Key Platform Trends: The Three Cs
Cost | Consortium | Circular
Introduction
Today it was an honor to share some observations on the trends shaping the future of platforms. The event, “Platforms Renaissance: How S&P 500 companies are fostering innovation through Platform Thinking,” was organized by Osservatori Digital Innovation and TheNTWK | Digital Business Models and brought together leading platform practitioners and scholars.1
In my remarks, I highlighted three key trends that are influencing the platform economy now and into 2024:
#1: Cost Consciousness
#2: Consortium-backed Platforms
#3 Circular Platforms
This is not a comprehensive list. The platform economy now facilitates trillions of dollars of transactions annually. As a result, it gives rise to a multifaceted landscape, with significant change taking place at many levels including industry, region and global. Still, these three trends are significant and therefore important to explore in more detail.
Trend #1 Cost Consciousness
After years of abundant capital and strong growth, many leading digital marketplaces have recently announced cost reduction actions to improve efficiency and profitability. eBay has reduced marketing spend, cutting jobs, and limiting hiring for 2023. Similar actions have been announced by other leading platforms including Uber, Etsy, DoorDash and many others. While still investing in strategic growth, these digital platforms are tightening budgets, enhancing productivity, and controlling costs after stretches of loose spending and expansion. Their actions showcase how marketplaces are strategically optimizing their business models.
The most recent economic outlook by the International Monetary Fund (IMF) indicates that despite signs of economic resilience earlier in the year and progress in reducing headline inflation, global economic activity is still falling short of pre-pandemic projections, especially in emerging market and developing economies.2 The strongest recovery among major economies has been observed in the United States, where GDP in 2023 is estimated to exceed its pre-pandemic path. In contrast, the euro area has recovered less strongly, with output still 2.2 percent below pre-pandemic projections.
Source: IMF, World Economic Outlook, October 2023
Looking to 2024 we can expect cost consciousness to prevail among platform operators. After a decade of growth and easy capital access, we can expect platform leadership teams to be focused on some or all of the following actions:
Streamline operations and staffing - Assess process efficiency, consolidate roles, reduce contractors.
Optimize cloud usage - Right-size instances, renegotiate contracts, automate scaling.
Cut software costs - Assess needed tools, negotiate vendor deals, limit new investments.
Reduce marketing spend - Analyze highest ROI channels, pull back broad campaigns.
Leverage automation - Use bots for customer service, AI for operations.
Monetize data assets - Develop insights products from accumulated marketplace data.
Enhance supplier terms - Renegotiate supplier fees/commissions, adjust onboarding.
Rationalize subsidies - Evaluate and reduce customer and supplier incentives.
Consolidate vendors - Combine payments, logistics, other providers.
Streamline categories - Focus resources on highest-value segments.
Pursue strategic partnerships - Share costs of development, operations.
While cost consciousness will be top of mind, digital marketplaces have key advantages over the average company. Their inherent adaptability and agility allow them to swiftly respond to changing market dynamics and consumer preferences. Operating online, marketplaces offer remote accessibility, serving to uses with fewer constraints of physical infrastructure, resulting in lower overhead costs.
In addition, the diverse product and service offerings hosted by digital marketplaces position them to capture a broad market, meeting varied consumer needs. Their tech-driven innovation, leveraging advancements in e-commerce technologies, data analytics, and artificial intelligence, enhances user experiences and operational efficiency. These marketplaces also foster ecosystem synergies, bringing together multiple parties like buyers, sellers, and third-party service providers.
So, while the broader economic outlook may be challenging, platform are likely to continue to be resilient players.
Trend #2 Consortium-backed Platforms
A second noteworthy trend, especially among industrial companies, concerns the rise of platform consortium. Launching a platform within an industrial consortium provides distinct advantages over individual company-led initiatives. These benefits arise from the collaborative nature of consortium-backed platforms, offering a more impactful approach to development.
Key advantages include shared resources and expertise, with cost sharing and diverse industry perspectives, enabling a more sustainable financial model. The consortium accelerates critical mass and network effects by leveraging established networks and involving multiple companies, enhancing the platform's value. Built-in alignment on standards reduces friction, and pre-competitive collaboration addresses common industry challenges, fostering innovation.
There are other advantages as well. Member-driven governance builds trust, ensuring alignment with collective industry interests, and broad industry representation increases adoption across sectors. Cross-organizational collaboration stimulates innovative solutions, while collaborative shaping of regulatory frameworks supports the platform's goals. As illustrated by Marin Jovanovic and others, industrial digital architecture, platform governance and platform services as the foundation of industrial digital platforms.3
Source: Marin Jovanovic, David Sjödin, Vinit Parida, Co-evolution of platform architecture, platform services, and platform governance: Expanding the platform value of industrial digital platforms, Technovation, Volume 118, 2022.
Recent examples of platforms established through a consortium-led approach can be found in major sectors including automotive, aerospace and oil & gas.
Automotive
In the automotive industry, major German automakers like BMW, Mercedes-Benz, Volkswagen and suppliers such as Bosch launched an industry consortium called Catena-X in April 2021. The goal of Catena-X is to develop an open data ecosystem that enables the secure sharing of connected vehicle data across company boundaries. Through standards and architecture for linking up data platforms amongst its over 40 members, Catena-X aims to provide access to real-time vehicle and infrastructure data. This will allow use cases such as early defect detection, predictive maintenance, optimized traffic flow, and new business models.
