Airbnb, Uber, Facebook, Apple, Alibaba. What do these companies have in common? These companies are platform businesses. Airbnb surpassed Marriott’s profits. Uber exceeded BMW’s market value despite having only one-tenth of the employees. The perfect product helped with Apple’s success, but Apple outdid Blackberry’s and Nokia’s sales volumes only after introducing its app store. The upturns of companies using a platform don’t only apply to overseas companies. There are many platform companies in Korea in IT, finance, marketing, and distribution.

  One definition of platform is a physical space where passengers get on or off vehicles. In business, platform refers to an abstract environment where many suppliers and consumers can make exchanges fairly. In the 19th century Europe, the Industrial Revolution started at the train station, where lots of people and cargo were transported. This train station is a platform, but the role of the platform, which used to be an offline concept in the past, has shifted to digital networks in the current Fourth Industrial Revolution. Unlike past physical locations, the current digital systems allow communication and connections regardless of the number of users. Platform businesses have been able to be boosted because they can accommodate many participants. Additionally, IT advances are creating chances for manufacturers and consumers to interact with each other in small, customized markets to maximize network effects. Apple, Facebook, and Google were able to utilize mass customization due to their technological power, which attracted people of diverse tastes and thoughts to their platforms. This is why Apple, Facebook, and Google have been able to succeed so far.

  Kim Ji-dae, who is a professor of the School of Business at Chungbuk University, commented on the trend of platform businesses, “Platform businesses make ten times more profit than typical businesses in Silicon Valley. They also provide value to multi-sided markets. A platform business is called a multi-sided market because it aggregates valued consumers and suppliers by connecting them. The reason that platform businesses like Uber, Airbnb, and Facebook are popular is that platform businesses attract various consumers.”

  The structure of a platform business can easily be understood by looking at an example like YouTube. Many contents are produced in video format. At the center of all that content, there is a platform called YouTube. In an environment consisting of creators, advertisers, and users, the creators produce the content while the users consume the contents. The advertisers then gain profits from their transactions. YouTube is growing due to the interactions of these three roles. Years ago, a video had to be posted on a blog after following many steps that included filming and encoding. However, YouTube eliminated those cumbersome steps and made the process easy for anyone to do.

  Platform businesses have infiltrated almost every market. For example, Socar is a vehicle-sharing company, Jigbang is a company that helps people sell houses without real estate agents, Coupang is an electronic commerce discount company, and Baemin is a company that delivers food to businesses and consumers. Also, Kakao Mobility focuses on minimizing travel times by offering a taxi service that focuses on transportation. My Little Trip is also a platform business where a traveler can purchase a travel package from a guide based on their know-how and experience.

  However, there are also problems with platform companies, both at home and abroad. Uber has one-tenth of the employees that BMW has, but it has surpassed BMW’s valuation. One problem for platform businesses is low employment. Unlike automobile, shipping, and construction companies, which are large enterprises, the number of employees at platform companies is relatively much lower. As a result, the more successful the platform companies become, the more unstable the employment to population ratio becomes. As time passes, platform companies which monopolize the market will deepen the polarization between income and wealth.

  Kim Ji-dae pointed out ethical problems between suppliers and users in platform businesses. He said, “A platform business is a multi-sided market that connects suppliers to consumers to create value, but the platform business operators have to consider safety, reliability, and moderation. When customers trust platforms, platform business operators can build the credibility of the platforms by taking responsibility for the ethical issues beyond liability. For example, by spending one million dollars, Airbnb purchased insurance for its customers to show its trust. Sometimes, though, there can be conflict between consumers and businesses. At that point, the platform business operators have to carefully moderate. In the case of Airbnb, they adopted an objective and reasonable review system, so operators who received favorable evaluations were moved to the top of the comment list, which helped prevent conflict among hosts.”

  Prof. Kim Ji-dae continued, “Industries that can be applied to platform business are more varied than people think. People tend to think that only companies related to IT industries like Amazon, Google, and Facebook can operate a platform business. However, a platform company like Simple Kitchen shows that anyone can manage a platform business in a shared economy.”

  He further explained the prospect of platform business by using the example of Simple Kitchen. He said, “The number of restaurants in Korea is the highest in the world. It has seven times as many restaurants as America. Based on 2016 statistics, the whole scale of the Korean restaurant market is 83.8 trillion won. However, the rate of restaurant closures is 24%. Also, the initial overhead cost of a restaurant is about a hundred million won. With high costs of investment and high rates of bankruptcy, the restaurant business is called “the grave of self-ownership.” However, one company, Simple Kitchen, created a platform business that has the form of a shared kitchen. Simple Kitchen divided the space of a basement in Yeoksam-dong into 10 sections. They receive 1.6 million won as a monthly rent and 9 million won as a deposit. They lease a kitchen out for a fixed cost and let the renter share the kitchen. Store revenues of Simple Kitchen in Yeoksam-dong improved over 400% in just two months after launching. Simple Kitchen also opened locations in Gangnam, Hwagok-dong and Songpagu. Simple Kitchen shows that a platform business can have high growth potential even in uncertain businesses that have high rates of closure.”

  He also said about the future of the platform business, “Platform businesses aim for social contribution as well as profit. They pursue sharing more than possessing, and they prefer an inclusive style rather than an exclusive one. Businesses in a sharing economy have no choice but to utilize the platform.”

  Everybody uses platforms. Many platforms exist in the modern world. Why don’t we learn the concepts and structures of platform businesses and profit from them?

By Lee Dong-ah | da39@cbnu.ac.kr
By Park jeong-min | jm38@cbnu.ac.kr