Business Platforms and the components of their business model’s core structure

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Thesis in Business Administration

Track: International Management

Business Platforms and the components of their business

model’s core structure

Coordinator: Professor Markus Paukku Date: January 26th_{, 2018}

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Statement of originality

This document is written by Thomas Valassis who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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During the last decades, the rise of new IT based companies has become more and more important. Among those companies, the Business Platforms are a particularly striking one. This research paper aims at understanding what constitute the core elements of the structure of such companies. To do so, the analysis was based on the components identified by Osterwalder and Pigneur in 2010, which define the elements composing the core structure of a business model. To understand the changes that those components were subjected to, interviews were conducted with founders of Business Platform as well as with a Researcher specialized in the sustainable businesses and that studied the Sustainable Business Platform. The Perspective brought by the researcher should allow us to from the testimony of the other interviewees. As a result of this interview, most of the working propositions advanced were confirmed and a deeper understanding of the Business Platform phenomenon was acquired.

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4 1. Introduction

During the last three decades, IT strategy was only considered as a functional-level strategy tool that must be aligned with the firm’s strategy (Bharadwaj et al., 2013). However, an unprecedented growth in information, communication, and connectivity technologies over the last decade greatly increased the use of platform business or Multi-Sided Platform (MSP) models.

A platform is composed of the set of components and rules used in most user transactions. “The components include hardware, software, and service modules, as well as an architecture that specifies how they fit together” (Han and Cho, 2015). The rules are used to coordinate the network activities (Eisenmann, Parker and Van Alstyne, 2008).

The increase in smartphone usage birthed fierce competition among the different platforms. Such technologies created new opportunities to design open market business models by enabling companies to change their organization and their economic exchanges, by either taking advantage of lower price and, or performance levels of computing as well as global connectivity in order to adapt their business infrastructure to the new digital era (Bharadwaj et al., 2013; Han and Cho, 2015; Parker, Van Alstyne and Choudary, 2016). “Professional service firms are increasingly moving away from pure vertically integrated models, in which all client services are provided by their employees, towards the MSP model, in which they enable independent contractors or professionals to deal directly with their clients” (Hagiu and Wright, 2015).

This recent and new business model, which became a trend over the last decade, has been analyzed by several researchers. The researches have focused on multiple areas that characterize a company’s activities and business model such as the characteristics of the multi-sided markets, the launch strategies of multi-sided platforms as well as the different strategies needed for a platform to be successful in its home market and the various competition types existing in

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multi-5 sided markets. Furthermore, some aspects of the business model, itself, of Business Platform companies have been investigated by Junic (2016), Malmström et al. (2017), Giessmann and Legner (2016) and Chakravarty, Kumar and Grewal (2014). Those researches mostly focus on a single component of the business model of a Business Platforms and aim at understanding the impact of the component on the Platform’s activities. As such, and in order to understand the peculiarities the core elements of a Business Platform defined by its business model, this research paper aims at identifying, distinguishing and analyzing the components that differ within the Business Platform’ structure when compared to one-sided companies. One-sided companies are here perceived as companies who serve only one side of its activities, either the supply-side or the demand-side but, do not, unlike the Business Platforms, which can be identified as multi-sided companies, serve at least two sides of its activities. To do so, knowledge about the design and functioning of a platform business model will be acquired through the interviews of three actors having launched Business Platforms, the three interviewees are respectively founders of their own company. As these companies are small-sized companies with less than twenty employees, the testimony from these founders should be complete when regarding the current situation of their company. Apart from that, a researcher that is currently investigating the phenomenon of Sustainable Business Platform will also be interviewed. The interview of this researcher should give another perspective on the matter at hand, this perspective should limit the potential bias as it will act as a mean of triangulation for the results. The question that this research will aim at answering is thus:

Does providing a service to both sides of its activity, the supply-side and the demand-side, influence the core components, themselves, of the structure of a Business Platform, when compared to the core components of the structure of a one-sided company?

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6 The first aim of this question is to analyze the core components of the structure a Business Platform in order to bring a new understanding of what is required for a Business Platform to be successfully built. The second objective is to clear out the relationship that the Business Platform has with each side of its activity, demand-side and supply-side. For the supply-side, it is to understand if the users of the platforms should be perceived as partners or customers, and thus, should they be treated as such. For the demand-side, should the users be perceived as customers or simply a third party using the platform? In order to bring a bit more of clarity as to what a Business Platform is, is referred to Business Platform any company providing a service or a product at the same time on the demand-side, and on the supply-side of its activity. The Business Platform is a company whose core activity is to connect individuals from one side to individuals located on the other side, it is an intermediary. A Business Platform operates through a software, whether an App or a website.

In the following section, two types of scientific literature are reviewed. The first type will investigate the current literature existing on the matter of business model in general and, more specifically what defines a business model, which components are required in a business model. The second type focuses on the Business Platform and all the research conducted on the matter. Following the literature review, an analytical framework will be proposed. This proposed framework aims at answering the questions raised above and attempts to design a new framework or canvas for Business Platforms to build their own business model.

2. Literature Review:

2.1 Business Model: Definition, Components and Designs

Several definitions exist for the concept of business model and can be traced as far back as 1954. Indeed, in 1954 Drucker envisioned the business model as “how a firm creates value for customers and appropriates value by performing its activities efficiently and effectively”

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7 (Fjeldstad and Snow, 2017). In 1958, Forrester referred to the dynamic of the business model as “how a firm modifies the elements of its business model over time in order to adapt to changes and disruptions in its environment” (Fjeldstad and Snow, 2017). Another definition of the business model has been formulated in 2001 by Amit and Zott: “the content, structure, and governance of transactions designed as to create value through the exploitation of business opportunities” (Amit and Zott, 2017). Finally, Haaker et al. defined in 2017 the business model as “a description of how an organization or network of organizations intends to create and capture value with its products and services”. As it can be observed with the previous definitions, many definitions of what a business model is exist. It is, thus, difficult to come up with a common language (Rayna and Striukova, 2016).

