Digital Platforms and Business Models Quiz

Session 4: Digital Platforms Strategies

• This session focuses on digital platform strategies.
• The course coordinator is Nabila BOUKEF Ph.D, an associate professor in information systems and digital transformation at SKEMA Business School.
• The course is a two-year MSc in Digital Business.
• Key questions addressed in this session include the disruptive effects of platforms, characteristics of digital platforms, and how incumbent companies deal with the sharing economy.

Course Schedule

• Session 1: Rethinking strategy in the digital era
• Session 2: Digital strategy formulation
• Session 3: Strategy approaches and ambidexterity strategy
• Session 4: Digital platforms strategies
• Session 5: Differentiation strategies and competition in the sharing economy
• Session 6: Digital strategy and business process transformation
• Session 7: Building digital capabilities and creating digital leadership
• Session 8: Digital strategy execution in practice: Fostering innovation in the digital era

Questions Addressed During This Session

• What are the disruptive effects of platforms?
• What are the characteristics of digital platforms?
• How do incumbent companies deal with the threat of the sharing economy platforms?

Part 2

• Why: Analyzing the new rules of the game and opportunities enabled by digital technologies.
• What: Creating a competitive advantage with digital technologies, strategy approach, adapting strategy with the constraints of the environment, digital growth, creating a sustainable competitive advantage.
• How: Digital capabilities, investing in digital technologies, transforming the processes, digital leadership, transforming the organization, managing the ecosystem.

Digital Platforms Strategies

• Session 4 discusses digital platforms strategies.
• Session 5 covers differentiation strategies and competition in the sharing economy.
• Key concepts include network effect, governance, and differentiation.

Outline for this Session

• Platform characteristics
• The disrupting role of the platforms
• Incumbent companies' strategic response to Sharing economy platforms
• Conclusion

Reading

• Zhang et al., 2018, "Established Companies' Strategic Responses to Sharing Economy Threats," MISQ executive, (17,1), pp. 24-25.
• Täucher K. and Kietzmann, (2017) "Learning from failures in the Sharing economy," MISQ executive, (16:4), pp. 253-256 (not mandatory)
• Chassin et al., 2018, "Reasons for failure of sharing economy business," MISQ executive, (17: 3), pp. 185-199 (not mandatory)

Example of Platforms

• Google
• Apple
• Airbnb
• Amazon
• Uber

The 7 Top Ranked Companies are Platform Businesses

• Apple
• Microsoft
• Alphabet/Google
• Amazon
• Facebook
• Alibaba
• Tencent

Platform Definition

• A platform is a business facilitating interactions between two or more distinct types of customers.
• Key characteristics: different stakeholders with various roles, contributing different values; direct interactions facilitated by the platform.

The Players In a Platform Ecosystem

• Platform provides infrastructure and rules for marketplace, connecting producers and consumers.
• Roles of players in ecosystem: Creators of offerings, Producers, Consumers and Providers.
• The Roles can shift.
• The relationships both within and outside the ecosystem are central to platform strategy.

The Disrupting Role of Platforms

• Detailed explanation of the disrupting role.

Case Study: Udemy

• Discussion of key resources, value creation, and shaping competition by the digital platform.

How Does Udemy Create Value?

• Network effect (large choice of online courses is attractive for learners and instructors).
• Orchestrating relationships between producers and consumers.
• Creating value for both consumers and producers (instructors).

Key Competitive Advantages of a Platform like Udemy

• Highly scalable business model (low marginal cost for learners and instructors).
• Speedy evolution to new markets (hybrid business model for individual and business customers).

The Move to Platforms

• The network of producers and consumers is the key asset.
• Platforms create value by orchestrating relationships between external producers and consumers.
• There is a need to manage access and governance of stakeholders.
• Maximizing the total value of the ecosystem (new metrics need to be focused on).

