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What Is The Platform Economy? Definition, Top Companies & More

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In this digital age, platforms such as Amazing, Netflix, and Facebook have grown in importance.

Commerce and networking thrive with these platforms creating what’s known as the platform economy. The platform economy covers a wide spectrum, but other economies exist.

People talk about different economies, such as gig, sharing, and on-demand economies, but what do they mean?

To learn about these economies, you have to understand how businesses utilize their platforms and why these platforms see success on the internet.

What Is the Platform Economy?

The platform economy also goes by other names, such as the creative, sharing, gig, and peer economy. Regardless of what you call it, it’s referring to the same thing as a digital-based economy that utilizes online platforms.

graphic showing a thumb pressing the airbnb app on a screen of a smartphone - platform economy header

Online platforms provide a place for businesses, freelancers, and consumers to find work, network, learn, and much more. These online platforms make up the platform economy and the platform business model.

A platform business model allows multiple parties to exchange products and services. The value of a platform business model comes from providing producers and consumers with a reliable way to exchange goods and services online.

What Is an Example of a Platform Business?

The best example of a platform business is Amazon and Facebook. Both act as a marketplace for users to sell their goods, skills, and network.

These platforms don’t create products for consumers to buy necessarily, but they make a platform for commerce.

Why Is the Platform Economy Important?

The platform economy is important because of how many opportunities it opens up for people.

Platforms like Amazon, eBay, and Facebook Marketplace share one thing in common, affordability. Most platforms are accessible to the public to create and sell without start-up costs.

How Big is the Platform Economy?

The platform economy isn’t as big as many might think in terms of quantity, but the platform economy is massive in terms of quality.

Six of the top ten most valuable companies are platform businesses. These businesses include Amazon, Facebook, Alibaba, and other well-known platform-based businesses.

While the top ten consist mainly of successful platform businesses, it’s shown that most platform businesses fail, so the pool of platform businesses is relatively small.

What Are The Types of Platforms?

Within the platform economy, there exist three major categories of platforms.

  • Transactional platforms: Transactional platforms consist of Amazon, Alibaba, Etsy, eBay, and Facebook Marketplaces. Most of these platforms provide transaction-based methods to sell products on a peer-to-peer basis. Transactional platforms are accessible to the public to both produce and purchase.
  • Innovation platforms: Also known as technical solutions, innovation platforms focus on providing their users with tools to enhance their business or services in some way. Low-code solutions such as website builders and SaaS are examples of innovative platforms.
  • Integration platforms: Integration platforms act as the in-between of transitional and innovation platforms. The best example is your application store on your phone, whether your iPhone’s App Store or Google Play.

What Are Platform Economy Strategies?

Navigating the platform economy is tricky and complex, but a good strategy can help. The best strategies within the platform economy involve assessing and mitigating risks. While doing so, you’re trying to find opportunities to capitalize on trends before it’s too late.

If you’re operating on a transactional platform, you’ll want to create value for your consumer. Creating value depends on your products and services, but you want to solve a problem for your consumer via your products.

If you’re trying to create a SaaS as an innovative platform strategy, you’ll want to provide a niche solution via cloud-based computing software and charge for premium. For example, a good niche would be creating an effective CRM tool for wedding photographers.

For integration platforms, you’ll want to look into good monetization strategies for your applications. Companies use an in-app purchase or subscription model for adding benefits and features to their software, similar to SaaS.

Concepts Related to Platform Economies

It’s important to note that while the platform economy goes by many names and meanings, there are slight differences in each titration of its name.

For example, the reason for a gig economy is that it focuses on the contractor and freelancer side of the platform usage.

Digital Economy

When discussing a digital economy, you look at the internet’s grand scope and purpose. A digital economy considers all activities involving the computer and digital space.

In a business sense, a digital economy focuses on the profitable activities of hardware and the internet space.

Key Differences Between the Digital Economy and Platform Economy

The digital economy functions on a macro level, while the platform economy operates as a section of the overall digital economy. The difference between the two is how much ground they cover since that platform economy strictly involves platform businesses.

Gig Economy

Gig-specific companies focus on the employment side of the digital space.

When referring to gigs, people mean employment opportunities and contract-based work. These jobs aren’t long-term positions, but depending on the relationship, they may become ongoing for some workers.

Key Difference Between the Gig Economy and Platform Economy

The biggest difference between the platform economy and the gig definition is that the gig economy focuses on the contractor usage of platforms. The platform economy covers all usage regarding transactions, but people who refer to the gig economy only focus on the worker side.

On-Demand Economy

The on-demand economy is currently one of the most profitable sectors of the platform economy.

The main idea of the on-demand economy satisfies the wants of consumers who desire access to everything at once. Streaming services like Netflix are a popular example.

Key Differences Between the On-Demand Economy and Platform Economy

The on-demand economy focuses on streaming services such as Spotify, Apple Music, Disney Plus, and Netflix. These services charge users an annual or monthly fee to access their entire library of movies and music. Additionally, some knowledge databases follow the same model.

Sharing Economy

The sharing economy has become extremely popular with the increased use of cloud-based SaaS, Software as a service. The sharing economy focuses on consumers essentially sharing goods instead of owning them. Instead, consumers will essentially rent software or goods.

Key Differences Between the Sharing Economy and Platform Economy

The difference between the two is the focus on subscription-based products and services. The sharing economy falls under the innovative platforms that generate a profit by providing a software solution to an existing problem.

Frequently Asked Questions

Here are answers to some lingering questions about the platform economy.

Is Facebook a Platform Economy?

Facebook is a platform within the platform economy. Facebook operates with networking and commerce in mind.

Businesses can advertise on Facebook, and people can sell products on Facebook Marketplace. Additionally, you can network with businesses via their Facebook page.

Is Amazon a Platform Economy?

Amazon is a transactional platform within the platform economy.

Unlike Facebook, Amazon focuses strictly on commerce and on-demand streaming services. You can sell your products and services on Amazon reliably with extra benefits.

Wrapping Up

It can be overwhelming with many concepts and economy categories, but remember that the platform economy is a collection of platforms businesses. Consumers can use it for peer-to-peer transactions, networking, and various on-demand services.

If you’re still wondering if you should try to use the platform economy for your business or services, try it out. Most platforms are accessible to try out, and you may find amazing business opportunities by trying one or two out.

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