While a common language is still lacking, consensus still exists in the description of a business model. “The business model is a cognitive device that creates value and allows the capturing of the created value”. The business model’s concept outlines (1) how to create sustainable value in an increasingly interconnected and fast moving world and, (2) how to protect this value from being captured by the competition (Chesbrough, 2010; Teece, 2010; Sachsenhofer, 2016).

In addition, some concepts of the business model, such as the Business Model Canvas (BMC), from Osterwalder and Pigneur (2010), have been adopted by practitioners who deemed it as clear and concise. This specific canvas is made of nine elements that address the various aspects of a business model such as the value proposition, the activities, the customer etc. however, this canvas does not address the value creation, the value capture, and the value delivery (Rayna and Striukova, 2016).

Business models are often defined via the elements that it encompasses. The most frequently cited are a firm’s value proposition, customers, products (and services), resources, value creation, value capture, revenues, technology, processes, and partners. Still, no clear congruency

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8 can be found between authors, different items are used for similar concepts and their meanings sometimes overlap (Peric, Durkin and Vitezic, 2017).

Gassmann envisions the business model as being constituted of value dimensions. The “What?” dimension refers to the product or service offered and is similar to the value proposition. The “How?” dimension describes the method to build and distribute the “What?”. The “How?” dimension is equivalent to value creation, value communication, and distribution channels. The final dimension, the “Why?” dimension, relates to the viability of being profitable and is similar to value capture (Gassmann et. Al, 2013; Lüttgens and Diener, 2016).

Boons and Lüdeke-Freund (2013) see the business model as constituted of four elements. The first one, the value proposition is the value offered to the customer. The second one, the supply chain, consists in the upstream relationship with the suppliers while, the third one, the customer interface, consists in the downstream relationship with the customers. The last element is the financial model and aims at the monetization of the three previous elements.

Rayna and Striukova (2016), as well as, Lüttgens and Diener (2016) identified 5 key components constituting the business model: value creation, value proposition, value capture, value delivery and value communication. The value creation is “the mechanism by which goods and services acquire value that can then be captured and shared”. Value creation derives from core competencies, key resources, governance, complementary assets and shared (Rayna and Striukova, 2016). The value proposition is defined as “the mechanism through which the value created is offered to the market”. The value proposition relates to the offer and its price (Rayna and Striukova, 2016). Value delivery is “how the value created is delivered to customers through distribution channels” (Rayna and Striukova, 2016). The value capture is perceived as “the ability of a firm to benefit from the value created”. It encompasses the revenue model used to create the firm’s revenues and the firm’s costs structure. Furthermore, it includes the allocation

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9 of profits along the value chain (Rayna and Striukova, 2016). Finally, the value communication is: “how companies communicate with customers and partners about their products and the value they create” (Rayna and Striukova, 2016).

Lastly, According to Osterwalder and Pigneur (2010), the components the most analyzed in the business model literature are: customer segment, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structures. Those nine elements constitute the nine key elements identified by Osterwalder and Pigneur in their BMC and can be defined as (Osterwalder and Pigneur, 2010):

 Customer segment: the different groups of people or organization an enterprise aims to reach and serve.

 Value proposition: the bundle of products and services that create value for a specific customer segment.

 Channels: how a company communicates with and reaches its customer segments to deliver a value proposition.

 Customer relationships: the types of relationships a company establishes with specific customer segments.

 Revenue streams: the specific ways a business model enables revenue generation for the company.

 Key resources: the most important assets required to make a business model work.

 Key activities: the most important things a company must do to make its business model work.

 Key partners: the network of suppliers and partners that make the business model work.

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Graph1: The components of a Business Model

A business model can be designed using all these elements previously mentioned. Nonetheless, the design of a business model has to take the aim of the firm into consideration: will the firm aim at efficiency and thus adapt to the existing context with the industry or will the firm aim at novelty by shaping the existing context within the industry (Amit and Zott, 2007; Ausrød, Sinha and Widding, 2017)? Efficiency-centered business model design aims at achieving transaction efficiency, by reducing transaction costs, through a number of measures. Novelty-centered business model design aims at conducting economic exchanges by using new methods among various participants (Amit and Zott, 2007).

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11 In addition to the aim of the firm, the risk that such goal entails should be taken into consideration. On the one hand, a firm purely seeking efficiency faces the risk of not introducing novel components challenging the status quo. On the other hand, a firm seeking novelty may deter potential stakeholders to a degree that will, at some point, prevent the proposed business model to be successful (Ausrød, Sinha and Widding, 2017). However, a firm adapting to the context, will avoid such resistance from potential stakeholders. A firm shaping the context may, once the initial resistance has been overcome, benefit from a source of competitive advantage (Ausrød, Sinha and Widding, 2017).

2.2 Platform Business Company

A Platform is a commercial digital network that eases the interaction between users, whose transactions are subject to direct and/or indirect network effects, and may alsoprovide access for vendors, R&D partners and suppliers which facilitate users’ transactions (Muzellec, Ronteau and Lambkin, 2015; Hagiu and Wright, 2015). “A network effect is the positive effect that an additional user of a good or service has on the value of that product to others. When a network effect is present, the value of a product or service increases according to the number of others using it” (Shapiro and Varian, 1999). The platform image and customer relations are, thus, key characteristics of a platform. The platform owners must pay a particular attention to the platform image and the customer relations, the platform functionality of the website and the platform design and maintenance (Lin, Shih, Tzeng and Yu, 2016).

Network effects occur when companies achieve exponential growth through the interaction of user networks (Evans, 2009; Bakos and Katsamakas, 2008; Han and Cho, 2015; Parker, Van Alstyne and Choudary, 2016; Shaughnessy, 2016). The interaction follows a triangular relationship as parties first, affiliate with the platform then connect or trade using the platform resources (Parker and Van Alstyne, 2014; Hagiu and Wright, 2015).

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12 MSP models aim at leveraging the assets of third parties and, in theprocess, increase the value of the economic activity to customers in ways that engage and benefit them (Shaughnessy, 2016). These platforms typically have two types of users: a business side, which often is the business customer; usually that party is the one paying to access the platform and offer its service, and an end-user side who is the consumer of the service (Bakos and Katsamakas, 2008; Han and Cho, 2015; Muzellec, Ronteau and Lambkin, 2015; Parker, Van Alstyne and Choudary, 2016).