The Network Effect

• Larger networks create greater value for participants, leading to more people joining.
• Enables better matches between consumers and producers.
• Example: Facebook network (people joining to interact mostly with family or friends)

The Winner Take-all Market

• Emergence of a small number of hub firms dominating the market.
• Examples: Alibaba, Google, Amazon, Apple, Facebook, Microsoft

Access and Governance

• Platforms benefit from network effect, but rules to control access and participant activities are needed.
• Platforms need to control access to maximize positive network effects (each new participant adds value)
• Different governance mechanisms are important (standardization of service, incentives).

Platform Strategy is Different

• Light in assets: higher margins for platform businesses
• Extremely fast growth potential
• Winner take-all phenomenon
• Economic efficiency
• Higher competition between platforms

Challenges Faced by Platforms

• Relationships between participants may evolve (e.g., Zynga moving to its own platform).
• Fierce competition to create network effect (necessitating market exit or focusing on segments, example: Sidecar vs Uber and Lyft).

Focus on the Specific Case of Platform-Based Sharing Economy

• The sharing economy platforms are two-sided or multi-sided, facilitating interaction.
• They facilitate peer-to-peer rentals or sharing of resources temporarily, not direct sale.

Case Study Udemy: Analyzing Risks

• Identify risks Udemy faced
• How did the company manage those risks?
• How did a hybrid business model enable Udemy to manage such risks?

Risks Faced by Udemy

• Higher costs in developing both market sides
• Lower customer lock-in
• Low control over service quality
• Higher competition

Main Risks of Sharing Economy Platforms

• Low customer lock-in
• Low control over service quality
• High competition for idle resources
• Low transaction frequency
• High cost of developing both market sides and unexpected changes in the legal environment.

Examples of Platform Failure

• Specific examples of platform failures (e.g., Homejoy, Carpooling.com, Sidecar, Stayzilla, Beepi).

Common Reasons for Failure in the Sharing Economy

• Lack of providers
• Insufficient analysis of the sharing market
• Trust and safety concerns
• Hidden resource requirements
• Nonscalable technical designs
• Unclear legal environment
• Business termination through acquisition

Different Response Strategic Options

• Strengthen the business as usual
• Invest learn-act
• Step out and partner
• Hybrid
• Expand and compete

Strengthen Business as Usual

• Maintain current business model, improve products/services, target segments of market not affected, focus on scale and density of distribution network.
• Example: FedEx (not strongly affected by sharing economy competition).

Invest-Learn-Act

• Invest in sharing economy to learn about the model and customer preferences.
• Improve products/services to meet customer expectations.
• Example: Hyatt invested in onefinestay.

Step Out and Partner

• Partner with a sharing platform from another industry to attract new customers and create value.
• Access a large scale sharing platform's ecosystem, benefit from its network effect.
• Example: Hilton partnering with Uber.

Hybrid

• Integrate sharing economy elements into traditional business models
• Enable incumbent firms maintain strategic position.
• Example: DHL incorporates parts of sharing economy in business.

Expand and Compete

• Reinforce existing parts and elements of the business model similar to sharing economy, so they better compete with the competitors similar to the sharing economy disruptors. Example: Wyndham timeshare business (similarities with sharing).

Illustration Wyndham

• Detailed discussion of Wyndham as a timeshare company and the strategic response.

Conclusion

• Summarize the crucial aspects of the discussion.

Takeaways

• Platforms disrupt businesses due to positive network effects, leading to faster growth.
• They face challenges in controlling access and considering risks, necessitating strategic responses from incumbent firms.
• Five strategic responses are highlighted.

Competing in the Sharing Economy

• Suggestions to create network effects, control access, and develop a differentiation strategy (detailed in a future session).

What's Next?

• Summary of subsequent sessions' topics.

Test your knowledge on the characteristics that differentiate digital platforms from traditional business models. Explore key strategies for incumbents to thrive in the sharing economy and understand the drivers of digital transformation. This quiz also delves into the challenges faced by platform companies like Uber and Udemy.