Platform business models have transformed the way businesses are conceptualised and conducted. To understand the value of a platform business, it is important to recognise how a platform business model differs from a traditional linear business model. The platform business model brings together a community of users (two or more groups of users) by providing a common platform of transactions and interactions between the members of such groups. On the other hand, a traditional linear business model creates value by selling products down the supply chain.
Dynamic Business opportunity
The platform model is a dynamic business model that scales quickly and grabs bigger market share by enabling interactions and collaborations across a large number of participants. The platform landscape has evolved considerably in the last years, there are several successful variations of platform business models around the world (e.g. online marketplaces, social networks, sharing economy, payment systems etc.).
Two key elements, amongst several others, where platform business models have a significant edge over traditional business models are (1) favourable cost structures and (2) creating greater value through network effects. A platform business model sheds the fixed assets of a traditional business and thus creates more profitable cost structures (close to zero marginal costs) and demonstrates business scalability. Another distinguishing character of a platform is that it emphasises network effects (value addition by increase in number of users), and the interdependency of demand between the different platform user groups.
Building your own platform
Thus, whether you are building a platform business model from scratch or reshaping your existing business by incorporating platforms solutions, it has to be strategised well. There are challenges from a legal standpoint that you should be aware of and protect your business right from the beginning.
Two essential legal risks associated with building a platform model, are related to intellectual property (IP) and data protection. Varying regulatory requirements of both IP and data protection in countries across the globe necessitate that you have adequate compliance strategy and use a smart risk management approach from the beginning.
Intellectual Property
IP can be one of the most valuable asset for any business. However, the merits of IP protection in a platform model vary from a traditional product based business model. It is therefore important to clearly define the IP assets and rights involved. This will entail identifying the nature of use of the IP assets, access the IP protection and protect it by solid contractual agreements. A sophisticated and effective IP strategy will avoid financial and operational risks due to IP right infringements or imitations, brand damage and dilution of rights.
Data Protection
Data has become more valuable than ever and using data within the legal boundaries is key. In a platform economy, data becomes even more of a complex challenge because of network effects. Thus, platform businesses must prepare early on for compliance with applicable data protection and security regulations. Otherwise, your business is exposed to regulatory risk (e.g. fines), reputational and financial risk (e.g. loss of consumer and employee trust) and operational risk (e.g. restrictions of data processing).
Even once your platform business is operational, IP issues and data protection obligations persist. A continual and continuous vigilance is important.
Conclusion
Given how rapidly the global economy is reorganising especially around the digital platform, it is important to be prepared and equip your business with new opportunities. Collaboration with a trusted partner who understands the platform economy business and its (legal) implications is key to prepare, support and navigate the several hurdles for a sustainable growth and protection of your business. At PwC, we have the experts who can help you manage your legal, compliance and regulatory obligations under the platform economy. Our market and industry insights will contribute to meet the expectations and needs of your business and its journey to the platform economy.
Summary
- Platform business model differs from a traditional linear model by providing a common platform of transactions and interactions between communities of users.
- Key elements where platform business models have a significant edge over traditional business models are favourable cost structures; and the creation of greater value through network effects.
- Two essential risks associated with building a platform model, are related to intellectual property (IP) and data protection.
- Varying regulatory requirements of both IP and data protection in countries across the globe necessitate that you have adequate compliance strategy and use a smart risk management approach from the beginning.
