Digital Business Models

Sébastien Ronteau, Laurent Muzellec, Deepak Saxena, Daniel Trabucchi
Digital Business Models
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Sébastien Ronteau, Laurent Muzellec,
Deepak Saxena, Daniel Trabucchi
Digital Business
Models
The New Value Creation and Capture Mechanisms

of the 21st Century

ISBN 978-3-11-076241-9
e-ISBN (PDF) 978-3-11-076255-6
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DOI https://doi.org/10.1515/9783110762556
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This book is dedicated to my colleagues, friends, students and alumni at Audencia
and Trinity Business School, who have sometimes been “guinea pigs” and often
partners in passionate discussions regarding digital business models and digital en-
trepreneurs, and the way they are bringing a change to our world as well as the
manner in which we interact.
I extend a tender and grateful thought to my companion and soul mate, Yasmine,
and my amazing children, Antton and Lilas, for their patience and unfailing support
when I locked myself in the attic to write these lines and many others. I love you.
– Sébastien Ronteau
This book is dedicated to my beloved wife Lisa, my beautiful children Lena, Barra and
Killian and my dear sister, Anne-Francoise. – Laurent Muzellec
Dedicated to my dear parents, G.P. Saxena and Madhu Saxena, and my wife, Nisha.
– Deepak Saxena
This book is dedicated to the Irish adventure. Joining Trinity College in 2017 was a
needed step in my PhD path, which turned out to be the beginning of a great
friendship with Laurent and Seb. Meeting them through the rainy days that were
spent writing various articles was an unexpected surprise that represents several
different things today: our conference, our projects and this book, along with the
many great moments spent together, and the memories we will continue to make.
So, thank you, “Irish” friends – this book is dedicated to our great adventure to-
gether. . .and all the projects to come! – Daniel Trabucchi

Preface
Every story has a context, a plot, and an ending. Behind the development of this book,
there is a long story with several twists and turns, encounters, dead ends, joys and
achievements.
I perfectly remember how it all began. At the time, I was not aware in the slight-
est that it would take up so much of my time and passion for years to come.
Laurent and I were enjoying coffee. He had just moved back to Ireland to de-
velop a new master's in digital marketing. We had been already working together
on one of our first articles on two-sided Internet platforms. In 2012, business models
and the way the new companies were making money influenced our conversations
and academic debates. Laurent is a professor in Marketing with a background in
Political Science, whereas I am a professor in Entrepreneurship with a background
in Economics, Strategy, and Innovation. Rather than sundering us, our discussions
revealed the benefit of observing digital enterprises from different lenses: market-
ing, strategy, and entrepreneurship.
Laurent invited me to conduct a course on Digital Business Models in the newly
launched MSc. No one seemed to have taught a module such as this one before. I
was enthusiastic and started digging frantically for information in books, blogs,
and academic articles. I found that knowledge in this area was scarce and dissemi-
nated over grey literature. Practitioners mainly focussed on business modelling
while researchers seemed to be stuck on the traditional economic considerations.
The course was a success and has now been duplicated in Ireland and France.
Needless to say, the Internet context changed; however, it is always challenging to
train students and help them see beyond the consumer perspective to assess the
strategic risks behind those well-known digital businesses that we admire for their
success and the services they provide.
Along the way, we found companions and friends. Deepak, with his vast knowl-
edge in Information Technologies, worked for Trinity Centre for Digital Business
and Analytics. The centre, which was launched by Laurent, mirrors our desire for
multidisciplinary research. Its goal is to foster multidisciplinary research to create
and disseminate knowledge regarding digital business. Further interactions with
CEOs and digital leaders fuelled our thoughts and ideas.
Daniel brought his background in Innovation Management as well as his intel-
lectual enthusiasm for digital platform dynamics. He joined Trinity as a visiting
PhD scholar from Politecnico di Milano. In the beginning, we were flattered as Dan-
iel approached us regarding our joint paper, which had inspired him. We were then
quickly impressed by his dynamism and prolific production on digital platforms.
Daniel began several projects and invited us to contribute to some of the papers on
the sharing economy, the value drivers behind digital businesses and the future of
multi-sided platforms. We nurtured our passions on digital platforms through the
Symplatform, an industry-academic symposium, which was initiated by Daniel:
Open Access. © 2023 the author(s), published by De Gruyter. This work is licensed under the
Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
https://doi.org/10.1515/9783110762556-202

VIII Preface
Symplatform is the place where academic knowledge meets the practice world to foster a criti-
cal discussion on what platforms are, how they work and what they can become for people,
organizations and our society.
Symplatform continues to influence a growing community around a yearly event

and is now serving as a platform for its participants with different outlets, such as
podcasts, books, MOOCs, and other initiatives.
Did I lose you? Why and how did we end up writing this book?
This book is a natural outcome of all the above. The pandemic was the opportu-
nity to recall and realise this. Ultimately, it acted as an accelerator. We realised that
we had the content from courses, case studies, conversations with digital leaders, a
body of academic papers, and a team of individuals from different backgrounds
who worked well together. Finally, we had found the energy and the time to settle
our findings and views on Digital Business Models.
This book addresses how ventures design digital services to generate value. We
adopt a strategic perspective to surpass the consumer perspective and analyse the
business models at work in the digital arena.
The ambition is to give the readers a starting point – and hopefully much more –
to address the complexity and a systemic perspective on the characteristics and im-
plications of running a digital business. In addition, a business model as a concept is
the perfect layer to recombine the rationales and logic of business actions underpin-
ning a vision and a mission. It is not a listing of digital business models in a norma-
tive call. Rather, it is an open-ended perspective and personal thought on how we
make sense of specificities and challenges of the best in class. For each chapter, we
draw some “key takeaways and further considerations” for entrepreneurs, managers,
and future digital leaders.
We hope that the same spark that drives us will touch you through your jour-
ney. Enjoy your trip to Digital Business Models: New Value Creation and Cap-
ture Mechanisms of the 21st Century.
S. Ronteau

About the Authors
Sébastien Ronteau is a professor of Entrepreneurship and co-head of
the Hub for Exploration and Entrepreneurship at Audencia Business
School. His research interests focus on Strategy, Entrepreneurship,
and Digital Startups with a close look at Business models and
ecosystems dynamics, as well as on entrepreneurial practices. His
academic work has appeared in top-tier academic journals, such as
Entrepreneurship & Regional Development, Industrial Marketing
Management, Internet Research, and Creativity and Innovation
Management. He is also an Adjunct Faculty at Trinity Business School,
Trinity College Dublin, since 2017. He co-founded Symplatform in
2020. He advises start-ups and teaches digital business models and
entrepreneurial business planning at executive levels.
Laurent Muzellec is a professor in Marketing and the founder and

director of Trinity Centre for Digital Business and Analytics as well as
the MSc in Digital Marketing Strategy at Trinity Business School,
Trinity College Dublin. His research interests pertain to the field of
digital business models, electronic Word of Mouth, and brand
management. His articles have appeared in several international
publications, including Industrial Marketing Management, Marketing
Theory, Journal of Advertising Research, and European Journal of
Marketing. Laurent teaches marketing strategy and digital marketing
at the executive level, such as Executive MBA. He co-founded
Symplatform in 2020.
https://doi.org/10.1515/9783110762556-203

X About the Authors
Deepak Saxena is an Assistant Professor at the School of Management

and Entrepreneurship, Indian Institute of Technology Jodhpur. He
holds a PhD in Management Information Systems from Trinity College
Dublin, Ireland. After obtaining his PhD, he worked with Trinity College
Dublin as a research fellow in Digital Business, Dublin Institute of
Technology as an assistant lecturer and Birla Institute of Technology
and Science Pilani as an assistant professor. He has published his
works in journals such as Australasian Journal of Information Systems,
Electronic Journal of Information Systems in Developing Countries,
International Journal of Project Management, Irish Journal of
Management, Journal of Information Science, and Journal of
Information Technology Teaching Cases, among others. He is currently
serving as an associate editor for the Electronic Journal of Business
Research Methods (Scopus-indexed) and serving on the review panel
of more than ten internationally reputed Information Systems journals.
Daniel Trabucchi is an assistant professor in Innovation Management

at the School of Management, Politecnico di Milano, where he also
serves as a senior researcher in the LEADIN’Lab, Laboratory for
LEAdership, Design and INnovation. He co-founded Symplatform, the
symposium on digital platforms, which fosters discussions among
scholars and practitioners. He is a scientific director at IDeaLs, a
global research platform focusing on digital transformation processes.
His research has been published in Journal of Product Innovation
Management, Technological Forecasting and Social Change, R&D
Management, International Journal of Entrepreneurial Behavior and
Research, Internet Research, Research-Technology Management, and
Creativity and Innovation Management.

Contents
Preface VII
About the Authors IX
1 Beyond Digital Ubiquity: The Digital Business Model Iron Triangle 1

1.1 Be Kind, Rewind 1
1.2 Spotify and Netflix: Spotting the Uniqueness of a Business
Model 3
1.3 The Digital Business Model Iron Triangle 7
Part 1: Mastering the Power of Networks: Who is Creating

Value?
2 Looking Behind the Scene: Assessing the Value Drivers Behind Digital
Business Models 13
2.1 A Digital Disruption at Work 13
2.2 Business Models as the Perfect Layer 16
2.3 Value Drivers Behind Digital Business Models 20
2.4 Key Takeaways and Further Considerations 24
3 Digital Platforms: Unlocking the Power of Networks 27

3.1 We are in a Platform Economy 27
3.2 Creating Conditions for Plug and Play 33
3.3 Platform Development Stages 37
3.4 Facing the Chicken-and-Egg Issues 39
Part 2: Reshaping Markets: How is Value Configured?
4 Marketplaces: Better, Faster, Stronger? Removing Frictions

in E-commerce 49
4.1 The Rise of Digital Merchants 49
4.2 Key Challenges 56

XII Contents
5 “Social” at the Core of a Digital Business: Valuing Audience or the

Community? 65
5.1 Social: From Latin socius, “Friend” 65
5.2 Audience: Monetising Attention and Data 66
5.3 A Business System for Advertisers and Influencers 71
5.4 Ethical Concerns over the Attention/Data-Driven Business
Model 73
5.5 The Rise of Social Commerce 76
6 Unlocking the Sharing Economy: Scaling Trust with Digital 81

6.1 A Disruptive Phenomenon 81
6.2 Seeing Through the Fog of Collaborative Economy 82
6.3 Value Drivers Behind Sharing Economy 84
6.4 A Typology of Business Models Behind Digital Sharing 85
6.5 Lemons Problem and Online Trust 87
Part 3: Capturing (and Locking) the Value: How Is Value

Captured?
7 Brokerage Model: Scaling with Fees on Marketplaces? 95

7.1 Why are Transaction Fees so Developed? 95
7.2 Who is Willing to Pay the Bill? 99
7.3 Pricing: The Influence of Competition and Cost 101
8 The Magnitude of Subscription: Monetisation of “Everything-as-a-

Service” 107
8.1 A Subscription Economy? 107
8.2 “Everything”-as-a-Service 108
8.3 Monitoring Subscription 112
9 “Free” is Not a Business Model: Business Models Behind Free 119

9.1 Free as a “Hot Button” 119
9.2 Who/What Subsidises the Value? 120
9.3 Mind the Paywall 124

Contents XIII
10 Looking Forward: Is Winter Coming? 133

10.1 Customer Intimacy, Data, and Its Implications 133
10.2 Winners of Today and Winter of Tomorrow 136
10.3 “Winter is Coming” or “the Future is Already Here”? 139
Appendices: Illustrative Case Studies
A The OLIO Case Study: A Social Enterprise App Tackling the “Chicken and
Egg” Paradox 145
B Amazon Versus Alibaba: Amazon is Amazing, but can Alibaba Dethrone

it? 151
C BlaBlaCar: Value Creation on a Digital Platform 155
D Hubspot: A Complex Subscription Model for Inbound Marketing 165
E AirBnB: Managing Trust and Safety on a Platform Business 167
List of Figures 179
Index 181

1 Beyond Digital Ubiquity: The Digital Business
Model Iron Triangle
We live in a digital world: digital services surround us in every moment of our daily lives. These
devices, such as smartphones, have revolutionised the way we communicate, entertain our-
selves, connect and form political opinions, as well as the way we look for information regard-
ing products and services and how we buy and access them. Mobile phones have become more
than another digital device since they are now used as an extension of ourselves. Not surpris-
ingly, some of the most successful companies of our times, including Facebook, Google, and
Apple, have managed to capitalise on their intimate access to and knowledge of the hyper-
connected consumer. They have positioned themselves at the heart of the digital ecosystem,
which provides them with unlimited reach to all of us, along with an ability to collect and har-
vest behavioural data about any end-user. These companies are trading on ubiquity, an omni-
present awareness of the customer and their journey. In this book, we surpass digital ubiquity
to analyse how internet companies foster a digital business ecosystem and establish a sus-
tainable competitive advantage by developing new revenue and business models. In this chap-
ter, we contextualise this new digital environment, followed by contrasting the dynamics
behind the success of the two transformative digital players – Netflix and Spotify – to illustrate
how digital businesses can create, propose, deliver, and capture value. This leads us to pro-
pose an Iron triangle of a business model that echoes three key questions: Who is creating
value? Which configuration (shape) does this value take? And finally, how sustainable is the
competitive advantage?
1.1 Be Kind, Rewind
Let’s stop the time, and rewind. Fifteen years ago, almost none of us had a smart-
phone – the iPhone was first released in the United States on June 29, 2007. Ten
years ago, many of us owned a smartphone, and if we could do almost everything that
we can do today via digital devices (the iPad was released in April 2010), most of us
did not.
The digital devices were available; however, they were not as pervasive, and cer-
tainly not ubiquitous. Most of the companies – Google, Spotify, Netflix, Airbnb, Uber,
Strava, Slack, Twitter, Facebook, LinkedIn and YouTube, to name a few – that were
going to shape our everyday interactions with one another, with ourselves and with
companies and services had already been founded. Certainly, entrepreneurs toyed
with ideas and concepts, which are now well established; however, those concepts
and ways of interaction had not yet found their spot in our everyday life. We were –
at least sometimes – still buying (and using) CDs and renting DVDs. We may still
have called hotels to book a room and walked (or phoned) the restaurant for a pizza.
We were running without knowing exactly how many kilometres we were running
and at which pace.
https://doi.org/10.1515/9783110762556-001

2 1 Beyond Digital Ubiquity: The Digital Business Model Iron Triangle
We Were Going Fast. . .
Through our rapid adoption of digital devices and the lagging but corollary change of
behaviour, we were expeditiously increasing the pace of the digital revolution. By
2016, 3,668 billion smartphones were already circulating around the globe, and ac-
cording to Statista, that figure has now doubled to a whopping 6,259 billion;1 implying
that around 84% of the world population (7.9 billion) is now digitally connected.
Now, what about our behaviour? Well, it has also evolved, as we now spend
much more time in front of our screens – between 1.5 and 7 hours per day on average
for the western world!
This is a cause for concern, and screen addictions are now a well-identified pathology.
Consumer buying behaviour has also advanced. The 24/7 communication characteristics
of mobile technology have not added or withdrawn any steps in the consumer’s purchase
journey; consumers still undergo the need, research, purchase, experience, and sharing
of experience stages. However, with a mobile phone, which acts now as a digital exten-
sion of us, all these moments have now been merged into what some authors have
described as a digital ubiquitous moment of truth (Muzellec & O’Raghallaigh, 2018).2
In the office, the pace of change was somehow slower. Decades of teaching and
research in business schools taught us about linear value chains, setting prices through
the markup and estimating the value of a company through its potential market size.
All of it is relevant and valuable in the real world; however, it is often not as useful in
the digital world.
We Need New Ways of Reading the Reality Surrounding Us
We need new models, tools and eyes to read the reality around us and the models
behind the services we continuously use.
We can read everywhere about the parallelism between Uber and Airbnb and
the flagship cases of the platform economy. We read articles that continuously pit
Amazon and Apple against each other. Twitter, Facebook, Instagram and TikTok
are all different faces of the same business. i.e., social networks. Spotify is the Net-
flix of music, and Netflix is the Spotify for movies.
Using comparison or what we already know, we tend to simplify the reality. By
finding patterns, we wish to express a novel concept through another concept that we
may be more familiar with. This book aims to avoid this and rather provides the
reader with the right tools to examine the differences amongst all the digital services;
 https://www.statista.com/statistics/330695/number-of-smartphone-users-worldwide/.
 Muzellec, L. & O’Raghallaigh, E. (2018). Mobile Technology and Its Impact on the Consumer Deci-
sion-Making Journey. Journal of Advertising Research, 58, 12 LP–15. doi: 10.2501/JAR-2017-058.

1.2 Spotify and Netflix: Spotting the Uniqueness of a Business Model 3
and, more importantly, the complexity and sometimes the uniqueness of their busi-
ness model, otherwise known as “the way they make money”. Hence, let’s have a
look and spot the key differences between the business models of two companies that
are often presented as very similar.
1.2 Spotify and Netflix: Spotting the Uniqueness

of a Business Model
Spotify and Netflix are two of the greatest game-changers in the entertainment
industry.
Spotify was founded by Daniel Ek and Martin Lorentzon in Stockholm, Sweden,
in April 2006. It went live in 2009 in the UK, with the slogan and vision, “Music is for
everyone”. Nowadays, Spotify has more than 400 million users worldwide, garnering
around 10 billion US dollars in revenues, while streaming most songs produced and
delivered in the world.
Netflix has a longer history. Reed Hastings and Marc Randolph founded it in 1997
in California. In 1998, it went live with its first website, with 925 movie titles available,
which were to be sent around the country in DVDs through the mail system. Nowa-
days, it has more than 220 million users spread across the globe, with almost 30 billion
US dollars in revenues and a continuously evolving catalogue of movies, TV shows,
and games.
These two companies are often told as similar stories in comparable industries.
Spotify challenged and changed the music industry significantly by introducing a new
revenue model along with several other changes. Netflix is considered the pioneer of
the streaming platforms revolution that is changing various fields at once, from the
television industry, which sees its affectionate viewers being less and less affectionate,
as well as the cinema industry, which saw a new competitor/player entering in the
game for theatres, producers, and the overall distribution chain.
They may look similar, but they have a few notable differences that can be illus-
trated through the value dimensions that underlie a business model and thus revis-
ited in a digital business: value proposition, value architecture and value capture.
Value Proposition: What is the Clearest Benefit for Users?
Let’s begin by assessing what these two companies propose to the market. Value
proposition deals with the product or service offering and more broadly the definition
of what the company proposes to its customers.
A very first exercise, useful to assess how a company portrays its offering to the
market, is surfing the web – as not logged-in users – to assess the very first message
it provides to a prospect. Spotify, following a promotion to acquire three months of

premium for free, shows its mission: “Listening is everything: millions of songs and
podcasts. No credit card needed”.
These few words, and the short ad, tell a great deal about the company. It consti-
tutes the initial value proposition. Spotify offers a freemium service focused on listen-
ing, and it deals with songs and podcasts. It can also be completely free to use. In
other words, Spotify offers a legal way to listen to music and podcasts for free from all
over the world, with millions of songs available at your disposal anytime, anywhere,
with a tap.
Netflix starts off differently: “Unlimited movies, TV shows, and more. Watch any-
where. Cancel anytime”. By scrolling down the page, we can find various call outs:
the chance to watch it on your TV, download shows, multi-home on various devices,
and a dedicated sections for kids.
Netflix is a streaming platform that aggregates various kinds of visual content and
makes them available everywhere, paying a subscription fee that you can cancel any-
time. We’ll return to this notion soon.
The value proposition of the two companies seems similar to us as end-users
when they are compared. It changes the object – from audio to video – but it offers
great points of commonalities: it is everywhere, on-demand and digital.
Those value propositions may evolve over time and may be communicated
differently.
“Listening is everything” is not the first claim they used. Spotify started off
with a slightly different claim: “Music is for everyone”. This shift in focus reveals
the initial ambition of the company and its aspiration for the music industry.
In the early 2000s, the music industry was quite diverse. Those years are charac-
terised by the legal battles of the music labels, trying to compete against the rising
digital world. It began in the 90s when DVD/CD burners enabled people to duplicate
CDs. This continued with digital services that enabled peers to share digital files,
such as music. CDs sales dropped dramatically, and the more labels fought against
these digital services by closing them down through legal actions for copyright viola-
tion, the more they popped up someplace else, always more successful. Among these
services was uTorrent, one of the most famous peer-to-peer communities, which was
headed for a short while in 2006 by Daniel Ek, just before he established Spotify.
Being aware of the piracy world, the founder of Spotify wished to create an en-
vironment where Music was for everyone – i.e., all types of listeners, but also all
types of artists who needed to live off their art. The platform aimed to offer a model
that was believed to be fairer than what it used to be.
Netflix also aimed to develop a better model for serving users and a better way of
making money. Netflix challenged the model of big players, including Blockbuster.
The Blockbuster model had a major flaw; essentially, it was making money in a man-
ner that was distressing for the customers. Traditional rental companies let customers
rent a DVD for 24 hours and then imposed late fees for anyone who failed to return
the DVD in time. This was quite inconvenient for potential users who had to rush to

1.2 Spotify and Netflix: Spotting the Uniqueness of a Business Model 5
watch the DVD in less than 24 hours or felt punished and stupid if they forgot to rush
back to the store to return it.
Netflix erased those pains through a subscription-based service. Take the DVD,
keep it as much as you wish, enjoy it, and when you are done, send it back. Cus-
tomer value was at the epicentre of the business model.
In 2007, the company moved towards streaming services. Netflix proposed a prize
of $1,000,000 to the first developer of a video-recommendation algorithm that could
beat its own existing algorithm, Cinematch. The competitive set had evolved, and Net-
flix needed to beat a different set of companies, such as cable television in the US or
pay-tv in Europe. Netflix’s competitors included all companies that make, through
various technologies, a premium selection of titles available for the customers.
The “Cancel anytime” slogan took on a completely different meaning. Have you
ever tried to cancel a subscription on pay-tv? It is one of the most challenging adven-
tures you may have in the entertainment world between letters, credit cards, and
banks. Netflix doesn’t want it. Cancel anytime. They subtly claim that the service is
just so good that you will want to stay. You – the customer – are at the centre. The
current slogan, “See what’s next” is more subtle and does not refer to a specific attri-
bute. As explained by Barry Enderwick, former Director of Marketing and Subscriber
acquisition at Netflix (2001–2012):
“See what is next” has at least three connotations: 1. Netflix is creating new content all the
time (see the next big hit), 2. They’re ‘reinventing TV (see the next platform), 3. You can binge
watch since episodic shows as they’re available all at once (see the next show).
The implies the same focus on user value but different stories and communication
tactics. . . yet it’s probably dependent on what they do and how they do that wherein
the two companies differ.
Value Architecture: How is the Value Created and Engineered Over Time?
How do those two digital players create value? What are their competences? What
are their key assets? Who are their key partners? Overall, what are the mechanisms
by which the products and services they offer acquire value that can be then brought
to the market?
Both services are often referred to as “platforms”, and as such, share some com-
mon characteristics.
Spotify changed the music industry, but it is not a music company. It is a tech
company, which could possibly be a data company. It creates value by enabling par-
ties to meet on its platforms through a match-making mechanism. In other words, Spo-
tify matches customers’ taste or listeners to specific artists who can deliver their music
worldwide through the tech infrastructure built by Spotify.

