Platform economy unifying marketplace!
In the conventional first generation model of business, every entity in the business universe fought their battles independently. The approach was towards maintaining secrecy in the business processes to protect technology, maintain market differentiation and holdback knowledge. The second generation business model adopting shared use of infrastructure resulting into contract manufacturing and contract research. The players started jointly using the infrastructure and technology under legally binding agreements. Now is the generation of platform models of business or third generation business models that in a way disrupts the business environment through behind the scene activities. We co-create across regions on technology enabled platforms and sell / buy products on a digital platform reaching a much wider market.
Due to its inherent nature, it is often called in different names like, Creative Economy, Sharing Economy, Gig Economy, the Precariat or 1099 Economy as written by MARTIN KENNEY & JOHN ZYSMAN in the article “The Rise of Platform Economy” published in the journal ‘Issues in Science and Technology’, Spring 2016, Volume 32. To maintain neutrality, the term ‘Platform Economy’ suits the most.
Platform Economy is cloud based digital platform that combines the physical infrastructure and entire business process
For clarity in understanding, Platform Economy refers to a cloud based digital platform that combines the physical infrastructure and entire business process in a seamless fashion. The Oyo example could be apt in this case. Without having physical assets, Oyo is today one of the largest hotel chains, operating hotels across continents. They tie up with the property owners, market for occupants and earn commission on business. The risk is minimal and predominantly shared by the property owners. The conduit is the technology.
This movement towards platform economy is unprecedented and beyond the operating ambit of many. More alarming is the speed at which the change is happening and the knowledge required to work on such a changing environment. But all said and done, Platform Economic models have unified the universe opening opportunity for many, strengthening traceability & accountability and reducing the scope of arbitrage.
Opening opportunities for market access through Platform Economy
I have come across educated people working and earning some extra bucks through driving when they are off-work or during financial crises. Their asset is their vehicle which opens up an earning potential using platforms developed by Ola or Uber. An artist producing his artistic work and selling through Amazon. An aspiring writer writing non-fiction and publishing on Kindle Direct Publishing or Notion Press or Bukkus or Kobo. A social worker accessing crowd funding for his social entrepreneurship project. This list is endless.
Opportunities galore for Business
In business, production is one story and selling is another. Production remains within internal control, while selling is externally dependent. For many business people, selling is a difficult job. It is difficult as targeting appropriate clients is a challenge in many cases.
The platform market is evolving. There are different types of marketplace platforms and the most reckonable platforms are,
- Business to Consumer (B2C)
- Business to Business (B2B)
- India Mart
- Consumer to consumer
The nature and operating model of these platforms match in one way that they connect seller and buyer. But their way of operation is different. For example, while Flipkart and Amazon frontends the client totally sidelining the seller, India Mart is actually an Yellow Page, where the buyer can track the seller and vice versa. Similarly, Olx that initially started connecting sellers of second hand / used products with potential buyers have now started selling new products.
The risks are also substantial
The B2C platforms are very much inclined towards servicing their clients, i.e., the buyers. Ultimately they have the first duty of care towards the buyers who give them business. And for future business, the buyers are important over sellers. The supplier becomes secondary and in an oligopolistic market condition, the suppliers lose their voice. The exception is in relation to technology products, where they build up special deals. To elaborate, Amazon in 2018 had sealed a deal with Apple for selling their newest products and as a outcome of this agreement with Apple, Amazon cancelled sale of refurbished Apple products on their platform.
A quick search on the internet and you will find hundreds of disillusioned sellers. An article titled ‘In Their Own Words: Why Sellers Are Fed Up With Amazon‘ is an interesting and revealing narration. Amazon is a leading B2C marketplace. The story is not different either in case of other operators.
The most critical issues, some of which are taken from an article published on Indian Online Seller Forum reads,
- Removal orders dispatched without tracking id
- Inbound shipment delays
- COD cannot be disabled for FBA sellers
- Seller support does not reply for days
- Buyers get only 30 minutes to cancel orders
- Product breakage during transit
- Copyright infringements by other Amazon sellers
- Unilateral delisting of products
- Increase in commission causing consistent reduction in margins for sellers
- Acceptance of returns from buyers without much evaluation
Many of the small sellers are forced to sell on such platforms to generate topline, while their bottom-line shrinks or goes to red. Poor understanding of cash flow and lack of clarity on cost of production is a major problem for many of the small businesses.
Formulate appropriate strategy
The answer to these issues are improving internal control and building up appropriate strategy. The article titled “Competing on Platform Economy” by Donato Cutolo, Andrew Hargadon and Martin Kenny published in MIT Sloan Management Review Spring 2021 the suggest certain stratifies like,
- Change Channels
- Use the platform to Market Your Sale
- Play the Algorithm Game
- Diversify Income Streams
To conclude, I would put it in record that business is not easy in any case. What is important is building up strategies that work. The few points mentioned above are few of the options. There are many other strategic options, which can be evaluated and implemented based on the case.
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