When a new Business Platform starts, it is important to set up a domain and the target groups, followed by a proper pricing strategy (Han and Cho, 2015). Those three steps enable the company to reach a critical mass, a sufficient amount of users on both ends of the platform. At the beginning of the platform development, the platform may be financed, promoted, or subsidized through the use of external financial investments, but on the long run, the success of a platform depends on a viable business model and the ability to attract customers. Gaining a critical mass of users, for both sides, and achieving self-sustaining growth and scalability are key factors ensuring the viability and the success of a platform (Ruutu, Casey and Kotovirta, 2017). In order to set up an interactive system, the content must be attractive, that is, it must be a “killer content”. A “killer content” will enable the company to set up an interactive system such as an alliance with other companies having different content, allowing the platform to be built, together, with the partner (Han and Cho, 2015). For a platform to be successful, the content is, however, not sufficient. A proper pricing strategy should also be implemented. The pricing strategy will depend on the relations between the users and the platform's owners as well as on the competitive environment. The platform owners must, thus, set up a flexible price and be wary of the market trends as well as being attentive to the users' feedback (Hagiu, 2009; Han and Cho, 2015; Ruutu, Casey and Kotovirta, 2017; Kung and Zhong, 2017). To ensure its survivability, a platform must evolve constantly. While evolving, the platform must, nonetheless, pay close

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13 attention to remain in line with its first purpose in order to ensure that the users will not lose sight of its utility (Han and Cho, 2015). It has been observed that the most successful platforms, such as Facebook or LinkedIn, start their activity with a single type of interaction that generates high value even if,at first, low volume. They then move into adjacent markets, to increase both value and volume. A platform that does not follow such pattern will not necessarily end up failing but will not, however, belong to the club of the most successful platform businesses (Parker, Van Alstyne and Choudary, 2016).

2.3 The impact of the Business Model on a Company’s strategy

As written in the first section of this chapter, the business model of a company encompasses many elements from the firm structure to its governance strategy or to the strategies implemented to acquire and retain customers or strategies to adapt to the changes in the firm’s environment. All of these can be said as belonging to a firm’s business model. However, whether it is the strategies to acquire customers or to adapt to threats, all of these require first for the firm to be built on solid grounds, the core components of the firm’s structure. A Business needs to evaluate and define the elements that will make its core structure, the elements that will be the backbone for the company’s business.

As such, only once the core components of a Business Platform have been identified and understood could a Business Platform develop sound and efficient strategies for its development. Once a company has developed a proper structure, it can, then, come up with the following: (1) strategies to acquire customers, (2) strategies to adapt to competition, (3) understand that it poses a threat to the other actors, especially one-sided companies, present within the same market. The focus of the strategy, implemented by the Business Platforms, aims at eliminatingbarriers to production and consumption in order to maximize value creation (Parker, Van Alstyne and Choudary, 2016). To reach critical mass, platforms can engage in numerous strategies in order to

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14 get enough customers, on both side, supply-side and demand-side, and in the right proportions, on board (Evans, 2009). The implementation of a well-defined strategy is, however, a complex matter for firms evolving in such markets. Indeed, such firms must take into account the different parties using their services within a multi-layered eco-system. Thus, the decision regarding the strategy to implement is highly dependent on the business model of the Business Platform. Among these strategies we can cite (Evans, 2009; Parker and Van Alstyne, 2014):

1. The zig-zag strategy is a basic strategy for reaching critical mass by building participation on the two sides of the platform incrementally. The platform begins with a small number of economic agents on both sides. It then convinces agents, from both sides, to join. It relies on the processes of product diffusion.

2. The two-step strategy involves getting enough members of one side on board first and then getting members of the other side on the board. However, this only works when one side does not value access to the other one which is often the case for advertising-supported media.

3. The subsidy launch strategy where platforms with substantial resources can attract users via subsidy, such as discounts, to join the platform.

4. The seeding launch strategy aims at ensuring the participation of one side of the platform by providing to the users of that side enough value so that they adhere to the platform. Seed interactions must be provided until both sides of the market reach critical mass. 5. The micro market launch restricts the launch to a small community in order to generate

strong but limited, network effects. Once adoption has taken place within that community, access to other groups of users can be opened.

6. Piggybacking launch strategy enables small companies, that lack a user base of their own, to borrow the users from another network.

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15 These strategies always aim at attracting customer from both sides of the Business Platform activity, supply-side and demand-side. Those strategies also look at the revenue model of the Business Platform, the Platform having some time to modify its pricing strategy at first in order to increase the number of users. They also take into account the customer relationship that the Business Platform, the intermediary between both groups, has to have and cultivate in order to attract more customers. Finally, some of these strategies are available to Business Platform is they have the necessary resources or partners.

Competition within two-sided markets occurs at three levels of a platform ecosystem (Parker and Van Alstyne, 2014). Such competition can only be fought against by (1) using the strategies previously mentioned, (2) developing a business model that will meet the needs of the Business Platform.

1. It exists from one platform to another. 2. Between a platform and its partners.

3. Among partners each competing for a position within a specific platform.

It is also important to note that platform businesses constitute a threat to one-sided firms. Such threats follow three distinct patterns (Parker, Van Alstyne and Choudary, 2016).

1. An established platform, with higher network eﬀects, uses its relationships with customers to enter the industry of one-sided businesses.

