The fall of the platform business model

The end of platforms as we have known them seems to be around the corner. This blog is the third (and last) chapter in our blog series “Rise and fall of the platform business”

When platforms invest in physical assets, they actually open up space for competition. And this does not have to be a totality of competition, but the local niche competition that can challenge their location-based monopolies in specific locations. With this simple mistake, the platform companies turn from beasts that swallow small startups to pray to local innovators.

Local bus transportation system can challenge Uber in Stockholm. A strong culture of Agriturismo can challenge AirBnB in Umbria. When working with physical assets, the economies of scale don’t necessarily produce strong network effects so small local hardware stores can sometimes compete with Alibaba. Thus, the dominance of the platform companies is not absolute (but these companies need absolute dominance to maintain their position).

Platform companies used to be protected by data. Now the value of data is declining. Some of the companies, especially Google, are desperately aiming for AI-technology based business model protections but it is likely too early for sustainable competitive advantage from them. A business model protection would require a self-developing AI that could create an uncatchable victorious cycle. This kind of 3rd wave artificial intelligence still seems to be more science fiction than an emerging near future technology.

The conclusion is that the platform companies have used the changes in business environment brilliantly. They established monopolies that benefited from the scarcity of a key resource, data. However, no model lasts forever. These companies are searching for a new source of business model protection. Their previous experience will lead them astray.

What to read next? 

Go back to Chapter 1: The secret ingredient of the first generation platform business

Go back to Chapter 2: Four reasons why competitive advantage from data is disappearing

Read the intro: Rise and fall of the platform business


The blog series “Rise and fall of the platform business” is contributed by senior expert Johannes Koponen. Follow Johannes on Twitter

Article photo: Ricardo Gomez Angel