The irresistible rise of the platform economy
08 November 2016 -
You can’t compete with the giant industry-munching digital platforms. Instead, get to grips with what they mean for your line of work
You and your lover plan a rendezvous – a secret picnic on the beach. They’ll bring Champagne, lobsters and an umbrella (this is an English picnic). Just meet them at Berrow beach in Somerset. Dress to impress.
Now here’s the snag. Berrow beach is the longest sandy beach in the country, stretching six miles.
Hang around in the wrong spot and you’ll get marooned in the legendary mudflats, with a fast-incoming tide. Search for your picnic in that zone and your paramour will discover the reasons for your absence in the obituary columns.
Fortunately for your love life, a brilliant start-up has a solution.
What3words (w3w) chops the world into a grid of squares three metres by three metres. Each of the 57 trillion squares has three words as an identifier. Words, after all, are more memorable than a string of digits.
So you can arrange to meet at ‘vampire.crucially.soggy’, near the lighthouse. It’s next to ‘visitors.hiked.marathons’. With the app on your phone you can navigate to precisely the right spot. Phew!
W3w is more than a frivolous tool for Casanovas. It promises to bring accurate navigation to the world, three-quarters of which suffers from poor addressing systems.
Mongolia’s national postal service recently adopted the w3w system for national addresses. UN disaster-response teams use it. Courier firm Direct Today reduced missed deliveries by 83% by adding a w3w tag to the address.
It’s clearly a great idea. But the second stroke of genius is how the founders are developing w3w: they’ve relinquished control and turned it into an open platform. Anyone can download the developer kit and create new products on the platform.
“We initially developed as a consumer-facing proposition, but the investment and effort required to generate mass adoption was huge,” recalls Giles Rhys Jones, chief marketing officer at w3w. “We realised that, to scale our idea, we needed to work with partners – specifically those businesses and organisations that could benefit from better addressing, such as logistics, post, aid, humanitarian, travel and navigation.”
As a platform, the technology can be adopted by thousands of organisations. Each partner pays a fee to participate (it’s always free to consumers), but that’s the only limitation.
Becoming a platform was an obvious choice. Platforms are the dominant business model of our age. Taxi app Uber is a platform. Suppliers (drivers) use it to reach consumers (passengers).
Google, Amazon, eBay, Alibaba, Salesforce and Facebook are platforms.
Platforms are open venues where vendors can meet consumers. And third parties can develop content for the platform.
Facebook is a great example. Mark Zuckerberg hosts a convenient place for friends to chat, share photos and stalk each other. All content is user-created. It means the overheads are low. And the business can scale without limit.
Indeed, in 2015 Silicon Valley hosted 44 platforms with a combined value of $2.2 trillion, according to the Center for Global Enterprise.
The platform model is so attractive that it is reshaping even the most traditional of industries.
Banking, say, is now moving to a platform model. Lenders such as Zopa and RateSetter connect savers with borrowers, allowing them to arrange loans through a platform.
And MarketInvoice connects businesses with cash-flow problems to investors who buy their invoices.
The platform craze is also expanding to wonderful niches: JustPark connects drivers with owners of empty parking spots. And BorrowMyDoggy matches dog owners with people who fancy part-time ownership of a mutt.
What it all means
The rise of platforms has big implications. In macro terms, it’s changing the structure of the UK economy.
Platforms make it easier to do business. So we’re seeing a boom in the number of small businesses using platforms to trade. Think of all those eBay vendors selling iPad accessories from their garage.
In 1975 only 8.7% of the workforce was self-employed. By 2008 the figure was 12%, and it’s 16% today. Self-employment may soon overtake public-sector employment.
The young are particularly enthusiastic.
Research by freelancer placement company PeoplePerHour found that the number of student founded start-ups was up by 42% in 2015, compared to 2014.
The Centre for Entrepreneurs says the number of start-ups has increased by about a third since 2011.
Platforms are also changing the way business is conducted.
W3w is changing how deliveries are made. Uber is changing the way we think about car ownership. And the accountancy world is being reinvented by platforms.
Software used by accountants is being remodelled as platforms, hosted in the cloud, and boosted by hundreds of add-ons.
Sage, Xero and Exact are all embracing this philosophy.
For example, Exact has an app store, much like Apple’s App Store. Accountants using the platform can download add-ons to cover everything from payroll to point-of-sale.
Out go boring duties such as scanning invoices and data entry. Instead accountants use their accounts platform to automate their business.
