Factsheet: Platform Economics – Platform Economics

Platforms control 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 dollars
• Value of all platform companies: $8.5 billion
• The 7 largest B2C platforms are worth more than all the stocks in the Euro Stoxx 50 combined
• Amazon is the second trillion-dollar company after Apple
• Top 10 platforms gained almost 20% per year; top 10 DAX stocks only about 10%

Advantages

What Amazon, Alibaba, Airbnb, Tencent, Uber, booking.com, Facebook, Spotify and Co. have over traditional businesses

Efficiency

• Hardly any investment in production capacities, buildings or movable goods is needed, therefore much less capital is tied up
• With every transaction, commission-based revenue flows to the platform operator

Scalability

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

Adaptability

• Platforms can be adapted and the offering easily expanded if needed (e.g., Airbnb now offers not only accommodations but also activities)
• This requires developers, software, and server capacity – much faster and cheaper to implement than building a factory or developing a new car

Examples

Mobility: Car rental companies like Herz, Avis, or Europcar have to maintain hundreds of thousands of cars globally. This results in billions of dollars in tied-up capital for the vehicles.

Intermediaries like Uber or Lyft do not have their own vehicle fleets, but profit from every ride they arrange in the form of commissions.

Result: Uber's market capitalization is >70 billion US dollars, Europcar <3 billion US dollars

Hotels: Chains like Marriott and Hilton maintain millions of rooms worldwide, whereas platform providers like Airbnb don't operate a single hotel. Airbnb's market capitalization is higher than Hilton's.

Europe is lagging behind in development

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

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

54% of respondents had never heard of the term "digital platform"

Possible platform models

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

Depending on their know-how and market power, companies can choose

• Proprietary platform model (for innovations and first movers)
• Platform with other partners (if greater market power and importance are 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 for handling transports
• Everyone is waiting for "THE NEXT BING THING", or a business model for parcel delivery comparable to Uber
• The boundaries between industries such as retail – whether e-commerce, omnichannel or unified commerce – and logistics are increasingly blurring
• Collaborative platform models similar to booking.com for logistics services: In addition to a comprehensive range of services, an overview and transparency, the customer can find information on the reliability of the respective provider in the form of reviews.