A new digital transformation? From click & mortar to brick & software
09 May 2022
At the time of software companies, or rather "Brick & Software", the decisions to make or buy must be completely reviewed, giving the better part…
Blablacar, Meero, Backmarket and Vestiaire Collective : four of the first sixteen French unicorns (as of 23 june 2021) are based on a platforms business models and have respectively conquered their market, often by disrupting it, which legitimizes the current interest in this model and its scalability.
One definition of the platform business model is the association of two independent groups to facilitate the exchange of goods or services: producers on one hand, who represent the supply, and consumers on the other, who represent the demand. Examples include:
The success of this platform model is based on three key factors:
These three factors ultimately allow platforms to benefit from the network effect: as membership grows, so does the value proposition, which in turn attracts more new members. This effect puts platforms in a monopoly position, at least locally. It also results in a first mover advantage or a smart follower one: the first player to reach a critical size will see its growth self-fed by the effect, just like a snowball, and it will irreversibly widen the gap with the other players who are yet to reach this threshold.
For existing actors, the platform model can represent either:
Beyond these risks and opportunities, developing a platform model in order to disrupt a market, either as a new or as an existing player, appears even more interesting when the model is perceived as capable of scaling.
From a technical point of view, platform models are highly scalable. Indeed, once the initial development of the platform is done, adding a user or launching in a new location requires little or no effort (provided said development is of good quality). In other words, the growth of the platform in number of users does not require technical evolution and thus generates few additional costs.
From a commercial point of view, the model requires reaching a critical size in each location or product/service to be able to make its value proposition a reality. This generally requires significant and increasing investments (due to the strengthening of the competition) in customer acquisition through online marketing, sales force, discounts etc. Moreover, this critical size must sometimes be built locally, as shown by the example of Uber, which must ensure a minimum number of drivers in a city to be able to provide a sufficient offer and thus operate.
Once this size is reached, commercial scalability becomes a reality since the growth driver is no longer customer acquisition but rather the network effect.
The need to finance the acquisition of an important size to make the value proposition real and reach commercial scalability translates into:
These financial characteristics reveal the difficulty for existing players to develop such a model or to integrate it into their existing activities following an acquisition, for example. The main pitfall observed is the lack of investment in customer acquisition. This results in the failure to reach the size needed to trigger the network effect, as the model is intrinsically monopolistic.
To overcome this obstacle, some players like Maisons du Monde are pivoting their business models from their historical distribution model to the platform model only once their customer base has reached the necessary critical size.
Launching a platform model represents a strong strategic move, which must be executed with full awareness of the necessary investments, but also of its impact on all the company’s different stakeholders: customers, employees, suppliers etc. The level of disruption must be skillfully controlled, and eventually detoured, so that the transplant can take hold successfully.
Arnaud Couffin, Maxime Caro
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