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The Platform Economy

The platform model is disrupting traditional economic theories based on organizations,
firms, and markets. The Internet, algorithms, online ratings, and artificial intelligence provide instant access to all kinds of information with minimal effort, offering new opportunities for firms to bind users to their platform, set up partnerships, and engage in constant innovation across multiple sectors of the economy. The success of platforms across diverse industries shows the enormous disruptive power of this new way of operating a business.

EXECUTIVE SUMMARY

A significant development in the global economy over the last two decades has been the emergence of businesses that organize and define themselves as “platforms.” A platform is any organization that uses digital and other emerging technologies to create value by facilitating connections between two or more groups of users. Some platforms facilitate connections between the buyer and seller of goods (Amazon) or between those wanting a service and those willing to provide it (Uber). Others simply facilitate connections (information exchange) between friends (Facebook). While platforms have grown to become some of the largest companies in the world, they have struggled to maintain their initial promise and have raised concerns about privacy and anticompetitive business practices. Brands that were once disruptive have lost much of their shine. The result is that many people are now deeply ambivalent about platforms. Nonetheless, the potential of digital technology presents an opportunity for companies to consider platforms as part of a hybrid business model. This report provides an overview of the platform economy, introduces the concept of a “sustainable platform,” and provides insights on managing platforms in the long term.

Insights for What's Ahead

Platforms can be a source of competitive advantage, and companies may want to consider them as part of a hybrid business model. In 2019, seven of the 10 most valuable companies globally were based on a platform business model.(1) As platforms continue to grow and become a major force across industries, many incumbent organizations (e.g., Siemens, Vorwerk, etc.) have responded by reexamining a part of their business models to integrate platform strategies and investing in capabilities for platforms. Engaging with platforms can be a prerequisite in the time to come. Companies can start by reiterating parts of their business model to transition from products/services to platforms.

There is more to a successful platform than simply leveraging networked digital technologies. A successful platform must acquire and retain users, underscoring the importance of creating an open, inclusive, and responsible community. Platforms also need to create a strong culture and a flat organizational structure to enable growth. Lastly, platforms operate in a hypercompetitive market characterized by exponential technological growth—highlighting the need to innovate continually and pursue multipartner collaboration.

Regulatory activity related to platforms is expected to increase. The legal framework to govern platforms is evolving. While many jurisdictions currently have no legal frameworks to monitor or regulate platforms, more regulations are expected in this area. Most notably, the forthcoming EU Digital Services Act seeks to create a framework for the supervision of platforms to ensure effective enforcement. In the United States, Google faces a set of lawsuits brought by federal and state antitrust regulators. Companies should keep abreast of emerging regulatory trends and self-regulate to proactively meet stakeholder expectations before the law requires it.

The “best” approach to manage a platform depends on the individualized circumstances of a particular business model and its goals. Every firm, considering any form of platform, must analyze its own needs and aim to find the unique recipe to maximize opportunities for sustained growth while upholding its responsibilities to the society and environment. 


AUTHORS

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Anuj Saush

Senior Researcher, Governance & Sustainability; Council Director, Environment Strategy Council
The Conference Board

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Mark Fenwick

Professor of International Business Law
Kyushu University, Japan

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Erik Vermeulen

Senior Legal Counsel
Signify

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