Platform, content creator – wherever you want to sit on the value chain, don’t copy other strategies. It won’t work. Your best bet is to pick the one that keeps customers coming back.
How many times during the last ten years have you heard statements like this: “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.”
We all have heard this many times; it was a way for some people to prove they know about the “new economy”.
But maybe the reality is not so simple. These examples – which are practically cliches now – sound as if Uber, Facebook and Airbnb are following the same basic disruptive strategy that requires no assets apart from the platform. But the truth is that their respective strategies are quite different. Moreover, there are other digital-based disruptors who do create products or services to compete with traditional players as well as each other.
Put simply, there is no single winning strategy. Companies can choose to offer a simple marketplace platform, or they can expand up or down the value chain. Whatever they do, they must not make the mistake of thinking that someone else’s strategy will deliver the same results for their business.
Being more than a platform
An easy example is video streaming companies. I wrote earlier about how all of the leading streaming services (Netflix, Amazon Prime Video, Disney+, and Apple TV) invest heavily in their own content and that their winning strategies are constantly changing. It hasn’t been enough to only be a marketplace and delivery platform for movies and TV series; the platforms need to make their own content as well.
Nowadays, some food delivery firms don’t just deliver food from restaurants – they also build or cooperate with ghost kitchens (also known as cloud kitchens). Airbnb may not own any real estate, but there are similar services out there that buy or rent their own houses and apartments. Gopuff, a consumer goods and food delivery company, has its own inventories and delivery centers. Gopuff can control its business better than the delivery services that collect items from other stores; they know availability, delivery time, and price.
Meanwhile, ‘new economy’ marketplace strategies haven’t fully replaced the existing ones. For example, people still feel hotels are often an easier option than Airbnb (especially if you have a busy trip) and offer a more consistent customer experience, while a check-in with an Airbnb host can always include surprises. Online real estate sites haven’t replaced real estate agents; they are mainly just listing sites, while agents take care of deals.
There’s more than one winning platform strategy
This doesn’t mean that the thin horizontal marketplace business cannot work. There are successful companies like that. The point is that there are very different examples of winning strategies where a company builds its own supply chain, inventory, offerings and manages all matters in-house.
Such a strategy also needs updates over time Typically, you need to get one model to work until it makes sense to expand to more models.
For example, Amazon can now do much more than in the early days when it was selling books only. Uber used to contract limos before moving to its current model. And while Facebook may not create content, it spends a lot of time monitoring and filtering content – even more so nowadays because disinformation and toxic, harmful content has become big problems that many governments want Facebook to fix.
It’s interesting that many of these companies didn’t stick with being a platform or a marketplace, though perhaps they could have. Yet they still decided it was worth extending their reach further along the value chain.
Why move along the value chain?
There are several reasons why it can makes sense to own and manage a larger part of the value chain:
- Go-to-market. It is hard to go to the market when you need to get demand and supply from scratch. For example, if you need to get sellers and buyers onto your platform at the same time, you easily find yourself in a Catch-22 situation. I wrote earlier about the challenges of the platform economy and how, for example, game console companies need to guarantee a few excellent games are available for their market launch – they can’t just wait until someone starts to make them.
- Customer experience. If products, services, or content are coming from third parties, you only have so much quality control – and you’ll be blamed if there’s a problem. If you have a bad experience with an Uber driver or Airbnb host, it impacts your opinion of Uber and Airbnb. It’s also important to know exactly what to promise to customers (price, delivery, quality, and processes to handle problems).
- Cost, product range and supply chain control. When you control your own offering, you can optimize the product range and price categories you want to offer. Often, you can get better prices if you can buy higher volumes at once.
- Availability of a full solution. When people need something, it often requires a combination of several things to solve their needs fully. If you only offer a partial solution, it can be hard for customers to find the other needed components. That doesn’t mean you have to do and make everything. But you need to offer the full product or service and manage whatever additional components are needed.
- Regulation. Many countries have now rules that people who offer services through a platform (e.g. Uber) must be treated as employees.
Understand your position
All of this is a reminder that each company must really determine its own strategic positioning and understand its own competitive advantage. This may sound obvious, but we still hear people repeating cliches in business about huge global giants and digital disruptors as though simply copying their strategy is the key to success. This is quite stupid and dangerous. It’s up to you and you alone to know and decide which business you are in.
If you want to just be a marketplace, that’s perfectly fine, as long as you understand and accept the facts of that business. You need really huge volumes when your own margins are small. At the same time, you must get supply and demand right – i.e. your service must be really attractive to buyers and sellers alike. If you do more than just provide a listing (e.g. if you also handle purchase transactions), you need good processes to handle problems between sellers and buyers. And you must accept that product quality and customer experience is not under your control, but you still must get customers to trust you.
If you want to take a larger role in the value chain, that’s also fine – again, as long as you understand the requirements and realities of doing so. In this case, it will likely require more front-end investment, more inventory, and more in-house resources. However, the potential benefits are substantial. It can give you more control over your business, a clearer go-to-market route and the ability to guarantee the customer experience. It also comes with the potential for higher margins.
Bottom line: keep customers happy
There is no right or wrong answer, of course. Whichever business you want to do, the main objective is to acquire and keep happy customers that are willing to pay for your products and services – so plan your business model and offering accordingly.
All those fancy ideas about innovative and sexy disruptive business models don’t really matter if customers leave and don’t come back.