Ecommerce vs. Platform Economy

19 Oct 2018 • Strategy & Business Design

Ecommerce has become such a common term to most people that I believe setting up a “Ecommerce vs Platform Economy” debate would help to clarify the concept of platform economy. Read and find out what the similarities and the differences of these two online business concepts have and which one is the right one for you.

Ecommerce is mainstream

Let’s face it. Ecommerce has lost its novelty. It’s the de facto way of bringing your goods and services online and even the more cautious companies have dared to take the leap thanks to well-productized ecommerce platforms and services.
Ecommerce has gone the way homepages did back in the day and has become mundane.
While it has done this, the competitive scene has become more cutthroat and it’s getting harder and harderto break into the online marketplace and actually make an impact. Not only are all the obvious products and services available online, but the industry forerunners have also optimized their purchasing experiences to a great degree. On the other hand, you could pick up a service like Shopify and get your online store up and running quickly and reliably, which means that everyone can get started with ecommerce.

Platform Economy pursuing competitive advantage

One of the defining differences between ecommerce and platform economy is that you can position your ecommerce on the outskirts of your core business or strategy whereas with platform economy you can’t do this. What I mean by this is that for many organizations, ecommerce is just another sales channel. An important one at that, but even if you were to shut your ecommerce down, the company wouldn’t go down with it.

If your organization is rooted on platform economy, you simply cannot disconnect the company from it’s platform as it would mean that the entire business would cease to exist.

The essential building block of companies working on a platform economy is that you have a digital, highly customized online system on which you’ve built a business concept that is different from the competition. A platform economy pioneer wants to be a trailblazer. Ecommerce is a choice for safety – you choose it when you don’t want to put all your eggs in one basket.

The similarities between Platform Economy and Ecommerce

Just so that all this wouldn’t come across as clear-cut, I feel like it’s important to mention that a ecommerce store can be a platform economy. A classic example of this is Amazon. It’s an ecommerce feature to display your products in a matrix and have your customers shop using the standard shopping cart process. On the other hand, the fact that other vendors can sell their goods on Amazon is a feature of platform economy. These vendors utilize Amazon’s infrastructure, logistics and make good use of Amazon’s infinitely scaling AWS-online store solution.

The pivotal point of an ecommerce store turning into a platform economy is the attempt to dominate your segment or industry.

This raises the question if any ecommerce store could become a platform economy? In theory yes, but in practice no. The first challenge is to build business concept that differs from the competition and this alone will usually require the company to change its core business model. The other challenge is usually technology. Most ecommerce platforms simply aren’t suited to serve as platforms for the purposes of platform economy. The exceptions here are those rare cases where the business has from the very start of its online path sought to create an online store concept that makes an effort to separate itself from the competition (for example Kauppahalli24).
It’s no surprise to me that people get mixed up with these two terms, when both of the models utilize many of the same tools. Growing your digital footprint, digital marketing, personalization, customer-focused development etc. are the basic functions of online business. Paytrail claims that “Specialization is a strong competitive factor” in their publication verkkokaupan trendit 2018 (Ecommerce trends 2018, link in Finnish).
Differentiation is an even stronger competitive factor.

Pricing differences between the two models

It’s my experience that all of the organizations of today are interested in doing well online. I’ve also noticed that the thing that is keeping them from competing online are the costs involved. This is a notion I strongly disagree with. The world is full of organizations that have pulled themselves up from nothing, even with the use of cash flow funding and made their way to the absolute top.

Doing well in the online playing field takes more courage than it does money.

Because costs are a necessary evil all organizations have to deal with, we should look at it through the scope of digital marketing. Even though it is pretty much undeniably clear that when you invest in let’s say Google ads or social media marketing you will get measurably higher impact than you would by advertising in the old-fashioned way using print media.

The question then becomes: How do you use your budget?

It’s true that you can get your ecommerce store started with a smaller investment by using for example SaaS-type solutions to host your store, but once you’re moving on to create your own ecommerce platform the costs are starting to look similar to platform economy solutions.
When it comes to platform economy, you can’t really get into it unless you go all in, in regards to both actions as well as investments. Additionally, the horizon of when you’re getting your money back from these investments will almost certainly be measured in years whereas with ecommerce solutions it can be anything from weeks to years.

Ecommerce or Platform Economy?

The answer depends on the organization. The most important thing is to look at both models through a critical lense and determine how well you can implement them to your existing business concept. If you’re not an expert of platform economy or ecommerce, you should always utilize an external party that possesses this knowledge to help you understand the topic better.
The main thing to do is draw out your core strategy and determine where you would position your online presence in the picture. If the answer is in the middle of it all, you can do either of the two but if the online presence is somewhere in the outskirts of your business, then the answer is with high certainty not platform economy.