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The Refresher Programme talk by associate professor Esteve Almirall, (Phd 10) on October 5th examined why platforms are so competitive and how they can be incorporated into companies and traditional channels.
To put his analysis into context, Almirall gave several examples of platforms – Uber, Facebook, Alibaba and Airbnb – which are successful but have no product of their own. Uber has no taxis, Facebook does not create any content, Alibaba has no stock and Airbnb does not have a single room.
The world of platforms is completely different from the traditional business world, it operates and thinks along different rules. But how do platforms compete and grow and work? What is different about their strategy? These were the questions that Almirall aimed to answer.
How platforms compete
Business schools usually use value chain analysis to determine the value created by companies, but the value of platforms is created not inside but outside them, and the ones who add no value are the third parties. ''Logistics and production processes are different in the digital environment. The cost of making a new digital copy is zero and there are no intermediaries, so scalability is quick and easy. One of the problems of scaling up is how to mobilise new resources. If you can mobilise resources that already exist, your only hurdle is your ability to convince the people they belong to,'' he said.
Innovation is different too because platforms use the reputation of users to get innovation moving without needing to make any investment. ''Users choose what works best, so because we want third parties to provide the best possible service, we must incentivise user reputations by thinking about how to achieve a social impact in order to go further,'' added Almirall.
How platforms grow
In a short space of time, enormous companies have become small compared with new platforms due to the vast scalability of the latter.
Companies used to grow by launching marketing campaigns and spending vast amounts of money, giving the impression that everything costs a lot until a point where the product takes off. ''We are used to thinking about costs linearly, which gives the impression that from a certain point onwards everything is very easy. But in the case of platforms, the product not only causes value to increase when it has more users, it also increases value for third parties. This is the indirect fallout which, for example, Google creates for advertisers, markets, operators and sometimes even competitors. Likewise, in the case of Facebook, more users means more content, more fan pages, more apps, more games and more events but also an indirect increase in the network effect,'' he explained.
So demand is directly or indirectly driven by the network effect with new services for both users and providers, enabling platforms to access new market niches at zero cost.
Insisting on the importance of zero cost, Almirall added that the market is a matter of matching products or services to their buyers or users, but in the case of platforms, matching can be achieved by software. ''This matching is not done by vendors, so the marginal cost is almost zero, and creating value at almost zero cost allows us scale up as fast as we like, at speeds never seen before and which are getting faster and faster,'' said the speaker.
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