2. A Business Platform may target an overlapping customer group with a brand new oﬀering that leveragesnetwork eﬀects.

3. Platforms, that collectthe same type of data that a one-sided firm, decide to go after the one-sided firm’s market.

The review of the literature allows us to have a clear view of what aspects of the platform model has already been analyzed. The existing literature aims at understanding the specificity of the

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16 platform model, its components, the strategy that has to be used for the company to experience a successful launch and the threats that such a new model represents to the one-sided business models. However, few researches regarding the core structure of a Business Platform’s business model have been conducted as of this day. As mentioned above, it is my belief that only once the core components of a Business Platform have been properly identified and understood that a company will be able to devise on its strategies, whether customer acquisition strategies, pricing strategies or competitive strategies as well as its features. As such, this research will aim at understanding what defines the core component of a Business Platform’s structure and differentiates them from the core components of a one-sided company’s structure, whether it is the customer groups, the revenue model, the customer relationships or the types of partner that a Business Platform works with …

3. Analytical Framework & Working Propositions

The components of the business model and the design of a business model, as identified by Amit and Zott (2007) and Ausrød, Sinha and Widding (2017), are the starting points for the development of the analytical framework and working propositions of this study. This chapter will be divided into three sections, each of these sections being one of the dimensions identified by Gassmann (2013) (see graph 1). These three sections will then be further divided according to the elements identified by Boons and Lüdeke-Freund (2013). Within these sub-divisions, only the elements identified by Osterwalder and Pigneur (2010) will be analyzed. As mentioned in the previous section, this research solely aims at understanding what defines the core components of the Business Platform’s structure, which is what the elements identified by Osterwalder and Pigneur, with their Business Model Canvas, aim at doing. To those three first sections, will be added a fourth section, which will bring together all the Working Propositions, made on the first

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17 three sections, in order to develop a sound structure for Business Platforms based on a firm structure’s core components.

3.1 What? Value Proposition

As mentioned previously, the “What?” dimension defined by Gassmann et. al (2013) refers to the product or service offered and is similar to the value proposition. A similarity which can be found in the definition of the value proposition as defined by Rayna and Striukova in 2016: the value proposition is the mechanism through which the value created is offered to the market. The value proposition relates to the offer and its price. This definition suits the one used by Boons and Lüdeke-Freund.

The core of the definition of the value proposition is centered on the value created by a product or service offered to a specific customer. Nonetheless, while with one-sided companies the value proposition is solely aimed at one side of the business’ activities, the demand-side; Business Platforms are subjected to triangular relationships as platforms have two, or more, types of users service (Bakos and Katsamakas, 2008; Han and Cho, 2015; Muzellec, Ronteau and Lambkin, 2015; Parker, Van Alstyne and Choudary, 2016). Those sides are typically the business-side, also called the supply-side and the demand-side. So, Business Platforms are engaged in triangular relationships because it is only that once each side of the relationship are connected to the platform that the exchanges can occur (Parker and Van Alstyne, 2014; Hagiu and Wright, 2015). As such:

WP1: Business Platforms possess at least two different value propositions. The first one aimed at attracting customers from the supply-side of the business’ activities and the second one aimed at attracting customers from the demand-side of the business’ activities.

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3.2 How? Value Creation + Value Communication + Value Delivery

The “How?” dimension, defined by Gassmann et. al (2013), describes the method to build and distribute the “What?”. The “How?” dimension is equivalent to value creation, value communication, and distribution channels or value delivery.

3.2.1 Value Creation

Rayna and Striukova (2016) refer to the value creation as “the mechanism by which goods and services acquire value that can then be captured and shared” and encompasses the core competencies, key resources, governance, complementary assets and shared. Among those components, we can also add the key partnerships as partners help the company build its product, services. In the present situation, the main focus will be on the core competencies or key activities the key resources and the key partners. The reason is that so far, the business model canvas developed by Osterwalder and Pigneur (2010) is the most widely used and well-known within companies.

The definition of the key activities brought up by Osterwalder and Pigneur (2010) goes as follow: “the Key activities: the most important things a company must do to make its business model work”. In one-sided companies, the key activities are aimed at providing the product or service sold by the said company to its customers. However, as mentioned above, in the case of Business Platform s, supply-side users access the platform and offer their service, and the demand-side users access the platform to request and use the service provided. Thus, the Business Platform activities should be aimed at facilitating these interactions.

WP2: The core activities of a Business Platform are aimed at facilitating the interactions between its supply-side users and its demand-side users for instance, through its App and the analysis of data.

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19 The key resources, as envisioned by Osterwalder and Pigneur, are the most important assets required to make a business model work. It is believed that, as Business Platform companies are, first and foremost, technological companies, the most valuable resources of Business Platforms are immaterial resources, e.g. data and software (App).

WP3: The key resources of Business Platforms companies are immaterial resources.

Osterwalder and Pigneur have defined the key partnerships as “the network of suppliers and partners that make the business model work”. Thus, the key partners are organizations or individuals that provide the companies with services or materials in order for the company to provide to its customers its offer. We often hear the Business Platform environment that the supply-customers referred to as partners. Partners, because they are the ones providing the services that the Business Platforms promote to the demand-side customers. Nonetheless, those “partners” are more often than not the one paying the Business Platforms. This is why, will only be considered as partners the organization or individual that do not require the use of the App, developed by the Business Platforms, to do business with the Business Platforms.

WP4: The partners of Business Platforms do not require the use of the platform’s App to do business with it.

3.2.2 Value Communication

The value communication is: “how companies communicate with customers and partners about their products and the value they create” (Rayna and Striukova, 2016). Value communication encompasses two components of the Business Model Canvas (Osterwalder and Pigneur, 2010): the customer segment and the customer relationship. Osterwalder and Pigneur (2010) define the former as: “the different groups of people or organization an enterprise aims to reach and serve” and the latter as: “the types of relationships a company establishes with specific customer segments”.

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20 In one-sided companies, the identification of the customers remains quite evident as it is on the demand-side of the business’ activities and this because they are in a simple relationship with their customers. Business Platforms, on the other hand, are, as written previously, in triangular relationships with customers on both sides of their activities. Business Platforms have supply-side and demand-supply-side customers. They, thus, have to target customers on both supply-sides of their activities

WP5: Business Platforms have two different customer segments, each one located on one side of their activities. The first segment is located on the supply-side of the Business Platforms activities and provides the service requested by the demand-side. The second segment is located on the demand-side of the Business Platforms activities and requests the services provided by the first segment.