Aerospace
The Independent Data Consortium for Aviation (IDCA) is a global consortium of aviation companies across the industry value chain. IDCA is working to develop standards and architecture that enable secure and efficient data exchange in a pre-competitive manner. This will help create a more streamlined aviation marketplace and accelerate solutions for challenges like parts tracking, aircraft servicing, technical diagnoses, and preserving safety data. IDCA plans to publish issue papers on these use cases as they progress. The consortium highlights proactive collaboration in aviation to address common issues through better data sharing.
Oil & Gas
In oil and gas, the consortium FieldNode was formed by major companies like TotalEnergies, ConocoPhillips, ExxonMobil, BP, and Woodside Energy to create a common platform for collaborating on 3D printing innovation. FieldNode enables members to share 3D printing design files, material data, and knowledge to optimize and standardize parts. By pooling data on 3D printed components, members aim to accelerate adoption of additive manufacturing and reduce costs industry-wide. Participants can also use FieldNode to order parts from IP holders, obtain quotes and commitments from vendors, and access engineering support to design custom parts. In addition, vendors can receive manufacturing requests and collaborate on meeting exact specifications. Through this pre-competitive platform focused on 3D printing technology, FieldNode demonstrates oil and gas players coming together to drive progress.
These consortiums are actively shaping open data ecosystems, streamlining marketplaces, and driving innovation in areas like connected vehicle data, aviation data exchange, and 3D printing technology. As consortium-backed platforms continue to gain prominence, they have the potential to play an influential role in shaping the future across various industrial domains.
Trend #3: Circular Platforms
Over the past decade, there has been a notable shift in awareness and understanding of the environmental and economic challenges posed by linear, resource-intensive models. A linear economy is characterized by the "take, make, dispose" approach, where resources are extracted, used to create products, and often discarded after a single use. In contrast, a circular economy aims to minimize waste and make the most of resources by designing products with longer lifespans, promoting reuse and recycling, and reducing the overall environmental impact.
A key question is how the world achieves a more circular economy? One strategy that is gaining attention is to harness the advantages of platforms. Circular platforms can play a crucial role in connecting buyers and sellers of underutilized assets, facilitating resale, streamlining reverse logistics, providing valuable data insights, and fostering communities dedicated to circular principles. By creating robust digital infrastructure, these platforms advance circular activities such as reuse, repair, refurbishment, and recycling. The network effects, enabling platforms to scale and achieve widespread adoption in various industries.
There are several types of circular platforms, namely horizontal, vertical, or niche:
Horizontal platforms operate across multiple sectors, serving as hubs for peer-to-peer circular shopping. Prominent examples include Idle Fish, a circular platform established by Alibaba in 2014, Facebook Marketplace, and eBay Refurbish. These platforms enable users to engage in circular transactions across diverse categories, fostering a broad and inclusive circular economy.
Vertical platforms, on the other hand, create dedicated channels for underutilized materials or used products within specific industries. This focused approach brings economic and sustainability benefits to suppliers, businesses, and consumers in those verticals. Illustrative examples include Geartrade, an online platform for buying and selling used outdoor gear, and Back Market, specializing in the buying and selling of refurbished electronic devices. These platforms cater to specific industry needs, contributing to the growth of circular practices within those sectors.
Niche platforms concentrate on a subset of a sector or specific products, addressing specific market demands. Swappie, a Finnish company founded in 2016, specializes in refurbishing and reselling used iPhones, providing consumers with a sustainable alternative. Another example is Buycycle, a digital platform established in Germany in 2021, focusing solely on the buying and selling of bicycles. These platforms target niche markets, offering specialized services and contributing to the circular economy landscape.
Source: Peter C. Evans, “How to scale the circular economy,” Circular, September 25, 2023.
The growing prominence of circular platforms signifies a significant advancement in circular activities across value chains. These platforms leverage digital marketplace infrastructure and services, enhancing efficiency and sustainability. McFadyen Digital estimates that today’s circular economy has a global value of nearly $410 billion, with platforms accounting for approximately 25% of this total. By 2030, the circular economy is expected to be worth $1.5 trillion — and circular platforms making up 58% of that, or $863 billion.4
As the circular economy continues to evolve, will play a growing role in scaling circular practices globally. By fostering connectivity, encouraging responsible consumer behavior, and streamlining circular transactions, these platforms contribute to the broader vision of a more sustainable and circular global economy.
Conclusion
In summary, three significant trends are shaping the platform landscape. The first trend emphasizes cost consciousness, aligning with the economic outlook and the imperative for platforms to optimize their operations. The second trend points to the growth of consortium-backed platforms, especially among industrial companies. The third trend identifies the rise of circular platforms, driven by a global shift towards sustainable and circular economic models. Circular platforms, whether horizontal, vertical, or niche, will play a growing role in connecting buyers and sellers, facilitating resale, and advancing circular activities.
Whether optimizing costs, fostering collaboration, or driving circular practices, digital marketplaces are positioned not only to weather economic uncertainties but also to lead the way towards a more sustainable and circular global economy.
Endnotes
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