Let’s put it in a very straightforward way: artists cannot be suppliers. Suppliers

are paid for what they supply, like vegetable producers who sell their vegetables to
a restaurant, or movie producers who sell the rights to broadcast a movie for a cer-
tain amount of time to a television channel. There is no reason for the supplier to
say no, if not for strategic reasons.
For Spotify, it was different. Spotify was required to convince copyright holders –
primarily labels and publishers, but also distributors, performing rights organisations
and artists to join the platform – they are providers who are not receiving money just
for existing, but rather, they will make money if someone listens to them. In 2021,
Spotify paid out $7 billion to the music industry. As for Airbnb or Uber, Spotify could
be considered as a platform – a transactional one, as we will see later in the book.
Spotify creates value by setting up the architecture where listeners meet artists.
This encounter is facilitated, thanks to a great ability to manage data. Spotify built a
great recommendation algorithm through which it builds playlists, suggests songs and
new artists, or simply lets you listen to something when an album is over. You usually
like this feature so much that you hardly realise it.
And Netflix? Well, there is a huge point of contact: data. Still, it might probably be
the only one. Netflix creates value exactly in the way we mentioned above while dis-
cussing a television channel. Netflix picks movies and tv shows, probably many more
than a usual tv channel. This is probably the reason why it has several features that
make it look like a platform. Netflix works as a curator of a great, large, wide and con-
tinuously changing schedule.
However, this is not what made it such a great company. Netflix, especially out-
side the States, achieved the greatest of its popularity starting from its original shows.
House of Cards, their first great success, was followed by Stranger Things, La Casa de
Papel, Squid Games, Bridgerton, The Witcher, Lupin, and several others.
Netflix is a tech company, but it is also a producer of movies, tv-series, and tv
shows. Netflix heavily relies on data, which is used for individual recommendations.
Better yet, it is used to decide which movies to produce, which series should be cre-
ated and with what kind of casts, how to work on the plot to keep viewers engaged,
and so on.
The two companies differ only slightly in their value delivery, which traditionally
describes the choice made by the company for target market segments and distribution
channels. Both have a general and wide target with an individual and family offering,
which provides each member of the household the ability to achieve a personalised
recommendation, thanks to data. Due to its value capture mechanism based on free-
mium, Spotify reaches a wider and younger base of individual users.
In terms of channels, they are both mobile apps, desktop apps, and third-party
apps for almost any type of digital support, such as smart TVs and game consoles.

Value Capture: Where is the Money?
Value capture corresponds to the process through which the company capitalises on
the value it has created to generate benefits for itself, generally in the form of revenue.
Once again, the two cases seem very similar, since most of their revenues are derived
from subscriptions, and yet, those revenues are managed very differently.
Spotify captures value from the listeners’ side – who pay a subscription – or from
advertisers – in case listeners enjoy the free service. At the end of 2021, Spotify had
406 million monthly active users, including 180 million premium subscribers who gen-
erated about 8.5 billion euros in premium revenue (i.e., subscription) and 226 million
ad-supported (i.e., free) listeners who generated 1.2 billion in ad-supported revenue.
Advertising serves as much of a value capture mechanism as a pain point that entices
free users to convert to premium users.
However, that value is shared with the artists that contribute to creating the overall
Spotify experience. After 30 seconds of playing a song, a new stream is counted. Each
artist receives a pay-per-stream payment at a defined rate. Spotify reportedly pays out
roughly 70% of what it gets to artists.
Netflix has a different value capture mechanism. It has a set of fixed and vari-
able costs, related to the production of movies and series and the “rent” of external
productions to be streamed on their service, but they do not share their revenues –
originating from subscribers and licensing of certain original material – with exter-
nal producers based on the views on the platform.
This quick comparison between the two cases shows how unique digital busi-
ness models may be. They may indeed be very similar in terms of value proposition
and delivery, as well as their user, technological and data focus. Yet all businesses
are unique; in this instance, the two differ in how they create and communicate, as
well as the manner in which they capture value.
This book aims to provide the readers with the right tools to analyse and spot
the nuances of successful digital companies and properly assess the fundamentals
of their business model. This analysis can be conducted using several tools and
frameworks, which can be encapsulated within three dimensions that we labelled
the Iron Triangle.
1.3 The Digital Business Model Iron Triangle
Three questions have obvious answers in a traditional business: Who creates

value? What is the underpinning value architecture or the shape of the digital busi-
ness? How is the value sustained over time? The answer to those questions is less
clear for digital businesses, hence the imperative to ask them.

Who is Creating Value?
Spotify creates value-enabling transactions along with value analysis and processing
a large amount of data, but listeners, artists and advertisers each play a key role in
the business ecosystem. With even a single one of them absent, the others would not
exist. Netflix creates value through its technology and the data originating from the
end-users and the partners that create their valuable original products.
In both cases, the “network” plays a great role, but who is the network? And
what are the contributions of participants (both sides) and the service provider in the
creation of the value behind the digital business? Digital – as a technology – has en-
abled in an unprecedented way, the opportunities to engage participants – as value
creators and/or recipients – in a network mode. Therefore, those who survive and
grow master the power of network effects. This will be explored in the first part of the
book.
How Do Digital Businesses Reshape Market Configurations?
Is it a platform? Is it a social network? Is it a marketplace? Is it a simple digital ser-

vice? Digital services may look similar, but they often build on different value archi-
tectures that give birth to various outlooks of business models. Behind the similarities
and the differences between Netflix and Spotify, we touch on the idea of market con-
figurations. Digital reshapes industries, sometimes in quite disruptive ways. This will
be the focus of the second part of the book, addressing different configurations of
markets reshaped by digital players, namely e-commerce, social networks and sharing
economy.
How is the Value Sustainably Captured over Time?
Finally, even if digital businesses are often perceived as free, or almost free, they can
only survive if they have a good value capture mechanism. Hence, the sustainability
of their revenue model over time must be carefully considered. Subscription can be a
way, but it is not the only one. Platforms, for example, enable subsidisation, while
data trading is another popular alternative. All ventures have a profit and loss state-
ment (P&L) that seeks a good return on investments. Creating value is important;
however, capturing part of this value and converting it into sustainable revenues is a
necessity. This will be covered in the last part of the book, where we address different
pricing models (brokerage model, subscription model, free-based business models)
and their specificities in the digital arena.

These three perspectives, the who, the shapes and the sustainability, altogether
represent a unicum for each digital business, a balanced equilibrium that’s hard to
achieve, but extremely consistent and eventually valuable once found.
This is the reason we called it the Digital Business Model “Iron Triangle”
(Figure 1-A). The idea of the “iron triangle” emerges from Project Management,
where the three main variables – time, cost, and quality – must be properly balanced
in the planning phase and then managed throughout the project. During any project,
something might happen that will try to unbalance the triangle, wherein the project
manager’s goal is to balance it back by working on the other variables.
We propose here the same for the digital leader: find your balance, manage the
three variables to achieve the best trade-off between the who, the shape and the sus-
tainability and work throughout your digital business growth to keep it balanced!
Who
The Digital
Business
Model
Iron Triangle
Shape Sustainability
Figure 1-A: The Digital Business Model “Iron Triangle”.

Part 1: Mastering the Power of Networks:
Who is Creating Value?
Who

2 Looking Behind the Scene: Assessing the Value
Drivers Behind Digital Business Models
As digital technology demonstrates rapid changes, it creates a highly competitive environment

that forces businesses to have an effective strategy to remain relevant. The digital can be con-
sidered a catalyst for value-creation as it opens new avenues to exploit the technologies devel-
oped in the last decades. Smart devices provide a wealth of data that is yet to be fully
leveraged by marketers. Behavioural data refers to information produced as a result of actions
and typically tracks the sites visited, the search performed, the apps downloaded and the
games played. Essentially, it allows businesses to acquire an unprecedented insight into con-
sumer preferences at any time and any place. Yet, digital transformation no longer relies on
specific technologies or activities in business. It must be consistent and coherent with the en-
tire business. Irrespective of the industry sector (e.g., retail, services, media, advertising,
travel, health, home and manufacturing), digital has become a strategic foundation of value
chains and a core component of business models and value drivers.
2.1 A Digital Disruption at Work
The Impact of Digital Disruption on Business
As digital technology rapidly changes, it creates a highly competitive environment that

forces businesses to achieve an effective strategy to remain relevant. Digital can be
seen as a catalyst for value-creation since it opens new avenues to exploit the technol-
ogies developed in the last decades. Smart devices provide a wealth of data that is yet
to be fully leveraged by marketers. Behavioural data refer to information produced due
to actions and typically track the sites visited, the search performed, the apps down-
loaded and the games played. Essentially, it allows businesses to acquire an unprece-
dented insight into consumer behaviour. Marketers not only collect this data but also
act on it: the mobile device is the ultimate overlapping device between the outside
world and the consumers’ brains. Successful corporations can populate a smartphone
with relevant apps and media content that can help in capturing the location, behav-
iours, thoughts, mood and social network of potential or actual consumers.
Disruption is a word often associated with digital business, with a significant im-
pact on traditional industries. Uber, for instance, although founded only in 2009, is
now the world’s largest taxi firm. However, unlike traditional cab companies whose
fleets are generally specific to a town or city, Uber is present in more than 900 cities
worldwide and owns no taxis itself. In the accommodation space, Airbnb is the big-
gest player. Within a decade of its inception in 2007, it is now the world’s largest ac-
commodation service provider. Although it does not own any real estate, it lists more
https://doi.org/10.1515/9783110762556-002

14 2 Looking Behind the Scene
accommodation on its website than the Hilton and Marriott chains have rooms in
their hotels even after decades of doing business.
The telecommunications industry has similarly been disrupted by apps like Skype,
WhatsApp and WeChat that let customers make free calls to anyone, anywhere. By
using others’ telecom infrastructure rather than their own, they have effectively be-
come the world’s largest phone companies. In effect, they have commoditised rather
than replaced traditional telecommunications companies by turning them into mere
infrastructure providers. In the e-commerce space, Alibaba has grown to become the
biggest player by brokering leads between buyers and sellers on an enormous scale,
although perhaps since it has no inventory of its own, it is better considered a
marketplace.
Amongst media organisations, the focus for many years has been on putting
digitised content on their websites. However, in recent years, social networks have
revolutionised the industry by changing the way people access news. Facebook and
Twitter, for instance, are now the primary news source for many, even though they
do not create any news content. Currently, rather than reading articles in newspa-
pers, people prefer getting the latest updates based on their areas of interest from
specialist journalists on Twitter. The limited characters in a tweet may not allow in-
depth exploration; however, it is sufficient to cover core facts and provide real-time
information without waiting for news to move through the standard editorial process.
The impact of digital on the print media may be assessed by the establishing outlets
ceasing their print versions across the globe, for instance, The Independent in the UK
(2016), Wall Street Journal in Europe and Asia (2017), The Times Ireland (2019) and
the Playboy (2020) being the latest.
Netflix is the world’s largest movie house but owns no cinemas. Instead, it has
disrupted traditional television stations by offering a catalogue of on-demand tele-
vision series, making pay-per-view movies of traditional cable television networks
virtually obsolete in the process. Netflix pays to license content, after which the
cost-per-view is minimal.
The largest software vendors, Google and Apple, do not write their applications
but provide developers with programming tools that they can use to create applica-
tions that will run Android and iOS, respectively. This has been a huge shift in the way
software is created and distributed. Rather than coding, the main challenge for Google
and Apple is to maintain control over the apps in their stores that are created by third
parties and to avoid those that might not share their vision or may act maliciously. In
order to prevent this, both companies have an approval process for all apps.
Tomorrow’s Leaders in Digital Disruption
GAMA (Google, Apple, Meta, Amazon) may also face future disruption as new compa-
nies might challenge their content, processes, and monetisation. However, they are

2.1 A Digital Disruption at Work 15
at an advantage since they have the money to combat attacks from future competi-
tors. For instance, they may simply buy them before they become too disruptive. An
example of such a scenario is the acquisition of WhatsApp and Instagram by Face-
book (i.e., Meta).
Another advantage is GAMA’s status as the supplier of the digital infrastructure
that is used by disruptors. For example, a cloud storage company, like Dropbox, could
be using Amazon Web Services servers. Moreover, a site that offers users a quick and
convenient login process might be dependent on “Facebook Connect”. This means
that disrupting GAMA may be risky for potential disrupters who might lose access to
infrastructure, leading to a reduction in the disruptive power of such companies.
Other new players in digital business are NATU (Netflix, Airbnb, Tesla, Uber). De-
spite some operational (Tesla production system), regulatory (Airbnb and Uber), and
competitive pressure (Netflix), these companies are registering consistent growth.
Digital Technology, Consumers’ Behaviours, and Social Norms
Digital technology is also evolving the way we behave as consumers. Some compa-
nies are quicker to take advantage of those changes and define new ways of creat-
ing value. The sharing economy, for example, describes a new economic system
wherein assets or services are shared between private individuals. Consumers are
shifting away from fixed ownership towards a system of shared access. Instead of
prioritising buying expensive items, such as houses and cars, consumers, and in
particular millennials, are generally focused on the experience of collective use of
resources. This usage has been enhanced by the Internet.
Eventually, technology allows for the emergence of new business models that
are fundamentally changing society, sometimes by redefining our concept of social
norms, for example (e.g., Facebook) or trust (e.g., BlaBlacar). For instance, in 2010,
Mark Zuckerberg announced that the rise of social networking online meant that
people no longer expect privacy. This assertion was conveniently aligned with the
business model of the social network, which turned out to be at least partially in-
correct. Yet, no one can deny that our attitudes and actual behaviour with regard to
privacy have dramatically changed over the last two decades. This has been acti-
vated or at the very least facilitated by digital technology (smartphone) and the rise
of social networks. Another dramatic shift in social norms can be illustrated by the
users of BlaBlaCar – the world’s leading carpooling company. A study by Arun Sun-
dararajan of NYU Stern Business School showed that users of BlaBlaCar trust its
drivers more than they trust their next-door neighbours. This is thanks to the trust
mechanism put in place by the company. It allows users to witness the reviews
from other BlaBlaCar users, creating a sense of security that brings peace of mind
with respect to getting into a car with an otherwise stranger. This also exemplifies a
significant shift in social norms instigated by technology.

Yet, digital transformation no longer relies on specific technologies or activities in

business. It must be consistent and coherent with the entire business. Irrespective of
the industry sector (e.g., retail, services, media, advertising, travel, health, home, and
manufacturing), digital has become a strategic foundation of value chains.
2.2 Business Models as the Perfect Layer
Business Model: A Powerful Concept Beyond a Buzzword
“Business model” is a ubiquitous buzz phrase that proliferated largely from the in-
ternet boom of the 1990s. In the past, the term was often invoked, as writer Michael
Lewis put it, “to glorify all manner of half-baked plans”. Indeed, some of the early dig-
ital start-ups were not underpinned by any effective business model at all with no gen-
eration of stable and visible pricing mechanisms. Instead, such ventures often relied
on flawed, advertising-driven revenue streams, and offered free value to their users.
The burst of the dot-com bubble in 2001 exposed their limitations. While we may now
find it easier to recognise a terrible or even an outstanding business model, many of
us still struggle to define the term precisely. In its simplest form, a business model is a
process which enables a company to make money. This would be an excellent defini-
tion were it not for the fact that it fails to convey the complexity of the methods used
to achieve this seemingly simple goal.
Therefore, we provide a single-dimensional expression, rather than a definition,
revolving solely around revenue. As Peter Drucker observed, “any definition of a busi-
ness model should encapsulate all the ‘assumptions about what a company gets paid
for.”1 These assumptions may revolve around strategy, transaction, and particularly
the notion of value. Certainly, the most widely accepted characterisation of business
models is that they describe the rationale of how an organisation creates, delivers, and
captures value. In this section, we first explore the notion of “value” around which the
digital business models usually pivot. We then briefly outline the complementary stra-
tegic and transactional definitions of the business model.
A Value-Driven Approach to Business Model
Value is a useful concept widely utilised in economics and marketing since it meas-
ures the benefits gained by consumers from using a good or service as well as the
 Magretta, J. (2002). Why Business Models Matter. Harvard Business Review, 80(5), 86–92. Quot-
ing Drucker, P. F. (1994). The Theory of the Business. Alfred P. Sloan: Critical Evaluations in Busi-
ness and Management, 2, 258–282.

benefits gained by businesses from selling the said service. In marketing, value re-
fers to the customer-perceived value, which is the difference between a prospective
customer’s evaluation of the benefits and costs of one product when compared with
others. In economics and for businesses, monetary worth is assigned to the techni-
cal, economic, service and social benefits a customer company receives in exchange
for the price it pays for a market offering.
It is worth noting that in marketing, value is not solely derived from utilitarian
benefits but also the social and emotional experience of a service. Price may affect
the perception of value (“this is good value for money”), and therefore, the custom-
er’s willingness to pay; however, the price may never be equated with value. The
pricing mechanism simply enhances or inhibits the acceptance of a value proposi-
tion (product and services). Prices must be consistent with the customer experience.
Similarly, value does not equal revenue. Therefore, value is a fluid benefit created
by the company for the benefit of consumers and the company.
Following this approach, a key question for a business remains. How can we cre-
ate, deliver and capture value for and from our consumers? A business model de-
scribes the rationale of how an organisation creates, delivers, and captures value.
Based on Osterwalder and Pigneur (2010), three key processes must be in place for a
(digital) business to be viable (Figure 2-A):
– Value creation: the production of value or benefit for its consumers by the com-
pany. For instance, Google creates value for its end users by providing relevant
search results.
– Value delivery: the governance and structure that underpins a business and
which enables it to efficiently create and distribute goods and services to set
standards, i.e., cost, time, quality and quantity.
– Value capture: the monetisation of the business through its transactions with
customers for instance via payments, subscriptions, fees and/or data.
Value
Creation
Value Value
Capture Delivery
Figure 2-A: Value-driven approach of a Business Model.

Transactional Approach to Business Model
Business models, more so digital ones, may also be defined from a transactional
viewpoint wherein businesses and consumers exchange value (e.g., goods, services
for money, or data). In this conception of the business model, we must consider
three aspects – content, structure, and governance (Figure 2-B).
– Content: the goods, service, or information exchanged, including the resources
and capabilities required to enable that exchange. The reader may note that ex-
changing “content” can imply more things than simply exchanging physical
goods. For instance, Facebook provides a social media platform to users at no
monetary cost but only does so in exchange for users’ information.
– Structure: the order in which exchanges take place as well as the mechanisms
that enable these exchanges to occur. The structure has huge implications for
the business model, especially in the digital context. This can be illustrated
with Booking.com. When travellers book a room through Booking.com, they re-
ceive a confirmation email. The hotels receive a reservation notice, but not the
guest’s contact information. This limits their ability to employ digital marketing
tactics, such as email remarketing. This structure influences the hotel industry
as it limits hotel chains’ marketing capabilities. However, from the perspective
of Booking.com, it creates a competitive advantage.
– Governance: the ways in which flows of information, resources, and goods are
controlled by relevant parties. This covers the organisation’s legal form and
how people are incentivised to transact. Hosts who post lodgings on Airbnb, for
example, can “multi-home” by using other platforms to increase their occu-
pancy rate as Airbnb does not demand exclusivity. However, the network ef-
fects associated with Airbnb ensure that it remains the first choice of the hosts
despite the possibility of multi-homing.
Content
Structure Governance
Figure 2-B: A Transactional Approach to Business Models.

Irrespective of the approach one takes to understand and explain a business

model, the digital revolution has a large impact on how a business operates and
creates value for its stakeholders.
In the last 25 years, new companies have emerged, and the terminology GAMAM
(Google, Amazon, Meta, Apple and Microsoft) encapsulates their economic and socie-
tal predominance. More agile than older traditional companies, they quickly rose to
the top, and in 2020, their market capitalisation placed them in the top five most
valuable companies in the world. Today, the most valuable company in the world is
Microsoft, which is valued at $1.2 trillion. With the special case of Apple, which was
effectively reset as a digital company after it almost went bust in 1997, Microsoft is
the only traditional business that has made its way to the top by successfully transi-
tioning to digital.
In the 1990s, customers of Microsoft, one of the world’s best-known IT compa-
nies, were required to visit bricks-and-mortar retail shops in order to buy physical
copies of its Office suite that came in a box with a CD inside. However, in recent
years, Microsoft has changed its model to software-as-a-service. Therefore, rather
than buying a physical copy of a Microsoft product, customers now must subscribe to
Office 365 for a monthly or annual fee for which they receive software updates and
upgrades. Microsoft’s business model evolved from traditional to digital.
Microsoft also illustrates another prevailing trend by designing a business model
that locks in customers. For instance, the Seattle-based firm provides university stu-
dents free access to its Office product suite, who then get accustomed to using soft-
ware such as PowerPoint and Word. This makes them much more likely to become
subscription-paying users following their degrees. Since they have grown used to the
“Microsoft user experience”, they are less likely to switch to other products when they
continue with their career after graduation. Of course, Microsoft’s transformation is
much greater than the Office 365 example, which is almost anecdotal in comparison to
other aspects of its transformation. Microsoft’s digital transformation is rooted in a cul-
tural shift initiated by Satya Nadella in 2014. It took the form of massive investments
in future technology, such as cloud and Artificial Intelligence (AI). In 2017, Microsoft
launched an AI division with more than 5,000 computer scientists and software engi-
neers. It also launched Intelligent Cloud, which included products such as Server and
Azure. However, the Office 365 example illustrates how technology may have a pro-
found impact on the way companies create, deliver and capture value. The move from
software as a product to software as services hereby described is much more than a
simple change of distribution tactics (value delivery). Combined with a new billing
strategy (value capture), it illustrates an evolution of the business model.

2.3 Value Drivers Behind Digital Business Models
At the Root of e-Businesses
The drivers of value creation outlined by Amit and Zott (2001)2 are still applicable
for digital business models today. The two authors explore how value is created in
e‐business by examining 59 American and European e‐businesses. They observed that
e‐businesses create value through four interdependent drivers, namely efficiency,
complementarities, lock‐in and novelty (Figure 2-C). These dimensions may be illus-
trated using the example of Google.
Efficiency
Value
Novelty Lock-in
Creation
Complementarity
Figure 2-C: Value Drivers Behind e-Businesses.

(Adapted from Amit & Zott, 2001)
When Google first introduced its search service, end users were quick to adopt it, usu-
ally for its efficiency. Google’s page-rank algorithm was a closer match to users’ re-
quirement than the existing practice of ranking the page based on category and/or
 Amit, R. & Zott, C. (2001). Value Creation in e‐Business. Strategic Management Journal, 22(6–7),
493–520.

money received (e.g., Yahoo!). Another novel factor for the users was a clean user
interface, which incorporates only a search box to “google” a query. Due to the rele-
vance, reliability and speed of its search results, Google became synonymous with an
online search. Google use is likely to be frequent as users continue to find the rele-
vant results that they are looking for, thereby creating a mental lock-in effect, there-
fore becoming a goal-activated automated behaviour (Murray & Häubl, 2007).3
The choice architecture of the Chrome browser sustains and strengthens the
lock-in effect by providing the default choice of Google search by allowing the facility
of directly typing the search term in the address bar. Along with the automatic login
via a Gmail address, it also allows Google to collect individual behavioural data that
are then integrated into the algorithm for specific, individually tailored search re-
sults. Moreover, the entire product suite offered by the company (search, e-mail, loca-
tion-based services, smartphone operating systems) introduces complementarity,
thus boosting the value proposition for the customers.
Data at the Epicentre of Value Creation for Digital Business
Digital technologies have drastically enhanced the volume and nature of content
exchanged. It is the creation, the capture, the exchange and the exploitation of this
content, which is now referred to as data that confers the value of a digital business.
Digital removes frictions and provides a set of contents along the user/customer jour-
ney while harvesting the data generated by users’ behaviour (browsing behaviour,
location, search queries, devices, etc.).
When a customer purchases a product on their favourite e-commerce website or
app, they simply exchange money for a product. The exchange remains a physical
transaction, which will transit from an external supplier to a customer. Yet, the value
creation process does not stop them. The consumer journey leaves a digital footprint,
which will be analysed by the e-commerce platform owner to better understand the
customer, their shopping preferences, and the way in which they navigate the app,
along with the device they are using. This data or the aggregated data of multiple users
can then be leveraged to create more value for the platform, the supplier, third parties
or advertisers. In addition, traditional linear business models flow the value along
value chains from suppliers to consumers. However, digital removes barriers and eases
the process to transform traditional customers into producers. Typically, buyers on the
e-commerce website become suppliers of content when they are enticed to produce a
review/refer a friend or share their purchase on social networks.
 See Murray, K. B. & Häubl, G. (2007). Explaining Cognitive Lock-In: The Role of Skill-Based Habits
of Use in Consumer Choice. Journal of Consumer Research, 34(1), 77–88.