In one-sided companies, the companies are usually the main interlocutor of its customer as the product or service it sells has to gain the approval of its customer. The case of Business Platforms is, however, slightly different as while Business Platforms have to engage its customers, from both sides, to use their services, they are not the main interlocutor. Business Platforms are mainly the intermediary between each side of the Business Platforms activities. WP6: The Business Platforms are intermediaries connecting both types of their customers.

3.2.3 Value Delivery

The Value delivery is “how the value created is delivered to customers through distribution channels” (Rayna and Striukova, 2016). The channels as defined by Osterwalder and Pigneur (2010) are: “how a company communicates with and reaches its customer segments to deliver a value proposition”.

No proposition will be made on this part as for each industry and each company the channels differ from one another, no patterns can really be found out. For instance, a one-sided company

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21 can use as communication channels its website, its YouTube channel and other social media network. Just as such, a platform company can use its website, YouTube channel and its own social media to communicate with its customers.

3.3 Why? Value Capture

The “Why?” dimension, identified by Gassmann et. al (2013), is the viability of being profitable and is similar to value capture (Lüttgens and Diener, 2016). The value capture defined by Rayna and Striukova (2016) is “the ability of a firm to benefit from the value created”. It is composed of the firm’s revenue model and the firm’s costs structure.

The revenue model of a firm is “the specific ways a business model enables revenue generation for the company”. For one-sided companies, usually, most of the revenue streams come from the sales of the company’s product or service to its customers, demand-side customers. Business Platforms work in a different way. Indeed, usually, with Business Platforms, the revenue streams come from the supply-side customers. The reason for this is simply that as the platforms act as an intermediary between each one of its customers and that the demand-side will pay the supply-side for using the supply-supply-side’s services, the platforms cannot request to their demand-supply-side customers to pay a second time for the use of the Business Platforms’ interface. Thus, the pricing strategy of Business Platforms had to adapt to this constraints.

WP7: The revenue streams of Business Platforms mostly come from making the supply-side customers pay the use of the platform’s product.

3.4 Business Platforms’ business model

Using the 7 working propositions developed previously, a new business model framework has been created. This new framework, while still very much grounded in the framework developed by Osterwalder and Pigneur as it uses the nine key components identified in the Business Model Canvas aims at providing a clearer picture of the Business Platforms’ business model by making

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22 Users/ Customers segment Users Relationship Channels Value Proposition

Supply-side

Internal Structure

Demand-side

Revenue Model Cost Structure

Key Partners Key Resources Key Activities Value Proposition Users Relationship Channels Users/ Customers segment a clear distinction between the supply-side, the demand side and the internal structure of such company.

On the supply-side and on the demand-side, the same elements can be found, namely: the users/customers, the channels, the user relationships and the value proposition. It can be found, within the internal structure of the company, the key activities, the key partners, the key resources, the cost structure and the revenue model.

Graph2: The Structure of Business Platform and its core components

3.4.1 Supply-Side

Value proposition: emphasizes the possibility for the supply-side customer to gain access to a wide panel of customers to sell its service to.

Customer segment: organization, professionals or private individuals seeking to sell their services through the platform and looking to reach new, unfound, customers.

Users’ relationship: describe how the platform plays its role of intermediary to connect the supply-side users with the demand-side users.

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23 Channels: same as for Osterwalder and Pigneur:” how a company communicates with and reaches its customer segments to deliver a value proposition”

3.4.2 Internal Structure

Key activities: activities that facilitate the interactions between the supply-side users and the demand-side users, e.g. App development and maintenance and data analysis.

Key Partners: the network of suppliers and partners that make the business model work and that do not require the use of the platform’s App to do business with it.

Key resources: the key resources of a Business Platform are immaterial resources.

Cost structure: same as for Osterwalder and Pigneur: the most important costs inherent in the business model.

Revenue Model: the ways through which the Business Platform will generate revenue for the company. In the case of the revenue streams emanating from the customers, the revenue will come from the supply-side customers.

3.4.3 Demand-Side

Value proposition: emphasizes the possibility for the demand-side customer to find someone to fulfill the service it requires to be met.

Customer segment: organization, professionals or private willing to use the services advertised by the platform.

Users’ relationship: describe how the platform plays its role of intermediary to connect the demand-side users with the supply-side users.

Channels: same as for Osterwalder and Pigneur:” how a company communicates with and reaches its customer segments to deliver a value proposition”

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24 4. Research Method

4.1 Research question

This research explores the topic of Business Platform companies and aims at discovering and understanding the changes that affect the Business Platform companies when it comes to their very own business model. The aim of this study is thus to discover which factors that are normally taken into account when developing the company’s business model, for a one-sided company, are subject to modification.

Does providing a service to both sides of its activity, the supply-side and the demand-side, influence the core components, themselves, of the structure of a Business Platform, when compared to the core components of the structure of a one-sided company?

4.2 Research Design

To answer this question, I intend to lead a case study analysis as Yin (2009) states that case study research design is the most suitable when a “how” or “why” question is asked and focuses on contemporary events. For this case study, I intend to collect my data through semi-structured interviews. The semi-structured interviews were led in order to understand the primary components, coming from one-sided companies’ business model, on which the interviewed companies have relied to build their business model as well as to understand the changes experienced by those components. Case studies can involve single or multiple cases and different levels of embedded units of analysis (Yin, 2009). The one I intend to lead can be referred as multiple-cases holistic analysis. A multiple-case holistic analysis, as the case will focus on several companies. Each company will be one unit of analysis and it is the combination of those units that will make the case (Yin, 2009). The case study presents in this paper follows a deductive methodology as it is intended to further the existing knowledge of the Business Platform companies (Pratt 2009). As mentioned previously, the focus of this study intends to be

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25 on several companies having platform activities. The companies, evolving in different industries, provide a better image of the greater picture and reduce the risk to be biased toward a specific environment or type of Business Platform Company. And as Thomas (2011) explained in his paper, “the subject will be selected because it is an interesting or unusual or revealing example through which the lineaments of the object can be refracted”. The combination of these companies should lead to revealing examples of successful business models for Business Platforms. As the companies do not evolve within the same industries, the barriers related to specific sectors should not be taken into account which removes the biases that a single-case analysis would encompass. The companies’ interviewees are the founders of the companies. The companies being of small size, the founder should be involved in every aspect of their company and have a deep understanding of their inner-working. Furthermore, an additional interview, conducted with a scholar that studied the field of business platform, has been led and will bring an objective view to the topic.

