The New Successful Business Model

What do tech giants like Apple and Microsoft, global online retailers like Amazon and Ebay, leading payment and financial services companies like Visa and Mastercard, popular online game developers like Riot Games have in common, but also social media companies such as Meta (Facebook) and TikTok?

While at first glance it may not be obvious what might connect companies with such diverse origins, upon closer inspection we notice that there is indeed a common denominator: all of the aforementioned companies—and many more—are harnessing the power of internet platforms to reshape global business. .

A platform is a business model that creates value by facilitating interaction (but) and transactions between different groups—typically consumers and producer suppliers—through the creation of communities and niche markets.

But let’s take things from the beginning when in 2007 Apple released the first iPhone, five major mobile phone manufacturers Samsung, Sony Ericsson, Nokia, Motorola, LG, collectively controlled 90% of the industry’s global profits. Nevertheless, it took Apple only eight years to completely reverse the picture: in 2015 the iPhone from? it accounted for 92% of the industry’s global profits.

To achieve this, Steve Jobs’ company took a typical platform approach, which proved to be enough to overcome an impressive array of classical strategic advantages held by its rivals at the time: sheer size, high commercial recognition, logistical infrastructure, economies of scale scale, established operating systems as well as outsized research and development budgets.

If we look at the big picture today, half of the top 10 companies in the world (by market capitalization) have this platform business model. Companies such as Apple, Microsoft, Amazon, Alphabet, Meta have within a decade displaced traditional names of global entrepreneurship such as General Electric, Shell or IBM from the top. Similarly in the field of financial services: global banking giants such as Citi, HSBC have been replaced in the list of the world’s leading financial companies by players such as Visa, Mastercard, Paypal, Ant Group. What do these companies have in common? You probably guessed right it’s all internet platforms.

We could argue that platforms (as a business model) have already been around for decades. So why is this happening now? What has made such a difference to propel them to prominent positions in all industries in just a few years? Digitization and the shift of the majority of economic activity to the internet are the two legs of the right answer. Technology has made building and scaling platforms a much simpler (and certainly cheaper) process than in the past and has enabled the seamless (and rapid) onboarding of customers, who can enjoy extremely high-level personalized service over based on an unparalleled ability to collect, analyze and share massive amounts of data, which in turn increases (the added) value of the internet platform for everyone.

Consider, for example, the next time you buy something through Amazon or a similar service all the dynamically adaptive product recommendations that appear on your screen based on your history or the same choices as you. Moreover, a series of additional factors give this model even more momentum: the (always available) online distribution channels, the pattern of repeated and frequent transactions, cloud technology, but also the increasing use of mobile phones as the primary entry point to the internet. At the same time, there is an oxymoron that concerns almost all known platforms around the world: Uber, the largest taxi company in the world, does not have its own vehicles. Meta, the world’s most popular social network, does not create its own content. Alibaba, the world’s largest e-commerce provider has no inventory of its own. Airbnb, the world’s largest accommodation provider, does not own any of these. The question constantly arises: given the non-existence of an irreplaceable competitive advantage, what is the key factor in the success of platforms? The correct answer certainly does not include—strangely and against a rather cynical popular perception—owning infrastructure (cars, buildings, content, etc.). Instead, in today’s fast-paced environment there is something of far greater importance: the relationship with customers and the degree of trust that is embedded in it. In other words, the transition to the platform economy is about shifting the business center of gravity from owning infrastructure to controlling the relationship with the customer by displacing and replacing older models. Today we use all these services-platforms because they have a high degree of recognition and reliability, competitive value for money (without always being the best), personalized offers, easy access (due to technology), as well as a relatively high degree of certainty that the services and the products we receive will meet our (initial) expectations. Whether it’s banking, payments, e-commerce, gaming or social media, it’s now clear that platforms will be a dominant means of value creation in the future, pushing aside old structures and inventing new ones. In such an environment, the ability to understand the new rules and the flexibility to adapt will be a critical survival factor for service and product providers of the new era.
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TRUST ECONOMICS

Trust Economics is a specialized independent economic research, analysis and consultancy business. Our team provides ingenious analysis in the macro & micro economic field, in the field of financial market, regional and sectoral analysis equally, forecasts, consultancy, specialized studies-research/projects from its headquarters in Athens, Greece.

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