As the digital market continues to mature and customer needs become more sophisticated, platform strategy is gaining attention around the world, including in Japan. Platform strategy is a model for building new competitive strength by collaborating with those within a business as well as external players to create value together. In this article, we’ll examine the reasons for the growing focus on platform strategy and the factors contributing to its success. We’ll provide business examples from Japan and overseas, so that you can more easily understand what exactly platform strategy is and how it can be used successfully.

What’s in this article?

• What is platform strategy?
  
• Reasons for the growing focus on platform strategy
  
• Keys to implementing platform strategy successfully
  
• Overseas examples of platform strategy
  
• Domestic examples of platform strategy
  
• Possibility for expansion with platform strategy
  

What is platform strategy?

Platform strategy is a business model that provides a place to trade goods and services, attracting a large number of users to increase a business’s profits.

Like Amazon Marketplace, Airbnb’s accommodations brokerage, and Uber’s ride-sharing service, platform strategy involves a mechanism that connects supply and demand, and it efficiently facilitates transactions.

Platform businesses are characterized by operators not needing to arrange everything themselves; as more participants join, the business’s ecosystem expands, creating network effects (i.e., the phenomenon in which the value of a platform increases as more users join). This, in turn, increases the business’s competitive advantage.

Reasons for the growing focus on platform strategy

Here are some reasons that platform strategy is gaining attention.

Low barrier to entry

With traditional ecommerce site-based businesses, operators had to handle everything themselves, from product registration and customer acquisition, to payment processing and logistics. But with an established platform, businesses can easily enter the market and begin selling without needing to manage all the different aspects themselves.

For example, platforms such as Mercari and BASE—which allow users to list items by simply using their smartphones—significantly lower the barriers to starting a business and therefore attract a diverse range of sellers. This low barrier to entry is a major factor behind the rapid expansion of platform use.

Rising customer expectations

Today’s customers want not only to buy products, but also to have convenience, reliability, and a variety of choices. Platforms bring together a wide range of sellers and services to provide experiences, such as product comparisons and multiple payment methods, that can be difficult for ecommerce sites to achieve on their own. This means the value of platforms tends to be higher for both users and businesses; hence, they get more attention.

Keys to implementing platform strategy successfully

Here are some things you need to keep in mind to ensure a successful platform strategy.

You need to clarify the value for all participants

A platform should not benefit just one side. There needs to be a mechanism that offers distinct value to all of the participants.

For example, in the case of a ride-sharing app:

• For drivers: Stable income opportunities and efficient operations
  
• For riders: Reduced wait times and price transparency
  

In the case of an ecommerce platform:

• For sellers: Access to a broad customer base and streamlined sales management
  
• For buyers: The convenience of a diverse range of product options and a variety of payment methods
  

This balanced design of incentives for both sides is the precondition for platform strategy success.

The platform must be capable of handling scale expansion

Successful platforms are designed to operate smoothly even when there’s a surge in participation. Processing payments and money transfers tends to be especially troublesome when the number of users rises rapidly.

In addition to credit card payments, it is advisable that you incorporate payment methods that are popular in Japan, such as convenience store payments and cashless payments. Stripe Connect offers payment functionality designed for marketplaces and sharing services, and automates payments to both domestic and international sellers and partners. This allows for the efficient management of payments across multiple business partners, including revenue sharing, fee collection, and the handling of international transactions. By integrating these functions, your business can achieve smoother and more efficient operations.

You need to comply with relevant regulations

In fields such as finance, healthcare, and logistics, regulatory compliance is simply unavoidable. To earn the trust of users, your business must operate services while adhering to the rules governing payment processing, personal information protection, and taxation.

Overseas examples of platform strategy

There are many examples of successful platform strategy in the United States, in particular. Let’s take a look at a few of these major overseas companies.

Airbnb

Airbnb has grown rapidly by connecting hosts who have accommodations with travelers looking for places to stay. The business’s key strategy was visualizing trust through a review system to alleviate user concerns. Airbnb adopted an asset-light strategy to expand supply without owning properties itself. By involving hosts around the world, the business quickly achieved network effects.

Uber

Uber has achieved an efficient ride-sharing platform by matching real-time supply and demand through its algorithm. Data-driven strategies allow the business to address the unique transportation needs of each city individually.

A key characteristic of Uber’s platform strategy is its emphasis on localization for each city and early acquisition of market share, including proactive early entry into highly regulated cities, which allowed the business to build network effects faster than its competitors.

Shopify

Shopify has evolved from a simple ecommerce building tool into a business platform featuring an app store and payment processing functionality. By adopting a platform expansion strategy that keeps core functions simple while allowing third parties to provide complementary features, the business has successfully achieved scalable growth.

Domestic examples of platform strategy

Against the backdrop of Japan’s unique market environment, several businesses have been successfully implementing platform strategies. These strategies are tailored to Japan’s culture and regulations, which can be much different from those of overseas markets.

Mercari

Mercari has managed to acquire an overwhelming share of the consumer-to-consumer (C2C) market by allowing anyone to easily list and purchase items, along with offering an anonymous shipping and compensation system.

In the initial launch phase, the business differentiated itself by realizing a completely smartphone-based, thoroughly simplified user experience. Mercari further developed mechanisms to ensure transaction security and steadily achieve network effects.

Rakuten

Rakuten built the Rakuten Economic Zone, centered on its mall-style ecommerce platform, which spans finance, telecommunications, travel, and other sectors. The business has found a way to encompass several facets of users’ lives, and to simplify navigating its ecosystem, Rakuten offers:

• Universal points: Rakuten’s universal points can be used across all services, which encourages increased usage frequency and cross-use.
  
• Universal IDs: Users create a single Rakuten ID to access multiple services, including ecommerce, banking, securities, cards, and mobile. Having a single ID prevents user defection and builds long-term customer relationships.
  

Points and IDs function as connectors within the Economic Zone, enabling centralized accumulation and use of customer data. This helps Rakuten cross-sell between services and maximize customer lifetime value (LTV).

BASE

BASE has gained a large number of small businesses by emphasizing how easy it is for anyone to set up an online store.

BASE’s strategy involved targeting myriad small businesses rather than large corporations, which helped expand the platform’s reach and ensure its depth.

Possibility for expansion with platform strategy

Platform strategy goes beyond mere transaction intermediation, enabling companies to break through traditional boundaries and develop new markets and customer contact points. By building mechanisms that encourage participants to create value together, platform strategy enables growth at a speed and scale that can be difficult to achieve with traditional business models.

In the era ahead, business owners might need to shift their perspective away from pursuing victory independently, and instead place the power of connection at the core of their strategies. By adopting a platform strategy, the potential for opening up new revenue opportunities and achieving sustainable growth is significantly expanded.