Rise of Digital Platforms: A Dominant Business Model for 2021
By Jolene Rutherford, Last updated: 2022-07-06 (originally published on 2021-02-22)
It’s no secret that modern technologies like digital platforms are reshaping how businesses today operate. Every time a new technology enters the market, various companies rush to become early adopters so that they can outrun competitors and gain a significant advantage.
Needless to say, every technology a business adopts is disruptive at first. After a while, this new technology starts to yield great benefits. A good example of this is a digital transformation. A great many companies are currently going through this.
Once this transformation is complete, companies turn towards digital platforms that encompass various services, strategies, and resources to allow companies to create an ideal business model.
The sheer gravity of market dynamics basically forces companies to turn to such solutions. Basically, this is so that they can navigate the online market and achieve business success. Not only that, but consumer behaviour also changes alongside modern technology and the latest trends. Subsequently, this is yet another factor that forces companies to seek new solutions.
Companies that wait too long, on the other hand, are soon left behind. Typically, these will have difficulties surviving in such a competitive environment. With that in mind, let’s have a closer look at the rise of digital platforms. And, how they’ll become the dominant business model in 2021.
The platform economy
The term “platform” we use today, in a digital sense, became uniform back in the late 1990s – early 2000s. Back then, the first platforms, such as Wikipedia, eBay, and Myspace, technically started the trend that’s been ongoing for decades.
So, what exactly are digital platforms? Technically, digital platforms are matchmakers of various technology and frameworks that facilitate the modern platform economy.
Generally, the most common models are transaction platforms that connect sellers and buyers. These include Amazon, Airbnb, and so on. But, there are also “innovation platforms” that provide technological frameworks upon which others can build on. For instance, the Microsoft platform.
Back in the day, platforms were mainly “two-sided,” connecting one group with the other. Usually, this was for simple transactions. Nowadays, we are able to see multi-sided platforms that create entire ecosystems. They bring various groups together to facilitate value exchange under a single unified solution, i.e., platform.
Digital platforms as a business model
Believe it or not, platforms were used as a business model even before the Internet was invented. A perfect example is newspapers with a classified ads section. In other words, a platform as a business model is actually a collaboration between two or more groups of users that profit from a single platform.
During the digital age, the concept was improved upon and propelled significantly. The most common example of platform business models is in collaboration between consumers, e-commerce stores, and financial institutions.
For instance, let’s take the Humm90 interest free credit card for Australia that combines the best of all worlds. This type of financial service can provide convenience to both retailers and their customers. Customers have the ability to make interest-free purchases with cashback benefits. Whereas store owners provide customers with time to repay while they get paid instantly.
It’s basically a union of services and features that benefits all parties under a single platform business model. What’s interesting is that all platform business models are able to grow, evolve and improve over time. And, in accordance with business needs. In other words, platform business models allow companies to easily adapt and keep up with market dynamics and shifts.
Creating a platform business model
The never-ending debate companies are having with themselves is whether to create their own platform or opt for a third-party model. To take one that is already pre-made and build upon that. Certainly, both options are equally viable. And, both have their strengths and weaknesses.
Essentially, the answer to that question depends on business needs. As well as the approach companies wish to take. That said, cloud-based technology has revolutionized the PaaS (Platform as a Service) model that any company can opt for. Here are some of the advantages and disadvantages of using this model:
The supplier provides the majority of hardware and software infrastructure that they host
Users can access these resources from anywhere and any device via the web browser
A much cheaper solution than the on-premises model
Cost-effectiveness can be achieved through a pay-per-use basis
A plethora of features are available to businesses
Server downtime – Although the majority of providers promise at least 99,99% uptime, there are possibilities of server crashes and prolonged downtime. At this point, your business operations come to a halt until the issue is resolved, which can have negative consequences.
Vendor lock-in – Many services that are supported by one vendor aren’t supported by others so you may not be able to migrate services and data from one PaaS provider to another.
Internal changes – Your PaaS provider may decide to stop support for one programming language and switch to the other development tools. This can be very disruptive for users as they’ll have to make the switch as well.
As you can see, there are certain risks to using third-party platform models. But, the decision falls down to calculated risk. Therefore, companies must evaluate the provider’s roadmap to determine if the services they provide are worth opting for.
In-house digital platforms
Creating in-house platforms that will serve as a business model offers more flexibility but also more complexity as well. Generally, banks and financial institutions are more suited for this approach as they serve either businesses and corporate clients or both.
That said, the development of an in-house solution requires hardware and software capabilities, which also requires professional staff. The end result is a more costly solution that has much higher levels of personalization, customization, and flexibility. Moreover, you can adjust and improve upon a solution without obstacles and inconveniences. This allows companies to control their business growth using technology they’ve developed in-house.
Although more expensive, such an approach can help companies adapt to market changes with ease. Thus allowing them to achieve a competitive advantage much faster. Furthermore, companies that are unable to afford in-house data centers are moving towards cloud-based solutions that are provided to them via third-party vendors.
Implementation is the key
Whether a third-party solution or an in-house model, it’s very important to determine how you will implement your platform. This is why so many companies are slow at making the final decision.
Often, the main reason is that some companies consider changes the platform will bring a bit too disruptive for their existing business model. While others believe the platform will expose too much of their work and that the competitors may be able to copy them.
Regardless, there’s no denying the fact that a digital platform can open doors and bring vast opportunities to any company. Essentially, implementing the platform must accompany careful consideration to begin with. The platform should revolve around three types of innovative technology, cloud computing, social and mobile. These are:
Cloud computing – The global infrastructure enables the creation of apps and content for any audience.
Social – This technology enables platforms to connect people on a global scale and identify their presence.
Mobile – This technology provides access to global infrastructure from anywhere in the world at any time.
However, the key is the ability of your platform to integrate with such technologies. As well as its ability to integrate with your IT and business needs alongside your internal workflows. When you implement the right way, a digital platform can transform your business, thus allowing it to improve your business performance and efficiency.
The inevitable future
The online market grows every year. And, it becomes more and more competitive as time goes by. Moreover, modern technology disrupts business every time a new one enters the market creating new shifts that others must adapt to.
In addition, consumers feel the impact of such trends. Also, they tend to switch preferences and purchasing habits practically overnight. By operating in such a dynamic environment, companies will inevitably have to switch to digital platforms. This is so that they can keep up with shifts in consumer behaviour. And, create solid digital strategies that will encompass consumer interactions.
Now, it’s no secret that consumers hold more power when it comes to making decisions about what to buy, when, and from whom, than ever before. That’s why it’s of vital importance for companies to be able to cater to consumer needs and meet their expectations. This is where digital platforms will be of great help. They create an omnichannel approach for marketing, sales, and overall customer experience.
After all, digital platforms are now powered by other technologies, such as artificial intelligence (AI), blockchain, and enhanced cybersecurity. Essentially, these create virtually limitless opportunities for the future of digital platform implementation and development.
To sum up, the year 2021 will show just how important and essential digital platforms are. The main reason is that the previous year, as well as the pandemic it brought, has upset most of the companies in the world. Platforms that foster collaboration and share value can help companies overcome even the direst scenarios. That’s why these digital platforms have already become a dominant business model in the market.
Jolene Rutherford is a marketing specialist—turned blogger with an interest in digital marketing and new technology trends.
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.