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Business model aspects of digital platform deployment

Here the term “business models” is used in a wide sense, complementing the technological and organisation aspects of digital platforms.

One proven tool for analysing and shaping business model is the “Business Model Canvas”. When trying to apply this tool to platforms, it appears that some elements apply to platform-based business models (e.g. the “value proposition”) and that tools as the ”canvas” can provide a first inspiration.

However, for digital platforms the traditional business models view in the narrow sense falls short of describing the business and relationship aspects of platforms. In particular, the strict “partner” and “customer”- view has to be replaced by an ecosystem-perspective.  In addition, this ecosystem can be highly dynamic, which means that platforms can move into new user groups, change their features and might have the typical effects. Another difference is the central role of data for platforms, meaning that data governance is one of the essential elements of the value proposition of platforms.

 


By definition, by bringing together actors from different sides, platforms are defined by their stakeholders. There are core stakeholders (target customers, core suppliers, value chain partners), but it should not be forgotten that there are also actors with an indirect or external interest in the activities in the platform (competitors, existing customers not addressed through the platform). A platform also defines the relationship with and the channels with the different user groups.

  • Target clients

    Which are the target groups? Which new markets and users will be connected?

  • Interaction with other (commercial) digital platforms

    Interactions with other (commercial) digital platforms indicate how developed solutions are interoperable with legacy systems or how future interaction with other solutions is anticipated.
     

  • Other eco-system aspects

    Other eco-system aspects can be:

    • What are the value chain implications?
    • Is the network open or closed? Is there an intention to expand?
    • Is it a vertical, sectorial platform or a cross-cutting, horizontal platform?
    • How are the relationships defined?

In order to be sustainable, the value proposition must be mirrored by a revenue stream, which is orchestrated by the platform. This value streams can be direct (pay-per-use, subscription, sales etc.), but could also be indirect (increasing price of products, increasing market share).

  • Pay per use - Pay per duration of use

    Pay-per-use or pay-per-duration-of-use implies that users are charged pro-rata of how much they used the service (in terms of consumed resources, computing power,... or in terms of the duration of the use of the service)

  • Pay per saved unit of X - pay per added value

    Pay-per-saved-unit-of-X or pay-per-added-value implies that the user pays pro-rate the added value that the service is generating

At the core of  all potential industrial use case scenarios of platforms are data. When formerly isolated data are shared, suddenly a new set of factors arises, both in terms of new external factors, but also in terms of business/microeconomic implications. Therefore, at the core of every digital platform must be a legally, organizationally and commercially viable concept for data sharing/trading/exchange.
When shaping this model, the following questions must be answered:

  • What is the legal arrangement for data “ownership”?  Can users classify their data, is staggered approach possible (closed, traded or open data)? What are legal means that the platform uses to ensure the confidentiality of data ? (Trade Secrets, data base directive)
  • Transparency: Can users monitor/control the sharing of data with third parties? Are there “expiration dates” for data use?
  • Is the legal setting a fixed standards (“general conditions”) or is it a flexible, individual  approach? Are model contracts available?
  • Are there sectorial regulatory requirements concerning data?
  • How far is portability and change of platform possible?
  • Who is responsible in the case of  breaches of confidentiality?
  • How is fairness/ a level playing field between the platform and smaller players ensured ?

Digital platforms will be successful if they provide a clear value proposition to the user groups  involved. In general, digital platforms offer added-value basd upon three main mechanisms:

  • Reduction of transaction costs
  • Network effects
  • Use of data integration for new services (mainly optimisation) and business models

Based upon these mechanisms, added-value can be created in a variety of perspectives, such as the process perspective (what process or activity is optimised?) or the KPI perspective (what KPI is the focus of the optimisation).  This added value enables the financing of the digital processes through e.g.increased price margins, market shares or reduced costs.

  • Business requirements
  • Proprietary software

    Proprietary software is non-free computer software for which the software's publisher or another person retains intellectual property rights—usually copyright of the source code, but sometimes patent rights. (from https://en.wikipedia.org/wiki/Proprietary_software)

  • Open source

    Open-source software (OSS) is a type of computer software whose source code is released under a license in which the copyright holder grants users the rights to study, change, and distribute the software to anyone and for any purpose. Open-source software may be developed in a collaborative public manner. According to scientists who studied it, open-source software is a prominent example of open collaboration. (from https://en.wikipedia.org/wiki/Open-source_software)

In the same way that software can be developed and commercialized using different business models according to the software ownership, digital platforms could be developed and commercialized using different business models according to the infrastructure ownership. Different infrastructure ownerships can be identified in this chapter and also their business models (like renting, pay per use…)