Factsheet: Platform Economics – Platform Economics

Published on: September 11, 2018 / update from: September 13, 2018 - Author: Konrad Wolfenstein

Factsheet: Platform Economics – Platform Economics

Platforms determine the economy

• Number of currently existing digital platforms (B2B, B2C): over 500
• Annual growth rates: 20+ percent
• Value of the 60 most valuable platforms: $7 trillion
• Value of all platform companies $8.5 billion
• 7 largest B2C platforms are worth more than all stocks in the Euro Stoxx 50
• Amazon is the second trillion-dollar company after Apple
• Top 10 platforms increased almost 20% per year; Top 10 of the DAX only around 10%

The superiority of the platform concept

Advantages

What Amazon, Alibaba, Airbnb, Tencent, Uber, booking.com, Facebook, Spotify and Co. are ahead of the conventional economy

Efficiency

• Hardly any investments in production capacities, buildings or movable goods are necessary, therefore a lot less tied-up capital
• With every transaction, commission-based income flows to the platform operator

Scalability

• Whether 1,000 or 1,000,000 customers – the digital platform can be quickly scaled if successful
• Marginal costs of new customers are close to zero, production costs are negligible

versatility

• Platforms can be adapted and the offering can be easily expanded if necessary (e.g. Airbnb no longer only offers overnight stays, but also activities)
• Required for this: developers, software and server capacities - much quicker and cheaper to implement than building a factory or developing a new car

Examples

Mobility: Car rental companies such as Herz, Avis or Europcar have to keep hundreds of thousands of cars available worldwide. The result is billions in tied-up capital for the vehicles.

Agents like Uber or Lyft do not have their own vehicle fleets, but they benefit from every trip arranged in the form of commissions.

Consequence: Uber market value >70 billion US dollars, Europcar <3 billion US dollars

Hotel: Chains like Marriott and Hilton have millions of rooms worldwide, whereas Airbnb's platform providers do not manage a single hotel. Airbnb's market value is higher than Hilton's

Europe is lagging behind developments

• Share of US companies (based on goodwill) 67% of the platform world
• Asia 30% (China is catching up; most new platform models are being developed here, especially in the B2B segment)
• Europe: shockingly meager 3%

Digital platforms in Germany “uncharted territory” (Bitkom study from January 2018 of 505 companies with more than 20 employees):

54% of respondents have never heard of the term “digital platform”.

Platforms provide the digital infrastructure

Possible platform models

1. Focus on shared use of resources, capacities and know-how – for companies from industries with overlap
2. Focus on cooperation platform in which the products and services of the participants complement each other (horizontal or vertical cooperation)
3. Focus on digital data and technologies – partners release their data (e.g. from production, purchasing or logistics) for sharing and analysis

Companies can choose depending on their know-how and market power

• Own platform model (for innovations and first movers)
• Platform with other partners (if greater market power and importance is expected with partners)
• Existing platforms for cooperation or as an additional sales channel

Applications in logistics

• Establishment of shipping platforms – interface to shipping service providers to process transports
• Everyone is waiting for “THE NEXT BING THING”, or a business model for parcel delivery comparable to Uber
• Boundaries between industries such as retail – whether e-commerce, omnichannel or unified commerce – and logistics are increasingly disappearing
• Collaborative platform models of a kind booking.com for logistics services: In addition to a comprehensive offer, overview and transparency, the customer can find answers to the reliability of the respective provider in the form of reviews.