Data, therefore, takes an important dimension in the strategy and management

of digital players. The efficiency of their processes relies on removing any frictions
from the exchange activity. Data are exploited to identify complementary products
and services by interlinking more and more players between them (“customers who
liked this also liked that”).
Data also reveal new ways to deliver products as well as new services enhanced
by innovative technology development. Data are exploited to lock customers in a
user experience and develop loyalty. Producing data is a relatively low-cost exercise
for digital players and does not require any effort on the side of the users. Metadata
capture the behavioural response and digital footprint of users as they browse
through a website and carry on with their purchasing journey.
However, making sense of big data and generating insights has become a new
fundamental strategic activity in those organisations. Very often, it is the main com-
petitive advantage of digital players. It is well documented that Blockbuster’s online
video services copied Netflix ergonomics. Yet, despite a better catalogue of films at the
time, Blockbuster failed to beat Netflix, whose algorithm and clever use of subscribers’
data proved to be an unbeatable competitive advantage.
A Change in the Structure of Transactions
As digital enhance the disintermediation and reintermediation of traditional indus-

tries and markets, it is possible to rearrange all kind of structure for the exchanges
beyond the traditional Business-to-Consumer (B2C) settings:
– Consumer-to-consumer (C2C) – The fastest growing type of business model.
Airbnb, BlaBlaCar and Tinder are some examples of disintermediation of tradi-
tional exchanges before being powered by central players concentrating assets
to deliver a standardised value.
– Consumer-to-business (C2B) – Businesses using digital platforms to crowd-
source ideas. Lego is an excellent example where the company uses its platform
to generate new ideas from Lego enthusiasts. The Irish online peer-to-peer lend-
ing platform Flender, described as a “friendly crowd finance” company, allows
individuals to lend to small and medium-sized businesses. These are examples
of intermediations reinvented by new participants involved and becoming ac-
tive producers of the contents they would like to consume or active contributors
for established businesses.
– Consumer-to-administration – Consumers starting online petitions to send to
governments and political representatives through platforms such as Petition.
org or Change.org is an example that demonstrates new ways to perform and
act democracy that do not exist without unexpected consequences on the sta-
bility and disruption of traditional institutions.

– Business-to-administration – Digital removes traditional geographical barriers.

As digital players scale, they become more global. However, in opposition, reg-
ulations remain continental (regional) or even local. Accordingly, businesses
must conform their activities to local authorities and regulations regarding the
exploitation of data (GDPR), taxes regulations, HR regulations, and conformity
for products and services. Accordingly, they are asked to open their books with
regulators and local authorities to comply with regulations. However, govern-
ment agencies can save money by turning to cloud computing options that do
not require purchasing costly servers and equipment. E-procurement portal
over cloud is a suitable example.
– Administration-to-consumer (A2C) – Government organisations providing ac-
cess to public services through online platforms. Majority of the governments
in the Western world are providing such services via their citizen portals.
– Administration-to-business – The fast adoption of digital in business processes
pushed administrations to adapt themselves and develop new ways to intercon-
nect with businesses and release frictions of administrative declarations. Similar
to A2C, businesses access government services online to register for new business
licenses or pay their taxes. In this vein, some states are more advanced than the
others and experiment a digital revolution of their processes and practices. Esto-
nia is considered as the most advanced country in the Worlds for digitisation of
administrative practices, including internal and interconnections with economic
institutions and citizens.
– Administration-to-administration – State and local government organisations
sharing their information systems data via data sharing protocols or open data.
Administrations adapt themselves to more efficient and open processes and
practices, thanks to digital adoption.
These new settings reveal new strategic priorities to govern the flow of information,
resources and goods (Amit & Zott, 2001). The control of intermediations and structures
by relevant parties becomes the new strategic game at play. This ecosystem uncovers
the participants who will be able to sustain and develop competitive advantages
throughout their journey. In this movement, the GAMAM control much of the game.
These companies were not necessarily considered pioneers in their industries; how-
ever, they were able to establish large ecosystems wherein businesses, consumers and
administration were required to plug their activities as a matter of efficiency. The
GAMAM have quickly developed architectures to connect with users, irrespective of
their location. At the heart of these GAMAMs ecosystems, we find core assets to control
and govern relations among parties: tech infrastructures and continuous innovation;
data concentration and exploitation; global and efficient value chains interlinking dif-
ferent industries; a capacity to deploy and establish new standards of user experience.

2.4 Key Takeaways and Further Considerations
Industry Trends due to Digitisation
Digitisation offers a huge potential for companies and industries far beyond the es-
tablished digital players. Users and/or data are at the heart of a business ecosystem
that will continue to be profoundly transformed by digital technology.
– Future Digital Opportunities for Traditional Industries and Start-Ups

While it may seem that businesses are already reaping the benefits of digital technol-
ogy, McKinsey Global Institute (MGI) estimates that an additional €12 trillion may be
added to Global GDP by the year 2030. MGI also predicts that AI and robotic process
automation (RPA) will become the main driver of this growth. While manufacturing is
slowly gearing up to tap the potential of RPA, traditional sectors, such as agriculture
or retail, have started to explore AI applications. In most industries, digital start-ups
now form a sizable chunk that is increasing with time. Relative to the traditional play-
ers, these start-ups are digital natives that offer value propositions derived from digi-
tal technologies. For instance, the start-ups related to speech recognition or image
processing are hugely sought after by big firms such as Amazon or Microsoft.
– Further Transformation of Business Ecosystem

Digital technologies will continue to facilitate the migration of players towards
areas beyond their original playground. MGI reports that digital leaders are expand-
ing beyond their traditional industries. For instance, Amazon, starting as an online
retailer, is now one of the largest providers of cloud-based services, competing di-
rectly with established technology players, such as Microsoft and IBM.
Irrespective of the sector, participating in the platform ecosystem is becoming cru-
cial for modern businesses. For instance, sellers need to be on Amazon (or Alibaba in
China) if they wish to expand their market.
While digital channels may partially hamper the growth of traditional chan-
nels, businesses need to digitise to stay relevant. Moreover, the dynamic digital
landscape requires that businesses continuously innovate their product and serv-
ices. Lego is an excellent example; the company has only diversified its traditional
offerings and optimised its production and delivery process, thanks to digital tech-
nology. It is also harvesting the creativity of its community to crowdsource ideas for
new Lego sets via a dedicated platform at ideas.lego.com.
– Investment in digital capabilities but management and processes remain key

to successful transformation.
To remain competitive and relevant, businesses must be at the forefront of digital tech-
nologies. Thinking beyond current trends, firms must assess the potential of and in-
vest in emerging technologies, such as blockchain, internet of things, and/or quantum

computing. For example, Google and IBM are investing heavily in building a quantum
computer. Traditional companies, such as LVMH, are also acquiring start-ups around
e-commerce, blockchain, AI, data analytics or natural language processing. Digital
leadership and effective management of digitisation remain the key success factor for
companies. Experience suggests that solely the acquisition of technology is inadequate
since it requires business process reengineering and change management know-how
to succeed.
More Disruption on its Way?
The COVID-19 pandemic and the corollary decision of confinement have acted as an
accelerator of an existing transformation. Similar to the virus that affects the old and
sick, social distancing is destroying many of the old traditional businesses (e.g., cin-
ema and restaurants). However, it is boosting digital platforms such as Netflix, Delive-
roo, Shipt, Buymie and Amazon Fresh as well as companies that help companies in
their digital transformation from Microsoft to Facebook.
Other industries seem now more than ripe for disruption. Education has been ma-
jorly disrupted by the COVID-19 pandemic. Coursera, a leader in e-learning platforms,
recently launched an online MBA in a partnership wherein the University of Illinois
created content and then used Coursera’s infrastructure to offer this programme at a
lower cost than other universities’ MBAs. Data from the platform can also be used to
adjust and improve the course as well as provide feedback on individual students’
competencies and performance, which they may use to support their job applications.
On completion of the course, graduates become alumni of both Coursera and the Uni-
versity of Illinois. Although this partnership will raise the university’s profile in the
short term by making a premium course continuously available, in the long run, it is
Coursera that is more likely to benefit. The trend is expected to see most universities
offer online or blended degrees in the wake of social distancing measures introduced
during the COVID-19 pandemic. Differentiation may be challenging for most universi-
ties, and further consolidation may be expected.
While considering future digital business models and potential disruptors to
GAMAM and NATU, it is judicious to assess Asia and Africa, where conglomerates,
not well known in North America or Europe, are on the rise.
Alibaba, with its mix of services and features, is a hybrid of Amazon, eBay, and
PayPal. Other examples include Tencent and Xiaomi. All of these are Chinese com-
panies whose growth has been aided by the country’s large population. India is an-
other nation that is likely to reshape digital business worldwide. For instance,
India’s educational platform, Byju’s, has set an eye on international expansion fol-
lowing its huge domestic success.

In Africa, digital businesses are also creating innovative technological solutions

to cater for the diaspora. Therefore, e-commerce solutions have been created that
help Africans settled abroad to support their family by sending home food and
household goods instead of sending them money, which might not be used for its
intended purpose. If an item is available in the country, the e-commerce website
pays the retailer for it and then delivers it directly to the recipient.

3 Digital Platforms: Unlocking the Power
of Networks
A plethora of buzzwords exists to describe various platform-based business models: marketpla-

ces, app economy, social networks, crowdsourcing, on-demand economy and sharing economy,
etc. The specificities of those business models will be discussed in the subsequent chapters. This
chapter focuses on the common characteristics and dominant features of digital multi-sided plat-
forms, introducing strategies to create network effects and solve the chicken-and-egg problem.
3.1 We are in a Platform Economy
Companies that adopted platform business models now dominate the ranking of
“most valuable companies”. In 2018, seven out of the ten largest companies were
platform-based (Figure 3-A). In 2008, only Microsoft would have qualified as a plat-
form business, and even this is debatable. Indeed, digital businesses are not neces-
sarily required to be platforms. Therefore, back then, Microsoft could have been
construed as a platform business with products such as Windows; however, tools
such as Microsoft Office categorised it as a more traditional software-as-a-service,
which is a linear way of monetising transactions through a subscription fee.
2018 2008
Rank Company Founded USBn Rank Company Founded USBn
1 Apple* 1976 890 1 PetroChina 1999 728
2 Google* 1998 768 2 Exon 1870 492
3 Microsoft* 1975 680 3 General 1892 358
Electic
4 Amazon* 1994 592 4 China Mobile 1997 344
5 Facebook* 2004 545 5 ICBC 1984 336
6 Tencent* 1998 526 6 Gazprom 1989 332
7 Berkshire 1955 496 7 Microsoft 1975 313
Hathaway
8 Alibaba* 1999 488 8 Shell 1907 266
9 Johnson & 1886 380 9 Sinopec 2000 257
Johnson
10 JP Morgan 1871 375 10 AT&T 1885 238
*Companies based on a platform model
Figure 3-A: Most Valuable Companies 2018 vs. 2008.

(Source: Bloomberg, Google)
A large proportion of platforms are US or China-based, and none are European. Fast-
growing companies, including 60% of the “unicorns”, are platform-based businesses.
https://doi.org/10.1515/9783110762556-003

28 3 Digital Platforms: Unlocking the Power of Networks
Today, digital platforms are an integral part of our user experience (UX).
These platforms are utilised to connect with others and gain information (e.g.,
Facebook, Google, LinkedIn, Twitter and Instagram), purchase goods (Amazon,
Alibaba and Etsy), book accommodations (Airbnb, booking.com and TripAdvi-
sor), consume cultural goods (Spotify, Netflix and YouTube), access services on
demand (Deliveroo and Uber) and load our digital devices with apps (Google Play
and Apple Application Store).
Platforms revolutionise industries and organisational practices. LinkedIn, for ex-
ample, not only connects professionals but also acts as an HR hub, wherein compa-
nies can post job vacancies, market their employee brands and recruit new staff. In
terms of revenue, the HR hub function fetches more revenue for LinkedIn than its free-
mium subscription model for individuals. Google Nest creates a passive network of
devices by connecting heating systems and thermostats to optimise energy consump-
tion in our homes.
As discussed earlier, platforms act as facilitators between two or more sides at a
micro-level and create value from those interactions. For the major players mentioned
above, it is necessary to adopt a macro-perspective to explain their market dominance.
Major platform players do not act as traditional actors in their respective industries.
Usually, their dominance and ability to match any user with any supplier imply that
they eventually control access to the market. They act as the ultimate intermediary
between suppliers and potential users.
The market for the hotel industry is composed of mainly Internet users since a
large majority of hotel rooms are booked online. Most online bookings are conducted
via Online Travel Agents (OTAs) or third-party booking websites, such as Booking.
com and Expedia, which offer travellers an easy-to-search database. According to Pho-
CusWright data from 2018, OTAs accounted for 51% of US hotel and lodging online
gross bookings. According to Apptopia, Booking.com had more than 41 million down-
loads and 14.5 million average monthly active users, which can be easily classified as
a vast market reach. On the producer/supply side, Airbnb and Booking.com can each
boast more than 5 million reported listings of hotels and/or private accommodations.
Third-party bookings websites and app giants have placed themselves at the top of
a market in which they do not directly take part. Neither Airbnb and Bookings.com nor
Expedia own properties. Yet, they are amongst the largest short-term rental providers in
the world. These apps are, in fact, giant, algorithmic, matchmaking, user-friendly and
ultimate intermediaries that have displaced an entire sector to the position of a com-
modity supplier. Third-party booking websites are intermediaries that control access to
more than 50% of the market. Hence, traditional bricks-and-mortar hotel chains, as
well as independent boutique hotels, have all been displaced. They may access the
market consisting of the internet/mobile phone users but only if they accept to become
commodity suppliers on such platforms (e.g., provide “a place to stay” in a specific lo-
cation). This enables them to compete with private homeowners for prices and reviews
on those platforms since hotels do not enjoy direct digital access to the market.

We can illustrate this further at the micro-level of an individual user. When in

need of a place to stay, users may initially search Google. For example, a search on
Google with the keyword “Hotel in Dublin” returns top paid results (ad at the top)
for Booking.com and organic results from Booking.com, Expedia, trivago, last-
minute, Hotels.com, and KAYAK. None of them owns any hotel; however, all of
them combined are able to control the access to supply (hotels in Dublin) and, recip-
rocally, the demand (or market) – i.e., the millions of individual internet users look-
ing for a hotel room online. Eventually, internet users may skip the Google stage
and directly perform the same search on booking.com or any of the other platforms.
Either way, the result is the same for hotels – i.e., for the suppliers, in order to sur-
vive and attract potential internet users, they must accept the conditions of the plat-
forms (a 15% commission in the case of booking.com) and compete on prices and
ratings head-on with all the other room suppliers for a specific location.
However, the success of digital platforms may also inspire traditional businesses.
Traditional businesses are increasingly aware of the potential of platform-based mod-
els, especially when required to compete against digital rivals. Therefore, a traditional
hotel chain battling with Airbnb for holiday rentals might benefit from becoming a
platform that offers conference organisation services or rents out unoccupied rooms as
co-working spaces. They may also contract local providers, such as dry cleaners, to
provide additional services in their hotels or offer these to nearby businesses. Al-
though there is potential for traditional businesses to become platforms, unlike a digi-
tal business, there are considerably fewer opportunities for them to scale, since their
physical location limits expansion.
So, What Are Platforms?
Platforms are not exclusive to digital businesses as they also exist in the traditional
commercial landscape, although less frequently. Examples include recruitment
agencies connecting employers with suitable candidates; auction houses connect-
ing buyers and sellers of antiques and collectables; or the media industry where
broadcasters serve as platforms for content producers, advertisers, and consumers.
Traditionally, goods and services were delivered from A to B through a “pipeline”
approach. Companies with specific assets and competencies create value by trans-
forming products or services. This customary method was initially described by Porter
(1985) in Competitive Advantage: Creating and Sustaining Superior Performance. The
process can be summarised in three steps (Figure 3-B). A company adds value through
its supply chain management activities (inbound logistics), the transformation of ma-
terial/products acquired from suppliers (operations), and finally, its distribution (out-
bound logistics), marketing, and customer services activities are performed.
The “platform” concept in strategy refers to a more complex and open configu-
ration where conditions to create, deliver and capture value are not standardised

Supply Chain Management

& Inbound logistics
Transformation &
Operations
Marketing Distribution and

Customer Services
Figure 3-B: Value Chain of Traditional Businesses.

(Adapted from Porter, 1985).
and where value is created and exchanged through interactions between multiple
stockholders.
Digital technology has profoundly lowered the barriers to transactions among a
variety of participants by abolishing the need for physical assets. A digital platform
business model creates value by facilitating exchanges between two or more inter-
dependent groups (Figure 3-C), usually consumers and producers.
Platform
Value Value
Consumers Producers
(Demand side) (Supply side)
Figure 3-C: Value Chain of Two-Sided Digital Platform.
Sangeet Paul Choudary on the Tech blog “Platform Thinking Lab” defines a plat-
form as:
A plug-and-play business model that allows multiple participants (producers and consumers)
to connect to it, interact with each other, and create and exchange value.
The goal of a platform is to propose approaches to remove the friction in the process
of connecting two external but interlinked sides, typically providers/producers and
users/consumers. Therefore, digital platforms often serve as UX specialists. The ease
of adopting (“plug”) and using (“play”) is instrumental to the success of the plat-
forms, particularly on the user side. The ability to connect the producers to the right
consumers in a trusted environment and vice versa through algorithmic match-
making capabilities is also a key feature of digital platforms.
For example, at Uber, technology acts as an “invisible hand” linking drivers
with potential passengers. By sharing the location of each cab, providing an easy
and secure payment mechanism, and publishing onsite reviews, trustworthy bonds

are built amongst all stakeholders. Therefore, Uber becomes the custodian of that
trusted connection and continuously monitors service quality.
Additionally, digital platforms can generate connectors as incentives for more
than two sides to be connected. For example, the App Economy and Google Play
Business Model serve as multi-sided platforms (MSPs): consumers buy devices
(smartphones and tablets) that run an operating system (Android OS), which allows
third-party developers to develop and present their applications on a store (Google
Play). Accordingly, it acts as an MSP where the Google Play technology infrastruc-
ture is supported by the Google Play Business Model acting as a plug-and-play be-
tween end customers, editors and manufacturers, and for which Google Play must
define and settle conditions to deliver a specific bundle of value propositions and
ease and remove the friction in their interactions.
One of the key differences between physical and digital platforms is the simpler
and cheaper conditions for scaling. A business model may be termed scalable if it is
capable of coping with growth and dissociates revenues from cost-to-serve – i.e.,
when it can maintain its fixed costs while revenue grows in proportion to the num-
ber of new customers.
For example, it only took Airbnb four years to amass 650,000 rooms around the
world (in 192 countries). However, Marriott – a traditional player in the hotel indus-
try – took around 90 years to record 697,000 rooms in 80 countries. This demon-
strates that the platform-based model of Airbnb scaled much more rapidly. Although
both companies are part of the same accommodation industry, they occupy very dif-
ferent places in the industry eco-system.
Platform-based businesses have radically disrupted the traditional business landscape. Not
only by displacing some of the world’s biggest firms, but also by transforming familiar busi-
ness processes, consumer behaviour and value creation, and altering the structure of major
industries. (Peter Fisk, 2019, on his personal website)
The Network Effects Behind Platforms
Enhancing interactions between (at least) two independent but interlinked sides
(producers and consumers) relies on tapping into the benefits of the so-called net-
work effects (Figure 3-D).
To enable these exchanges, platforms harness and create large, scalable net-
works of users and resources accessible on demand. Platforms develop communities
and markets with network features, which allow users to interact and transact.
Network effects have previously been observed in non-digital contexts. For
example, it is not worth owning a phone if none of your friends and connections
do. The value of a phone increases dramatically as more and more of your friends
own one.

Similarly, the more participants (peers) on Skype, Facebook or WhatsApp, the

more valuable it is for any potential user to join a social network platform. A same-
side network effect occurs when the value of a product or service grows according
to the number of others using it. Economists name them as direct positive network
effects (or demand-side economies of scale). Sometimes, the same-side network ef-
fects can be negative. For example, the more the users connect from the same loca-
tion to book an Uber taxi, the lesser the cars available and the higher the price due
to Uber’s “Surge Pricing Strategies”.
For digital platforms connecting at least two different sides, network effects
may be described as indirect network effects (or cross-side network effects) since
the value of a platform for one side (consumers or producers) is based on the num-
ber of participants from the other side (consumers or producers). For example, the
more sellers you have on Amazon, the more attractive it is for end customers to
shop there. Reciprocally, the more the potential buyers on Amazon, the more attrac-
tive it is for sellers to join it and advertise their goods. The same reasoning can be
extended to travellers and hosts on Airbnb, drivers passengers on BlaBlaCar, etc.
More
Spending
same-side same-side
effects effects
often positive often negative
More More cross-side effects More More

Reviews Buyers Sellers Competition
More
Inventory
Figure 3-D: Illustration of Same-Side and Cross-Side Network Effect.
Considering platform-based business models as the rationale through which the plat-
form-owner (also called “the matchmaker” by Evans and Schmalensee1) removes fric-
tion in the process of connecting, creating and exchanging value and thus enabling
interactions between at least two external but interlinked sides is equivalent to mas-
tering the network effects at work through the permitted interactions.
 Evans, D. S. & Schmalensee, R. (2016). Matchmakers: The New Economics of Multisided Plat-
forms. Harvard Business Review Press.

Information and digital technologies eliminate friction and facilitate low-cost

interactions on a large scale. Mastering network effects lead to new strategic hori-
zons. For several years, we considered that the first to enter an industry would ben-
efit from this speed advantage in the long run and attain a monopoly position. This
may not always be the case. Digital ventures demonstrate that dominant positions
emerge from abilities to manage (create and extend) network effects among partic-
ipants of all sides and capture part of the value generated in the process.
Network effects come into play at each layer of a platform (value creation, con-
nection, and exchange) and at each stage of development of a platform (from igni-
tion to maturity). As we will demonstrate, platforms and markets must satisfy some
conditions, which change and differ over time and depend on the scalability of digi-
tal platforms.
Optimize
Transact
Connect
Match
Attract
Figure 3-E: Platform Launch Rocket.

Side A Side B (Source: adapted from Launchworks)
Launchworks illustrate how companies may create network strategies using the anal-
ogy of launching a rocket (Figure 3-E). Immense energy is required to lift the rocket
off the ground by attracting both sides of the market on the platform. The core jobs of
the platform are then to match, connect and entice transactions between those two
sides, which will interactively optimise the process of transaction development, lead-
ing to the analysis of accumulated data. Essential conditions are observed for the two
sides to easily connect (plug) and begin interacting or transacting (play).
3.2 Creating Conditions for Plug and Play
Adopting a platform-based business model is difficult. Start-ups, for which the

value proposition is intrinsically dependent on the participation of multiple sides,
will often struggle to develop the perfect matchmaking mechanisms along the de-
velopment path.

