Digital platforms have gained foothold in multiple industries during the past decade. In B2C context, digital platforms have been able to revolutionize and change the competitive dynamics in multiple industries forcing the traditional companies to re-think their value creation, delivery and capture processes. In platform business, the value is created together with partners and customers, partially outside the focal company (Van Alstyne & Parker 2017). B2C digital platforms are for example Airbnb, Uber and Apple. Airbnb operates world’s largest (Parker et al. 2016) accommodation company but doesn’t own a single hotel. Likewise, Uber operates world’s largest (Parker et al. 2016) taxi company without owning any cars and Apple creates opportunities for numerous companies to offer their products and services on Apple iOs ecosystem, thus making it more valuable to purchase. Porter and Heppelmann (2015) argue, that smart data-producing products are important for companies pursuing in digital platform business. Nevertheless, the swift into smart products and digital platforms will create organizational challenges.
In this research, I will concentrate on digital platform businesses in B2B context. One example of a digital B2B platform is elevator and escalator manufacturer KONE’s new DX Class elevators. The elevator is the physical platform and its software is the digital part of it. The digital platform connects Kone’s solutions, customers’ own applications and most of all, third party services by secured APIs. (KONE 2020.) This example of KONE’s digital platform is an innovation platform, of which characteristics will be examined in the next following sections.
2.1.1 Digital platform business in B2B context
Digital platforms are scarce in B2B context, where the platform itself facilitates the economic, social or other value exchange between two or more groups. B2B digital platforms are not as visible as B2C platforms, but there are few of them. 67 % German companies in industry or industry-related services were using digital platforms by the end of 2018 and among reasons to use such platform was product and service creation with third parties (BDI 2020). This indicates that companies are not solely using platforms in their operations but trying to create and deliver value with external partners. B2B companies traditionally work with platforms using them in their internal operations but it is not common yet to create and own digital platforms, which will facilitate exchange within their respective industry. Digital platforms propose both threats and opportunities for traditional companies. Van Alstyne and Parker (2017) argue that traditional companies who are unable to create new platforms or integrate their business into other ones will face obstacles in the future.
There are various definitions and characteristics for digital platforms depending on what type of a platform is in question. Teece (2017a) and Cusumano et al. (2019) divide platforms into three groups, which are transaction, innovation and hybrid platforms. On one hand, transaction platform facilitates exchanges and transactions between two or more parties and focuses on network effects. On the other hand, innovation platform offers possibilities to other companies, called complementors, to offer complementary products and services to the platform user, which will increase the value of the entire system. Hybrid platforms are a mixture of these two applying both ways to operate. (Teece 2017a; Cusumano et al. 2019.) The value creation process is different depending on the platform type. Transaction platform’s value creation derives from the platform enabling various parties to make transactions with each other whereas innovation platform’s value emerges as a result of platform enabling other parties to join it by offering complementary products and services. In the latter case, the value increases as other parties join, and it is not based on single transactions. (Teece 2017a; Cusumano et al. 2019). A common example of a transaction platform is Ebay, which facilitates exchange between buyers and sellers of various products. Apple iOs ecosystem is an explanatory case of innovative platform. It offers other companies the possibility to offer their products and services, usually applications, to the iOs users.
2.1.2 Digital platform construct
The exact construct of a platform will vary depending on the platform itself, how value is being created, delivered and captured and who are the actors within it. Platform owner is the focal company who owns, operates and governances the platform. Complements offered by complementors in the platform are in crucial part of the dynamics. Demand for the platform grows higher as the complements become more valuable, thus positive network effects arise (Gawer 2010). This is typical for innovation platforms, where the platform provides an opportunity for other companies to offer their products and services to the platform users.
Platform participants refer to all of the parties taking part in platform (Parker et al. 2016). For example, in transaction platform consumers and producers are the participants in addition to platform owner. One of the central elements of a digital platform is a value unit. Value unit refers to the value exchanged in the platform. Value unit is produced by the one offering the value, be it a producer or a complementor. (Parker et al. 2016)
Network effects is a commonly used term with platforms, which explains part of the success of them. The more users the platform has the more value is created to its users (Parker et al. 2016;
Cusumano et al. 2019) and network effect is created. Users can refer both to complementors to the platform and people using the service or a product. Network effects can also be negative, thus small number of users will result in less value to be created (Parker et al. 2016). Network effects can be seen as a modern counterpart to economies of scale (Parker et al. 2016), which a company aims to achieve to gain competitive advantage. Platform can obtain one- or two-sided network effects and it is a commonly used growth tool to help the platform succeed (Parker et al. 2016).
Platforms have numerous of details to be considered in the development phase. Chicken-or-egg problem is one of the obstacles that needs an answer (Parker et al. 2016; Cusumano et al. 2019).
As the focal company, platform owner, needs other parties to take part in the platform, it needs to make a decision on which side of the platform it will focus first (Cusumano et al. 2019). A careful analysis is important in order to know how the platform will attract other parties to join.
Cusumano et al. state that the reason that new platforms often fail is because they focus on the wrong side of the platform initially. On the other hand, platforms offer also advantages that could be hard to achieve otherwise. For example, traditional supply economies of scale are being replaced with demand economies of scale enabled by digital platforms. Rather than
offering cost advantage in the supply side, demand economies of scale is based on social networks, increasing demand and complementing apps in the demand side, which result in network becoming more valuable and allowing competitive advantage to be achieved. (Parker et al. 2016, 19.)
Figure 1. An example of a digital platform business
Previous literature of digital platform business is focused mostly on the platform mechanism and different types of platforms. Moreover, it is focused largely on platforms in B2C context and does not focus on the process of integration but rather the current state and how the platform works. One reason could be that digital platform businesses in B2C context have been established without any traditional business existing in the background. The business has been started from the scratch with a goal to revolutionize an industry with a new platform. Thus, B2B context and process of traditional companies’ process of integration is still left unstudied.