Calling a cab has never been easier, but launching a service platform business presents many challenges. In this podcast, Xia Han talks about his paper “Service in the platform context: a review of the state of the art”.
Today’s economy is changing; traditional ways of doing business have been turned upside down by a group of new companies. 'Uber, the world's largest taxi-company, owns no vehicles'. Facebook 'the world's most popular media owner, creates no content' and Airbnb 'the world's largest accommodation provider, owns no real estate'. So what factors determine the success and profitability of a service platform company and what do we know about them already?
Xia Han digs deeper into this relatively new research phenomenon by drawing upon the findings of 110 selected articles in over 70 leading journals, most in the field of technology and information science, in what is termed 'a systematic literature review'. The review showed that research on service platforms increased rapidly after 2008 but even so there is a need for further research particularly into the issues surrounding the adoption of technological innovation.
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In this podcast Xia Han explains: 'Generally, platforms have two characteristics, an architectural one an economic one. The number of participants directly affects the value, this is known as the network affect. Both small and large platforms can be successful, but the key take-away is that you need to look at the leverage coming out of their participants, the so-called network externality.
'The literature can be separated into three types: platform adoption; the platform impact; and the most prominent literature is platform leadership. The literature has identified a lot of ways to leverage leadership, such as introducing a coring process, so your offer is sophisticated and cannot be copied, which Intel does with its microprocessors. You also need to leverage the network of participants to benefit and engage from the network.'
Han goes on to talk about specific platforms: 'Facebook got a lot of investment, and they were able to spend it on future research, whereas WhatsApp is a relatively new company, and it is still exploring new ways to generate revenue.
'Uber is one of the new platforms, what they tapped into is the ability to leverage other people’s abundant resource. People with cars can spend part of their time earning money.'
He said the literature gradually grew in numbers: 'Around 2006 there were more than five papers published each year and then around 2008/9 it began to escalate with the new age of the platform. Out of the 110 papers more than 70 were empirically based, it is being further explored, but it has not reached full maturity yet.'
In this new age of platforms, Han, says services are benefitting most: 'Service platforms are probably benefitting a lot more than traditional manufacturing platforms, meanwhile they are facing a lot more challenges than traditional platforms. Facebook now has the challenge of how to create value for their customers to make Facebook relevant in the future. They are technology driven, and they don’t always think about the business model, but some have made good progress in generating revenue, for instance YouTube which has a successful advertising revenue model.'
In terms of the million dollar question of what determines a platforms success Han says: 'There are three factors which can help transform your platform in the future. Platforms need to solve a real life problem; you need to balance the relationship between you and your party; and you need to govern your eco-system to make the platform sustainable.'
He acknowledges that platforms originate in different ways: 'Some platforms come out of creative minds, two or three people sitting in a garage, like Google, or they may tap into the collective needs of the parties in eco-systems and align their needs, such as Alibaba in China.'
Han believes the question of what determines adoption needs further study: 'Adoption will be the research focus of my next paper, it is the key to the success of the platforms for both the customers and the providers.'
He says questions need to be asked about success: 'Platform leaders need to constantly ask themselves what is the value proposition, what do customers and what do your content or suppliers want, and it can be a very difficult question.
'There are obviously problems with adoption but very few people have looked at the wider factors with adoption, they have focused on the economic factors, but there are also problems of the social implications of why a platform is significant. We need a lot more in depth research to answer these questions.'
On the issue of failure Han speaks frankly: 'Platforms fail because they fail to solve a real life problem and they fail to generate the network externality for a platform to succeed.'