Facebook provides an interesting example of the network effects for both the
same-side and cross-side. The same-side effect was evident at the foundation of
Facebook. It began as a social network involving peer-to-peer connections with
users creating content (posts) that were consumed by friends who read, viewed,
“liked”, shared or commented on. This agglomeration of family, friends and groups
formed a network: the peers’ side. The initial goal was to reach a critical mass of
peers and end-users.
The Facebook website was launched on February 4, 2004, from a dorm room at
Harvard College in Boston. At the time, sign-up was limited to Harvard students,
catering to a very small and specialised market (as a proof of concept). The website
was a simple online website application of a “face book”, which is a directory con-
sisting of individuals’ photographs and names. Face books are traditionally distrib-
uted by some American universities – albeit at the time not in Harvard – at the start
of the academic year, to help students know each other better.
Facebook, the website, became popular amongst students across several cam-
puses and rapidly opened to the public in 2006. Henceforth, anyone 13 years or
older was able to sign up for its member page. Since its beginning, it remained free
for peers to log in, create and exchange with others. “Free” was a huge accelerator
for adoption and a way to eradicate frictions and enhance the same-side network
effects. Several factors contributed to Facebook’s mastery of the network effect. The
same-side effect was visible in the form of viral lifts. Friends felt peer pressure to
connect to the platform to avoid becoming the only member of their group uncon-
nected to Facebook. Facebook also employed engagement triggers, suggesting po-
tential friends or pages to “like” based on a user’s interests, something determined
by an algorithm that examined how they had interacted with the platform over
time. Non-pricing mechanisms were powerful enough to establish a base of about
2 billion active members by 2017.
The cross-side network effect was based on the number of users on the platform
and their level of activity. Offering the service for free ensured the highest adoption
rate with the launch of Facebook. The more time users spend on the platform, the
more the value accrued to the advertisers; therefore, gaining a critical mass of users
first was essential. By October 2007, Facebook already had 50 million active users,
five times the number of users in the year before. It was only then that Facebook
introduced a large-scale official ads program to the platform. Advertisers are essen-
tial to Facebook’s business model since advertising revenues enable the platform to
remain free for users. In turn, users accept that their data may be used commer-
cially to present them with relevant adverts. In other words, Facebook users ex-
change their data as “virtual currency” to freely access Facebook.
Its 2019, Facebook’s revenue accounted for $70.7 billion, of which $18.5 billion
was the net income. However, it took around eight years since Facebook’s inception
to generate a positive net income. It was at that price to establish a dominant social
network and capture value from generated network effects. Since it was free to use,

it was a necessity to connect other sides to the platform to generate a sustainable

business model in the end.
In order to create and nurture strong network effects, digital ventures must pay
attention to the consistency of the “Five Ps” (analogous to the 4 Ps of Marketing) as
outlined by Accenture2 (2016).
Proposition
A platform should be able to offer a dedicated value proposition for each side. For in-
stance, YouTube facilitates interactions between three key stakeholders or sides (content
creators, users and advertisers). These stakeholders benefit from each other’s presence
while also being attracted to the platform through varying value propositions. YouTube
presents a highly visible hosting platform (with an earning potential) to the content cre-
ator. It provides end users (largely) free access to unlimited content deemed relevant to
them. It also offers an unmatchable reach to potential customers and advertisers.
Personalisation
A successful platform should value data and offer personalised user journeys based
on customer type and usage history while respecting the privacy laws of the market.
We are familiar with Netflix recommendations based on our watch history and con-
tent localisation as well as Facebook’s or YouTube’s specific recommendations of
content according to our browsing history and digital footprint within, or even out-
side, the platform. These mass customisations are possible at a large scale based on
cookies, users’ data and metadata, which activate algorithms to conjure the feeling
of a personalised experience. These tailored experiences increase the participants’
willingness to transact and ultimately lock themselves into the platform.
Pricing
Pricing mechanisms remain significant as they condition the value captured by the
platform owner and can enhance or inhibit friction to connect, create, and transact.
Smart platforms make use of dynamic pricing based on user characteristics, prod-
uct/service experience and market context.
A large majority of transaction platforms prefer to charge a small fee on each
transaction to capture the value permitted by the platform. These pricing mechanisms
 Accenture Report. (2016). “Five ways to win with digital platforms”.

directly flow from the ease of interactions; however, the transaction fee characteristics
can vary according to the structure and governance of exchanges. For example,
Airbnb eases the booking of a stay for a specific period, but each transaction is differ-
ent (traveller, host, period and product characteristics). Since the traveller will experi-
ence the goods later, Airbnb secures the conditions of the transaction by collecting
the payment from the traveller and releasing the payment to the host 24 hours after
the beginning of the stay. Airbnb charges fees on both sides: service fees on the “trav-
ellers’ side” that varies across countries according to local taxes and fees on the “host
side” that are justified by the transaction enhanced (as a real estate agent) and the
security on payments. Hosts are free to determine the price of their rentals according
to seasonality and personal considerations; however, Airbnb makes use of its data an-
alytics and predicts the occupancy rates according to pricing adopted by the hosts to
offer them suggestions (smart pricing). In another context, Uber adopts similar mech-
anisms for pricing and collecting a fee on each transaction. However, it imposes the
pricing for each ride based on their algorithms. This pricing is continuously revised
according to laws of demand and offer in the local area (surge pricing), which benefits
Uber as well as its drivers.
Other kinds of platforms that release digital content (Netflix and Spotify) gener-
ally adopt subscription-based pricing mechanisms to transform the products-as-a-
service (as we will describe in Chapter 5) and charge for network access. To ease
adoption and remove frictions behind network effects, a few other services provided
by a platform prefer subsidising the service for one side by another side (third-party
subsidy as we will describe in Chapter 4). Examples include YouTube, Google SEO,
Facebook and so on.
The pricing mechanisms are significant and require chirurgical attention to not
inhibit network effects or jeopardise the sustainability of the platform owner. Plat-
forms often struggle to fine-tune the pricing of their services and adjust it regularly.
Protection
Platforms combine a multitude of participants, propositions, and pricing mecha-

nisms. This heterogeneity poses inherent uncertainties and challenges for interac-
tion between participants. Hence, platforms must build strong trust mechanisms to
secure participation in this ecosystem. Trust mechanisms can take the form of user
authentication (e-mail, phone number, Facebook profile, etc.), payment security, a
rating system of the participants or the conditions of exchange (shipping and qual-
ity of the goods). This latest feature serves as a proxy for positive word of mouth,
thereby becoming essential for the sustainability of a trust-based ecosystem. It posi-
tively influences prospective users and entices future transactions.

3.3 Platform Development Stages 37
Partners
Compared to traditional business organisations, platform-based businesses develop

more pervasive architectures of value. Focused on a core set of activities and com-
petencies on the inside, they interconnect their technological architectures with the
main companies (e.g., Amazon for data storage, Google and Facebook for login and
SEO, and banking APIs to ease payment proceedings). They further extend their
ecosystems by interlinking their value with complementors. A smart platform builds
an architecture that allows it to interact with each partner in a smooth manner.
3.3 Platform Development Stages
Multi-sided platforms (MSPs) face different challenges at various stages of their

development.
Typically, four main stages in the development of platforms can be identified,
with specific strategic questions to address regarding the deployment of their busi-
ness model. We will investigate each of these stages and offer some insights and
key tactics to navigate along the way.
Embryonic Stage
In this stage, the founders and platform owners must focus on the design of the plat-
form as the core product and the architecture of the service. As previously mentioned,
the consistency of the 5 Ps (Proposition, Personalisation, Pricing, Protection and Part-
ners) must be addressed with a focus on the value proposition and value architecture
(core activities, technologies, and business partners). A minimum value proposition
can be designed and tested with real participants. It can be a “smaller world” or a
one-side service subsidising the other sides and acting as a pipeline.
At this stage, the objective is to achieve a proof of concept of the adoption of the
value proposition and the unique selling proposition with the proper technology ar-
chitecture to ease transactions and service, such as when Airbnb was launched only
in San Francisco or when Facebook was launched as a closed service for Harvard Col-
lege peers.
Emergent Stage
This stage involves the demonstration of the product-market fit, where the product
is the platform. Hence, the focus shifts to the recruitment of participants on both
sides (producers and consumers). This stage also debuts the first major challenge of

achieving network effects, known as the “chicken-and-egg problem”. It derives its

name from that age-old question: “Which came first, the chicken or the egg?” Who
should platform startups attract first? The producers or the consumers? This is a dif-
ficult question to answer as each is motivated by the presence of the other side.
Entrepreneurs will be required to demonstrate their ability to attract partici-
pants on both sides. Their ability to raise funds to scale and grow (next stage) is
dependent on their success in this stage. The chicken and eggs and associated is-
sues are covered in the next section of this chapter.
Growth Stage
Once the platform gains a critical mass of end-users, the focus shifts towards the
monetisation and monitoring of trust and loyalty issues.
In this scaling phase, the platform must scale the number of transactions and
ensure that they capture sufficient value to be sustainable and produce a return on
investment for their first investors. The focus is no more on the product-market fit
but the efficiency of customer-transaction fit.
Fortunately, as the business grows, the expansion accelerates and streamlines. It
took Uber approximately 18 months to expand into a second country, but then only
60 days to open in the next. This occurred due to the streamlined legal and marketing
process, which helped them to become faster in their establishments. However, as a
business scales up, it must ensure not only that it has enough funding but also that it
is continuing to build enough trust and loyalty so that customers return and compet-
itors are repelled. It must also raise the volume of transactions. Hence, a company
such as Airbnb with an average stay of $70 per night for three nights should attempt
to attract more premium customers or increase the average stay length.
Monitoring customer acquisition costs and the lifetime value of the customers
is crucial. The platform must become a one-stop shop for travelling (Airbnb), for
shopping everything (Amazon) and searching for videos (YouTube), etc.
As the volume of transactions increases rapidly in this stage, trust issues may
develop. Therefore, protection mechanisms must be reactive to avoid a backfire.
Maturity Stage
At this stage, the focus is on the optimisation of the offerings to create maximum
value, embracing the maximum number of participants/sides, and diversifying the
services and monetisation. Google and Facebook as well as Amazon and Apple of-
fering various advertising tools on their platforms reflect this stage of the diversifi-
cation of their offerings. The strategic focus is on defending the platform ecosystem
against other giant ecosystems, and in doing so, the platform owner must act as a

keystone (a value dominator) of an ecosystem where they aggregate the innovations

from other complementors (by buying/authorising innovations) and defending
their dominant position with the landlords (lead participants) with whom they have
developed strong ties.
The main challenge at this stage is to continue to grow the business and defend
its position against potential disruptors.
3.4 Facing the Chicken-and-Egg Issues
As stated earlier, platforms work once they have managed to trigger a network ef-
fect – i.e., when the value of using the platforms increases with the number of
participants.
For the cross-side effect, MSPs must attract at least two mutually interdepen-
dent users. Yet, each side has an incentive to come on board once the other side
exists; hence, it presents the metaphysical “chicken-and-egg question”. It is a com-
plex issue with several underlying challenges. As seen earlier with the rocket
launch analogy, this ability to attract both sides (e.g., buyers and sellers) and run
development and marketing for them requires significant energy.
The challenges relate to participants and the tricks to attract them. For a plat-
form to work, both producers and consumers must be on board. Consumers act as
bait to lure the producers and vice versa. This is known as the mutual-baiting
problem. However, how do you attract buyers to a platform when you have no sell-
ers, and how to attract sellers when you have no buyers? How do you seed the plat-
form with users on both sides and spark interactions? At least one side of the
platform should be present to act as bait for the other.
A related set of issues pertains to the level of exchanges between sides. It is
called the ghost-town problem, similar to an old-style Western movie, wherein a
cowboy rides into town and finds the streets empty. Imagine that you can attract
participants, but no activity/transaction is performed. Generating trust and confi-
dence is a major issue, and this is an indicator of low motivation to exchange and
transact for participants.
Several solutions exist to overcome the challenges outlined above and reach
critical mass on both sides of the platform. Here are a few tactics and strategies suc-
cessfully employed by many platforms over the last 20 years.
Concentrate on Users Who Can Belong to Both Sides
One solution to overcome the mutual-baiting challenge is to target a very specific

group of users who can fit on both sides of the network, such as those who could
serve as both chicken and egg, depending on the time and the situation.

For example, eBay did this when it launched as a platform by focusing on at-
tracting collectors, specifically those who collected watches and clocks as collec-
tors’ markets are composed of people who may both buy and sell such objects. It
then focused on other types of collector markets, from where it flourished.
A variant of this technique that may be used at a later stage of development is
known as side switching. This tactic is to incentivise users to switch sides. For ex-
ample, once a user has finished the booking process on Airbnb, they are immedi-
ately incentivised to become a host. After all, the user’s residence will be empty
while they are travelling; hence, the value proposition is obvious: why not earn
some money while you are away (to finance your vacation)? This is an amazing
marketing trick since it not only solves the mutual-baiting problem, but also enhan-
ces the traveller experience and ensures that hosts deliver the best experience to
travellers.
Subsidise One Side (or Even Both)
Providing bait to whichever side is the most difficult to possibly seed through price
discount is one option. Seeding can also be accomplished by other techniques.
For example, dating websites work when they have a male and a female audience.
Attracting males is usually not too difficult. For females, it is far more complicated. Dat-
ing websites are typical of asymmetrical markets with one side harder to attract (the
“hard” side) and the other, which is relatively easier to obtain traction on (the “easy”
side). To solve this issue, monetary incentives can be offered to the hard side. Similar
to how nightclubs often host a weekly “Ladies Night” where women receive free entry
and/or free drinks, dating websites can offer free membership and a better experience
for women. This model is inherently typical of most platforms, which would have a
“subsidy side” that allows the use of the platform with discounts or even for free, and
a “monetary side” that is charged for participation or transactions.
Platforms may choose to go even further to attain a critical size by subsidising
both sides at least until a certain point. YouTube, which was established in Febru-
ary 2005, allowed both viewers and content creators, including companies, to use the
platform for free. However, it did not entice companies to advertise on its website
before November 2009. YouTube analytics was only launched in 2011.
Similarly, Facebook also encouraged both users and companies to join the plat-
form. Individual users enjoyed a same-side effect and were happy to communicate
with each other for free. In order to attract businesses, Facebook launched fan pages
in 2007; companies were initially invited to create pages to freely engage with fans.
In the very early days, most fans would see the posts generated by the brand, which
would not cost the fan page owner any money. Gradually, businesses started to real-
ise the benefits associated with this emerging media. The number of businesses pres-
ent on the platform grew exponentially, and so did their willingness to pay. It was

time for Facebook to begin capturing the value it created. By 2012, organic reach (the
% of people who see a business page post without paid distribution) had already
fallen to 16% and declined further to 6.5% in 2014. Many observers believe that it is
now lower than 2% on average. This means that companies almost systematically
pay Facebook to reach and engage with their targeted audience.
Platform Staging
By default, platforms do not have any standalone value. Yet, to overcome the mu-
tual baiting challenge, companies might first develop a one-sided value proposition
that can be embraced without network effect. This tactic is part of a platform stag-
ing strategy. The platform may initially not serve as a double-sided market; how-
ever, it would act as a single-side service to attract the side which is most difficult
to seed. OpenTable allows individual users to book a restaurant table with ease and
for any occasion. To draw restaurants onboard, OpenTable first helped them to
manage their booking online. It provided restaurants with an application that al-
lowed them to manage the relationship with their customer base via their website.
This facilitated the work of restaurants and was an attractive solution for restaurant
owners, regardless of a network effect. Yet, the network effect was easily achieved,
as once the solution was adopted, it was de facto linked to the B2C OpenTable web-
site, where individual users of the platform could also book a table.
Similarly, the taxi-booking app, Hailo (now called FREE NOW), managed to
rapidly secure the participation of most black cabs in London by initially providing
only mobile payment and real-time traffic. Those essential features are valuable re-
gardless of the participation of users on the other side of the network. The possibil-
ity of gaining new customers via the app was a bonus that quickly became the main
feature of the app once adoption by passengers skyrocketed.
A variation of this strategy is to alternate or stage its communication to one side
and then the other. For example, the car-sharing platform BlaBlaCar used the notori-
ous French railway strike to recruit users. In October 2007, it used the opportunity to
send a press release to “own the moment”. The news of such a useful website implied
that during the strike, the platform was featured in over 500 newspaper articles and
received massive attention on TV and radio. Yet, during strikes, it is relatively easy
for BlaBlaCar to recruit stranded passengers looking for a ride. Hence, for the subse-
quent (and frequent) railway strikes, BlablaCar now has solely focused its PR cam-
paign on attracting drivers by appealing to their sense of solidarity.

Platform Envelopment
This partnering strategy relies on leveraging the shared relationships with (other)
established platforms and their networks to strive and combine value propositions
and benefit from a multi-platform bundle that leverages shared user relationships.
For example, millions of users rapidly adopted Spotify since it was initially inte-
grated into mobile operators’ plans.
There is no “one best way” to overcome the chicken-and-egg problem. In sev-
eral cases, a challenge faced by platform start-ups is to present enough choices to
meet demand. As the number of choices corresponds to the number of search re-
sults on a page, if the first page of a platform search displays nine results, users
will expect to see nine options. Meeting this demand is a serious challenge, particu-
larly in the early stages. However, this is just the start of the journey for platforms.
They must cultivate a long-term perspective to sustain their competitive advantage.
Table 3-A presents a set of tactics to overcome the chicken and egg dilemma.
Table 3-A: Tackling the “Chicken-and-Egg Problem”.
Tactics Definitions Impacts On
Single Target Group It consists of reducing the total market Mutual-Baiting Problem
e.g., Uber setting up in a size and the required critical user mass. Ghost-Town Problem
specific city to replicate Fewer resources and less time are required
and scale globally after. to reach the critical inflexion point from
which the MSP can grow to other market
segments.
Platform Staging It consists of evolving in two distinct Mutual-Baiting Problem

e.g., Amazon for steps: from a traditional vendor-based Double Company
bestseller books, (pipeline) business model in the first stage
OpenTable with a BB to a platform-mediation business model in
value proposition the second stage after reaching the critical
user mass.
Subsidising It typically consists of a subsidy side that Mutual-Baiting Problem

e.g., YouTube allows the use of the platform with
discounts or even for free, and a monetary
side that is charged for participation or
transactions.
Platform Envelopment This partnering strategy relies on Mutual-Baiting Problem

e.g., Spotify integrated leveraging the shared relationships with
into mobile operators’ (other) established platforms and their
plans, Internet Explorer networks to strive to combine value
embedded in Microsoft propositions and benefit from a multi-
OS platform bundle that leverages shared
user relationships.

Table 3-A (continued)
Tactics Definitions Impacts On
Side Switching This involves making a two-sided platform Mutual-Baiting Problem

e.g., eBay with collectors; one-sided by finding a platform design Ghost-Town Problem
Airbnb where (with that allows users to fill both market sides
incentives) travellers can of the MSP simultaneously.
become hosts
(Adapted from Stummers et al., 2018).3
1. Platforms adopt plug-and-play business models that allow multiple partici-

pants to connect to them, interact with each other, and create and exchange
value.
2. Platforms must act as matchmakers and master network effects that condition
their existence and sustainability.
3. Platforms face several challenges at different stages and must remain agile in
their developments, which requires several resources and staging development
tactics.
“The Eyes Can Only See What the Mind Is Ready to Understand”
As designed by Osterwalder et al. (2014), the original Value Proposition Canvas is

best suited to traditional corporations with a pipeline strategy, where producers are
seated at one end and consumers at the other. However, with platforms, both pro-
ducers and consumers can be customers of the business. Thus, we must adapt it to
account for at least two-sided platforms.
In Figure 3-F, the adapted and revised Value Proposition Canvas demon-
strates the pains and gains of producers and consumers and the distinct, non-
related value propositions the company requires for each side. For instance, the
value of Facebook’s advertising platform originates from the gain advertisers
achieve from being able to micro-target audiences. However, if consumers do not
prefer targeted advertising, they will classify it as a pain. Alternatively, if they ap-
preciate personalised suggestions for products on their news feed, they will con-
sider this a gain.
 Stummer, C., Kundisch, D., & Decker, R. (2018). Platform Launch Strategies. Business & Informa-
tion Systems Engineering, 60(2), 167–173.

Gain creators Gain creators

Gain Gain
Platform’s
Consumers’ products and Producers’
job services job
Pain Pain
Pain killers Pain killers
Figure 3-F: A Two-Sided Value Proposition Canvas.

(Adapted from Osterwalder et al. 2010)
Alternatively, many consulting companies presented Digital Platform Canvas as

an alternative to the Value Proposition Canvas with Core Interaction at its centre
(Figure 3-G). For instance, the core interaction for YouTube would be the sharing of
videos with an audience, which can be enhanced by facilitators (the rules and the
types of content allowed), tools and services (search engines and toolkits for upload-
ing videos to the site), filters (keywords associated with a video) and potential part-
ners (those who deepen the interaction through the development of applications).
Customer Pricing Pricing Producer

Value Value
segments segments
Proposition A Proposition B
Partners
Tools & Core

Filter
services Interaction
Customer Producer
journeys journeys
Rules
Funnel Funnel
Cost structure Revenues
Figure 3-G: An Alternative Digital Platform Canvas.
As with other versions of the Canvas, the producer and customer are on the opposite
sides, along with their respective value propositions. Since adoption is generally the
key challenge for a company, traditionally, the value propositions are customer-
oriented. In contrast, this Canvas accommodates journeys for customers and producers
as well as the channels (funnels) and pricing for each side. Finally, cost structure and

revenue are examined, which might also differ for each side. This reinvented Canvas
enables companies envision key elements for both sides and helps them illustrate the
value proposition for consumers and producers.
The Evolving Nature of Platforms’ Value Propositions
The value proposition(s) and the business model must not be necessarily static. In
fact, they should change and evolve according to value appropriation and sustain-
ability and scale of value captured.
Many platforms fail to adjust them, resulting in stagnation. This is particularly
true for traditional businesses attempting to survive in an increasingly digital busi-
ness atmosphere. Nearly 90% of start-ups fail within the first five years of business,
a key reason being their inability to adapt to their business model. Of those that do
survive, 60% no longer operate according to their original value proposition. For
instance, newspapers’ primary source of revenue has always been the sale of adver-
tising space on their pages. However, to survive and stay relevant in a world where
more people seek news online, they now offer online versions and sell digital adver-
tising space using tools such as Google Display Network. Thus, it should be consid-
ered that business models are not static, and the platforms should be willing to
revise their value proposition(s) in changing circumstances.

Part 2: Reshaping Markets: How is Value
Configured?
Shape

4 Marketplaces: Better, Faster, Stronger?
Removing Frictions in E-commerce
It is evident for us to begin this second part with commerce and how digital reshaped configu-
rations for business. Digital technologies enhanced the potentialities of trading and intercon-
necting in different ways with respect to both buyers and sellers. With that being said, we
observe the emergence of a dominating model for e-commerce: marketplaces progressively re-
placing the traditional retailer model. What may be the reason behind this, and what are the
characteristics of a business model in underlying marketplaces? Paraphrasing Daft Punk, are
they better, faster and stronger?
4.1 The Rise of Digital Merchants
Modern e-commerce was kick-started with the emergence of Amazon and eBay. In
1995, Jeff Bezos launched Amazon as an e-commerce platform for books. In the
same year, Pierre Omidyar launched an auction platform that would later become
eBay. Four years later, Jack Ma founded Alibaba in 1999. Alibaba became profitable
in 2002, with Amazon following suit the very next year.
These companies heralded an e-commerce revolution that encouraged other
players to enter the fray. While online sales stood at around 5% of overall retail sales
in the US in 2007, they reached 16% by the year 2019, with US consumers spending
more than $600 billion online. At the global level, Grand View Research1 (2020) esti-
mates that the global e-commerce market stood at around $9.09 trillion in 2019, with
estimated growth at a compound annual growth rate of 14.7% from 2020 to 2027.
So, What Propels the Rise of E-commerce?
At the 2011 Fórum E-Commerce in Brazil, eBay’s Vice President of Corporate Strategy
at the time, Jean-Francois Van Kerckhove, identified five key trends eBay believed
would shape the future of e-commerce, namely mobile, local, global, social and
digital.
While those five trends are still relevant, it is mobile technologies that have fun-
damentally changed the way consumers shop online. Mobile technology is an essen-
tial consideration during the creation and evolution of any e-commerce business.
 Grand View Research Report, May 2020, “E-commerce Market Size, Share & Trends Analysis Re-
port By Model Type (B2B, B2C), By Region (North America, Europe, APAC, Latin America, Middle
East & Africa), And Segment Forecasts, 2020–2027”.
https://doi.org/10.1515/9783110762556-004

50 4 Marketplaces: Better, Faster, Stronger?
French e-commerce company Vente-Privee (Veepee), for example, increased sales by

20% just by developing an app for smartphones and tablets that offered a mobile-
friendly user experience.
Mobile technology significantly influences e-commerce globally, often in countries
that have historically experienced slower technological growth due to limitations in in-
frastructure and technology. In Africa and parts of Asia, for example, smartphones are
popular since they overcome some of the infrastructure limitations, such as the lack of
fibre optics. Mobile payment technologies have also enabled businesses to benefit by
developing mobile sites that may quickly become profitable.
Mobile also connects the other factors identified by Van Kerckhove. Hence, in
digital terms, it enables in-context payments. For instance, in order to continue play-
ing a mobile phone game such as Candy Crush, consumers must make an in-app pay-
ment using a touch ID or by credit card, the details of which are stored on the device.
With the launch of smartphone wallets including Apply Pay, Google Pay and AliPay,
the mobile payment market is destined to grow across the world. The global mobile
payment market was estimated2 to be at around $1.14 trillion in 2019 and is expected
to grow to about $4.7 trillion by 2025, registering a compound annual growth rate of
more than 26%.
The ergonomics of mobile technology are especially important with respect to
user experience, as the small size of phone screens limits the number of images that
can be displayed on a single page. This means that image dimensions and resolutions
must be changed to optimise them for the mobile viewer.
Mobile devices provide digital merchants with the ability to identify the location
of their customers, leading to geo-targeted real-time ads. However, not everyone
wishes to be tracked physically. Hence, if marketers don’t want to alienate their con-
sumers, they must keep in mind the cultural sensitivities relating to certain types of
marketing. In Europe, for instance, using geolocation technologies for tracking is
often considered invasive.
Amazon Go – a cashless and cashier-less retail store – epitomises the mobile
and e-commerce revolution. Shoppers download an app on their smartphones that
identifies them when they enter such a store. Cameras then track their movements
and check the items they put in their baskets. When done, the customer simply
walks out of the shop, receiving a receipt for their items through the app. This pay-
ment system is even more invisible than a one-click system.
 See Mordor Intelligence Report 2021 on “mobile payments market – growth, trends, covid-19 im-
pact, and forecasts (2022–2027)”.

