Competitive advantageInsightsThe 3 roles data plays in platforms

There are many ways to describe the role data plays in platforms and I choose to focus on the way data increases the competitive edge of platforms in each of the 3 competition layers they are facing: other platforms, incumbents and complementors.

1- Establish dominance against other platforms

The platform game is a hard game, highly competitive. It usually ends in a nearly winner-takes-all situation. In this battle, one platform needs to meet difficult challenges: attracting users, ensuring liquidity and balance, matching users and fostering trust in the long term. Data is one of the key asset leveraged to succeed:

  • Analysing in real-time the data of the user in the two sides to design incentives to improve the liquidity and balanceIn this video, an Uber engineer explains how are used the 5 billions forecasts per minute (yes, you read well, 5 billions forecasts every minute). Based on the forecasts of offer (driver) and demand (passenger), the platform incentives drivers and passengers through short and medium-term incentives (reducing or increasing the price, offering coupons, …).
  • Capturing quality of service data generated by users to foster trust. Ratings and comments play a key role in fostering the necessary trust for individuals to participate in a platform. Of course, these ratings are subjects to manipulations and the press regularly describes the fake ratings and comments industry and the measures taken by platforms to control them. For example when Amazon recently deleted 20 000 reviews.

2 – Strengthen their advantage against incumbents

Not only do platforms fight with other platforms, but they also challenge incumbent companies positions. With the data they collect on their users, platforms enact 3 competitive advantages against incumbents:

  • They offer a valuable experience to their clients which acts as a flywheel effet: the more data, the better the service, the more users and usage, the more data, the better the service, … This article by BCG explains it very well.
  • They integrate upstream parts of the value chain. From software to physical operations like Citymapper and from distributors to producers like Amazon and Netflix. The consumption data is used to design products or services that have a higher chance of being successful. We described this in a previous edition.
  • They conquer positions in adjacent markets to increase the value proposition to their clients. A good example is Amazon with their financial services. This reports by CB Insights gives a precise view.

3 – Capturing more value from the platform complementors

The last competition takes place between the platform and the complementors. Like distributors and producers, they are in a frenemy relationship. Both need each other and each wants to get the lion share of the value paid by the clients.

Apple needs application developers for the I-phone to be attractive, sellers on Amazon marketplace are extremely valuable to position Amazon as the go-to website for buying products. Data is an asset in the fight between the platform and complementors:

  • Keeping the data private increases the asymmetry of information between the platform and the complementor, at the benefit of the platform. Reports on how Amazon plays that game are numerous.
  • Keeping the data private reduces the ability of the complementor to trade out of the platform and secures the percentage of commission. The recent case between Apple and Epic Games (editor for Fortnite) is a good example.

What does it mean for strategy making

  • If you are starting a platform, you should develop processes that will use the data generated in the platform to solve key challenges platforms are facing: attracting users, fostering trust, improving liquidity and balance.
  • If you are attacked by a platform, you should ask yourself if your interest is to compete or collaborate. Competing and starting a platform is attractive for value capture but the costs to establish a platform are incredibly high. How much is required to be on par with the platform regarding the investments in data infrastructure? What is the opportunity cost of this investment?
  • If you are collaborating with a platform, you should identify other options for being distributed and lead a group strategy with your peers to get a fairer balance between the complementors and the platform.
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