The rise in platform economy offers opportunities and challenges to small and medium enterprises, entrepreneurs and businesses in general and poses several questions of changing dynamics, power asymmetry, growth and survival.
Introduction
FAANG (Facebook, Amazon, Apple, Netflix and Google) economy is reshaping the global economy. Today, online platform companies are the most valuable companies and are rewriting business rules, market dynamics and strategies1. The amount of power they wield is unimaginable, touching many lives across the world. Be it FAANG, eBay, Etsy, Yelp, Alibaba or Flipkart, Instagram, YouTube, these powerful economic intermediaries along with the constellation of buyers and sellers build an ecosystem which is hard to escape from 2. Simply put, any company which cannot be searched on Google does not exist! Ignore them at your own peril.
The matchmakers: Digital technologies have helped platform companies orchestrate resources and be the matchmakers. For example, YouTube brings together content generator, viewer and advertiser on its platform. Uber and Airbnb are “Landlords without owning any land”3 and have contributed to the emergence of shared economy.
Challenges faced by Platform dependent businesses
Stiff competition and dependency – Digital online platforms rule the market as they can reach the vast majority of customers. The vendors, third party sellers, SMEs, entrepreneurs get the access to their target market but struggle to survive in stiff competition on online platforms. As most of the platform dependent businesses (PDB) cannot own a platform, their dependency on digital platform is inevitable.
Long tail effect – This makes platform owners’ winners, offering everything including the most bizarre items and providing customized solutions to customers under one roof.
Punitive rules – The business model and rules of online platforms are intimidating. For example, platforms like Amazon, decide rules of product description and limit the ways to present unique differentiation with respect to competing products.
God-like power of online platforms – Recommendation and Ranking algorithms, data of buyers and sellers, rules on rating have given online platforms an upper hand. Self-interest of platform owners often comes in way, ranking their own products above PDB. With that eagle gaze, platform owners can maneuver the market, introduce their own brand seeing the success of third-party products.
Online platform’s cut – Fee is another aspect. YouTube charges 45% of advertisement revenue generated by its content creators. Apple and Google charge 30% of all revenue generated on Google Play and Apple App Store4.
Strategies to Mitigate Risk
Challenges to sellers on platforms appear to be like Strega Nona’s pasta- endless! However, sellers can adopt innovative strategies to still deliver value to their customers. As global digital buyers are on rise and as per Statista – 2.14 billion customers are expected to buy goods online in 2021, sellers can’t miss online platforms.
Multi-platforming – The better strategy is to sell on multiple platforms like Amazon, Flipkart, Tata Digital, Paytm, Jio Mart and Jabong etc at the same time.
Multi-Channeling and attractive offers – Due to online platform rules, sellers cannot sell at reduced prices through other channels but they can still offer freebies and value-added services if customers buy directly through their store/website.
Market yourself on the platform – 47% of customers begin their online search on Amazon and 24% on Google5. Sellers can still create and deliver value, showcasing their products initially on platforms. Sellers can use innovative practices to induce repeat purchases later through their website/store.
Use of Instagram/ Facebook – Entrepreneurs can use Instagram/Facebook to spread their ideas.
Unite! – Big-fish-eat-small-fish is a natural phenomenon but what if the small fish unite? It can give some leverage to PDB. For example, AbeBooks, a subsidiary of Amazon, unexpectedly banned book dealers from Hungary, Czech Republic, Russia and South Korea citing high cost and complexity of doing business with them. 450 antiquarian book dealers from 26 other countries pulled out 2.5 million books from AbeBooks, to support banned book dealers and to show protest against the power Amazon wields as an e-tailer. Finally, AbeBooks had to apologize6.
Role of Governments – Governments of various countries are acting against platform owners to curb power asymmetry and encourage healthy competition. For instance, European commission fined Google $1.7 Billion in March 2019 for anti-competitive practices in online advertising 7.
Conclusion
Online platforms have changed the landscape and the power equations. In fact, PDS growth and survival story will be marked by how well they can compete on powerful digital platforms. Sellers on platforms can use multi-channel, multi-platforms and multi-homing to market their products and services.
Let online platforms understand the real power of shared economy and share it with their partners to sustain the ecosystem.
Learners’ Opportunity
Globalization of business calls for a dynamic and new approach in management process. Being up-to-date with the happenings in the market is a must have prerequisite for the managers. ICFAI Online MBA program from IFHE strives to impart practical knowledge on the implication of emerging business strategies. Various e-Learning and flexible learning methodologies support this. Check out @ https://online.ifheindia.org/
Discussion Question
Do you think pricing is the main deciding factor for online purchases? Why?
Will Platform dependent businesses grow and innovate showcasing themselves on online digital platforms or will they survive at the mercy of the immensely powerful platforms?
Source Articles
- Cutolo, Donato, Hargadon, Andrew and Kenney, Martin and. “Competing on Platforms.” MIT Sloan Management Review, 9 March 2021.
- Cutolo, Donato, and Martin Kenney. “Platform-Dependent Entrepreneurs: Power Asymmetries, Risks, and Strategies in the Platform Economy.”
- “Landlords with no lands: a systematic literature review on hybrid multi-sided platforms and platform thinking”, European Journal of Innovation Management.
- Bohn, Dieter. “Fortnite for Android Has Also Been Kicked off the Google Play Store.” The Verge, 13 August 2020,
- Sullivan, Laurie. “Amazon Still First Place Many Consumers Search For Products.” 22 May 2020,
- Streitfeld, David. “Booksellers Protest Amazon Site’s Move to Drop Stores From Certain Countries.” The New York Times, The New York Times, 4 Nov. 2018, www.nytimes.com/2018/11/04/technology/abebooks-amazon-protest-booksellers.html.
- Feiner, Lauren. “Google’s Antitrust Mess: Here Are All the Major Cases It’s Facing in the U.S. and Europe.” CNBC, CNBC, 18 Dec. 2020,