The Long Tail and Digital Merchants
In Wired (2004), and then in his book, The Long Tail: Why the Future of Business Is
Selling Less of More (2006), journalist Chris Anderson coined one of the most impor-
tant economic concepts behind e-commerce. The Long Tail concept is against the
traditional retail strategy of “selling more of a small selection” of inventory. It con-
siders that the future of business lies in selling low-popularity items (Figure 4-A).
As indicated by Investopedia:3
The head and long tail graph depicted by Anderson in his research represents this complete
buying pattern. The concept overall suggests the U.S. economy is likely to shift from one of
mass-market buying to an economy of niche buying all through the 21st century.
Tall Head
20% Long Tail

80%
Figure 4-A: The Long Tail Economics.
In other words, “the long tail is a business strategy that allows companies to realise
significant profits by selling low volumes of hard-to-find items to many customers, in-
stead of only selling large volumes of a reduced number of popular items” (Investope-
dia). In order to achieve this, digital must remove the barriers and frictions for
marketing and distribution costs, pushing retailers to focus on blockbusters.
As traditional physical retailers possess a limited space to display products,
they are restricted in the amount of inventory they can carry in shops. This forces
them to carefully select a restricted range of products that they think will sell best
to local customers. Typically, this includes “blockbusters” – the most popular prod-
ucts at the time – such as the top 10 books on bestseller lists.
 See Investopedia dedicated entry on Long Tail, consulted on May 2022.

The rationale for this is that in traditional retail shops, the Pareto principle im-
plies that 20% of the inventory generally generates 80% of sales. Therefore, in a book-
store, J K Rowling’s latest novel will entice several customers, but a niche book
regarding French rugby players will not. Having fewer, low turnover non-blockbusters
is also more efficient in terms of inventory management.
This is where the digital business model enters the picture. Digital merchants,
such as Amazon, do not face the same limitations as physical retailers. Hence, by ag-
gregating smaller sellers who manage the inventory for them, they can offer products
that physical retailers cannot. This gives them the advantages of both long-tail and
traditional retail strategies.
Pure digital retailers are at the extreme end of this continuum, and therefore, can
offer a much greater array of inventory than those selling physical products. For exam-
ple, a physical music shop might not be able to stock a rare recording of a 1991 Nir-
vana concert. However, for a pure digital retailer, it is not a problem as the inventory
cost of stocking this is minimal, meaning that they can offer it alongside mainstream
products, such as Lady Gaga’s latest album. For pure digital retailers, the cost of offer-
ing a bestseller or a rare article is the same.
Despite such benefits, this does not imply that digital retailers do not face chal-
lenges. For instance, digital retailers have difficulties with digital rights management
and contracts with record companies. Exclusivity agreements between artists, record
companies and digital music providers, such as iTunes or Spotify, can become ob-
stacles for digital retailers. Hence, a trade-off for digital merchants is always observed.
When considering e-commerce, digital merchants such as Amazon, eBay or Ali-
baba usually first come to mind. However, these are just part of a “digital contin-
uum” that stretches from resellers who purchase inventory and have margins based
on sales and profits at one end to pure multi-sided or two-sided platforms facilitat-
ing interactions between buyers and sellers at the other. Following are some of the
main categories of such digital merchants in increasing order of their digital nature.
Business Models Behind E-retailing
As specified in Figure 4-B, we can range e-retailing business practices according to

the digital nature of products and services distributed.
Click and Catalogue Virtual Bit

mortar merchants merchants vendors
business
Figure 4-B: Continuum of eRetailing Practices Regarding the Digital Nature of Products/Services.

Click-and-mortar businesses – These are physical businesses that have become

hybrid by extending their product showrooms online. Their customers either order
items online for home delivery or collection at a nearby store. Such businesses
often face inventory tracking and supply chain challenges due to the separation be-
tween their physical and online systems. Barnes and Noble is a classic example of
such challenges.
Starting as a bricks-and-mortar business, the bookstore chain Barnes and Noble
began selling through a website that was completely disconnected from its physical
shops. However, salespeople had difficulty explaining to customers wanting to re-
turn an item they had purchased online why they could not do so in-store. To re-
move this source of frustration, Barnes and Noble merged their supply chain so
customers could return online purchases in-store. This required the resolution of
complicated internal issues to synchronise accounting systems between online and
physical retail outlets. Following this initiative, customer service improved greatly.
Catalogue merchants – These are the businesses that began by mailing paper cata-
logues to customers who ordered goods by mail or phone. Such businesses were re-
quired to reinvent themselves to stay competitive in the digital age by moving into the
e-commerce arena, where they used the internet to reach a wide customer base and
automate their ordering processes. Argos in the UK and Ireland is a prominent exam-
ple of a catalogue merchant.
Virtual merchants – These companies are born digital, such as Amazon, Alibaba
and eBay, and do not own any physical shops and operate only over the web. Virtual
merchants may or may not hold inventory. For instance, while eBay and Alibaba do
not hold inventory, Amazon allows its suppliers to use its inventory management
system.
Bit vendors – These are digital merchants that deal only in digital goods, such as
music, movies, games, or design templates. Key examples of such vendors are Spotify,
iTunes and Netflix. The key difference between these vendors and other digital mer-
chants is the cost of inventory. For merchants dealing in physical goods, the cost of
maintaining inventory may be quite high, depending on the type of goods. For bit ven-
dors, the variable cost of inventory (once the fixed cost is taken care of) is quite low or
even close to zero, since it depends only on the number of bytes of storage required.
This implies that they can carry a large range of items for delivery over the internet.
However, they also have a demand side limitation in the form of the number of cus-
tomers owning devices to watch videos or listen to music.
It is possible for a merchant to fit into more than one category. Amazon, for in-
stance, is both a virtual merchant and a bit vendor (e.g., Amazon prime videos, Ama-
zon Web Services). Such cases provide advantages in the form of a captive customer
base. Amazon’s strategy is to invisibly integrate relationships between merchant
types enabling consumers to buy physical products via Amazon retail, view movies

on Prime Videos, listen to digital music on Prime Music and download e-books seam-
lessly on their Kindle device. Amazon has adjusted its value proposition for sellers,
rather than buyers, by offering a multitude of services and adapting the distribution
process. This allows Amazon to reach customers in a wide range of ways, while si-
multaneously glueing the customers to their platform.
Brokering: Business Models Behind Marketplaces
However, e-commerce does not only involve selling. Digital brokers are e-commerce
matchmaking platforms that bring buyers and sellers together and benefit via a fee
or commission from each transaction. Based on their operations, digital brokers
may be classified into seven categories.
Marketplace exchanges create business value through their actions, website func-
tionality and platform business model. By acting as brokers who offer a service for
trade in the form of intermediation between the buyers and sellers, they facilitate con-
nections between the two. In effect, the marketplace is the product since the goods
sold at the marketplace are not part of the business inventory. Orbitz is an example of
such a marketplace exchange where consumers are able to search for and book
flights, hotels, car rentals, cruises and vacation packages. On such brokerage sites,
there are three potential factors to manage – content, reviews and other posted infor-
mation and the payment system – although not every business will wish to manage
them all. Some companies might prefer buyers and sellers to exchange funds directly
with each other rather than put their payment system in place.
Buy/sell fulfilment – Unlike marketplace exchanges that focus on the exchange of

information, buy/sell fulfilment firms also assist the parties in buying and selling.
CarsDirect is one such broker that allows consumers to research, finance, purchase
and insure their cars online. Respond.com is another example that connects consum-
ers with local businesses. Amazon also provides buy/sell fulfilment service; however,
it is a small part of its e-commerce ecosystem.
Demand collection systems are an interesting strategy for digital brokers. This was
pioneered by travel website Priceline.com (now owned by Orbitz) with their “Name
Your Price” business model. Initially trademarked and patented to prevent others in
the travel industry from using the same mechanism, the model has now been adopted
by other digital brokers selling travel and other goods. Under Priceline.com’s “Name
Your Price” model, a shopper might bid €700 for a week’s holiday in France, includ-
ing accommodation and travel, which, if accepted by Priceline, would be fulfilled as
the broker. With margins determined by their ability to form deals with accommoda-
tion and travel vendors and in encouraging bids higher than the threshold at which
they make a profit from the sale, the success of this strategy relies on an asymmetry of

information, as the site does not display the actual price of the accommodation or
travel to the customer.
Auction brokers conduct auctions for individuals and businesses. Their business
model relies on a listing fee and a commission proportional to the value of the trans-
action. Auction brokers benefit from information asymmetry since the prices are kept
discrete. eBay, in its initial years, completely acted as an auction broker, transition-
ing to marketplace exchanges in the later years (i.e., facilitating transparent pricing).
Auction brokers, such as procureport.com provide reverse auction services in the B2B
space when several suppliers can target a single buyer.
Transaction brokers provide third-party payment services that help in completing

the monetary exchange online. Companies, including PayPal or Stripe, receive funds
from the buyer and verify and transfer them to the seller after charging a small fee.
The role of transaction brokers has rapidly increased in the globalised world where the
buyers and sellers may be at the opposite ends of the globe. Moreover, such brokers
(and digital banks, such as Revolute and TransferWise) provide e-wallets that can be
used across geographies without the need for a physical card. The global mobile wallet
market has been estimated at $80 billion and is expected to reach $270 billion, regis-
tering a compound annual growth rate of 15%.
Search agents collect data from multiple websites and collate it for users to compare.
Google Flights, for example, acts as a search agent by curating a single page of flight
prices from multiple travel websites. These agents also provide a tool that lets users
change their destination on a digital map and immediately receive updated prices.
While Google Flights used to charge airlines for the referrals in case of a successful
booking, it halted monetising the service in early 2020. While it does not directly
provide monetary benefits, Google Flights is still a rich source of data for the com-
pany. Moreover, it may also feed into another product, Google Hotels, which is still
monetised.
Virtual marketplaces are the online equivalent of a shopping mall. Online market-
places, such as Amazon, help sellers in setting up their virtual shops, listing the prod-
ucts, providing marketing, completing the transaction, and if need be, delivering the
product. A fee is involved at each step, so the company creates value from the entire
e-commerce ecosystem. This is further discussed in the following section.

4.2 Key Challenges
Making the Choice of Acting as a Marketplace
Hagiu and Wright (2013) in their article4 entitled Do You Really Want to Be an eBay?
Published in the Harvard Business Review illustrated the continuum between re-
sellers and multi-sided platforms and the businesses in between with the advantages
of both. They outline four strategic dimensions (Figure 4-C) that businesses must con-
sider when deciding whether to become either a reseller or a multi-sided platform.
Scale Effects Aggregation Effects

Higher value when brought
High demand products VS
together
Low demand products
Complimentary products
Buyer & Seller

Experiences Market Failures
Fast delivery, favourable Uncertainty of product
returns policy, product quality or reliability of
avaiability buyers and sellers
Multi-sided matcher buyers Fearful of exploitation
and sellers allowing them to
interact
Figure 4-C: Four Dimensions to Consider Behind Your E-commerce Business Model.
(Adapted from Hagiu & Wright, 2013)
The first dimension is the scale effect. If products are high-demand “blockbusters”
(toilet rolls, for example), it may be better to operate as a reseller, while low-demand
niche products (e.g., organic foods) may be better suited to a multi-sided platform
with sellers incurring the expense of stocking and managing inventory.
 Hagiu, A. & Wright, J. (2013). Do you Really Want to Be an eBay? Harvard Business Review, 91(3),
102–108.

The aggregation effect is the second dimension. Digital merchants aggregate

products by showing additional products others have bought alongside each item
viewed, such as socks with shoes. With a large selection of inventory, digital mer-
chants can identify and offer such complementary items easily. Since they can offer
products from many sellers, multi-sided platforms can take advantage of the aggrega-
tion effect. Resellers have the cost of purchasing inventory, which limits the number
of complementarities they can offer.
The third dimension is the buyer/seller experience. This includes things such as
fast delivery, a favourable returns policy and product availability. Resellers acquire
more opportunities to benefit from the buyer/seller experience since they own the in-
ventory, which provides them with greater control over the customer relationship, the
quantity and quality of goods in stock and after-sales service. As multi-sided platforms
facilitate interaction between buyers and sellers, they must provide tools to match up
both parties. The level of interaction varies from business-to-business. On Amazon,
for instance, buyers do not interact directly with sellers. Although the seller is identi-
fied on the product page, all interactions occur through Amazon’s user interface. Con-
versely, buyers on eBay can interact with sellers through a messaging system that lets
them ask questions prior to purchase.
The fourth and final dimension is market failure. This refers to the uncertainty
surrounding product quality and the reliability of buyers or sellers on a site. For exam-
ple, with AliExpress, it is most probable that the buyer does not know the seller, and
so they may be wary of them and the quality or authenticity of their product. In this
case, resellers have an advantage as they can monitor product quality more easily.
However, it may be noted that the classification between resellers and multi-sided
platforms is not straight-jacketed and a company may lie anywhere within the contin-
uum. For instance, one of these “hybrid” retailers is Amazon, which is a reseller for
some products and a pure marketplace for others. Amazon acts as a reseller for the
most demanded product, whereas it acts as a purely digital merchant for less de-
manded products. As Amazon fulfilment services offer sellers the added benefit of
using its warehouse and shipping facilities, it can enforce quality control on the buyer/
seller experience via its Prime membership program.
Apart from the four factors discussed earlier, a company’s maturity and its resour-
ces are also considered crucial factors. A start-up may wish to become a reseller but
might not have the working capital to purchase initial inventory, which makes being a
multi-sided platform more attractive. However, as previously stated, multi-sided plat-
forms may face chicken-and-egg, ghost town and mutual baiting problems. Recruiting
potential buyers and sellers also poses a serious challenge for multi-sided platforms.
This makes them dependent on sellers who are offering quality goods that keep at-
tracting buyers and on sufficient volumes of returning buyers to maintain the site’s
attractiveness to sellers. Consequently, multi-sided platforms must create a trust mech-
anism in order to secure the quality of the relationship if the business model is to be
successful, which requires huge efforts.

Hence, Hagiu and Wright (2013) note that while the multi-sided platform business
model may be seductive, entrepreneurs should not overestimate its attractiveness in
comparison with a more traditional reseller business model. Zappos, an e-commerce
shoe retailer now owned by Amazon, is a case in point. Zappos began as a multi-sided
platform but faced deep-seated customer relationship and user experience issues
caused by sellers that hit consumer trust in the business. This led to the company’s
decision to rebuild customer confidence by becoming a reseller so that it could better
monitor and manage customer relationships and user experience.
Apart from the buyer/seller relationship, the volume of sales is a significant aspect,
as this determines whether developing an e-commerce site is worthwhile. If the antici-
pated sales volume is low, the entrepreneur may simply take advantage of Amazon’s
shipping infrastructure and save on the cost of establishing a dedicated platform.
Moreover, the choice between being a digital merchant and physical retailer is
not mutually exclusive. A manufacturer could, for instance, establish an online
shop as an additional distribution channel that is not the primary channel for sell-
ing goods. Alternatively, if a business sells mostly online, it may add physical sales
alongside.
E-commerce is Efficiency-Oriented: KPIs Matter
Several of the most established digital merchants – eBay, Amazon and Alibaba –
have existed for over 20 years. They were among the first to use the internet to build
their customer base. They also established a well-documented set of KPIs for assess-
ing digital merchants’ performance. Such metrics enable digital merchants to under-
stand the way in which their revenue stream is generated and structured as well as
evolving in terms of volume. Generally, these are similar from one business to the
next, although many companies may use additional metrics, the most common of
which are listed below. Since a plethora of literature is available on e-commerce
KPIs, only the most important are discussed as follows.
1. Website KPIs – Unique visitors, total visits, page views, new visitors, time on site
per visit, page views per visit.
The numbers of unique visitors, total visits and page views in general indicate the
attractiveness of a website’s selection to customers. While new visitors may reflect the
success of a new marketing campaign, returning visitors may be the results of a retar-
geting campaign. Time on site per visit informs the company on the level of customer
engagement. Higher time on site and higher page views suggest that the visitor finds
the offerings interesting and spends time on knowing more about the same.

2. Sales KPIs – New customers, conversion rate, checkout abandonment, cart aban-
donment, checkout abandonment, total orders per day/week/month, average order
value.
The conversion rate is based on the number of new visitors versus new custom-
ers or visitors to the site who make a purchase. The number of customers depends
on the conversion rate between the numbers of visits and baskets and orders cre-
ated. It may be expressed as follows:
Conversion rate = ðNumber of Orders=Number of VisitorsÞ✶ 100
For instance, if the number of visitors on the website is 2,000 and the number of
orders is 100, the conversion rate would be (100/2,000)✶100 = 5%
In practice, the conversion rate varies from 0.5% to 6%, with 2% or above con-
sidered healthy.
Checkout and cart abandonment are crucial for determining the number of visitors
who do not follow through with their purchases. It is estimated that digital merchants
lose around $18 billion in terms of yearly sales revenue, with a cart abandonment ratio
of around 70%. High cart abandonment reflects possible issues with the shipping cost,
delivery time, payment method or technical issues that must be sorted by companies.
Amazon’s login system is one way of payment and shipping processes, enabling
faster checkout by using saved customer details to remove the need to re-enter ad-
dress and payment details. This can also help in avoiding cart abandonment – online
shoppers frequently add items to their carts, see the total price and shipping time,
and abandon the transaction, leaving the site without any purchase. By showing
total shipped costs and delivery times on product information pages, Amazon helps
prevent the notion of cart abandonment.
The total number of orders per day, week or month is important for business,
along with the average order value. With average order value, companies can gain
insight into their pricing and selling approaches. For instance, if a company sells a
product at four different price points ($15, $25, $35 and $50), and the average order
value is around $20, it may be said that most orders are in the lower range and of a
single unit of product. In this case, the company may opt for cross-selling or up-
selling strategies.
3. Operational KPIs – return rate, gross margin, order turnaround time, open cases.
High return rates or numerous open customer service cases suggest problems
with the products themselves or after-sales management. While the return rate for
brick-and-mortar stores is estimated at around 10%, for e-commerce, the return is es-
timated to be double at 20%. This is a dual cost for the company, first being the for-
gone revenue due to the cancellation of sales, while second being logistic costs in
acquiring the product back. Hence, the companies keep an eye on the return rate to
ensure that they do not lose substantial amounts of money due to excessive returns.

Interestingly, many companies have used lenient return policies as a marketing

tool. Zappos and Amazon have a lenient and simple return policy with virtually no
onus on the customer to “prove” any problem with the product or the delivery. This
results in a higher level of trust in the company, and the customer does not think
twice before ordering with the company.
4. Digital Marketing KPIs – Facebook “talking about this” and new likes, Twitter
retweets and new followers, Amazon ratings, open rate, click rate, conversion rate,
referral sources (percent from search, direct, e-mail, pay-per-click), pay-per-click cost
per acquisition, pay-per-click total conversations.
Since the beginning of digital marketing, online display advertising and search
engine optimisation remain the top two choices for marketers. Measuring the pay-per
-click cost, the cost-per-acquisition or the total conversion rate remain significant as
they indicate the success of digital marketing campaigns. However, recently, social
media have emerged as the next preferred channel for marketers since 2017. Conse-
quently, social media marketing metrics, such as likes, mentions and follows have
become useful KPIs for digital merchants. Nonetheless, businesses also employ tech-
niques such as sentiment analysis to ensure positive word-of-mouth (WoM) as well
as keeping eye on whether their brand is trending for wrong reasons. Apart from so-
cial media, WoM is also measured by traditional KPIs, including ratings, reviews and
referral sources.
1. A variety of business models for digital merchants, from pure resellers to multi-
sided platforms, exist. A company may choose to confine itself within a specific
business model (e.g., Zappos) or use a hybrid business model (e.g., Amazon).
2. Digital merchants often draw from the long tail of retail, i.e., selling a wide vari-
ety of low-popularity items to a lot of different people by covering all the niche
markets.
3. KPI measurements play a key role in performance measurement and operations
of digital merchants.
Do You Have an Integrated Touchpoint Architecture?
In the long run, digital merchants must overcome two problems if they wish to remain
successful. The first is how to differentiate themselves from other digital merchants. A
digital merchant will not have the traction required to successfully launch without a
unique selling point associated with a product, user experience or customer loyalty,

thereby making it stand out from competitors. This is a continuous exercise since the
uniqueness does not last forever. Etsy, for example, once stood out as a marketplace
for handcrafted goods. It now has several competitors, including Amazon.
The second problem is commoditisation. How can businesses differentiate them-
selves if the product or service they offer is standardised? Platforms selling flight tick-
ets encounter this issue. As the product remains the same everywhere, ease of the
buying process (SEO & UX) and price are the only differentiators. Since price primarily
influences buyers’ decision-making, quality of user experience, post-sale support, ship-
ping time and other factors have a minute effect on revenue generation. In this situa-
tion, the only way to maximise revenue is through volume of sales rather than holding
a large inventory selection.
Provided the convergence of e-commerce and ever-expanding ecosystems of
products and services, many businesses seek to answer the question of the possibil-
ity for a digital merchant to differentiate itself. Trust impacts consumer experience
and the relationship between the business and the customers. Hence, entrepreneurs
must decide whether to offer personal shopping services and post-sale contact or
consumer support. While customer journey is not a new tool in marketing, it gains a
new meaning in digital context as digital merchants need to design different touch
points during a customer journey.
Originally proposed by Procter & Gamble in the early 2000s, “moment-of-truth”
refers to key customer interaction with the product and service. Earlier versions of the
customer journey focused on the moment of purchase (the first moment-of-truth) and
the consumption (the second moment-of-truth) of the product or service. In a digital
context, the first moment of truth leads to merchants being experts in digital design to
maximise conversion. Amazon’s “1-Click” button for ordering minimises customers’ ef-
fort. The 1-Click button was key in providing Amazon with a competitive advantage.
R. Polk Wagner, a professor at the University of Pennsylvania Law School and an ex-
pert on patent law, explains: “It allowed Amazon to show customers that there was a
good reason to give them their data and the permission to charge them on an incre-
mental basis. It opened other avenues for Amazon in e-commerce. That is the real leg-
acy of the 1-Click patent.”5 Hence, the 1-Click button was exceptionally patented, as
the entire process as opposed to a specific single invention gave Amazon two major
competitive advantages. It provided Amazon with a database of customer payment
and preference information that no other retailer or Internet website could compete
with. Second, the 1-Click process helped to minimise shopping cart abandonment by
making the purchase fast and frictionless, leading to a dramatic increase in the conver-
sion rate.
 https://knowledge.wharton.upenn.edu/article/amazons-1-click-goes-off-patent/ as accessed May

20, 2022.

The advent of digital technology added at least two other steps: one moment
before and one moment after. The moment before the purchase, termed zero mo-
ment-of-truth by Google, refers to when customers search online regarding the
product or service. This means that merchants must adeptly use Search Engine Op-
timisation (SEO) and Search Engine Advertisement (SEA) to become amongst the first
on the Search Engine Results Page (SERP) on the path-to-purchase of the Internet
user. There are about ten organics (non-paid) results on every SERP and between
three and six advertised (paid) results. Several studies have analyzed how consumers
engage with the SERPs based on different keywords. Those studies reveal that the first
organic search result yields amazing results (Click-Through-Rate of 19% to 30% on
average). Being on the first SERP, either via organic results or paid results, is the con-
dition sine-qua-non for driving traffic to the website.
The moment following the consumption, termed third moment-of-truth, refers to
when customers share their experience on social media. It’s linked to the power of
Peer-to-Peer (P2P), which is deemed to be one the most efficient ways of advertising
products. According to a recent report from Kantar Media,6 93% of consumers trust
friends and family as a source of information regarding brands. This is to be contrasted
with advertising, which is the least trusted at only 28%. Retailers can leverage this
using referral programs wherein they credit existing customers points, cash, or dis-
count for each invited friend who makes a purchase. A good example of P2P market-
ing. It is these moments of truth that digital merchants must also manage successfully.
Moreover, as Muzellec and O’Raghallaigh (2018) argue, recent advances in mo-
bile technology have resulted in ubiquitous moment-of-truths that occur simulta-
neously, often on the same device. In other words, all four stages – search, purchase,
consumption, and sharing – may happen within a single set of transactions. Moreover,
modern retail is increasingly becoming channel agnostic, with a need for a consistent
experience across online, mobile and offline channels. This calls for an integrated
touchpoint architecture across customer journeys that also integrate Delivery and Re-
turn (see Figure 4-D).
Amazon app is an excellent example of such ubiquitous moment-of-truth and
integrated touchpoint architecture. Instead of searching on a search engine, cus-
tomers directly visit the app or the website to search for the product or service. They
are then able to compare across offerings and make purchase decisions. Oftentimes,
their contact and payment details are saved on the platform, making purchasing just
a matter of clicks. While physical products would take time to get delivered, digital
products (such as eBook or a Game) would be available instantly. At the end of the
transaction, the customer can rate the product as well as the vendor. Moreover, if they
are not happy with their purchase, the same app or website can be used to cancel the
 See Kantar Report on Media & Me, as accessed on May 2022.

