Value creation-‘Platform King’ is also hell in an instant

American social network service (SNS) MySpace once enjoyed a dominant position by preoccupying the market faster than Facebook. However, in less than three years, he was ignored by users and lost his place to stand. When it became the number one SNS operator, it caused inconvenience to users by increasing pop-up advertisements to secure profit. Facebook broke through that gap. It actively cooperated with new services such as YouTube to expand the content and at the same time share profits with existing users and participating companies. In the end, Facebook, which created the value of “win-win,” surpassed MySpace and became the world’s number one SNS company.
Platform companies that used to dominate the world suddenly decline, and other platforms suddenly take over. What are the conditions for a’eternal platform’ in a platform business that changes faster than any other market? Experts point to value creation as a key condition for constructing and maintaining the platform. With the accelerating platform transformation, where all digital economies converge to platforms, only companies that constantly provide value to users can survive.

The platform has the characteristics of a “two-sided market” in the form of a platform that connects companies and companies, companies and individuals, or individuals and individuals. Because of this, unless a structure that continuously provides benefits and win-win to players is created, no people gather or stay on the platform. Like general business, platform business needs extremely customer-oriented management. It is the essence of the platform to satisfy those who participate in the transaction through differentiated services.

How can platform companies constantly create value that satisfies all participants? Experts pick data technology as a key keyword. The survival of the platform depends on how well it can properly collect data from users, analyze it, and use it to increase value again. Seo Yong-gu, a professor at Sookmyung Women’s University, said, “The core of the process of transferring business from the existing business form of a’pipeline (transport pipe)’ to a platform is IT technology and data economy.” “The possibility of the platform is to collect and process customer data to save money. It depends on the ability to generate revenue by connecting to a business model that can be earned.”
Representative examples are “Spotify,” a music service platform that boasts an overwhelming market share in the digital content field, and “Netflix,” a video streaming service. The two platforms provide different services for sound and video, respectively. However, it has the commonality of attracting customers first by creating new value and then monetizing it to establish itself as a platform. Spotify has 322 million members worldwide and accounts for 40% of the music market. It captivated users with a music recommendation algorithm based on free users’ playback history and taste data. Netflix also has a content recommendation and search algorithm that analyzes users’ tastes and provides recommended videos. It has succeeded in creating a structure that attracts consumers’ attention and cooperates with the production industry by reinvesting in providing original content.

Platform companies are actively engaging in mergers and acquisitions (M&A) as a way to continuously create new value. This is because it is much faster to acquire other companies than to develop their own technology, which takes a long time to evolve by combining new technologies with existing services. In 2014, Google acquired British artificial intelligence (AI) technology company’Deep Mind’ and upgraded its deep learning solution. Amazon acquired the robot company’Kiva Systems’ and incorporated it into Amazon Robotics, thereby reducing the cost of operating the distribution center by 20%.
M&A is also active to provide new services by dramatically increasing the amount of data already secured. Due to the nature of the exclusive market, M&A is inevitable in order to secure new customers or users using similar services in a short period of time. In order to expand the existing office user data, Microsoft bought a job search platform called’Linkedin’ with a huge sum of 26.2 billion dollars (about 29 trillion won) in 2016. The same reason is that Naver, a domestic company, acquired the business card management app’Remember’. The competition for the acquisition of the short form video platform “TikTok” between Microsoft and Oracle last year was also aimed at securing “Generation MZ (Generation Z)” member data owned by TikTok rather than expanding revenue. According to the Samjung KPMG Economic Research Institute, M&A of platform companies increased by nearly 3.7 times from 611 in 2010 to 2,290 in 2018.

The life cycle of the platform business goes through the provision of free and low-cost services → market oligopoly → pricing. After attracting users with innovative services, increasing differentiated services is the equation for survival. Most of the ‘Borit Gogae’ before the monetization attracted large-scale investments. If the platform itself is strong, advertising, commerce, and content. It is possible to advance into various fields such as fintech. In the end, the factor that determines the strength of the platform is the support level of the participants. If you don’t get their participation, the platform can collapse at any time.

Microsoft (MS) advanced into the mobile market by aggressively expanding “Windows,” which became a dominant position in the PC operating system (OS) market in 2000, but drank a bitter cup. Failure to build an app distribution platform due to failure to provide proper incentives to app developers. In this situation, as the company pushed for the same paid policy as the PC OS, it was ignored by both consumers and terminal manufacturers. In the end, in the mobile operating system, Google Android, which actively responded to the values ​​users want, took the throne. The platform is a model that connects many users and finds good services, and the core technologies that support this are “big data and AI”. Although Spotify is a latecomer, it has provided differentiated innovative services through algorithms, and Tesla is constantly using user data. It was recognized in the market for missing software feedback.

Posted in: IT