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Digital Platforms and Value Creation

Written by Prashanth Madhala Tampere University

What is a digital platform? A digital platform is a place where producers and consumers exchange information, goods, and services; the digital platform is also a community which brings the above said elements together to co-create value [1]. It allows for participation of and connecting multiple members to it so they can interact, exchange, and create value [2].

To create a successful digital platform, there are key aspects such as use of APIs for connectivity to allow 3rd party members complement the platform with their capabilities, facilitating exchange between the users, trustworthiness & security, usability, ability to scale without affecting the performance in a bad way [1]. Success with digital platform also depends on users (over technologies involved) who are adopting the platform [3]. For example, traditional companies create value within well-defined boundaries, whereas digital platforms co-create value with ecosystem of autonomous participants [4].  Some of the key attributes of a digital platform is that it is a technology-enabled business model, eases communication between several members such as users and producers, value created is proportional to the size of the community, enables trust with regards to data ownership and intellectual property rights, promotes compelling user experience, gives rise to innovative business models [2].

Digital platform has its benefits such as creating new products & services, promotes revenue, enhance profitability and customer experience, operational improvement [5], reduces cost, fosters collaboration and innovation, faster movement of products to the market [2]. Examples of digital platform are social platforms, knowledge platforms, application stores, crowdsourcing platforms, media platforms, infrastructure platforms [2][3].

There are key functions that allow digital platforms to create value. First, the platform must have an audience, the platform must have an audience consisting of consumers and producers facilitating interactions; Second, platform should be able to match consumers and producers for the creation of value; Third, platforms must enable external innovation by the use of APIs in addition to management support; Finally, governance is a very important aspect for governing interactions between all participants [6].

According to [7], in digital service platforms, there are several sources of value created by platform participants; the author provides case study from uber. In the study, an empirical framework is provided which contains three resource combinations namely digital service platform sales, digital service platform safety, digital service platform operation. The sources of value associated with service sales are transaction processing capabilities (tangible, economic value: value-in-use perspective), review and rating system (tangible, intrinsic value: value-in-use perspective), publicity and exploitation (in-tangible, economic value: value-in-use perspective); Second, the safety aspect of the digital service platforms stem from technology reliability (mutual intrinsic value: for e.g. between two participants) and safety (from transparency, intrinsic value); Third, operation of the digital service platforms where the sources of value come from membership (intrinsic value: value-in-exchange), work flexibility (value-in-exchange), rewards and support (economic value: value-in-use). Use value is subjective is defined by the perceived usefulness of the offering, whereas exchange value is recorded when there is a sale between a buyer and seller.

In summary, the term digital platform is defined and understood; digital platforms brings together producers and consumers to co-create value and fosters a community that can continue to co-create value; there are many benefits associated with digital platform such as profitability, innovation, and new business models; for a digital platform to function, there are key attributes and requirements, The sources of value creation is also identified through different types of value such as value-in-use and value-in-exchange.

References

[1]-https://www.bmc.com/blogs/digital-platforms/

[2]-http://stephane-castellani.com/everything-you-need-to-know-about-digital-platforms/

[3]-https://enterprisersproject.com/article/2018/12/what-digital-platform

[4]- Hein, A., Schreieck, M., Riasanow, T., Setzke, D. S., Wiesche, M., Böhm, M., & Krcmar, H. (2020). Digital platform ecosystems. Electronic Markets30(1), 87–98.

[5]- https://xmpro.com/what-is-a-digital-business-platform-and-why-should-i-care/

[6]- https://www.applicoinc.com/blog/how-do-platforms-create-value/

[7]- Mansour, O., & Ghazawneh, A. (2017). Value creation in digital service platforms. In Proceedings of the 28th Australasian Conference on Information Systems, ACIS 2017. Formal Power Series and Algebraic Combinatorics.