End Of Competition, The: The Impact Of The Network Economy. C N A Molenaar
Figure 2 shows the three layers of platforms.
Figure 2. Architectural layers of platforms (Choudary, 2015).
Choudary (2015) suggests that the external network of producers adds value to the network layer. In order to make this value creation possible, however, platforms require a second layer: infrastructure. This layer comprises the tools, services and rules that make interaction in a multisided market possible. This layer has little value in itself, unless users create value in the platform. All platforms use data because the information helps the platform to gear the supply to the demand. The data layer creates relevancy and matches the most relevant content, product and/or services with the appropriate users.
It’s important to first build the infrastructure in order to make interactions in the above-mentioned layer possible. As manufacturers and consumers adopt the infrastructure, an ecosystem begins to evolve. This becomes the next observable phase in the evolution of the platform. And finally, the interaction between manufacturers and consumers on the platform generates huge amounts of data. The data layer then helps to make future interactions more efficient and keeps users regularly engaged with the platform. The use of data from the data layer has a positive effect on the value perception of users in the network layer (Choudary, 2015).
What are the Sources of Value Creation?
1. The focus is shifting towards the demand side of the economy (Van Alstyne et al., 2016). This can be found on the right-hand side of the traditional value chain.
2. In a platform business model, products and/or services are not actually produced; the organisation does not organise its production processes, and as a result there is no control over the creation of value within the production process. Value is brought in by external producers, so the production process disappears as an activity from a platform company’s value chain.
3. As platforms have different groups of users on all sides, the value creation moves from left to right and from right to left. This change in the value chain is an important characteristic of a two-sided market. There is therefore no longer a value chain with value activities that take place in a linear sequence, and the consumer is no longer located at the end of these processes but forms part of the value creation within a value network.
Primary Activities and Platform Companies
The platform business model is not aimed at the physical creation, sales, supply and service of a company’s own product or service. This results in the value activities of inbound logistics, operations and outbound logistics disappearing from the value chain and the direct control of the platform company.
The owner of the platform creates value as an independent intermediary, by matching and connecting two (or more) mutually dependent parties with one another and facilitating the direct interaction between these parties (Eisenmann et al., 2006; Osterwalder and Pigneur, 2010). The aim of marketing here is no longer to bring about a transaction for a company’s product and/or service but to realise a value exchange between supply and demand.
The most important capital of a platform company for providing this value proposition consists of the following:
• an infrastructure for direct interaction (the platform);
• the presence of network effects that arise when two (or more) sides of the market have an interdependence, supply and demand, resulting in the growth of the network;
• the availability of data arising from the interaction via the platform, thereby creating matching functionalities and the relevance of the platform.
The most important value activities can thus be described as platform management, platform promotion and service provision to the network (Osterwalder and Pigneur, 2010).
Secondary Activities and Platform Companies
The traditional organisational structures are still preventing most companies from looking for talented staff outside the boundaries of their organisation. This makes it difficult for companies to tackle evermore complex challenges. Many platform companies allow people outside their payroll to offer their expertise in new ways. Network organisations concentrate on orchestrating tasks rather than on the ‘ownership’ of full-time workers. Whereas Marriott hotel employs large numbers of staff to realise its value proposition of ‘accommodation for a guest’, Airbnb uses external hosts to provide the same value proposition. Human Resource Management shifts, as a result, more and more towards community management (Choudary, 2015).
Technological development is evidently no longer a supporting activity, but is essential in the optimisation of the platform and its functions. Platform companies still have other supporting tasks but these are increasingly losing relevance.
Shouldn’t Investments be Made with a Long-Term Vision?
Traditional companies are mature, often having grown during the second and third industrial age, whereby ownership, control, independence and supply chains were important. If these companies are taken over, it is often due to profit and returns. Private equity groups want to make the companies more efficient and effective, and then sell them off entirely or piecemeal, at a profit.
In some cases, the company profits are reinvested if this leads to an increase in value (therefore higher returns in the sale). Sometimes the company profits are creamed off by charging the investment to the company, which then has to pay interest on this (or perhaps even pay off this debt). Whatever the case may be, these investors use their expertise to realise a return on their investment through greater efficiency and increased value. If the scope to realise this is longer than four years, these investors start to feel uneasy as they would prefer to invest in new promising objects, anywhere in the world.
The investors involved in the new start-ups are not interested in shortterm profits. They believe in the great opportunities for growth of these companies and are convinced that a long-term investment would provide better results. What’s more, they are often investors who have already made an investment and successfully divested it (often through a stock market flotation, a so-called IPO). As a result, they have substantial investment portfolios. Quickly selling the company again (with profit) would only lead to the problem of looking for another promising project. Staying put and growing along with the traditional project is therefore a better option. These new entrants have a longer term commitment and vision, which results in more stable and lasting growth. At investment level, there is a conflict between the traditional companies that are focused more on profits and the new companies that are looking to increase value (through growth). The new investors are focused more on the long-term effects. What’s more, the new companies only have a short history and limited ‘legacy’, as a result of which they can straightaway use the latest technologies. The management are creative, flexible and often young leaders who respond more quickly and in an unorthodox manner to the market conditions and buying behaviour. The growth of these new companies is partly at the expense of the more traditional companies. This is typically a friction in a transformation period (from the Third to the Fourth Industrial Revolution).
Many start-ups have emerged in America. The conditions for this were clear and were as follows:
• a concentrated area where the developments took place (Silicon Valley); this provided a concentrated supply of good personnel, as well as a concentration of investors who were keen on investing in new technological companies based on a long-term vision;
• a large home market that enabled testing among a relatively large group, thereby not risking any further damage in the market should the start-up fail;
• a good business climate where success is appreciated and failure (bankruptcy) is accepted;
• a competitive business climate.
On top of this, America had