platform economy

What is platform economy?

Platform economy is the tendency for commerce to increasingly move toward and favor digital platform business models. Platforms are underlying computer systems that can host services that allow consumers, entrepreneurs, businesses and the general public to connect, share resources or sell products. This term is used by business analysts to describe the competitive nature of digital innovation.

The three types of platforms

There are three major types of platforms within the platform economy. They include the following:

• Transaction platform. Also known as digital matchmakers, these are platforms that serve as a type of virtual marketplace or meeting place for various groups of people. Examples of transaction platform companies include Amazon, Etsy and Facebook.
• Innovation platform. These provide technology frameworks to customers that can be adapted to individual use. Examples of innovation platform companies include Microsoft, Oracle and Salesforce.
• Integration platform. This is a combination of the transaction and innovation platform, similar to online application marketplaces like the Apple App Store or Google Play.

In many instances, the rise of the platform economy has replaced older business models. For example, video rentals were transactions largely conducted in physical stores until they were replaced with video streaming services like Netflix and Hulu. Similarly, the vacation rental and taxi businesses have been disrupted by user-friendly apps developed by companies like Airbnb, Uber and Lyft.

In addition to its impact on shopping, consumer activities and sales models, the platform economy also impacts the workforce, the types of jobs that are available and the nature of those jobs. Many roles have become digitized or been replaced entirely by technology.

Similar economic models

The platform economy may cause disruption to the traditional business model found in retail, but it also builds on concepts already known within the economic ecosystem. These concepts include the following:

• Sharing economy. A sharing economy is the idea that consumers would prefer to rent or borrow goods rather than buy or own them. The platform economy facilitates this as a company can develop a digital platform that users can log onto to gain access to goods through a subscription. An example of this is Spotify, where users are not purchasing individual albums or downloading songs, but simply listening to them.
• On-demand economy. Similar to the sharing economy, the on-demand economy is the tendency for consumers to want everything available to them immediately. Platforms enable this as they can be accessed any time a user wants.
• Digital economy. This encompasses the economic activity that is influenced by any form of technology or relies on computers. The platform economy can be seen as a subset of the digital economy.
• Gig economy. While the gig economy refers to employment focused on short-term, contract-based work, the platform economy also effects this by providing technology that allows workers to be remote.