Search
Purchase
Delivery
Consumption
Share
Cancel/Return
optional
Integrated Touchpoint
Architecture
Figure 4-D: Towards an Integrated Touchpoint Architecture.
order or return the product. Thus, by providing an integrated touchpoint architecture,

the company keeps the customer on its platform.
Google runs a think tank that offers insight into the way the internet affects
buyers’ decision process. This demonstrates that e-commerce sites must understand
their buyers’ decision-making process, such as whether a mobile is important to
them and their location when they are looking for the information. They must also
note if they are buying for “now”, such as when booking an Uber cab while stand-
ing on a sidewalk, or buying for “future”, such as when arranging holiday accom-
modation in two months’ time.
Understanding a buyer’s location and motivations helps e-commerce busi-
nesses reach them at the right moment in their decision process. If they are to pri-
oritise the devices and services appropriately, businesses must know when these “I
want to go”, “I want to do”, or “I want to buy” moments are.
Until recently, purchasing clothing online seemed illogical to shoppers due to
worries over fit and quality. It was the same with fresh produce. How could food stay
cool if delivered when the customer was not at home? However, thanks to e-commerce
innovations, buying clothing and fresh food online is now commonplace.
Naturale was one of the first e-commerce companies to sell online fresh produce
in France and the UK when it launched in 2000. To deliver fish as fresh as customers
could get at the seaside, the company was required to overcome the supply chain
challenge of first transporting fresh food and then keeping it in perfect condition

between delivery and the customer arriving home. In order to accomplish that, Natu-
rale developed a container that kept food cold for up to 48 hours, even in extreme
heat.
As you might expect, the average cost of ordering food from Naturale was much
higher than buying from a local supermarket for several reasons.
– Fresh products generally cost more than packaged items.
– Naturale was selling premium products at a higher price.
– To reduce shipping cost-per-item, customers generally ordered more food at one
time so the cost of weekly shops was higher than it would be from a supermarket.
Despite this, Naturale was able to build its customer base as its climate-controlled
containers kept product quality high, and the customers came to trust the brand.
They also appreciated the convenience, time savings and the appeal of not having
to grocery shop in the evenings or at weekends. Such positive experiences lock-in
customers and generate recurring business.
For Naturale, understanding the “I want to buy” and the “I want to do” moments
of their customers were key to the successful launch of their business.

5 “Social” at the Core of a Digital Business:
Valuing Audience or the Community?
This chapter discusses the value creation and value capture strategies of social platforms. Our
appellation of social platforms allows us to include services, such as Facebook, Twitter, Link-
edIn, Instagram, Snapchat, YouTube, TikTok, and WhatsApp, which are sometimes referred to
as social media, social network, and communication apps. These are defined and described in
the first section. We then explain that social platform business models share the common
characteristics of monetising a group of users, i.e., a community or an audience and/or its
data. We finally expand on the ethical tensions arising from locking in a key resource such as
an audience to derive financial return from the “actual” customers, viz., the advertisers.
5.1 Social: From Latin socius, “Friend”
Social media and social networks are often used indifferently. In this section, we
differentiate and define social media, social networks, and communication apps.
We then explain their common value architecture design, which rests on their abil-
ity to capture and monetise data from their users.
Here, Social is the common adjective. Social comes from the Latin socialis, “al-
lied”, or from socius, “friend”. Media and network do not mean the same.
Hence, social media are primarily media – i.e., means of communication of con-
tent (e.g., information and entertainment) to people. The social element describes
the notion that contrary to traditional media, social media users can generate con-
tent and/or react to the content that they consume by liking, sharing, and com-
menting. YouTube is a good example of social media (that is not a social network).
Similarly, social networks are primarily networks, i.e., a group or system of inter-
connected people who communicate with one another and may form an online
community; social networks describe a digital platform that allows peer-to-peer
communication through an open system.
Facebook, LinkedIn, Instagram, and TikTok had different starting points; yet,
nowadays, they may all be considered both social networks and social media. The
media dimension–content delivered to the right audience through a powerful algo-
rithm – is gradually becoming more essential than the network attribute.
More recent platforms like TikTok or Snapchat can be considered social media dis-
tributing vertically oriented content since it is mobile-first. TikTok was created from the
ashes of what was once Musical.ly, a social media app used to share short lip–sync
videos. TikTok reached over 1 billion active users per month in September 2021. The
network structure resembles a vertical content distribution system, comprised of influ-
encers at the top of the pyramid.
https://doi.org/10.1515/9783110762556-005

66 5 “Social” at the Core of a Digital Business: Valuing Audience or the Community?
Facebook started as a network, but the media dimension of the platform has
gradually become increasingly prominent. Users may have originally joined Face-
book to communicate with their friends and peers. This is less the case today. Face-
book users log on to the platform to consume entertaining or informative content
produced mainly by institutional contributors and distributed to them through an
algorithmic “Newsfeed”.
To communicate with peers, users of Facebook have turned to WhatsApp and
Messenger. Hence, the network attribute is now primarily assumed by what we will
call peer-to-peer communication apps such as WhatsApp, Weebo, and Messenger.
Those apps operate as one-to-one communication services or as a closed network
(group), vis-a-vis Facebook or Twitter that are more open in their setting. Similarly,
some of these peer-to-peer communication platforms have a very heavy media com-
ponent such as Snap Chat.
To summarise, social media are primarily providers of content which is curated
(share), endorsed (like), or remarked upon (comments) by an audience, while So-
cial Networks and Communication Apps primarily rest on a community of people
who communicate and share content in an open (Social Network) or closed (com-
munication app) manner. Conceptually, social networks, social media, and peer-to-
peer communication apps are therefore different, but in practice, platforms such as
Facebook, TikTok, Snap Chat, Instagram, and Pinterest have evolved over time and
embrace features and characteristics of the three constructs. From a business model
perspective, most of the social platforms share the same value architecture; they
provide value to different sides – mainly users or a B2C side and advertisers or a
B2B side.
The B2C side is a group of users who share and consume content in the form of
text, images, or video. These users provide data (demographic and psychographic
information) or generate data through their interactions (metadata). Some social
platforms directly capture value from their users in the form of social commerce
and premium versions. Yet, the data generated by the audience can be useful for
advertising purposes but may sometimes be sold to third parties. Hence, the most
prominent value capture mechanism involves a B2B side.
5.2 Audience: Monetising Attention and Data
The most common revenue model for social platforms is advertising. The platform
creates value through its ability to present ad content to the right targeted audi-
ence. This optimised advertising technique rests on the exploitation of data from
the audience. Hence, the business model of social media rests initially on audience
acquisition.

Production of an Audience
In the Social Networks movie (2010), Sean Parker (founder of Napster) is reportedly
discussing with Mark Zuckerberg and his then associate Eduardo Saverin. The latter
is concerned about the Facebook business model (or lack of it) and wants to run
ads. The former reassures Facebook founders: “Right now, Facebook is cool, and
you don’t want to ruin it with ads because ads aren’t cool”. Growing the audience is
what matters at this early stage. No audience, no product; no product, no revenue.
It must be considered in sequence. The oft-repeated adage – “if it is free, then you
are the product” – is the perfect description of this business model in which end-
users can benefit from a “free” service (connecting with peers) but it is at the price
of being transformed as an audience to be sold to a business side. With an audi-
ence, there are no reciprocal connections. When audiences generate data, they cre-
ate value that can be monetised for advertisers. So, though Facebook provides its
audience with tools they can use to connect as a community, it has also been mone-
tising its audience right from the start. The following graph (Figure 5-A) shows the
lag between audience and revenue. The audience initially grew much faster than
revenue, culminating in a 300% growth in the number of active users in 2010, and
from 2013 onwards, revenue grew much faster than users.
Social networks are considered multi-sided platforms (see Chapter 2). As such,
they need a strong value proposition on the users’ side. For Facebook, the initial
value proposition emphasised the network aspects of social media: “Connect with
friends and the world around you” along with the tagline “It’s free and always will
be” (which changed to “It’s quick and easy” in August 2019). The tagline empha-
sises the ease of adoption and user experience. The slogan “connect with friends . . .”
illuminates the success of Facebook, which can partially be attributed to a same-side
Network effect.
Valuing Network Effects
The Network effect means that the usefulness of the social network increases as the
number of users increases. With almost 3 billion users, the network effect has given
Facebook a huge competitive advantage. For a while, Facebook protected its domi-
nant position whenever a social network with a similar value proposition tried to
challenge it. This can be illustrated through the failed attempt of Google + to defy
Facebook in 2010. G + project’s slogan was “Real-life sharing rethought for the
web”, as the design team sought to replicate the way people interact offline more
closely than on other social networking services, such as Facebook and Twitter.
Many commentators conceded that G + digital design and UX were indeed more in-
tuitive than Facebook. However, due to the same-side network effect, the service
never really took off. The few users who were initially enticed by the digital design

Number of monthly active Facebook users worldwide as of 4th quarter

2021 (in millions)
3,500
3,000
Number of users in millions
2,500
2,000
1,500
1,000
500
0
Q2 08
’09
Q2 09
’10
Q2 10
Q4 11
Q2 11
Q4 12
’12
Q4 13
’13
Q4 14
Q2 14
Q4 15
’15
Q4 16
’16
Q4 17
Q2 17
Q4 18
Q2 18
’19
Q2 19
’20
Q2 20
’21
’21
’
’
’
’
’
’
’
’
’
’
’
Q3
Q4
Q4
Q2
Q2
Q2
Q2
Q4
Q4
Q4
Sources
Facebook; Meta Platforms
Additional Information:
© Statista 2022 Worldwide; Meta Platforms; Q3 2008 to Q4 2021
Meta’s (formerly Facebook Inc.) annual revenue from 2009 to 2021

(in million U.S. dollars)
150,000
125,000
Revenue in million U.S. dollars
117,929
100,000
85,965
70,697
75,000
55,838
50,000
40,653
27,638
25,000 17,928
12,466
5,089 7,872
1,974 3,711
777
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Sources
Facebook; Meta Platforms
Additional Information:
© Statista 2022 Worldwide; Meta Platforms; 2009 to 2021
Figure 5-A: User Acquisition and Monetisation for Facebook.

(Source: Statista 2022)

and UX of Google + became rapidly disillusioned with the service, as none of their
friends was active on the network. On April 2, 2019, Google + definitely shut down.
This effect and its reinforcing mechanisms such as brand habit and high switching
costs are described in Figure 5-B. The same effect has so far protected WhatsApp
from competitors such as Signals. Telegram, with 550 million monthly active users
(an increase of 175% since 2018), may now be reaching a critical number of users to
sustain its own network effect.
SCALING More More value for

NETWORK users existing users
EFFECTS
DIRECT NETWORK EFFETCS
Customers integrate More frequent

product purchase
REINFORCING Easier to get Customer

MECANISMS new customers lock-in
FOR NETWORK
EFFECTS
Less Lower Association of band
competition switching costs w/value propositions
SWITCHING COSTS BRAND HABIT
Figure 5-B: Network Effects Explained.
Keeping the Users Engaged Through Content
As explained earlier, users of social networks and media engage with content and/
or with peers. The role of the digital algorithm is then to serve the right content in-
cluding paid content–i.e., advertisements, to the right audience. Thus, the main
challenge for an audience-based business model is to develop the toolbox that enti-
ces the users to spend more time on the platform.
To do so, advertising is meshed with other forms of content. Content can be
generated by peers, influencers, or brands. The motivation to produce content for
peers is social/ peer endorsement of their way of living, while both influencers and
brands have a direct or indirect financial incentive. For them, this is largely a com-
munication activity, which is now called content marketing: the process of plan-
ning, creating, distributing, sharing, and publishing content in videos, pictures, or
text format on social media, blogs, websites, etc. Influencers and brands produce

diverse types of informative or entertaining content. Native advertising, also called

sponsored content, is a type of advertising that matches the form and function of
the platform upon which it appears. In many cases, it functions like an advertorial
and manifests as a video, article, or editorial.
Regardless of the format, the goal is to meet a marketing strategy objective:
reach a target audience and increase brand awareness, sales, engagement, and loy-
alty. The main function of the social platform is to match engaging (and sometimes
paid) content to individual users through an algorithm. The algorithm is a compila-
tion of rules and data that cast extrapolations about what users want to (and there-
fore will) see on the platform. Social media sites create unique algorithms for every
person, which means no two people will have exactly the same social media feed.
This ultra-individualisation makes social media content highly addictive. The
Fear of Missing Out can further generate addictive behaviour. The table below
shows the relationship between the average time spent on social media, the yearly
revenue, and the number of active users of the principal social platforms in 2021.
The table reveals that social media platforms grab a lot of our attention. If com-
munication apps such as WhatsApp have some difficulty in monetising this atten-
tion, social platforms such as Facebook, Instagram, or Snapchat seem extremely
efficient in keeping users engaged and exposing them to lucrative ads. Hence, for
an audience-based business model, a key challenge is to entice the users to spend
more time on the platform so that the platform derives additional advertising reve-
nue. We are now talking about the “Attention Economy”. The term, coined by psy-
chologist-economist Herbert A. Simon in 1971, treats human attention as a scarce
commodity. With the emergence of the Internet, it is now treated as the manage-
ment of information and considered the New Currency of Business (Davenport &
Beck 2001).1
To capture users’ attention, platforms are experts in UX and digital design (Re-
member Facebook’s motto: “It’s quick and easy”). Scrolling or swiping makes users
move vertically or horizontally, respectively, towards a bottomless feed. There is al-
ways increasingly more content (funny videos, interesting news . . .) to be discov-
ered further down the feed. Not surprisingly, scrolling has been criticised for its
addictiveness. Attention constitutes the token users’ flap in the hope of uncovering
rewards. To scroll is to take a chance, just like with roulette or a slot machine. It is
this aspect of scrolling behaviour that is now associated with problematic addictive
behaviour like gambling.
 Davenport, T. H. & Beck, J. C. (2001). The Attention Economy. Ubiquity, 2001(May), 1-es.

5.3 A Business System for Advertisers and Influencers 71
Table 5-A: Attention, Active Users, and Revenue.
Name of the Number of monthly Average daily time Yearly revenue Average rev per
platform active users (in billion) per user in hours (in billions) user and per hour
Facebook .   .

YouTube . . . .
WhatsApp  . . .
Instagram  . . .
TikTok . . . .
Snapchat . . . .
[Source: Estimated figures compiled from Statista, Backkinko.com, BusinessofApps, Techjury.net,

CNBC & SimilarWeb (2021)]
5.3 A Business System for Advertisers and Influencers
Social platforms have developed a huge competitive advantage over traditional

media, which rests on the smart use of the data generated by the audience. More
recent networks (e.g., Instagram and TikTok) also rely heavily on influencers,
who are both heavy users and business partners of the platforms.
Advertisers: Leveraging Data for a Targeted Audience
As seen earlier, the presence of a large audience on social media constitutes the es-
sential element of the business model, as individual users are consumers (and to a
lesser extent the producers) of free content, and they also provide the raw material
or key resource (data) for value creation. When audiences generate data, they create
a key resource that can be used to offer value-added services to advertisers. Data
are essential to feed the right content to users and facilitate granular targeting for
advertisers. The role of digital algorithms is then to serve the right advertisements
to the right audience, based on the criteria established by the advertisers.
To narrow down the targeting options, the toolbox for marketers is packed with
data. Facebook, for example, generates four petabytes of data per day – that’s
a million gigabytes!!! Most of it is simply stored by Facebook for the perusal of its
users but a sizable proportion will be used for marketing purposes. We can distin-
guish at least two types of data.
First, there is the demographic data pertaining to the users, such as who they
are (age, gender, and personal status), where they are from (country, city), and
what they like (interest-based likes and brand-following activity). Some of this data
is self-declared (gender, marital status), and some is generated by the users without
necessarily being aware of it: geo-localisation, browsing behaviour, device usage,

etc. Every time we friend someone on Instagram, watch a video YouTube recommends
for us, post a status, or share someone’s tweet, metadata – data about the data – is at
work in the background. This data is seldom sold to a third party as it would not be
very well perceived by users and is not very astute from a business perspective. In-
stead, the platform keeps the data to develop sophisticated toolboxes for their busi-
ness clients. For example, Facebook Audience Insights is a tool developed by Meta to
provide advertisers aggregated information about people on Facebook and more par-
ticularly people who like their page, so that they can easily find more people like their
existing audience.
Then, there is the data generated by the campaign itself. Here, social media plat-
forms provide advertisers with data about their campaign such as Click through rate
and Reach, average video watch time, etc. These metrics enable advertisers to monitor
reach and impressions, evaluate engagement rate, CPC and CPM, track referrals, mea-
sure bounce rates or conversion rates, and eventually Return on Ad Spend (ROAS). In
essence, the data allows advertisers to perform two key tasks: reach a well-targeted
audience with a tailored message and accurately measure the return on advertising
(ROA). These two characteristics make social media advertising a form of promotion
that surpasses the performance of any other media. Social media advertising com-
bines the virtue of mass marketing–unlimited reach, often more than one billion!–
and the advantages of one-to-one marketing (micro-targeting and tailored messages).
Influencers: A Hybrid User-Customer for Social Platforms
As seen earlier, the same-side network effect can be very strong on social net-
works (e.g., Facebook initial configuration), while the cross-side network effect
seems to be more prevalent with social media (e.g., YouTube). The evolution and
relative decline in Facebook use can be attributed to the users primarily joining
the platform to engage with peers. Advertisers who operate on the other side
were there only to subsidise the free use of the platform. Too often and despite
their effort to produce engaging content, advertisers were perceived as disrupting
the flow and experience of users.
More recently, marketing on social platforms has been mediated by super users
or influencers. According to influencermarketinghub.com, Instagram is the network
of choice for influencer marketing campaigns, with 79% of the brands considering
it their most important platform. Reflecting the evolution of its business ecosystem,
Facebook’s preference for influencer marketing has increased from 7% to 50% be-
tween 2018 and 2021, according to The State of Influencer Marketing 2021 research.
TikTok and YouTube are the two other destinations for influencer marketing.
Influencers are in fact the supercharged buyer persona of a particular target au-
dience. Hence, psychologically, they can be perceived as being on the same side as

5.4 Ethical Concerns over the Attention/Data-Driven Business Model 73
users. Yet, they too use the tools initially designed for businesses and are clients of
the social platforms.
Instagram and TikTok now propose two types of professional accounts: a Creator
account which is “best for public figures, content producers, artists and influencers”
or a business account “best for retailers, local businesses, brands, organisations and
service providers”. Users with Business or Creator Accounts have access to Analytics.
Analytics provide insight into top-performing videos and follower engagement. With
a Creator Account, you can see Post Insights, run ads, sort your inbox, and create
shoppable posts.
5.4 Ethical Concerns over the Attention/Data-Driven

Business Model
Social platforms have been criticised by activists, community leaders, and political
representatives for several reasons. In this section, we highlight three of the most
prominent tensions that epitomise the ethical concerns inherent in social platform
business models. These include the use of personal data, the addictive nature of
social media, and the role of algorithms in shaping our worldview.
Users’ Privacy vs. Data-Driven Business Model
Advertising is an extremely powerful strategy for monetising an audience. Yet, it

has some negative effects. In the example of a social network (i.e., Facebook origi-
nal setting), users join the network to form a community. The community is defined
by a reciprocal exchange of all happenings on the same side. Ads, which are the
emanation of business from the other side of the platforms, are simply there to sub-
sidise the model. They do not provide added value to the users; on the contrary,
they rely on data to better target the users. Hence, the inconvenience of the ad as
well as users’ personal data are the price users “pay” for using the service for free.
This leads to tensions over data usage. Data has now surpassed oil as “the
world’s most valuable resource”. Yet, end-users consider personal data as intimate
and private. Hence, it is not surprising that privacy, defined as the ability of the
individual to control the terms under which personal information is acquired and
used (Westin, 1968),2 is a source of tension. Online privacy behaviour falls into
three main categories, according to Bartsch and Dienlin (2016):3
 Westin, A. F. (1968). Privacy and Freedom. Washington and Lee Law Review, 25(1), 166.
 Bartsch, M. & Dienlin, T. (2016). Control your Facebook: An Analysis of Online Privacy Literacy.
Computers in Human Behavior, 56, 147–154.

– Informational – how much information we share.

– Social – how many people we allow access to that information, and
– Psychological – the intimacy of that shared information.
The intimate relations that users have with their personal data, combined with the
pivotal role of users’ data in social network revenue models, inherently leads to
some tensions that may result in crisis.
Facebook has come under scrutiny due to a series of high-profile data breaches
and related privacy crises. These have shaken user confidence in social platforms’
ability to protect users’ information and highlighted users’ lack of knowledge about
how their data is used. Users seem ill-informed about the specific type of data col-
lected, the purpose thereof and the identity of the collector. Despite this, they remain
reluctant to change their online privacy behaviour, limit their online activity, or the
unthinkable, quit their “internet lives” (Bradley, 2005).4 This apparent detachment be-
tween online privacy concerns and actual online privacy behaviour, known as the pri-
vacy paradox, has been explored extensively (Gerber et al., 2018;5 Barth & deJong,
2017;6 Kokolakis, 20177).
However, in some cases, users do react, as illustrated by the rise of ad blocking
technology adoption, rising from approximately 21 M users in 2010 to more than
180 M users worldwide in 2019. According to e-Marketers, in the US alone, over
75 M users had ad blocker software installed on their browsers in 2020.
The recent and relative success of apps such as Signal and Telegram – both
considered less greedy with data and more respectful of privacy than Meta-Owned
WhatsApp, is also symptomatic of users’ scepticism towards ad/data-based busi-
ness models.
Users’ Mental Health vs. Attention Economy
As mentioned earlier, users’ attention is what all digital and non-digital advertisers
are competing for. The advertisers’ job (on TV, outdoor, and digital) is to grab peo-
ple’s attention – and attention is a scarce resource. Of the twenty-four hours in
 Bradley, K. (2005). Internet Lives: Social Context and Moral Domain in Adolescent Development.
New Directions for Youth Development, 2005(108), 57–76.
 Gerber, N., Gerber, P., & Volkamer, M. (2018). Explaining the Privacy Paradox: A Systematic Re-
view of Literature Investigating Privacy Attitude and Behavior. Computers & Security, 77, 226–261.
 Barth, S. & De Jong, M. D. (2017). The Privacy Paradox–Investigating Discrepancies between Ex-
pressed Privacy Concerns and Actual Online Behavior–A Systematic Literature Review. Telematics
and Informatics, 34(7), 1038–1058.
 Kokolakis, S. (2017). Privacy Attitudes and Privacy Behaviour: A Review of Current Research on
the Privacy Paradox Phenomenon. Computers & Security, 64, 122–134.

5.4 Ethical Concerns over the Attention/Data-Driven Business Model 75
a day, while a third is dedicated to sleep, the rest is packed with all the other activi-
ties (work, commute, sports, eating, childcare, etc.): competition for attention is
thus fierce. The business model of digital advertising implies that once hooked, the
user must be kept on screen, if possible. To do so, social platforms have become UX
experts. The websites and apps of YouTube, Instagram, and Facebook are so well
designed that they may generate addictive behaviour.
According to Addiction Center,8 as many as 5 to 10% of Americans meet the cri-
teria for social media addiction today. Social media addiction can be largely attrib-
uted to the dopamine-inducing social environments that social networking sites
provide. Studies have shown that the constant stream of retweets, likes, shares and
other forms of self-disclosing behaviour on social media ignites the brain’s reward
area which is also triggered when consuming an addictive substance like Cocaine.
Of course, addiction is an extreme situation, and very often, social media is only
the catalyst for deeper personal issues. Amongst the most widely recognised causes
of addiction to social media are low self-esteem and hyperactivity, or even lack of
affection, a deficiency that young adults and teenagers try to replace with famous
social media likes.
Besides addiction, there may be some negative relationship between social
media and well-being. In a recent review titled “Social media use and well-being:
What we know and what we need to know”, Patti M. Valkenburg (2022) showed9
that general social media usage was associated with higher levels of depression/de-
pressive symptoms and anxiety (e.g., Yoon, Kleinman, Mertz & Brannick, 201910),
but, again surprisingly, also with higher happiness levels (e.g., Liu, Baumeister,
Yang, & Hu, 201911).
Filter Bubble (Mirror) vs. Democracy (Window)
Finally, the algorithms used to match the content to users are also a source of con-
cern. As stated, the main aim of the platform is to provide the users with what he/
she wants to read or watch (personalised content) so that he/she remains engaged,
if possible. This has led to a situation, called the filter bubble, in which the users
are exposed only to information and opinions that conform to and reinforce their
 https://www.addictioncenter.com/drugs/social-media-addiction/ as accessed on April 11, 2022.