4.3 Case Selection

The case selected are three companies having platform activities, two from Belgium and one from Amsterdam, plus the testimony from a searcher and professor at the Universiteit van Amsterdam (UvA). Among the two companies selected from Belgium, one is a Business Platform while the second is a one-sided company, having as a secondary activity the platform one. The sample that will be used derives from various industries such as automatized farming, information technology involved in transportation, information technology involved in recruitment and the academic sector. The variety in cases may produce different perspectives, as the three companies evolved in three different industries and the searcher has a broader view on the phenomenon while being more focused on the case of sustainable Business Platform.

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26 The first company, Sjauf, is located in the Netherlands, more specifically in Rotterdam and was founded in 2016. Sjauf is an information technology company involved in the transportation market. Sjauf specializes in long-distance transportation, from city to city and not on intra-city transportation. Currently, the company mostly operates in Rotterdam and Amsterdam.

The second company, Odyseed, was founded in Belgium in 2015 and operates within the urban and automatized farming industry. The company started its activities by launching a small automatized garden for people to grow their vegetables in an urban environment. It then added to its B2C activity a B2B activity. The B2B activity of Odyseed consists in installing automatized in-house garden and to propose activities to the client’s employee around the gardening topic. It is within this activity that the company launched its platform in order to connect the client’s employees with the list of activities proposed by the subcontractor working with Odyseed.

The third and last company was founded in 2016 in Brussels and is named HR Cover. HR Cover aims at providing recruiters with means to conduct more efficiently their selection process. The last respondent will be Doctor Francesca Ciulli. Dr. Ciulli is a professor and searcher at the UvA. Dr. Ciulli has been doing her postdoctoral research at the UvA since 2015 and studied the field of sustainable Business Platforms.

Table 1: Overview of the chosen cases in the sample

Company Start of

Operations Place Industry

Sjauf 2016 Rotterdam, Netherlands Information Technology (Transportation) Odyseed 2015 Brussels

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27 HR Cover 2016 Brussels Belgium Information Technology (Recruiting) Dr. Ciulli _ _ Professor at UvA

4.4 Description of research instrument(s) and procedures

In this section, all stages of the research design, as well as the participant, are described and analyzed for each specific case.

Semi-structured interviews will be used. This choice is based on the fact that such method ensures a systematic handling of the different participant’s answers and allows fluidity and flexibility (Patton, 2002). The semi-structured interviews will be lead in different companies presenting a platform business model. They will be audio-recorded and transcribed and notes will be taken during the interviews. If the participants desire to, anonymity will be provided and the data will be used only if the participants agreed to it. In addition to the semi-structured interviews conducted with the companies, an interview has been led with a scholar knowledgeable regarding this field, in order to achieve an increased reliability and credibility for this research. This will be done in order to operate a triangulation. Such method should reduce the risk of biases, or unreliable data (Yin, 2009)

All the interviews conducted whether with the companies or with the scholar have been centered on the nine components of a business model identified by Osterwalder and Pigneur (2010). The main reason for this being that so far this business model canvas is still the most widely spread within companies. The interviews as a whole lasted from 30 minutes to 60 minutes depending on how much the interviewee had to tell about the topic.

As mentioned above, the validity of the research will be achieved through triangulation. A limitation of this research is that it might be difficult to generalize the results to companies

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28 operating in different sector or different size. Another limitation of this study may lie in its premises that differences exist between one-sided companies and Business Platform companies. 5. Results

This chapter presents the findings obtained from the interviews that I conducted with the four different platform companies that were introduced in the previous part of this document. First, the individual case results for each company. Second, the similarities and differences among the Business Platforms are discussed in the across cases results section.

5.1 Individual Cases Results

The results of each individual case will be broke down according to the working propositions laid down within the Analytical Framework & Working Propositions section of this paper.

5.1.1 Sjauf

The respondent for this interview was one of the founders of the company.

Sjauf is a Dutch company launched in 2016 by its two founders. Sjauf is an information providing company evolving within the private chauffeur industry. Both founders of the company started with a one-sided company also evolving within the private chauffeur sector. The decision to move on from a one-sided company to a Business Platform was mainly driven by the customers they had. With the one-sided company, they had to take care of planning the trip for the chauffeur as well as arranging the trip with both parties. They also had to send the invoices to the customers and explain every element of the fee. The both of these cost a lot of time and money to their company while with Sjauf the driver is the one planning his own trip and making the arrangements with his client. So, moving from a one-sided company to a Business Platform company allowed them to shift the whole planning process to the drivers. Furthermore, they receive a lot more data from both parties through the App.

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29 For the App to work, the company has to reach its targeted audiences and to do so, the company decided to use different value propositions, one for each side. The reason, to do so, is that the motivation for the supply-side audience and the motivation for the demand-side audience diverge from one another. The former is mainly driven by pecuniary gains while the latter is simply interested in the service itself.

Key Activities

At the moment, the company still is a young one, the main activities of the company can be said to manage the App and work on it in order to improve it, as well as providing assistance to its customers whether the ones from the supply-side or the demand-side. In order for Sjauf to improve its App, it passes quite some time to the analysis of the data obtained from the trip taken by the users. Finally, the company pays attention to the availability of the drivers working with it and manage its network.

Key Resources

The main resources of the company are the staff working for it and the knowledge acquired through working in the field. While data are not key resources for the company, the interviewee mentioned that it was a weakness of the company, mainly due to its youth, and that they were working on changing that. Furthermore, the company possesses two cars in order to be assistance to the drivers if any issue were to occur.

Partners

The interviewee stated that the drivers were, in theory, no partners but customers of the company but, that in practice, they did behave as partners in regards to the activity of the firm. No other mention to the partners was made during the interview.

