Strategies for growth

The platform economy - an immense opportunity for SMEs

Digital platforms offer a model for infinite innovation, providing a new kind of faster, more convenient intermediary that has far greater reach. And the opportunities for SMEs are immense…

By Rebecca Hobson

Not so long ago, the process of ordering takeaway food involved calling the establishment to place the order, waiting for the callback to confirm it was ready for collection, then dispatching someone to pick it up and pay for it. In today’s world of Deliveroo and Hungry House, that scenario seems archaic. A few swipes on a smartphone and delivery of food from any number of vetted local restaurants – independent, chain or gourmet – is swiftly organised. In less than a decade, online platforms have transformed the way we dine.

Key to the success of these food delivery firms is their restaurant portfolio – or more accurately, lack of one. Like their famous cousins Uber, Amazon and Airbnb, these platform businesses don’t own the products or services but instead provide a platform through which customers can access them faster, easier and, sometimes, cheaper than elsewhere.

Platforms like these cater to the spontaneity, speed and ease expected by tech-savvy, busy millennials – for whom brand loyalty has little value and choice is everything. At the same time, market leaders like Skyscanner and Comparethemarket.com are so intuitively simple and easy to use that their mass appeal extends to older, less digitally fluent consumers.

Weaving a ubiquitous web

Unlike other major trends in global technology, the idea of a platform economy is relatively easy to grasp, says Dominic Preston, Partner and Technology Tax Specialist at Grant Thornton.

‘The platform economy touches everyone and there are hundreds of platforms out there. We tend to speak about the big ones like Uber and Airbnb, but there are so many more: it’s B2B, B2C – even children use platforms. They are ubiquitous.’

Platforms spawn new, smaller platforms too. The success of Airbnb has led to a host of firms dedicated to servicing Airbnb properties, while the race is on among insurance companies to provide a pay-as-you-go insurance portal for Uber and Deliveroo drivers. The opportunity for SMEs is vast: ‘The cycle of disruption is almost an infinity loop,’ says Preston.

But this very ubiquity also makes it hard to put a precise value on this burgeoning economy. As with other digitally born markets, the boundaries are blurred and unformed. ‘It’s a bit like when you start talking about fintech, or when retail becomes e-tail: what’s in a name?’

That said, some jaw-dropping numbers tell the story: 20 million UK shoppers use PayPal every year. That’s 20 million people using a money transfer platform to buy from, very often, other platforms.

This scaling up and reliance on other platforms via application programming interfaces (APIs) are the essential tenets of platform businesses. Uber works by connecting tens of thousands of drivers with passengers through the Google Maps API, as does Airbnb, except the drivers are homes and the passengers stay for longer. Whether it’s Etsy promising a vast variety of handmade products, Salesforce providing widespread integration or TaskRabbit offering convenient labour options, scale and connectivity are everything.

‘As more participants use a platform, the supply increases, more reviews offer more transparency, suppliers can react faster, and more offerings can reduce their prices – so consumers get a virtuous circle,’ says Eric La Bonnardière, Co-founder of Evaneos Travel, a platform that connects holidaymakers with local travel agents.

‘Traditional players will have to adapt to this new way of consuming and to the new expectations it creates, and there is massive change to keep up with.’

Open source potential

With such scale comes inevitable market dominance and monopolisation. As the platform giants grow by offering supposedly better user experiences, competitors that can’t invest in the same supportive infrastructure are squeezed out. The result? Dominant market players like Google and Amazon. On the flipside, while the competition among platforms may shrink, the competition on the platforms grows.

‘It’s the democratisation of products and services,’ says Preston. ‘You may have had what was a buy-to-let or holiday home, and the dynamic of the market meant you let it privately or used a letting agency, but now you can use the platform and have access to everyone in the world.’

For Dr Peter Bloom, Senior Lecturer in the Department of People and Organisations at the Open University, what is exciting is not so much the evolution of the ‘asset economy’ generated by the likes of Airbnb  but more the potential for open-sourced collaboration.

Bloom points to a future where progressive businesses will outsource problems to open-sourced platforms in order to drive innovation, in much the same way as people currently post problems on consumer and community forums.

‘Future-orientated organisations are already doing this, and we’ve already 
seen it happen with 3D printing,’ he says.

‘There are many other, different types of platform economy. It would be a major pitfall to think that we only live in one – when in fact there are different, more empowering platform economies from which we might greatly benefit.’

Four ways platforms are transforming businesses

1 Make them come to you

For most independent restaurants, marketing budgets are small to non-existent as notoriously high overheads leave little room for advertising. And yet, standing out in a busy metropolis, or becoming well known in a sleepy town, is fundamental for survival. Step forward Deliveroo: a platform and driver service that alerts hungry customers to a restaurant’s presence before picking up the food and delivering it to them. Win-win all round.

2 Turn a life skill into a money-spinner

‘Everyone’s private driver’ and one of the fastest-growing companies of all time, Uber offers transparency and accountability across its platform – thereby turning confident, competent car-owners into independent earners. In theory, Uber drivers have the option to work as little or as often as they like – an approach to working that’s led to more than 40,000 people becoming Uber drivers in London. 

3 Access a ready-made marketplace

Getting noticed on Google is virtually impossible for small businesses and sole traders. Search engine optimisation requires the type of investment beyond the reach of most start-ups and sole traders. That’s why Etsy’s ready-made marketplace is so important. Creative businesses can quickly and easily set up shop on the platform at a fraction of the cost of building a website, as well as gain access to a community of shoppers who are ready and willing to spend.

4 Make your property work harder

While some cities have put restrictions on the number of days per year that you can rent out your property, Airbnb continues to thrive and remains the largest property site in the world, with more than three million listings worldwide. Through Airbnb, homeowners and buy-to-let investors can significantly increase their return on investment safely and, for the most part, without hassle.