Contrasting pipeline business models with sharing economy platform business models
| Business model characteristics | Pipeline business | Sharing economy platform |
|---|---|---|
| Market-level characteristics | ||
| Nature of markets | Usually one-sided; centralized exchange of value from pipeline business to customer | Multi-sided with two or more types of actors transacting on a platform; value co-creation by individuals scattered across an ecosystem |
| Focus of value creation | Focus on creating end-user (i.e. customer) value; pipeline businesses create transactions | Focus on co-creating value for actors across the ecosystem |
| Focus of value appropriation | Focus on extracting value from the value chain (incl. complementors), with minimum value leak to other members in the value chain | Typically focus on extracting a share of transaction value on the platform; other multi-sided revenue models (e.g. advertising or charging only one of the parties) are common |
| Actor roles | Well-defined and stable | Shifting, fluid; often multi-sided actors and “prosumers” (i.e. the same player can be provider and user on different occasions) |
| Market economics | ||
| Cost structure | Fixed costs are typically high; assets ownership, brick-and-mortar presence and inventory cost | Platform’s fixed costs are typically low; asset-light and no inventory costs |
| Marginal cost is frequently high for goods manufacturers and low for service firms | Platform’s marginal cost is near-zero | |
| Capacity constraints | Typically constrained (e.g. fixed assets and human resources) | Capacity can be scaled rapidly, esp. during periods of high demand Capacity is elastic (e.g. more capacity is brought online when prices are high; resources can be shared such as in ride sharing of Uber Pool); demand can be allocated according to utility during periods of high demand (incl. pushing users to shared use of resources such as Uber Pool) |
| Heterogeneity in product offering and customer needs | Largely standardized products; some supply-side heterogeneity is achieved through product lines (e.g. Marriott’s many hotel brands and room types) that target different segments | Buyers and sellers are highly heterogeneous in terms of resource attribute preferences Uses highly sophisticated algorithms and analytics to match provider and user needs, and reduces search costs for both parties |
| Network effects, liquidity, and analytics | These tend to be of lesser importance to pipeline businesses; tend to target different customer segments for specific and relatively homogenous products that need to achieve sufficient utilization to amortize fixed costs (e.g. hotel inventory) | Indirect network effects and transaction volume (i.e. liquidity) of a platform are critically important, and the number actors on the platform need to be managed in tandem (e.g. number of drivers and riders need to grow in tandem) A sufficiently high level of liquidity is required for high-quality matching of heterogeneous resources with their specific attributes and time and location availability with the heterogeneous needs of users. A sufficiently liquid platform enables high-quality matching through analytics and delivers high earnings to resource providers and high utility to users |
| Firm-level characteristics | ||
| Leadership orientation | Leadership maintains tight control over internal processes, sourcing, production, distribution, sales and service, and focuses on building competitive advantage in the value chain | Leadership often follows a “curator” style that emphasizes building a platform ecosystem to facilitate effective resource integration, resource orchestration and platform vibrancy to foster value co-creation |
| Developing a competitive advantage usually involves focus on developing and controlling scarce and inimitable resources (incl. brands, intellectual property, and distribution), supply-side economies of scale, and achieving differentiation or cost leadership | A platform ecosystem can be a source of competitive advantage as quality matching of service providers’ resources and user needs, their integration and orchestration, and trust in the platform can be difficult to copy | |
| Innovation orientation | Internalized and controlled; innovation usually stems from within the firm and/or is controlled by the firm | Internal and external innovation; platforms innovate rapidly, plus are supported by innovation from players in its ecosystem which often include complementors Attracting and integrating complementors can increase the stickiness for all actors, making it harder to copy and thereby can build competitive advantage |
| Business model characteristics | Pipeline business | Sharing economy platform |
|---|---|---|
| Nature of markets | Usually one-sided; centralized exchange of value from pipeline business to customer | Multi-sided with two or more types of actors transacting on a platform; value co-creation by individuals scattered across an ecosystem |
| Focus of value creation | Focus on creating end-user (i.e. customer) value; pipeline businesses create transactions | Focus on co-creating value for actors across the ecosystem |
| Focus of value appropriation | Focus on extracting value from the value chain (incl. complementors), with minimum value leak to other members in the value chain | Typically focus on extracting a share of transaction value on the platform; other multi-sided revenue models (e.g. advertising or charging only one of the parties) are common |
| Actor roles | Well-defined and stable | Shifting, fluid; often multi-sided actors and “prosumers” (i.e. the same player can be provider and user on different occasions) |
| Cost structure | Fixed costs are typically high; assets ownership, brick-and-mortar presence and inventory cost | Platform’s fixed costs are typically low; asset-light and no inventory costs |
| Marginal cost is frequently high for goods manufacturers and low for service firms | Platform’s marginal cost is near-zero | |
| Capacity constraints | Typically constrained (e.g. fixed assets and human resources) | Capacity can be scaled rapidly, esp. during periods of high demand |
| Heterogeneity in product offering and customer needs | Largely standardized products; some supply-side heterogeneity is achieved through product lines (e.g. Marriott’s many hotel brands and room types) that target different segments | Buyers and sellers are highly heterogeneous in terms of resource attribute preferences |
| Network effects, liquidity, and analytics | These tend to be of lesser importance to pipeline businesses; tend to target different customer segments for specific and relatively homogenous products that need to achieve sufficient utilization to amortize fixed costs (e.g. hotel inventory) | Indirect network effects and transaction volume (i.e. liquidity) of a platform are critically important, and the number actors on the platform need to be managed in tandem (e.g. number of drivers and riders need to grow in tandem) |
| Leadership orientation | Leadership maintains tight control over internal processes, sourcing, production, distribution, sales and service, and focuses on building competitive advantage in the value chain | Leadership often follows a “curator” style that emphasizes building a platform ecosystem to facilitate effective resource integration, resource orchestration and platform vibrancy to foster value co-creation |
| Developing a competitive advantage usually involves focus on developing and controlling scarce and inimitable resources (incl. brands, intellectual property, and distribution), supply-side economies of scale, and achieving differentiation or cost leadership | A platform ecosystem can be a source of competitive advantage as quality matching of service providers’ resources and user needs, their integration and orchestration, and trust in the platform can be difficult to copy | |
| Innovation orientation | Internalized and controlled; innovation usually stems from within the firm and/or is controlled by the firm | Internal and external innovation; platforms innovate rapidly, plus are supported by innovation from players in its ecosystem which often include complementors |
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