This is why platforms are successful

Approximately 4 minutes reading time

Airbnb doesn't own a single hotel room, but it has still become a major force in the tourism sector. Uber has built up a market position without owning a single taxi, and Facebook has become a powerful media company without making any content itself. When you see big names like these, platforms definitely look like a very smart and lucrative new business model. Why are they successful and what can insurers learn from them?

The value of a platform

In today’s digital world, platforms can connect supply and demand with each other much more efficiently than in the past. That’s what makes the ‘platform economy’ so different from the ‘old world’.

Back then, supply and demand operated in separate worlds. A company created value within its own organisation. A taxi company, for example, would buy a fleet of cars that could be used to transport passengers, and it organised the processes for bookings and rides as intelligently and customer-friendly as possible. The taxi company that did this the best was the winner.

In the platform economy, this situation is completely different. Value is not created within the ‘walls’ of the organisation, but in an ecosystem. The winner is not the company that owns and controls the physical resources, but the company that can orchestrate the matching of supply and demand in the most efficient way at an individual level.

You only have to look at Uber to understand how it all works. Without buying a single taxi, Uber has still managed to become a major player in the taxi world. The value lies in the connectivity – the ability to match buyers with suppliers - while in the old model that was basically seen as an overhead. With a platform, you are essentially able to create a market for yourself without any competition. In the famous words of Silicon Valley tech entrepreneur Peter Thiel: “competition is for losers.”

Successful emergence of platforms

The successful emergence of platforms is primarily thanks to the modern digital world where data is available about almost anything. Good data, namely, makes it possible to make good connections. In addition, the mass adoption of the smartphone has turbocharged the rise of many platforms. Suddenly everyone is permanently online, so now you can connect with everyone, at any place and at any time.

Experts are expecting another big wave of new platform companies over the next few years. This expectation is based, amongst other things, on the continued evolution of the Internet of Things (IoT), which makes it possible for every imaginable type of device, from domestic thermostats to sensors on offshore platforms, to connect and interact with each other. Just like the smartphone has turbocharged the rise of platforms in the consumer market, a mature Internet of Things will trigger a platform revolution in such sectors as logistics, agriculture, and financial services.

Are platforms suitable for the insurance industry?

There are very few sectors where the use of data lies so deep in the heart of the business operations as it does in the financial world. ING has spent years developing an open platform which other parties can use to offer their services. They are basically becoming more like a successful tech company such as Facebook. But you don’t have to create your own platform. Apart from anything else, building up a successful platform is more of an exception than a rule, and in any case it takes years of dedicated effort. The technical aspects are not exactly ‘rocket science’, but upscaling is a lot more complicated and requires a big capital investment in IT and marketing. Furthermore, it is only possible to get a decent return if the platform achieves a big enough scale. Successful platform companies seem to generate mountains of cash without even trying, but nothing is further from the truth. They have to continually invest in innovation (often billions). So joining an existing successful platform can be a good alternative.

The insurance market, considering the volume of available data, is the ideal market for the launch of a new platform or integration with existing platforms. But where do you start? Find out by reading our eBook 'The Power of a Platform'.