher than, for example, those of a conventional website (with comparatively fewer or simpler functions). It is also important that you first have to reach a critical mass of participants. Only then can the additional expenses made at the beginning be recovered and the company grows.
Once The Critical Mass Is Reached, Business Booms
The platform market is highly competitive. A company needs the brilliant idea, the niche, the will and the stamina to be able to take off. Expectations to invest in the platform business are mostly positive. Through the interaction between suppliers and buyers, data about the latter can be collected and their actions can be analyzed. This data can in turn be used to increase the company’s own sales. If a company also offers its own products or services via an existing platform, partners can offer these through services, for example in an app store for smartphones.
An opportunity for small to medium-sized companies is that they can gain access to markets in which they are not yet present via an online platform. New market participants in turn offer consumers new market services. In this way, competition is encouraged.
From a consumer perspective, platforms make transactions easier and cheaper. They also reduce search costs practically by the fact that they exist. They combine numerous offers and reduce the time and effort of having to go through them all by having an algorithm find suitable offers for you.
Online platforms ensure that the exchange of supply and demand becomes much easier, faster, more transparent and at the same time more global. As an innovative and promising way, they serve multiple groups of participants at the same time by connecting them, removing market barriers and making markets accessible to everyone.
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