 Valkenburg, P. M. (2022). Social Media Use and Well-Being: What We Know and What We Need
to Know. Current Opinion in Psychology, 45.
 Yoon, S .M. (2019). Is Social Network Site Usage Related to Depression? A Meta-Analysis of
Facebook–Depression Relations Journal of Affective Disorder, 248, 65–72.
 Liu, D., Baumeister, R. F., Yang, C.-c., & Hu, B. (2019). Digital Communication Media Use and
Psychological Well-Being: A Meta-Analysis. Journal of Computer-Mediated Communication, 24,
259–274.

own beliefs. The personalised function of the algorithm can be praised when deal-
ing with individual tastes and hobbies (give the people who enjoy watching cats,
the opportunity to watch more cats). It is also generally well accepted when the
content is commercial or branded: most consumers would rather be subjected to
the advertisement of products and services they enjoy, rather than irrelevant ads.
Personalisation is a bias that can be positive and pleasant.
The issue is that social platforms, in particular Facebook, Twitter, and You-
Tube, have gradually replaced newspapers and television channels as our main
source of information. The information we see from these media is biased, based on
our personal preferences. These preferences are inferred from our browsing history,
age, gender, location, and other data. The result is a flood of articles and posts that
support our current opinions and perspectives, to ensure that we enjoy what we
see. The internet was initially presented as an open window to the rest of the world:
Facebook’s original slogan was “Making the world more open and connected”.
However, thanks to this biased algorithm, our mobile screen functions more as a
deforming mirror of our own perception of the world. This affects not only political
views and analysis: universalist views vs. nationalist views, pro-choice vs. pro-life,
etc. It also affects the types of information we may be exposed to. Hence, someone
initially concerned about immigration might see more and more articles and news
related to this topic while someone initially concerned about gay rights or racial
discrimination will also be exposed to more news pertaining to these topics. Hence,
for one audience, immigration can be seen as a major issue while for another, race
relations are more prominent. This leads to a widening democratic gap, where not
only are we incapable of listening to the other side’s argument, but may not even
agree anymore on the topics that need to be discussed.
5.5 The Rise of Social Commerce
To overcome the limitations of audience-based business, social platforms are turn-

ing to other methods for generating revenue. The most prominent new revenue
stream is e-commerce.
Social platforms can be seen as intermediaries between some professional users
(brands, influencers) and many individuals. They mainly facilitate the exchange of
information. Gradually, however, platforms are becoming marketplaces that also fa-
cilitate transactions in goods and services in exchange for money.
The add-on e-commerce feature provides a streamlined in-app product selling ex-
perience to both businesses and individual users. By doing so, it further locks in users
and businesses, while providing the platforms with an additional source of revenue.
The global social commerce market size was valued at $584.91 billion in 2021
and is projected to grow at a whopping 30.8% compound annual growth rate from
2022 to 2030! Despite the robust growth, the United States and Europe lag China,

5.5 The Rise of Social Commerce 77
which has been a leader in social commerce, with some 424 million people making
purchases on platforms such as WeChat in 2021.
Facebook, Pinterest, Instagram, and TikTok all provide shopping abilities, all
with some slight variations. Pinterest shopping is fully integrated with the user ex-
perience. Users enter the product they are looking for in the search bar at the top of
the home feed and then they click on the Shop tab at the top of the search results to
browse and buy the product.
Unlike other listing sites like eBay, Facebook Marketplace allows businesses
(and consumers) to list items for free. To compensate for this potential loss of rev-
enue, Facebook turns again to advertisement through boosted listings. This time,
however, the ad is unlikely to annoy users, as they are searching precisely for the
item being boosted. In this regard, it functions a bit like Google AdWords, which
places on the top of the search engine results page an ad matching the search
query. There is a clear synergy between the need of the users/buyers and the offer-
ing (boosted listings).
Facebook’s newest e-commerce feature, Shops, launched in 2020, allows small
businesses to feature product catalogues on their Facebook and Instagram profiles,
and for followers to purchase in-app. Brands are seeing huge results, including
some seeing 66% higher-order values through shops than from their websites.
Indeed, social commerce presents itself as a real alternative revenue model for
social networks and is very well placed to gain significant market share over tradi-
tional e-commerce websites. It engages users in a more meaningful way, as it is
more experiential. Instagram, TikTok, and Pinterest are experience-driven channels
that enable shopping within a live streaming experience. Unique content created by
brands, influencers, or individuals drives authentic discovery, engagement, and ac-
tion. Action (purchase) is the last and the natural step of the users’ journey. The old
advertising model was called AIDA (Attention, Interest, Desire, and Action) but im-
plied diverse types of advertisement at different phases of the customer journey.
What’s more, the action (purchase) was never fully measured and could not be re-
lated to the advertisement that had initially driven the attention or the desire: “Half
the money I spend on advertising is wasted; the trouble is I don’t know which
half”. This is no longer the case with social commerce, which allows consumers to
close the loop on their journey by providing an end-to-end experience for users.
In sum, social commerce presents a significant future stream of revenue for so-
cial networks, as it overcomes some of the limitations of traditional ads by provid-
ing an immediate and clear return on investment. It also has the potential to
seriously challenge traditional e-commerce transactional models, as it provides a
more immersive, end-to-end experience for the buyer.

1. The business model of social networks is based on developing a sense of com-

munity; however, the social media business model is based on monetising an
audience (data of many individuals).
2. Social networks and media focus on the content and may rely on partners such
as influencers to persuade the community to spend more time on the platform
and to keep them engaged.
3. Social platforms’ business models inherently create tensions and ethical dilem-
mas between a community of free users and the necessity to derive revenue
from that community.
Will the Community Pay?
As seen in this chapter, the audience-based business models present some chal-
lenges. Increasingly, other sources of revenue are being considered. We have al-
ready talked about social commerce, which has gained significant momentum. A
Subscription revenue model is also an option, while the business model of commu-
nication Apps such as Messenger and WhatsApp still needs refinement.
To overcome the challenges of audience-based business models, social platforms
could stop using advertising and turn to freemium. LinkedIn has been offering a pre-
mium version of its membership to users right from its inception. YouTube has had
subscription and ad-free options since 2014. More recently, in January 2022, both In-
stagram and TikTok announced that they have begun testing subscriptions with a
limited number of US creators through subscriber lives, stories, and badges.
LinkedIn was launched in 2003, and from the beginning, had a relatively clear
value proposition. It was thought of as a social network platform where professio-
nals can find and list jobs—in other words, a Facebook for professionals. Three key
segments had traditionally constituted the users of LinkedIn. Businesses could de-
velop a LinkedIn company page to present themselves. They could also advertise
their products and services via LinkedIn Marketing Solutions. Recruiters and HR
specialists constituted a sub-segment. They had specific recruitment needs, ad-
dressed by LinkedIn Recruitment solutions. Similar to multi-sided platforms, those
two business segments were paying customers. Individual users are LinkedIn mem-
bers who use the network to connect with other professionals and display their pro-
fessional abilities through a personal page like an online CV. This last category of
users constitutes the free users. As for Facebook and other social networks, mem-
bers are the foundation and the key resource that allow LinkedIn to monetise its
offering to businesses. However, in November 2005, LinkedIn Corporation launched
two new subscription offerings: Pro and Personal Plus. If the Pro accounts provided
a simple upgrade path for recruiters and other existing Business account holders,

Personal Plus accounts were aimed at individuals and job seekers. In its initial busi-
ness plan, the company had no intention of charging individual users. Yet, after a
few months of existence, LinkedIn realised that a small proportion of individual
users was willing to pay for additional features such as allowing potential clients or
employers to contact them without having to purchase InMails or ask their connec-
tions for introductions. Since its acquisition by Microsoft in 2016, LinkedIn has
been gradually evolving into a Customer Relationship Management Service, which
in many aspects, competes with Salesforce. Today, LinkedIn has over 774 million
registered members from over 200 countries worldwide.
More recently, subscription models for individual users take two forms.
In the first scenario, it is the platform itself that offers the subscription in ex-
change for a reduction of pain and/or additional features. It is the model followed
by YouTube, which allows any of its users to use its website without the inconve-
nience of advertisements. YouTube Premium subscription, which was initially
launched in 2014 but exists in its current format since 2018, allows users to watch
videos on YouTube without advertisements across all of its website and mobile
apps, including YouTube Music, YouTube Gaming, and YouTube Kids apps. You-
Tube subscription works as a pain reliever: “Watch videos uninterrupted by ads,
while using other apps or when the screen is locked” as well as offering additional
features “Save videos for when you really need them – like when you’re on a plane
or commuting”, combined with an additional service: YouTube Music Premium.
The second scenario marks an interesting evolution. In this configuration, it is
the content providers of the media who are given the opportunity to offer a sub-
scription model to their own followers. Hence, the subscription model is mediated
by the influencers and the media itself takes a small cut of the subscription fee, the
model chosen by TikTok and Instagram. Besides creating a regular revenue stream
for creators and influencers, the subscription model allows creators and users to
develop a sense of community – which is lost when we talk about the audience –
by providing additional and exclusive content. The main benefit is to bypass the
algorithm which no longer wedges itself between users and influencers. These re-
cent developments are extremely interesting, as they mitigate the traditional reve-
nue models of social platforms.
A Final Consideration
Communication Apps like WhatsApp are finally starting to develop interesting busi-
ness models. The reason why Facebook acquired WhatsApp for $19B in 2014 was
that WhatsApp was becoming a threat as a substitute, as Facebook users (especially
younger ones) were migrating to the communication app for their one-to-one and
one-to-many interactions – no one knew how Facebook could one day recoup its
investment. Before its acquisition, WhatsApp too had a subscription model. It

cost $1 to download and then $1 a year going forward. Shortly afterwards, the parent
company Facebook removed the subscription. WhatsApp now remains permanently
free. It serves as a consumer service/communication platform where consumers com-
municate with businesses. WhatsApp makes money through its Business API prod-
uct. It charges companies anywhere between $0.05 and $0.90 for every message that
is answered after 24 h. WhatsApp’s revenue in 2021 was $86.15 billion.
All the above examples constitute relatively new ways of making money. All
these new models share the fact that they depart from the traditional advertising/
data/audience revenue model. They may constitute the future of social platform reve-
nue if such revenue can be sustainably integrated into a viable business ecosystem.

6 Unlocking the Sharing Economy: Scaling Trust
with Digital
Tim Berners-Lee, the father of the World Wide Web, once said, “The original idea of the web was
that it should be a collaborative space where you can communicate through sharing informa-
tion”. The vision was to develop an information distribution channel–the Internet– facilitating
communication and enlarging the collaborative space. In a very real sense, the sharing economy
glorifies why the Internet was created in the first place.
6.1 A Disruptive Phenomenon
As its name suggests, the notion of ownership is not important in the Sharing Econ-
omy. Instead, the focus is on the usage and the utility derived from the consumption
of a good or service. This is often illustrated by the expression: “I don’t need a drill. I
need a hole in the wall”. So, while a DIY enthusiast will buy a drill they can use re-
peatedly, why buy a drill at all, if you rarely do small household jobs? Wouldn’t it be
better if one could borrow or rent the drill and/or use a service that will satisfy his/
her need– i.e., make the hole in the wall, or better yet, hang the picture on the wall
(regardless of the method)?
At present, we are already used to renting cars and accommodation on-the-go.
Extending this idea to other areas makes sense since the owner of a good or service
can earn money from it when he/she is not using it. So, you could make a parking
space you don’t use available to others. This is what Parkpnp is enticing you to do:
“Did you know that 1 in every 10 cars which drives past your home is looking for
somewhere to park? Why not put your driveway to work while you kick back and
enjoy benefits of up to €2,000 a year?”1 Digital technologies make it possible to con-
nect owners of such goods and services with those who need them.
However, let us not get ahead of ourselves and first understand the evolution of
the sharing economy. The sharing economy began with giving, sharing, and swapping
things–on websites like Craigslist, on which people posted classified advertisements
for the items they wanted to get rid of and possibly earn some money. The benefit was
that others could get those items at a cheaper rate (or sometimes free). Facebook Mar-
ketplace is one of the recent examples of this model.
The next phase of the sharing economy evolution was in sharing space –living
space or space in your car. Airbnb used this model for the living space to become
one of the biggest players in the sharing economy. In just 10 years of its inception,
it became the world’s largest accommodation provider. Though owning no real
 https://parkpnp.com/ie/rent-your-parking-space as accessed on May 23, 2022.
https://doi.org/10.1515/9783110762556-006

82 6 Unlocking the Sharing Economy: Scaling Trust with Digital
estate, it lists more accommodation on its website than the Hilton and Marriott chains
have rooms in their hotels after decades of doing business. The goal was not to create
a marketplace where there is change of ownership but to match buyers and sellers.
So, in the case of Airbnb, all accommodation remains the property of the host, there
is just a “temporal rental” of an asset facilitated by Airbnb. BlaBlaCar is another ex-
ample of the same model applied to ridesharing.
The sharing economy further evolved to encompass those who, for instance,
“needed a drill but lacked the knowledge or training to use one”. This was the gene-
sis of the “service economy” that saw the emergence of sites like TaskRabbit or Fiverr
where people posted small jobs, they needed doing and small service providers with
relevant skills offered their service at low prices.
Thereafter came a more on-demand “gig economy”, where people could establish
themselves as independent workers, effectively creating their own jobs as Uber taxi
drivers do. Irish grocery delivery company Buymie uses the gig economy principles to
get pickers to shop on your behalf in your local Lidl or Dunnes Store and deliver your
shopping list in less than an hour. By using existing shopping networks (actual shops)
and flexible on-demand workforce, Buymie outcompetes on delivery time the tradi-
tional grocery websites (e.g., Tesco.ie) that support the cost of heavy infrastructure and
logistics. Amazon Mechanical Turks is another, more recent example, in which Ama-
zon uses the sharing economy model to perform what they call human intelligence
tasks, such as writing product descriptions or identifying contents in an image/video.
The latest evolution is a move from services to highly skilled “expertise”, with in-
dividuals sharing their knowledge for money. So, a business professor who offers to
teach someone how to write a business plan in return for being taught another lan-
guage by them would fall under the sharing economy, even though the deal is unbal-
anced, as one “expertise” would take much longer than the other to achieve. Gigster
is another example of such a model that allows software developers a platform to
offer their service for developing on-demand software.
However, there is no straightjacketing between the sharing and “non-sharing”
(if one says so) economy as such.
For instance, would you consider an online learning platform, like Udemy, as
part of the sharing economy? It provides a platform to the instructors and the stu-
dents, respectively, to offer and access upskilling courses. While it is a platform, the
content is simultaneously shared among multiple users. So, what classifies it better:
digital platform or a sharing economy or perhaps both?
6.2 Seeing Through the Fog of Collaborative Economy
The notion of the sharing economy gets more confusing with the use of other terms
such as collaborative consumption, collaborative economy, or peer economy, all of
which are used interchangeably but have slightly different meanings. Because

6.2 Seeing Through the Fog of Collaborative Economy 83
businesses create and exchange value differently through their diverse business
models, the Collaborative Lab suggests there is a need to reach beyond current ter-
minologies like “sharing economy”, “peer economy”, and “collaborative consump-
tion”. While we need to differentiate between these terms more precisely, these can
be collectively thought of as falling under the overarching term, “collaborative
economy”.
A large element of the collaborative economy, of course, is collaborative con-
sumption. It refers to the sharing, swapping, trading, or renting transactions that un-
derpin collaborative consumption in the sharing economy. It may take the form of
collaborative lifestyle, redistribution market, or product service systems. Under a col-
laborative lifestyle, resources are shared across a community. For instance, many cit-
ies have open book banks in public spaces, where anybody can put in a book or take
one. Redistribution market refers to the situation when underused or unwanted goods
are redistributed to those in need. For instance, Computer Aid, a charity organisation,
collects unwanted computers from organisations and has sent those for use in more
than hundred countries across the world. Finally, product service systems refer to the
situation when people pay to access the service instead of owning the product. All
major cities in the world now have some form of bicycle (e.g., Velib’ in Paris or Dublin
bikes) and car sharing systems (e.g., ShareNow in Germany or GoCar in Ireland), often
in collaboration with the city councils.
Finally, the sharing economy could be defined more specifically as an economic
model in which underutilised assets are shared, on a payment basis, with others. In
contrast to the product service systems in which an external entity “owns” the shared
resources (and takes care of maintenance, etc.), in the sharing economy, the emphasis
is more on person-to-person redistribution. The resource is owned by an individual,
who decides to share the underutilised resource, often in return for some money. The
resource could include anything from sharing a car ride (say via BlaBlaCar), renting
out a room to a traveller (say, via AirBnB), or/and exchanging knowledge (say, via
Gigster). The companies only provide the platform to share the resource, while the
resource ownership remains with the individual offering it.
While many businesses claim to be part of the sharing economy, not all meet the
definition of a sharing economy business. For example, GoCar appears to be part of
the sharing economy because it helps people share vehicles. Yet, the company owns
these vehicles, and there is no peer-to-peer transaction. Hence, GoCar only ticks some
of the boxes of the sharing economy. It is even more debatable for a company like
Etsy. This platform is used by those looking to sell handcrafted goods, but since these
products are made specifically to be sold, Etsy is in fact more accurately defined as a
marketplace. Hence, there are different categories of sharing economy companies (see
typology of business model hereafter).
As more goods and services are exchanged between peers, the sharing economy
is expanding into new dimensions such as car and bicycle sharing, social lending,
space rental and co-working, the swapping of books, baby goods, toys, clothing, etc.

The sharing economy is now extending to other traditional sectors too. In the energy
industry, for instance, start-ups are looking to cut the carbon footprints of cities by
rebalancing energy consumption between commercial and residential buildings, de-
pending on the time of day. In many countries, consumers may install solar panels
on the rooftop of their houses/offices and sell surplus electricity (i.e., electricity re-
maining after their use) to the grid.
6.3 Value Drivers Behind Sharing Economy
The sharing economy is propelled by four sets of drivers – technological, social,

economic, and behavioural.
Technological Drivers
Digital technology is a crucial driver of the sharing economy. Idle capacity was al-
ways there; now, the technology has provided the means to share the information
on idle capacity. Mobile technology has unlocked the potential of the network econ-
omy by facilitating peer-to-peer connections. Social networking and geolocation
make it ever easier to find goods and services that meet consumers’ needs. Powerful
algorithms on the application platform make it easier to match the peers with com-
plementary needs. Finally, peer-to-peer payment enables individuals to cover the last
mile in the sharing economy.
Social Drivers
With the advent of social networks, there has been a rejuvenation of faith in the im-
portance of the community (virtual and real) with a sense of togetherness, intimacy,
and trust. In addition, the increasing resource burden on the cities has made the
wider population receptive to the concept of sharing resources. The sharing economy
redistributes power since consumers no longer need passively wait, as they did in the
past for offers to be created for them. Now, thanks to crowdsourcing, consumers can
participate in the creative process by helping fund the making of an offer that meets
their needs. As consumers do not have to wait for a company or organisation to make
what they want, this changes their relationships with the producers of goods and serv-
ices. Moreover, there has been a disillusionment with the consumerist culture due to
climate change, resulting in active citizenship in caring for environmental resources.

6.4 A Typology of Business Models Behind Digital Sharing 85
Economic Drivers
The sharing economy enables the creation of monetary value by using the idle capac-
ity of resources. For instance, Airbnb hosts earn money by letting their idle space,
which would be otherwise underutilised. The rising cost of living in cities has made
the asset owners receptive to sharing the resource to reduce operational cost. For in-
stance, ridesharing apps like BlaBlaCar allow car owners to reduce the cost of the
travel they would have anyway made. The success of these sharing economy compa-
nies also has a ripple effect in terms of a steady supply of venture capitalists ready to
invest in new sharing economy companies. Last but not the least, pervasive unem-
ployment/underemployment post-recession make sharing and swapping increasingly
attractive to those wanting to save money.
Behavioural Drivers
Apart from the technological, social, and economic factors, certain behavioural drivers
have greatly influenced the adoption of the sharing economy. New app designs have
made the interaction between peers–from search to match to payment– seamless. The
ease of use and convenience attract and maintain the members on the sharing econ-
omy platform. There is also a desire for authentic experience – actual homes instead
of hotel rooms or fellow travellers instead of a taxi driver–underlying the adoption of
the sharing economy.
6.4 A Typology of Business Models Behind Digital Sharing
Based on the analysis of 32 companies that are part of sharing economy networks in
the UK, Ireland, and Denmark, Trabucchi, Muzellec, and Ronteau (2019) classify digi-
tal sharing models across a two-by-two grid.2 The business models may be classified
on two crucial dimensions (Figure 6-A) – the novelty of the shared asset and the tem-
porality of the transaction. The assets may be existing (pre-owned) or new. Similarly,
the transaction could be temporary (e.g., rent) or permanent (ownership). Based on
the two dimensions, four classes of digital sharing models may be identified.
 Trabucchi, D., Muzellec, L., & Ronteau, S. (2019). Sharing Economy: Seeing through the Fog. In-
ternet Research.

Temporality of the transaction

Permanent Temporary
New
On-Demand
Seller Aggregators
Renters
Shared asset
Multi-Sided
Platfroms
Service
Providers
Existing
Lifecycle Ephemeral
Extenders Matchmakers
Figure 6-A: A Typology of Business Models Behind the Sharing Economy.

(Source: Trabucchi, Muzellec & Ronteau, 2019)
Lifecycle Extenders
Under this business model, peers sell existing goods permanently. These are the com-
panies that extend the life cycle of used products by connecting the owners (who do
not want the product anymore) to their future users. Peer-to-peer apps such as Craig-
list, Done Deal, or ReSecond function as lifecycle extenders, when the users use
these to buy and sell second-hand goods. This model is particularly popular in the
case of sustainable fashion movement through websites such as Depop or Poshmark
which facilitate the peer-to-peer sale of used fashion products. This model is not lim-
ited to individual customers. Rheaply, a company that provides a B2B service in the
reuse of physical IT resources across companies, is another example.
Seller Aggregators
Under this business model, companies function as aggregators for newly created
goods. For instance, apps like JustEat or Deliveroo aggregate the food providers.
While these companies are better classified as platform businesses, they effectively
share their delivery infrastructure with multiple partners.

On-Demand Renters
Under this business model, companies temporarily share their assets with a wide
group of users. All businesses that rent cars or bikes come under this umbrella. Com-
panies like Hertz or Europcar manage a vehicle fleet that could be temporarily rented
by the customers. While the companies take care of the insurance and maintenance,
the customers use the resource on a need basis. As discussed in the first section, on-
demand renters are an example of collaborative consumption.
Ephemeral Matchmakers
Ephemeral matchmakers are the best example of a sharing economy model. Under
this business model, companies function as a platform to enable temporary transac-
tions between peers–those who own underutilised assets and those who wish to use
them. This is the most popular model for sharing accommodation (AirBnB, HomeStay,
Vrumi) and commuting (BlaBlaCar, Uber, Lyft). Since both parties are often individu-
als (aided by the digital platform), ephemeral matchmakers are closest to the concept
of the sharing economy.
Irrespective of the classification, digital sharing companies often involve sharing
of resources between strangers. This is where trust and reputation come into the pic-
ture. This is discussed in the next section.
6.5 Lemons Problem and Online Trust
To be successful, sharing economy companies need to overcome two key issues.