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30 The audience, as previously mentioned, is located on both sides of the Business Platform, the supply-side and the demand-side. This audience is the customers of the Business Platform company. The drivers are the direct customers of the company as the company sends them invoices in order to charge its service fees. While, the users, demand-side customers, are the indirect customers because, ultimately, they are the ones paying the bill. And as the person interviewed as Sjauf said: “The thing, with a platform, is that you have to make both parties happy in the end”.

Customer Relationship

The company does not wish to communicate with its users but instead wishes to make them communicate with each other and to ease that communication. This is the reason why the set up a chit within the App. The only reason for the company to come out and directly interact with its customers would be when it is necessary. So, Sjauf its role of intermediary and intends to stay in the shadows as much as possible.

Revenue Model

The revenue model of Sjauf works as follows: 1. the demand-side user request a ride. 2. A driver receives the request and makes a bid. 3. The bid is sent to the user and is added to it the fee perceived by Sjauf for this specific trip (currently a fixed rate for every trip). 4. The user decides to accept it or not. 5. The trip completed, the user is debited the actual value of the trip. 6. The driver receives the amount he was willing to work for and Sjauf gets his fee. 7. Sjauf sends an invoice to the driver with the fee perceived by the company for that specific trip. In short, Sjauf perceives a fee on the trip that is directly paid by the driver and indirectly paid by the user.

5.1.2 Odyseed

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31 Odyseed is a Belgian company launched in 2015 by Brieuc Thoumsin. The company evolves within the urban agriculture sector. The first product of the company allows growing in an automatic way herbs and spices at home. The product is sold online and offline in France and Belgium. In addition to this product, the company developed a service to promote the permaculture. The service consists in: setting up the vegetable garden within the client company and to organize various workshops around this vegetable garden. In addition to those workshops, Odyseed offers other kinds of workshops which aim at improving the well-being of the employees within the client company. The platform activity of Odyseed is, thus, not the core activity of the company but more a side activity, a secondary activity.

Value Proposition

Odyseed does not perceive its activity of providing workshops to companies as a two-sided business endeavor. Thus, the interviewee said that the company only had one value proposition, the one aimed at the demand-side of its activities, the companies requesting the workshops.

Key Activities

The main activities of Odyseed consist in managing its workforce and its sub-contractors, the IT development (the App development) and the research of new clients to sell its vegetable garden and workshops to as well as informatics IP.

Key Resources

The key resources, identified by the interviewee, of Odyseed, are: (1) the reputation that Odyseed acquired through its first B2C activity. (2) The team managing the workshops and the subcontractor of Odyseed. (3) The App developed by Odyseed in order to connect the HR department with the subcontractors hired by Odyseed.

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32 The individuals that Odyseed sends to perform the workshops at Odyseed’s clients are perceived by the company as partners. The reason for Odyseed to perceive them as partners is that those individuals are subcontractors hired by the company.

Customer Segment

Odyseed sees its customer segment as constituted of all the company interested in growing vegetables through its vegetable garden and interested in the workshops it offers.

The company is the main interface with its customer. It is the one offering the services and promoting them. Furthermore, as Odyseed perceives as its customers only the supply-side of its platform, Odyseed acts in this regard as a one-sided company.

Revenue Model

The revenue model of Odyseed fits with its core business, a one-sided activity. Indeed, Odyseed perceives the company requesting the workshops as its clients and the person performing the workshops as partners. In this situation, Odyseed sends an invoice to its clients then, once the company has been paid by its customer, Odyseed pays its subcontractors.

5.1.3 HR Cover by Talentis

For this interview, the respondent was one of the two founders of the company.

HR cover is a Belgian company launched in 2016, under the name of Talentis, by Julian O’hayon and Joey Cariano. In 2017, Talentis became HR Cover. HR Cover evolves within the recruitment sector and proposes to HR a new solution to ease the recruiting process. HR Cover’s service is a platform allowing the execution of pre-recorded interviews to the HR department of companies. The Service allows recruiters to add their own video interview as well as to add written questions for the interviewee to respond to. It allows the recruiters to send emails to the potential recruits and the recording of the candidates’ answers to the interview’s questions.

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33

HR Cover’s founder identified two different types of users, the recruiters, and the candidates. HR Cover offers a value proposition for each kind of user. For the recruiters, HR Cover offers an easier way to set up their interviews and to analyze the answers provided by the candidates. For the candidates, the main point of the value proposition is at the moment to be able to pass interview without having to go to the office of the interviewer. At the moment, HR Cover does not offer a sourcing solution for companies. By sourcing solution, the founder meant the possibilities for candidate to find themselves jobs, they are interested in, on the platform and to spontaneously apply for those jobs. This will be implemented in the future and will create a broader value proposition for the candidates as it will allow them to find, by themselves, job opportunities.

Key Activities

HR Cover’s founder identified four key activities of the company. The first key activity is the App development. The second one is the design development. The two previous key activities depend on the third key activity, which is the analysis of feedback provided by the client companies. Thanks to those feedbacks, HR cover is able to work on improving the platform for both the recruiters and the candidates. The final key activity is the business development of the company.

Key Resources

The company’s founder identifies three main resources of the company: (1) the platform itself, (2) the staff and (3), the access to a partner which is able to work, on regular basis, on the platform and to improve it.

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34 The founder identified two different types of partners, the people to whom the company intends to outsource a part of its activities and a company owned by one of the two founders that work on the platform development.

HR Cover’s founder identified two customer segments. The first one, from the supply-side of the company’s activities, is the segment constituted by the recruiters of companies willing to use the service provided by HR Cover. The second segment, which constitutes the demand-side of HR Cover activity, is made out of the candidates.

At the moment, HR cover does not directly connect the candidates with the recruiters. It can be said that they connect them with each other indirectly as the candidates are sent to the platform by the recruiters of the company to which they applied to. However, as HR Cover intends to implement a new feature to its platform, feature that will allow candidates to find by themselves job opportunities, it will in the future connect directly each party with the other one.

