Staying competitive in a rapidly evolving market isn’t just about offering a stand-out product or service. It requires embracing innovative strategies that leverage the power of technology.
Digital platforms are at the forefront of this shift, providing businesses unprecedented opportunities to expand, experiment, and connect with customers.
“Platform companies have become increasingly important to the global economy and are some of the largest and most valued companies today,” says Harvard Business School Professor Feng Zhu, who teaches the online course Winning with Digital Platforms.
Understanding how these platforms can transform your business is essential to long-term success.
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DOWNLOAD NOWWhat Are Digital Platforms?
Digital platforms are business models that use online infrastructure to facilitate interactions between groups. They leverage sophisticated algorithms and data analytics to automate processes, improve accessibility, and foster real-time communication, enhancing user engagement and operational efficiency.
As a result, platform businesses are prevalent across various industries. For instance, online marketplaces like eBay facilitate millions of transactions.
“Some of the largest, most valued companies today are platforms,” Zhu says in Winning with Digital Platforms, “and you need to know why they’re so successful and how to work with them to stay competitive.”
If you’re searching for new ways to transform your business, here are five reasons why transitioning to a platform business model or launching your own can help.
5 Ways Digital Platforms Can Transform Your Business
1. Enhances Data Insights
Platform companies collect vast amounts of data from user interactions, which can provide insights into customer behavior, preferences, and trends to help you elevate your business.
For instance, Netflix shifted from a DVD rental service to a streaming platform in 2007. By leveraging data insights on users’ viewing habits, search queries, and ratings, Netflix created a personalized recommendation system, significantly increasing user engagement in a highly competitive streaming industry.
Customer data has also helped the company predict what type of content will be popular to ensure production decisions resonate with its target audience.
By transitioning to a platform-based business model and utilizing enhanced data insights, Netflix hasn’t just revolutionized its business but transformed the entertainment industry.
2. Aids in Scalability
Platform businesses are uniquely equipped to grow operations quickly and sustainably because they can easily decrease the cost of products or services as production volume increases, also known as economies of scale.
Economies of scale can be:
- Internal economies of scale, which occur within your company and include technical, managerial, financial, marketing, and network economies of scale
- External economies of scale, which arise from outside factors, such as industry size, skilled labor availability, and technological advancements
The most common way digital platforms achieve this scalability is through network effects, where the platform’s value increases as more users join. This self-reinforcing cycle bolsters users and engagement, leading to exponential growth and enhanced user value.
Network effects can be either direct or same-side—where the value for users increases as more people from the same group join—or indirect or cross-side, where an increase in users on one side (e.g., sellers) enhances the value for users on the opposite side (e.g., buyers) by offering greater variety or improved services.
As HBS Associate Professor Chiara Farronato notes in Winning with Digital Platforms, direct network effects have contributed to the growth of social media companies.
“The more users are actually using TikTok or Facebook and creating content—distributing content on those platforms—the more valuable that platform is for every other user who's considering joining it,” Farronato says. “This is a form of direct, or same-side, network effects. The fact that there are many other users like me participating in a platform makes me more willing to participate in that platform.”
3. Expands Market Reach
Digital platforms can enable you to reach new markets and customer segments previously inaccessible, increasing your user base and market opportunities.
A major benefit is they can help you overcome geographical barriers and offer your products and services globally. One way to do this is by exploring potential partnerships and leveraging existing networks to extend your market reach.
In Winning with Digital Platforms, Rodolfo Chung, CEO of beverage delivery service Zé Delivery, shares how it expanded into new markets by partnering with its parent company.
“With tapping through the InBev ecosystem, we did it in a matter of weeks,” Chung says. “In less than a month, we were able to have the sales team explaining, expanding the ecosystem, gathering new partners in over 300 cities throughout Brazil because you already had people in all those locations.”
This proactive approach can help you transform your business by connecting you with new customer segments and unlocking long-term growth opportunities.
4. Enables Innovation
Platform businesses provide several opportunities to innovate. Unlike traditional businesses—which can struggle with innovation due to rigid structures—platforms can continuously optimize operations by leveraging their digital infrastructure.
Shopify, originally an online store for snowboarding equipment, has transformed into a leading e-commerce platform fostering innovation. Shopify offers user-friendly e-commerce solutions, such as customizable templates, inventory management, and payment processing.
The platform's omni-channel capabilities have further enhanced its offerings, allowing businesses to sell across multiple channels and integrate third-party apps for added functionality. Innovations like the Shopify Fulfillment Network help merchants efficiently store, package, and ship products, competing with giants like Amazon.
By leveraging its platform business model, Shopify has created numerous opportunities for businesses of all sizes to thrive in the competitive e-commerce landscape, driving its rapid growth and success.
Related: Product Innovation: What Business Leaders Need to Know
5. Provides Flexibility
A platform business model can significantly enhance your company's flexibility. Unlike traditional business models that rely on a single or limited revenue stream, platforms generate value and revenue through transaction fees, advertising, and data monetization.
These diverse revenue streams allow platform businesses to quickly adapt to market changes if one revenue stream faces a downturn.
E-commerce company Alibaba has adapted to market changes by generating diverse income from cloud computing services with Alibaba Cloud and financial services with Alipay.
This diversification has allowed Alibaba to maintain financial stability and growth amidst challenges. For instance, while its core e-commerce business remains strong, Alibaba Cloud has become a significant revenue driver, growing steadily as companies increasingly adopt cloud solutions.
This multi-faceted approach ensures your platform business is better equipped to navigate economic fluctuations and capitalize on new market opportunities.
Is a Digital Platform Right For You?
Whether you're a seasoned executive or an emerging leader, understanding digital platforms can offer numerous opportunities to transform your business. To ensure you’re prepared for this transition, consider furthering your education with courses like Winning with Digital Platforms.
This course provides comprehensive training on how to leverage digital platforms for business growth, featuring case studies from leading experts and industry professionals. By enrolling, you'll gain the tools and understanding to successfully navigate and thrive in this rapidly changing digital landscape.
Do you want to understand how to navigate the platform business landscape? Jumpstart your educational journey by exploring Winning with Digital Platforms—one of our online entrepreneurship and innovation courses—and downloading our free entrepreneurship e-book.
