Digital Platforms and Business Models Quiz

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Questions and Answers

What is a key characteristic of digital platforms that differentiates them from traditional business models?

They facilitate direct interaction between consumers and providers. (correct)

They operate without any data analytics tools.

They rely solely on physical infrastructure.

They discourage user-generated content.

Which factor is crucial for incumbent companies to navigate the challenges posed by the sharing economy?

Reducing their technological investments.

Adapting their strategies to the new competitive landscape. (correct)

Maintaining their existing business processes unchanged.

Ignoring digital transformation opportunities.

What is a primary driver of digital transformation for businesses?

An increase in physical store operations.

Analysis of new opportunities enabled by digital technologies. (correct)

Implementation of outdated technologies.

Prioritizing short-term financial gains over long-term growth.

Which strategy is essential for creating a sustainable competitive advantage in the digital marketplace?

Adapting strategies based on environmental constraints. Signup and view all the answers

What is one of the disrupting effects of digital platforms on traditional industries?

They facilitate the emergence of new business models. Signup and view all the answers

What is a characteristic of sharing economy platforms?

They primarily focus on peer-to-peer rental or sharing of resources. Signup and view all the answers

What characterizes digital platforms that differentiates them from traditional businesses?

They facilitate direct interactions between multiple distinct stakeholders. Signup and view all the answers

What challenge did platforms like Uber, Lyft, and Sidecar face in their competitive environment?

They aimed to create a network effect to force competitors to exit the market. Signup and view all the answers

What is a primary characteristic of the network effect in platform businesses?

The value of the platform increases as more users participate, enhancing interactions. Signup and view all the answers

How did Udemy manage the risk of low customer retention?

Through the development of engaging features that enhance student interaction. Signup and view all the answers

What is a strategy Udemy implemented to handle higher costs of developing market sides?

Building a network of experts and developing learning content first. Signup and view all the answers

Which of the following companies is not listed among the top ranked platform businesses?

Twitter Signup and view all the answers

In the context of the sharing economy, what is the strategic response of incumbent companies primarily focused on?

Collaborating with platform businesses to enhance market reach. Signup and view all the answers

What aspect of the hybrid business model benefited Udemy in managing risks?

It created a virtuous cycle among individual and business customers. Signup and view all the answers

What is considered a key asset of digital platforms like Udemy?

The network of instructors and learners interacting on the platform. Signup and view all the answers

What is a common reason for failure in sharing economy platforms related to market analysis?

Insufficient analysis of the sharing market Signup and view all the answers

Which strategic response involves the company actively learning about customer preferences?

Invest-learn-act Signup and view all the answers

What approach does a company take when it chooses to maintain its current business model in the face of sharing economy competition?

Strengthen business as usual Signup and view all the answers

What does the term 'hidden resources requirements' signify as a risk for sharing economy platforms?

Unforeseen operational costs Signup and view all the answers

Which strategic option might a company pursue to combat sharing economy threats while reducing its operational risks?

Step-out and partner Signup and view all the answers

Study Notes

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).

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

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).

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.

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.

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Description

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.