Revenue Model

Pricing strategy based on the users, the recruiters. The current pricing strategy is based on the number of recruiters having access to the platform per company. The fees to access the platform is to be paid annually. In the near future, HR Cover intends to change its pricing strategy for the SMEs allowing them to choose the features accessible on the platform whether it is written questions, pre-recorded interviews or the number of recruiters having access to the platform per company.

5.1.4 Dr. Ciulli

Dr. Ciulli is currently doing a post-doc on sustainable business models at the UvA while being at the same time a professor in the said university. She started her post-doc by analyzing

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35 established one-sided companies in the Netherlands then got introduced to the sharing economy and the digital platform in the circular economy.

Dr. Ciulli concurs with the idea that Business Platforms have to have two distinctive value proposition, one for the supply-side customers and one for the demand-side customers.

Key Activities

The focus of Dr. Ciulli was on the activities of food waste platforms. According to her, in some cases, platforms will perform a selection of its users. Business Platforms will also communicate on the values of the platform. Furthermore, depending on the size of the platform a negotiation with big organizations willing to use the platform could occur. Such negotiation would lead to a customization of the service offered by the platform. Thus, Business Platforms work on improving their platform, their App to better the user experience. Some platforms solely focus on connecting each side with the other one while others build their own tools, consulting activities to ensure that the involvement of users remains optimal. Some platforms attempt to combine online and offline activities. When they see it is necessary to connect with the supply side users or to get on board the demand side users. And, in order to connect those users as well as to gain a greater knowledge of them, Business Platforms proceed to data analysis.

Key Resources

Dr. Ciulli identified three main resources of a Business Platform: (1) The community that is active on the platform. (2) The platform itself, the App. (3) The data provided by the customers through their use of the App.

Partners

The supply-side users can be perceived as partners because they are independent of the Business Platform but still, they are connected to it in a more long-term relationship than a standard

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36 partner. So they are really collaborating to create value. But, Dr. Ciulli believes that there are different kinds of partners. It depends on both the perception of the platform and the perception of the users. In a way, the Business Platform has to consider them as partner because they help the company value creation activity. But, on the other side, the users’ consideration of their relationship with the Business Platform may differ from the perception that a Business Platform has of that relationship. Dr. Ciulli thinks that “if we consider the partnership in terms of collaborating for value creation, yeah we can call this relationship between users and the platform organization as a kind of partnership, collaboration at least”.

According to Dr. Ciulli, Business Platforms have two types of customers, the demand-side, and the supply-side customers. So there are two types of customers and they need to satisfy both of them. Dr. Ciulli illustrated such situate through the following example: “In a way, your product on both sides can be the users, because, you offer them to the other side”. Such example illustrates that on both sides can be found customers but also that the customers of one side are the product sold by the Business Platforms to the customers on the other side. Thus, each side is at the same time customer and product of Business Platforms.

Some platform connects users while other platforms are doing more than that, they provide consulting,

Revenue Model

Using the example of food waste platforms, Dr. Ciulli states that the demand-side was always free. But the supply-side on the other hand is not. Customers, on the supply-side, have, in some cases, to pay a fee, a subscription, a commission or a peer transaction.

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37

5.2 Across Cases Results

A multi-case analysis was held in order to create an overview of the results after analyzing the cases individually. The cross-case analysis contains individual cases derived from the data. The key elements were analyzed and compared (can be found in Appendix 4).

While comparing the data obtained from the three cases of the sample, similarities and differences have appeared. Similarly to the previous section, each aspect of the Business Platforms’ business model will be reviewed by following the order of the working propositions formulated in the third section.

Three out of the four interviewees agree to the principle that Business Platforms, that have to deal with customers on both sides of their activities, should and have multiple value propositions, at least one for each side of its activities. As Odyseed’s activities are not perceived by its founder as providing its service as a two-sided business endeavor, the company does not share the same belief as Sjauf, HR Cover, and Dr. Ciulli. However, while HR Cover’s founder agrees with this principle, the platform as not currently any value proposition for its demand-side, the candidates, but it will in the near future.

Key Activities

When it comes to key activities the four interviewees share common opinions as well as divergent ones. First, the four of them agree on the importance of working on the improvement of the app. The founders of Sjauf and HR Cover, as well as Dr. Ciulli, agree that the analysis of data is an important activity of Business Platforms as it enables those firms to work on the improvement of their platform as well as to gain a better understanding of their users. The founder of Sjauf did, however, specify that data analysis was not yet a key activity of the company as the company was still very young but that the company was working toward it.

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38 While the founder of HR Cover specified that the data, obtained by the company, were not data collected directly from the app. The founder and acting CEO of Odyseed did not mention data analysis. The final activity identified by Sjauf, HR Cover, and Dr. Ciulli was to constantly work on improving the customer satisfaction, for instance, through a customer service, as the both of them mentioned in their interview. Odyseed, on the other hand, did mention as its key activities the research of new clients as well as managing its workforce and its subcontractor. It can, thus, be observed that some differences exist among the four, especially between Odyseed and the three others. This difference is probably the result of the fact that the platform activity of Odyseed is not its core business but a side one.

Key Resources

The three interviewees agree on the importance of their platforms itself and well as on the importance of data. Sjauf’s interviewee also mentioned the knowledge acquired by the company staff. This knowledge, while not as explicit and not as deep as the information that data can provide, can be connected to the data but data obtained through experience. Sjauf, HR Cover and Odyseed share the common idea that the staff of the company is also a key resource for the Business Platform. To that, Sjauf adds the cars possessed the company to help the drivers if needed. Odyseed’s CEO adds the importance of the firm’s reputation as a key resource, HR Cover’s founder adds the access to a close partner that help in the platform development and Dr. Ciulli adds the community of users.

Partners

In the case of the key partners, we have two different opinions. Sjauf’s founder and Dr. Ciulli have a nuanced opinion on the matter. While for Sjauf, the supply-side users are in theory customers, in practice they are partners. Dr. Ciulli believes that whether or not the supply-users are partners or customers depends on the perception that the supply-side users have of the

Business Platforms and the components of their business model’s core structure

Thesis in Business Administration

Track: International Management