Shopping in the modern era has closely linked digital platforms to the lives of customers. Companies create economic value by analyzing and using customer data. Concerns exist about the transparency and fairness of transactions using digital technology, and Japan is developing rules to regulate the market around digital platforms.

This article explains what a digital platform is—including its basic structure and construction—along with regulations and examples in Japan.

What’s in this article?

• Digital platforms explained
  
• Features of a digital platform
  
• Types of digital platforms
  
• Examples of digital platforms
  
• Key considerations when choosing a digital platform
  
• Steps for building a digital platform
  
• Problems with digital platforms
  
• What is the Act on Improving Transparency and Fairness of Digital Platforms (TFDPA)?
  
• The social role of digital platforms and future developments
  

Digital platforms explained

A digital platform is online infrastructure that allows companies and individuals to connect with other companies and individuals on the internet. Users take advantage of digital platforms for sharing various services and information as well as for buying and selling products. Online shopping sites, social media, and cloud services are all examples of digital platforms. They have permeated our daily lives and have become an indispensable part of them.

Note that the term “marketplace” represents a similar concept. Economic predictions indicate that by 2027, users will conduct 59% of global online sales through online marketplaces, with companies and customers using these platforms to process many transactions.

Features of a digital platform

Digital platforms have different features depending on their purpose and application. Their individual designs meet different needs:

Increasing users and convenience

Designers and programmers structure digital platforms so the value of the community and services increases as the number of users increases. For example, the more people who register with a social networking service, the more active the interaction within the network. The more users there are, the more frequent the posts and activities of users will become, and this will naturally attract new users.

Connecting user groups

A digital platform serves to connect multiple user groups. As an example, YouTube provides a place where both creators and viewers can connect and meet their needs.

Using data to enhance services

You can streamline operations by analyzing users’ attributes, behavior, and preferences and by customizing the content of services to suit their needs. For example, when shopping on Amazon, you will often see recommendations for products based on previous purchases or searches. This is one way to improve the shopping experience for customers.

Types of digital platforms

There are various digital platforms, each with specialized functions for different purposes. The following are typical types of platforms that have permeated our daily lives:

Communications

Tools used for exchanging messages and sharing information—such as video calls, email, chat, and project management tools—fall into this category. Some of the most popular ones are Zoom, Microsoft Teams, Asana, LINE, and X.

Trading

These platforms are for buying and selling products and services and brokering transactions. Amazon, eBay, and Mercari are examples of this type.

Content and media

These platforms provide content creation and distribution on a platform that enables entertainment and information sharing. This includes video and music distribution platforms, such as YouTube, Netflix, and Spotify.

Cloud service

A typical cloud service provides online management, storage, and processing of data and applications. Some examples include Amazon Web Services (AWS), Google Cloud Platform (GCP), Microsoft Azure, and Dropbox.

Examples of digital platforms

The following digital platforms are a boost to business efficiency and everyday life in Japan. It’s important to understand how businesses use them:

Hitachi Cloud

This cloud service provides advanced cloud infrastructure, data center services, and software— mainly for businesses—and supports large-scale digital transformation.

Security and compliance are the highest priority, and industries that require high security standards—such as the financial industry and government agencies—can use the system without concern.

Ministry of Land, Infrastructure, Transport and Tourism (MLIT) data platform

This platform allows you to search for transportation, urban infrastructure, or disaster data in addition to other information provided by the Japanese MLIT. The government manages this data to protect the safety of residents and to provide efficient support to them in the event of a disaster. By strengthening ties between local governments, the platform helps to solve issues specific to each region and create a sustainable society.

CrowdWorks

This marketplace connects freelancers with companies and individuals who want to commission work online. The platform has a built-in messaging function and task management function, ensuring a direct line of communication between clients and freelancers. You can also manage agreement creation, fee setting, and payment processing.

Many companies employ Stripe as a payment agency to build and provide online payment infrastructure. Stripe Connect is a payment tool designed for marketplaces that connect sellers (i.e., ecommerce companies) and buyers, such as ecommerce malls and freelance service platforms. It can efficiently manage the transfer of funds with multiple business partners and provides many functions such as sales distribution, commission collection, and international transaction support.

Key considerations when choosing a digital platform

When choosing a digital platform, there are several points you should pay attention to:

High level of security

As many platforms handle personal and confidential information, security measures are extremely important. You should check that multiple robust security measures are in place, such as data encryption, access control, backup, and two-step authentication. This is key for reliability. Make sure you check the security of your chosen platform.

Functionality and convenience

Check that the software has the functions you need. For example, if you have an ecommerce site, you should choose a platform that excels in payment systems and product management functions. If collaboration among multiple teams is important, you should choose a platform that specializes in communication.

Integration of application programming interface (API) tools

If the platform can’t integrate with your current tools and systems, it might be better to avoid using it, even if it offers more features and functionality. Check whether you can use it in conjunction with the tools and systems you are already using and whether it can use APIs.

Steps for building a digital platform

A digital platform must be built in stages. Plan ahead to develop an efficient platform:

Clarify your objectives

Clarify your vision for building the platform, such as facilitating transactions between companies, connecting companies and customers, or promoting interaction between customers.

Ensure you specify your target user, analyze customer attributes and competitors, consider how to provide value to users, and determine how to generate revenue.

Select functions and technology

The required functions will differ depending on the type of platform you are building. Create a list of the main functions that fit your business model.
Choose the technology you want to use—such as programming languages, databases, frameworks, and cloud services—to suit your needs.

Create and test a prototype

In order to minimize risk, try developing a small-scale prototype (i.e., trial model) with basic features. Conduct user testing to ensure usability, function, and design all work as planned. Use user feedback to remove bugs and improve the prototype, and repeat the testing process if necessary.

Develop the full-scale platform

Once the prototype meets your evaluation criteria, you can then move onto developing the final, full-featured platform. Improve the scalability and design of the system by incorporating an intuitive design that can handle a large number of users.

Problems with digital platforms

Digital platforms come with some downsides, so it is important to make sure you understand them clearly and be prepared for them:

Protection of personal and confidential information

A wide range of personal and corporate data ends up online. If there is an information leak without security measures in place, customers’ personal information could be at risk. The company could also be held liable. This can have a major impact on the reliability and operation of a company and make it difficult to continue business.

Market domination by some companies

Some digital platforms controlled by large corporations dominate the market, making it difficult for new companies to enter. Users are then forced to rely on existing platforms. This can lead to an increased disadvantage for customers and small and medium-sized enterprises.

Hard-to-integrate systems

If a system uses nonstandardized APIs and protocols, integration might not go smoothly when business owners use multiple platforms. You can mitigate this by using platforms that comply with international standards.

What is the Act on Improving Transparency and Fairness of Digital Platforms (TFDPA)?

In recent years, transactions using digital technology have become more common, and digital platforms have come to play an important role. However, many have raised concerns about the transparency and fairness of transactions.

To ensure the market for digital platforms develops healthily, the Ministry of Economy, Trade and Industry (METI) developed the TFDPA on May 27, 2020 and announced it on June 3, 2020. It took effect February 1, 2021.

Owners of platforms the government has judged to be highly necessary for improving the transparency and fairness of transactions are now “designated digital platform providers” and are subject to regulations.

According to METI, designated digital platform providers must disclose information (e.g., transaction terms), establish voluntary procedures and systems, and submit a report with a self-assessment of the measures taken and an overview of the business each fiscal year.

The social role of digital platforms and future developments

Digital platforms play an important role in simplifying the collection and sharing of information and business transactions. In the future, further globalization and advances in digital technology could create new value in business and society. Many expect digital platforms to have an even greater impact in the future.