Digital Platform Companies: The Business Model of the Future?

Technological innovations and artificial intelligence are disrupting the social, economic and business activities, thus affecting the overall structure of the economy as we know it. Digitalization is creating new opportunities and a growing number of firms are functioning beyond the traditional models and boundaries. A new type of ‘platform business model’ has emerged, utilizing online networks and allowing for different groups from around the globe to interact and transact.

The Rise of the Platform Economy

We all evidence the rise of new ways of work, production and market expansion, mainly supported by the technological innovations and artificial intelligence. Technology creates diverse opportunities for new jobs, greater productivity and better public services; the nature of firms is changing as well with an upsurge of platform companies (World Bank, 2019). The reduced trade barriers, lowered communication costs and increased flexibility are also exhibiting positive effect on the flourishing of the platform companies. But, what exactly is the ‘platform economy’? According to Delloitte (2019), it is ‘any type of digital platform that uses the internet to connect dispersed networks of individuals to facilitate digital interactions between people’ (p.2). The platform connects the companies/workers with the customers i.e. the supply and demand regardless the physical presence or proximity. These platforms provide value by enabling users’ connection, information and data sharing.

Nowadays, an increasing number of companies are adopting the digital platform business model. Companies like Apple, Google, Amazon and Alibaba make use of this model to gain faster growth and competitiveness on the market. Thanks to the rise of the digital platform company, technological effects reach more people faster than ever before and offer limitless possibilities for establishment and growth of businesses. For instance, Jamalon, an online bookstore has managed to establish cooperation with 27,000 English-language and 3,000 Arabic-language publishers, supplying 10 million titles in the Middle East, which proves that platform businesses enable new ways and opportunities for trading services and goods (World Bank, 2019). According to Schenker (2019), ‘more than 30% of global economic activity – some $60 trillion – could be mediated by digital platforms in six years’ time’ (p.1).

Source: World Development Report, World Bank Group, 2019.

Although large firms still control the global economy, digitalization has changed how things operate and has increased the importance and growth of the small, flexible and innovative companies. Technology makes firms more competitive, allowing for new ways of doing business. Moreover, physical presence is no longer needed for a company’s success. Some examples of the most fast growing and well-known platform companies are AirBnB (which sold more than double the number of rooms that its offline competitors Marriott or and Hilton sold in 2018)[1]; or Didi Chuxing which grew to have about 5 times more drivers than licensed taxis in China in 2018. There are other numerous instances of platform based billion dollar start-ups. The Chinese e-commence giant JD.com started as a retail business in a tiny booth in the Zhongguancun Electronics Shopping Market in Beijing. In July 2018 the JD platform had 320 million active users (World Bank, 2019).

Kenney and John (2016) argue that currently economy is being reorganized, where ‘platform owners are seemingly developing power that may be even more formidable than was that of the factory owners in the early industrial revolution’, which is a new challenge for the society and the policymakers. Regulation of the platform companies is yet another challenge, especially the data privacy and protection, as large amount of information is constantly being stored, shared, used and given value through those companies. In addition, World Bank (2019) reaffirms the need for digital platform companies to establish certain mutual standards of quality, safety and management.

[1] In light of these increased competition coming from AirBnB, Marriott announced to roll out a new AirBnB’ type of rental services called Homes & Villas, in 100 cities, though with a focus on upscale properties (https://edition.cnn.com/2019/04/29/business/marriott-airbnb-rival/index.html).

Source: World Development Report, World Bank Group, 2019.

The Changing Nature of Work

Technology is changing the skills that employers seek, but also how people work. Many platforms ‘expand the supply of labor by increasing opportunities for new, flexible types of work that complement traditional forms of employment in the gig economy.’ (World Bank, 2019, p.40). While digital platforms generate new job opportunities, they also lead to an increased number of freelance workers entering the market, with flexible work schedules. These characteristics blur the division between formal and causal labor, and informal workers. Although flexibility brings about benefits for workers and families, it also poses significant worries for the policymakers in terms of organizing the labour market, re-defining the traditional employer-employee relations (including pension and health insurance, maternity and paid leave), labour taxation, competition laws, etc.

Macedonian Platform Companies Operating Globally

As digital platforms are on the rise globally, there are also numerous instances of successful platform companies operating from Macedonia, and serving the world. Their number and size is growing constantly, with increasing contribution to Macedonian economy (GDP), exports and employment. They present a large potential in terms of offering employment probabilities to young, professional Macedonians, which can have a large effect on mitigating the emigration and brain drain. Business owners of digital platform companies and professionals will be further discussing the opportunities and limitations for further development of platform companies in Macedonia at the upcoming eighth edition of the Macedonia2025 Summit.

 

Registration the Macedonia2025 Summit is ongoing. Tickets are available on the following link: https://mk2025summit.com/buy-ticket/

 

 

References:

Birshan, J., Manyika, S., Ramaswamy, M. (2018) What’s Driving Superstar Companies, Industries, and Cities. Harvard Business Review. October 25, 2018. Accessed August 15, 2019. https://hbr.org/2018/10/whats-driving-superstar-companies-industries-and-cities.

Kenney, M., and John, Z. (2016) The Rise of the Platform Economy. Issues in Science and Technology. March 29, 2016. Accessed August 14, 2019. https://issues.org/the-rise-of-the-platform-economy.

Schenker, L.J. (2019) The Platform Economy. The Innovator. January 19, 2019. Accessed August 14, 2019. https://innovator.news/the-platform-economy-3c09439b56.

Deloitte (2019) The Rise of the Platform Economy. The Netherlands: Deloitte. Accessed August 14, 2019. https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/humancapital/deloitte-nl-hc-the-rise-of-the-platform-economy-report.pdf.

World Development Report (2019) The Changing Nature of Work. Washington D.C.: World Bank Group.