Pandemic Stress-tests Platform Power
By Peter Evans, Geoffrey Parker, Marshall Van Alstyne
How resilient are platforms? The current economic crisis is testing their mettle.
In their relatively young lives, platforms have emerged as fierce competitors, roaring past solid incumbents in markets as diverse as music, retail, lodging, and transportation. We saw the swift rise of disruptive newcomers Airbnb, Spotify, and Uber and felt the pervasive presence of Amazon, Google, and Facebook.
In just three months, however, COVID-19 and the resulting economic shock have challenged platform models –like all businesses — to prove their grit and resilience. Can the disruptors pivot as quickly as they began? Which will grow, and which may not bounce back? Is this the time for incumbents to ramp up platform capabilities?
The answers are mixed. Our research shows that platforms are definitely not immune to extreme demand fluctuations, but there are bright spots. Secifically, we see three general patterns emerging among the demand shocks:
- Demand implosion: Platforms such as Uber, Airbnb, and Eventbrite saw demand evaporate, and they could not easily pivot. Their transportation, hospitality, and conference services required too much human contact to endure social distancing and shelter-in-place mandates. Both Uber and Airbnb attempted to diversify as logistics providers — Uber Eats, for example, and Uber experiences — but both firms saw revenue largely vanish. Uber laid off more than 6,700 employees (about 25% of its workforce) in an effort to save $1 billion in costs since the COVID-19 pandemic hit. Airbnb also cut its workforce by 25% percent, about 19,000 employees, as travel ground to a halt.
Uber reported that demand for rides plummeted by 80%. “We are going to see a lot of [ride-share] companies shift away from robo-taxis in the near term and move to goods delivery,” according to Sam Abuelsamid, an auto analyst with consultancy Guidehouse LLp. Illustrating the shift, on June 30 Uber offered to buy food delivery competitor, Postmates, for $2.6 billion as it seeks new revenue to offset the decline in its core ride-hailing business. Demand is greater for delivery services, Abuelsamid said, and “it’s an easier market to address.”
Another hard-hit category is experience platforms like Placepass. The three-year-old platform built a digital marketplace of more than 250,000 tours and travel destination activities boosted by funding from Marriott. Placepass was among many travel platforms at enjoying investments and M&A activity in the past few years. Others, such as Booking Holdings, acquired FareHarbor, and TripAdvisor purchased Bokun. Now, all of their futures are in jeopardy as in-person commerce fades.
2. Quick Pivots: Meanwhile, other platforms that saw demand evaporate quickly shifted gears and jumped into adjacent markets. In the simplest cases, demand pivots are successful when executives can shift the business from one demand model to another. Nimble platforms can quickly detect changes in demand and can better match their supply and demand sides, even in the face of disruption.
In the case of Bandsintown, the platform successfully transitioned from a physical presence to a digital one. The concert platform — with 58 million users and more than two million events listed each year — created new digital experiences to help music fans connect with their favorite artists while they quarantined.
Despite setbacks, we believe that platforms will become even more resilient, especially compared with standard incumbent firms, because of their ecosystem strategy. One reason is that their production takes place largely outside of the firm (what we call the “inverted firm”), which makes them adept at working with a diverse set of changing partners. This built-in agility allows them to more swiftly switch to new partners and customers, should the need arise. And as we now know, that can happen very abruptly!
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