It means they can handle far more clients, and operate as consultants, rather than number crunchers.
“The old model of entrepreneurs handing over a box of invoices to their accountants is going to disappear,” says Erich Schnoeckel, manager of Exact’s accountancy partner programme.
The Exact platform offers apps for pretty much any activity. There are at least 10 that focus on time and billing.
“No two people are alike,” says Schnoeckel. “Some prefer one app, and others another.” He adds that the integrated app-based approach is mandatory from the client’s perspective too.
“This meets the entrepreneur’s need for real-time information,” he says.
Marketing software is going through the same transition. Just look at the rise of Salesforce, the biggest supplier of software to salespeople. Salesforce was the pioneer of a platform with an app store – its AppExchange launched before Apple’s App Store.
The move turned Salesforce’s customer-relationship management software into something so versatile that it’s now more akin to an operating system.
Today, Salesforce has 3,026 apps, with almost four million installs (a single install can service hundreds of users).
Creating apps for Salesforce is an industry in itself. The Dreamforce developer conference in San Francisco this October will feature U2 and Bill Gates’ wife, Melinda, as a keynote speaker, and will attract 25,000 developers.
In fact, the Salesforce platform is so advanced that there is a sub-marketplace called Lightning for app-builders to trade code and components for building apps.
The question managers need to ask is: what platforms can help me do my job better? Can a data platform such as Amazon Web Services cut capital expenditure? Can a freelancer platform such as PeoplePerHour reduce hiring costs?
Where fortunes are made
Perhaps the most arresting feature of the platform economy is the sheer dominance of the top dogs. The minicab world used to be an open field, with Addison Lee competing with hundreds of local and national brands.
Now? Uber is crushing the opposition.
The ‘network effect’ means that the bigger a platform gets, the more effective it becomes. Uber is the number-one app, so it’s the default choice for drivers and passengers. A tiny edge mutates into a monopoly.
The number of new taxi companies registered in 2015 was 65% lower than the year before. Uber now accounts for a fifth of all taxi and private-hire drivers in London.
It’s the same story with Airbnb. It started slowly.
Co-founder Brian Chesky admits he launched it three times in 2008, just to get it noticed. But, as property owners signed up, it became exponentially more attractive.
Airbnb rose up Google’s search rankings, and the higher it rose, the more traffic it sucked in. The more properties it listed, the more it became the default destination for travellers.
Today, Airbnb has 1.5 million properties and is valued at $30 billion. Good luck to anyone trying to compete.
Industries such as newspapers are struggling to handle the challenge from platforms. Arianna Huffington founded The Huffington Post with the idea of asking contributors to write for nothing. Bloggers, writers, brand managers and politicians would be happy to promote their views without remuneration, she thought.
In 2011 she had 10,000 contributors, and sold the The Huffington Post for $315 million.
By contrast, The Guardian lost £69m in the past financial year.
Sceptics aren’t happy. They say the dominance of platforms leads to riches for an elite, and misery for the masses. Vendors, in particular, face fierce competition when using a platform.
“There is a darker side,” says Steve Chasan, an entrepreneur who sells organic beauty products. His site, Ecohip, sells direct but also uses eBay and Amazon.
“We were forced to join to sell our products. You are under pressure to win the Amazon Buy Box. We use software to undercut our competitors by a penny. It means you sell for no margin. It is very painful.
“I can tell you some horror stories about eBay. You are a slave to the reviews. A rival can buy your products for a pound, write bad reviews, and get you pulled off eBay. I think anything that gets too big and hurts smaller companies is not a good thing.”
Mobile app-makers live in a world ruled by the duopoly: Apple’s App Store and Google Play.
Matt Hunt, chief executive of Apadmi Enterprise, which makes apps for the likes of the BBC and The Guardian, says: “You give away 30% of your revenue. There isn’t a choice. De facto it goes through Apple’s store or Google’s store.”
Get blacklisted, or have an app delayed at the approval stage, and you’ll be in trouble.
Cheerfully, Hunt urges businesses to look on the bright side.
These platforms bring hundreds of millions of consumers to one place. App-builders use platforms to trade code, accelerating development times.
Innovation is exploding as a result.
“You are standing on the shoulders of giants,” says Hunt. “It’s about how you take advantage of these platforms.”
This is the age of platforms. The winners will engage and adapt. And the losers? They will be lost on the mudflats. With the tide coming in fast.
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