They need to provide assurance to the participants concerning the quality and reliabil-
ity of the product/service offered (lemons problem) and the integrity of the other par-
ticipants, as well as of the digital transactions themselves (online trust).
Lemons Problem
Much before the advent of the online sharing economy, Nobel laureate George
A. Akerlof discussed the issue of trust and information asymmetry in his 1970 paper
“The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism”. Akerlof
argued that in such markets, usually, the sellers have more information on the
product (e.g., a used car) than the buyers. Traditionally, the buyers did not have
any mechanism to determine the authenticity of the information provided in such
markets. This effectively drives the prices of the goods (lemons) down since buyers
would not want to take a risk. With time, this phenomenon (known as the lemons

problem) drives high-quality goods away from the market, inundating it with infe-
rior quality goods.
Since the lemons problem emerges from information asymmetry, a key task for
the sharing economy platforms is to facilitate information exchange to build trust and
reputation. In the sharing economy, success depends on a company’s ability to build
trust among strangers, which means continually monitoring online reputation, right
from the beginning. Sharing economy platforms like Airbnb or BlaBlaCar connect the
two sides of a business that are not otherwise connected. In fact, it is the main reason
they come to such a platform. Developing and maintaining trust is a result of recur-
ring transactions in traditional businesses. However, due to the temporary nature of
the transactions, the two entities seldom engage in repeated transactions in the shar-
ing economy. Thus, ensuring trust between the two sides becomes a concern and a
key requirement for an ephemeral matchmaker.
Online Trust and Reputational Mechanisms
As with other platforms, the primary challenge for sharing economy platforms is
how to connect those who “have” with those who “need”. And even though we are
already accustomed to sharing, this often means overcoming resistance to new ex-
periences. So, while parents, for instance, often exchange used baby clothes with
others in their network of friends and family, doing this with strangers with whom
you do not have an interpersonal relationship extends the concept of community
into another area entirely.
When it comes to inspiring sufficient trust to make participants willing to interact
with strangers in ways they would normally reserve for family and friends, sharing
economy platforms face issues similar to those of other multi-sided platforms–how to
attract both sides of the platform and encourage them to return. There are three ways
in which sharing economy platforms can measure and manage trust – i.e., trust in
other network participants, trust in the value exchanged, and trust in the platform.
Certain reputational mechanisms play a key role in ensuring trust between the
buyers and the sellers and overall trust in the platform. Sharing economy platforms
use at least three reputational mechanisms – profile, secure messaging, and reviews –
that contribute to overcoming biases and reducing the anxiety of interacting with
strangers. The majority of the sharing economy players encourage the users to build
a complete profile (e.g., a driver on BlaBlaCar or a host on AirBnB) on their platform.
A typical user profile on such sharing economy platforms includes information such
as name, photograph, age, gender, and preferably social media handles. To ensure
that the participants are trustworthy, BlaBlaCar has developed a framework for trust
conditions called DREAMS. The framework outlines the key tools to build trust in on-
line communities:

– Declared – Declared identity including name, photo, and bio.

– Rated – Peer-to-peer ratings based on members’ prior rideshares.
– Engaged – Financial commitment to the journey through pre-payment service.
– Activity – Last-seen date or response rate, providing information on a mem-
ber’s frequency of activity, and level of responsiveness.
– Moderated – Content exchanged by members moderated and verified by the
platform.
– Social – Existing online social identity (Facebook or LinkedIn) connected with
profiles.
All sharing economy platforms will use similar forms of checking mechanisms to
improve online trust for participants. They also enable secure messaging among
users within their platform. Secure messaging provides a way of continuous com-
munication and coordination, helping in building trust and maintaining the history
of their communication on the same platform. All platforms provide rating and re-
view mechanisms that allow other users who have availed of the service to rate the
trustworthiness and reliability of another user and/or the quality of the offerings.
Research suggests that textual reviews and the rating system are the strongest repu-
tational mechanisms on sharing economy platforms. Customers can view the rat-
ings and reviews before finalising a transaction.
While reputational mechanisms like profile and review help in building trust in
the platform and the users, the crucial question of ensuring trust in the value ex-
changed remains. In planning the planning of the sharing economy platform, a com-
pany must work out not only how to inspire trust but also how it can make sharing
and swapping transactions more efficient for all. This means those developing sharing
economy platforms must consider the products involved in transactions and how they
can provide a structure to facilitate interactions between those who have and those
who need them. They must also think about the service offered as a whole—in other
words, what will be the core interaction facilitated by the platform?
In this, the data collected and monitored as well as the reviews generated by the
participants about the products and contents, they find on the platform are both cru-
cial. For instance, efficient algorithms are designed that match the users (those who
have and those who need) in an optimal way. Basic changes in the user interface, such
as providing shortcuts for most used options, or options to filter/sort, go a long way to
reduce friction and add value for the users. Similarly, most sharing economy platforms
have integrated digital wallets into their applications so that the user remains within
the system.
In the long run, however, trust in the platform also comes into the picture. Such
trust-building ability effectively determines a sharing economy platform’s capacity to
scale. As a company matures, it must also determine how to extract more value from
its community. For instance, AirBnB builds on the trust ecosystem through its “super-
host program”, with hosts who consistently provide an exceptional level of service.

Superhosts get benefits in the form of being featured on the platform, attracting more
guests, and receiving additional bonuses from the platform. BlaBlaCar has a similar
programme where their most active drivers are recognised as Ambassadors, who get
featured on the platform and receive special benefits such as availing car-as-a-service
with their partners like Opel and ALD.
However, the sharing economy platform needs to be careful in exploiting its user
data. One area that significantly affects trust is the conditions of use of customer
data. If customers feel, for instance, they are being asked for too much information,
or worry about what will be done with their details, they will lose trust in the plat-
form and use it less. For example, parents on baby clothes swapping platforms who
provide information about their child’s age, gender, and other details may find it ob-
jectionable if the company uses their profile to advertise baby products to them. So,
issues of trust may stem not just from concerns over the safety of the transactions but
also from how data is exploited by a platform.
1. Sharing economy is a collaborative economic model in which users share their

underutilised (idle) assets with others on a payment basis.
2. Most sharing economy services are ephemeral matchmakers who facilitate the
transaction based on matching those who have with those who need.
3. Online trust and reputation play a crucial role in the sharing economy. User
profiles and review/ratings are the most effective reputation- and trust-building
mechanisms in sharing economy platforms.
Market Configurations that suit the Sharing Economy
When starting a sharing economy business, entrepreneurs must primarily consider

the liquidity of the assets. In other words, are these goods or services easy to share?
For example, a parking space in a secure apartment block might not be shareable if
the residents object to outsiders having access to the building. However, there are
often solutions to problems like this, thanks to the Internet of Things, which, in this
instance, could provide a temporary remote key to the garage.
The next thing to consider is an asset with a high idling capacity, one that is used
only infrequently (Figure 6-B). So, if someone owns a surfboard but uses it only once
a month, they could rent it out for 30 other days. They would have to accept the possi-
bility of the board being damaged and requiring replacement now and then.
The sharing economy may work well for the items for which the cost of owner-
ship is high. It can make generally hard-to-access items like luxury goods more
available. Through Airbnb, travellers can rent a luxury home in a desirable location

Should be
high
Potential lifetime
Liquidity
of the product
Idling capacity
Demand or supply
Cost of ownership
limitations
Should be
low
Figure 6-B: Characteristics of the Value Proposition in the Context of Sharing Economy.
at a lower price than if they booked a luxury hotel directly or through a letting
agent.
In some cases, goods that quickly become obsolete are also good for sharing or
swapping. Why purchase new baby clothes when they are only needed for a short
time? Share them instead. In fact, in many cultures across the world (especially in
Asia and Africa), it is customary for friends and family to gift old baby clothes when
a baby is born.
The sharing economy also works well for assets that have low demand or sup-
ply limitations or the value of which increases when shared (e.g., travel experience
or professional tips).

Part 3: Capturing (and Locking) the Value: How Is
Value Captured?
Sustainability

7 Brokerage Model: Scaling with Fees
on Marketplaces?
Commission fees are considered as the most developed and even sometimes successful model
to capture value in marketplaces. Sometimes called “transaction fees”, “take rate”, or “rake”
or “service fees”, commissions are capable of minimising frictions in marketplaces. Transac-
tion fees can be adjusted to attract both sides of the marketplace and solve the mutual baiting
issues. This mode of value capture presents the advantage of exponential profit growth when
scaling, provided variable costs are kept under control. Using AirBnB as a central case through-
out this chapter enables us to analyse and illustrate the benefits and challenges associated
with this value capture mechanism.
7.1 Why are Transaction Fees so Developed?
An internet transaction is the sale or purchase of goods or services, whether be-

tween businesses, households, individuals, governments, and other public or pri-
vate organisations, conducted over the internet. In 2020, over two billion people
purchased goods or services online, and during the same year, e-retail sales sur-
passed $4.2 trillion worldwide. Those transactions generate fees which may be visi-
ble or invisible to the users. This is the case of marketplaces like Airbnb, Amazon,
Apple Store, Blablacar, Etsy, Uber, Zalando, and so on. If transaction fees are not
the sole way to charge participants and customers, they are among the most domi-
nant pricing mechanisms–namely the type of value capture behind the business
model– at work in marketplace configurations. A recent study pointed out1 that
more than 50% of the “100 best performing marketplaces in 2021” take a cut out of
the transactions they process.
The transactional business model can be considered a taken-for-granted mar-
ketplace model whereby two sides (i.e., buyers and sellers) engage in a transaction
and thus generate revenue for the marketplace provider. The value is captured by
charging one or both sides a service fee, a commission fee, sometimes called a
“rake”, on each successful transaction.
The “rake” analogy is interesting, as it reveals why this pricing tactic spreads
among marketplaces. As Bill Gurley explained, “In a casino, the term ‘rake’ refers
to the commission that the house earns for operating a poker game. With each
hand, a small percentage of the pot is scraped off by the dealer, which in essence
becomes the ‘revenue’ for the casino”. Like a casino, a marketplace provider
 See ShareTribe insights accessed in May 2022.
https://doi.org/10.1515/9783110762556-007

96 7 Brokerage Model: Scaling with Fees on Marketplaces?
creates the conditions by which all the participants– at least a seller-side and a
buyer-side– want to interact and transact. For their effort and just like the dealer
in a casino, these providers capture a little bit (e.g., the commission) of the reve-
nue passing through (e.g., the transaction).
Let us take Airbnb as an example. Originally named AirBed&Breakfast, this busi-
ness was presented in 2008 and their pitch deck got viral and influenced numerous
upcoming entrepreneurs.2 Behind their well-known solution – “a web platform where
users can rent out their space to host travellers” – founders stated simply their busi-
ness model as such: “we take a 10% commission on each transaction”. Let’s assume
that one transaction corresponds on average to three nights for $70 per night –
or $210 – the company will take a $21 commission per transaction. Based on an esti-
mated 10.6 million transactions in the next 3 years, AirBed&Breakfast could achieve
more than $200 million in revenue–not bad for a startup with a relatively limited up-
front investment – i.e., contrary to a traditional hotel chain, it does not need to pay for
the building of the actual offering (e.g., hotels and hotel rooms). As we will see later,
the “business model” is a bit more complex, but what can we learn from that example?
At the Essence of Two-Sided Markets
Theorized by French economists, the Nobel laureates Jean Tirole and Jean-Charles
Rochet, two-sided markets are at the foundations of digital platforms, as presented
earlier. They refer to a situation in which two distinct user groups (sides) are interde-
pendent on interaction (buying and selling for example). To enhance network effects,
an intermediary– the platform provider– will have to create favourable conditions to
remove frictions to meet, interact, and hopefully transact. This intermediary transac-
tional platform is accordingly supposed to function as a facilitator – often called a
matchmaker – to foster the willingness of the sides to meet and transact.
Thus, charging a fee for each transaction is supposed to support the efficiency
of the intermediation provided, as it will take a small commission on the effective
transactions performed. Individually, each commission represents an acceptable
and small compensation for the effective matchmaking (e.g., a 10% compensation
for securing the transaction between a host and a traveller for AirBed&Breakfast).
But on a large scale, these small commissions can represent a huge revenue stream,
once the provider reaches a significant market share (e.g., $200 million in expected
revenue from 2008 to 2011 for AirBed&Breakfast).
 See this BusinessInsider Blog Article published on March 28, 2015 – accessed in May 2022.

7.1 Why are Transaction Fees so Developed? 97
As the platforms’ key attribute is to remove frictions in the matching and inter-
action of two sides, it is essential that the pricing mechanism does not reintroduce
such frictions.
Capturing Value from a Frictionless Transaction and Brokerage Model
Instead of buying products and reselling them, brokers function as an intermediary

or third-party who brings sides together and removes the friction in transacting.
The goal of the broker is to hopefully become the “one-stop shop” for buyers; and
the place to be listed for sellers. So, to justify the 10% commission fee, we need to
understand how the job is performed by the web platform. In the example of Air-
Bed&Breakfast, the platform provides three key features for travellers:
– Travellers can search by city and curate the listing according to filters.
– They can review listings: each reference can be described according to a text,
pictures, a functional description, and reviews from previous travellers – which
play a key role in continuously updating the description of each listing.
– They can book directly on the web platform, whether or not the currency of the
host and the traveller is the same. The website secures the transaction for both
participants, as it ensures the role of a bank in settling the transaction.
This last attribute of the process is key for AirBed&Breakfast. If it did not control the
flow of money, it would not be able to ensure that both participants pay a commission.
LeBonCoin, on the other hand, is a classified ads website based on free service for
individuals and the matching of local supply and demand. In this model, buyers and
sellers are put in contact through the website but the money flows directly from buyers
to sellers without the intermediation of LeBonCoin. In this case, it is not possible to
secure the conditions for a commission. That explains why LeBonCoin prefers to value
the exposure from the audience to advertisers and function as a third-party subsidy
business model that we will discuss in Chapter 8 on free-based business models.
Providing enough value for participants is key to sustaining a commission
model. If the participants can interact directly – especially for the payment – then
the platform may lose its pivotal role in the brokerage ecosystem model. In our ex-
ample, AirBed&Breakfast re-intermediated the market with transactional ease of
payment combined with trust mechanisms (ratings of hosts, travellers and offer-
ings). Airbed&Breakfast acts as “insurance” for both parties and as such, justifies
the commission fee.

A One-Fits-All Pricing Strategy for Marketplaces?
As stated by ShareTribe in their survey,3 commission fees are dominant for rental
marketplaces and marketplaces selling physical goods. Whereas for the other kind
of marketplaces, such as for digital goods and contents, or service, and delivery
marketplaces, ShareTribe notes “a spread of successful revenue models” including
subscription, freemium and lead fees, and other kinds.
As explained earlier for rental services, such as Airbnb, the trust issues justify
the brokerage model. For marketplaces selling physical goods (such as Amazon for
example), the service fees need to encompass the shipping process where the e-
commerce will release to the seller the details for the shipping to the buyer, the
seller performing the delivery directly. Thus, the platform provider is locking in the
seller by mastering the customer relationship management, justifying and securing
the commission. If a transaction is recurring between the same buyer and seller for
the same good or rental, then buyers and sellers will be tempted to bypass the
marketplace.
For digital goods and contents, value capture may also be different. Sometimes,
the dominance of the platforms makes it possible to charge larger fees, as much as
30%, as in the case of Apple. The mimetic movement for spreading the commission
fees from music to applications was successful, as it was well-adopted by the eco-
system of stakeholders. Whatever the nature of the transaction, the effects were a
quick scale of catalogues and consequently, a solid revenue for the platform pro-
viders as the number of transactions grows and the platform reaches a dominant
position. The example of Apple is developed hereafter, concerning two different
services: iTunes and App. Store.
Apple iTunes vs. Apple AppStore

Released in 2002, iTunes rapidly became an extremely popular marketplace for buying music to
be downloaded on an iPod (a portable media player) released by Apple by late 2001. At this
time, the music industry was still dominated by CDs. Thus, purchasing music as a physical good
was the dominant model. To enhance the move to digital, Apple engineered an interesting busi-
ness model for iTunes. On the one side, we find the copyright owners – major labels and distrib-
utors such as Universal, Warner, and EMI, with a dominant position in the industry. At 10 to 15€
per copy, they were benefitting from the CD format. The challenge for Apple with iTunes was
therefore to convince them to disseminate electronic copies of their catalogues without a risk of
music piracy. Then Apple needed to change consumers’ habits to wean them away from CDs to
purchasing digital copies. In that context, Apple fixed the price for every single to be sold on
Apple iTunes at 0.99€ per song. A price per song was appealing to the listener, who did not
need to buy a full album. This pricing was also considered fair and beneficial to the owners, as
on average, an album comprised 12 to 15 songs – thus, the price of an album would be compa-
rable, as Apple promised to integrate a Digital Right Management to secure each copy sold on-
line exclusively through the Apple iTunes platform. On the volume of sales, Apple split the
 See ShareTribe insights accessed in May 2022.

7.2 Who is Willing to Pay the Bill? 99
revenue generated with Majors on a 30/70 split agreement: Apple’s retaining a commission fee
of 30% of the revenue was justified by the costs of distribution (storage, security of digital con-
tent and platform, marketing, and payment costs). iTunes was an enormous success for many
years and an accelerator of progress from an analogic industry to a digital music industry, open-
ing up avenues for streaming platforms.
Several years later, in 2007, Apple introduced the first iPhone, replicating the model it had
already tested with iTunes with some slight differences. Along with the iPhone, the AppStore
was launched as a marketplace. iPhone owners could browse and download approved apps de-
veloped for iOS (the operating system embedded in iPhones). App developers could access
Apple iOS SDK (i.e., the Software Development Kit) and access all iPhone customers if they re-
spected Apple’s conditions of sales and use.
Yet, contrary to the iTunes business model, this time, Apple did not fix the price of Applica-
tions, due to the competitive conditions of the application industry. Unlike the music industry,
the application development sector is highly competitive, the players numerous and frag-
mented. Accordingly, the conditions are very competitive to ensure that the laws of pure and
perfect competition are fulfilled and accessible pricing for the buyers (iPhone owners) is possi-
ble – to the extreme, nowadays, we observe that a large majority of Apps are offered for free.
Reproducing a “fair pricing brokerage model”, Apple let developers fix the price of their apps
and split the revenue under the 30/70 rule: 70% of revenues for developers for paid apps and
in-app purchases and 30% for Apple to cover service fees. Again, it was a tremendous success
for Apple. It permitted Apple to quickly scale the catalogue of applications developed in the iOS
ecosystem, faster than it could have taken for Apple to develop on its own all the applications
available in its closed ecosystem.
Finally, for delivery services, the platform provider must intermediate three sides
(e.g., restaurants, customers, and riders for Deliveroo or Uber Eat) and conditions to
transact can be made complex with other kinds of pricing strategies.
If the mechanism for “commission fees” appears simple in principle, its practi-
cal application may be more complex.
7.2 Who is Willing to Pay the Bill?
Behind the lure of scaling of revenues, the way service fees and commission fees
are split among sides plays a vital role in the success or failure of marketplaces.
Traditionally, the pricing level should be directly related to the consumer's willing-
ness to pay. For the brokerage model, the fees need to be paid by one side or both
sides proportionally to their willingness to use the service.
Coming back to AirBnB, the initial and symbolic 10% commission on each
transaction evolved over time. Today, the fees ranging between 7 to 15% are sup-
ported by the traveller-side (guests) (according to Airbnb, under 14.2% in most
cases), whereas hosts contribute 3% from their side. The communicated “10% on
average” may end up being much more (at least for the platform), as the cost may
be supported by both sides (see Figure 7-A).

airbnb’s conditions of service: transaction value used for the example

3% on the host side 3 nights @ $100 per night = $300
14,2% on the guest side*
*average commissions observed by Airbnb
What the traveller (guest) will see and pay:
$100 x 3 nights $300

Cleaning fees $30
Service fees $42,60 airbnb commission on transaction
Lodging taxes* $33
Guest service fees $42,60
Total $405,60 Host service fees $9,90
*(10% of nightly rate + fees)
Total $52,50
the total represents 17,53% of the $300 transaction
What the host (guest) will receive after the stay: airbnb will also collect lodging taxes
and pay once a year each local authorities
100 € x 3 nights $300
Cleaning fees $30 airbnb collects the payment and transfers it to the
Service fees (3%) -$9,9 host 24 hours after the start of the stay
Total $320,1
Figure 7-A: Breakdown of a Typical Transaction on Airbnb.

(Example based on dummy data)
Avoiding the Chicken and Egg Issues with Fees
Defining the billing process requires the platform providers to perfectly know the
characteristics of the markets (sides) they are intermediating.
Then, different options are accessible for the platform provider to capture the
value of the interaction enhanced: charging one side or splitting the commission
between sides.
In the design of the pricing strategy, the challenge here is not to introduce fric-
tions with applicable fees to join the platform and trade (transact). Pricing is part of
the marketing mix, along with products and services, communication, and UX on
the platform, and must bring liquidity and transparency for the participants, to
avoid the chicken and egg issue.4
Pricing will play a role in the mutual baiting problem. Subscription fees or list-
ing fees, for example, should not represent a potential obstacle to joining.
At the nascent stage of a marketplace, the platform is “supply constrained”: No
listing of restaurants on a food delivery app, no drivers available on a taxi app, and
no hosts on a rental app will make it impossible to attract potential customers on
the other side. Hence, the platform provider may have to provide its services on
both sides for low fees or no fees.
 See Chapter 2.

To charge the supply side, platform providers need to know their dependence
on the trading service provided. In the case of Airbnb, hosts have an alternative in
the form of real estate agents, who traditionally play the role of brokers but with a
more limited audience. Usually, they take a 4% commission per month to manage
the rentals for hosts. Positioning Airbnb just under this competitive price (3%) was
a necessity to be attractive. Moreover, beyond the access to a larger audience of po-
tential guests, the service provided by Airbnb permits benefiting from a landing
page and back-office tools (calendar to manage availabilities, seasonal pricing man-
agement tool, message interface, smart pricing suggestions, a third-party insurance
system, secured payment logistics, etc.) to position their ads on the Internet. Thus,
the conditions of fees are made frictionless and worth the investment, as they ex-
tend opportunities for maximising the property occupancy rate.
In the initial phase of development, very few platforms are “demand con-
strained”. Accordingly, a large part of the marketing effort is oriented towards the
buyer side to invite them to scroll and search for the perfect good or service to trans-
act. The challenge here is at the check-out, where service fees listed beyond the raw
price of the transaction can introduce a barrier to an effective transaction.
Here, the psychological price acceptable to the buyer is a combination of sev-
eral elements relative to the nature of transactions (e.g., including speed shipping
for eCommerce platforms, trust mechanisms in rental services, easiness of booking
and payment for a taxi app) and the value perceived for the brokerage activity
performed.
The fee mechanisms along the way of scaling will gradually become more com-
plex. Data analytics help the platform provider to complexify the conditions of com-
missions: a split changing over time, differentiated segmentation based on the level
of usage-based or based on loyalty, etc. The provider can test different alternatives
with the hope of securing revenues and being less dependent on the Gross Mer-
chandise Volume growth rate.
7.3 Pricing: The Influence of Competition and Cost
Defining the optimal level of commissions and their split among sides is an equilib-
rium exercise. Several contracting forces will determine the optimal price.
A Competitive Pressure
Multihoming is an established practice on the Internet. It consists of registering

with several services offering similar solutions. For example, many Internet users
subscribe to different cloud services such as Google Drive, One Drive (Microsoft),
DropBox, or Apple iCloud. The same exists for buyers and sellers on marketplaces.

A seller will list its products on Amazon, eBay, maybe Etsy, and potentially its own
eShop powered by Shopify. A traveller may search and review on Airbnb, Booking.
com, and Tripadvisor, while a host may propose rooms via Airbnb, Homelidays, and
Booking.com. Accordingly, fees are subject to competitive pressure, and whatever is
the value perceived, these tend to lower commissions. Commoditisation is a huge
danger for all marketplaces—a point where participants do not really see the differ-
entiated value from one marketplace to another. In such a situation, platform pro-
viders enter a “red ocean situation”, as described by Kim and Maubourgne, authors
of the bestseller Blue Ocean Strategy. In this situation, competition is typically fierce,
and all companies are fighting to solve the same problem or meet the same need;
very often the only way to gain a percentage of market share is to battle prices.
Fees can be a differentiator in attracting and reducing switching costs. Con-
versely, transaction fees alone are less effective in retaining customers. Hence, it is
important to see the “lock-in effect” of a pricing strategy such as for the non-
financial attributes of the platform. The more a participant engages (creating an ac-
count, uploading content, searching, connecting often, transacting often, etc.), the
more (s)he is locked into the service. Customers are eventually locked into a ven-
dor’s world of products and services. Switching to another vendor is not possible
without incurring substantial additional costs. Apple locks-in users of its Macbook,
iPhone, and iPad because they share a common operating system, which makes
syncing data between each device very easy and syncing with third-party systems
such as Android rather inconvenient or impossible. Another way to lock in users is
to perform the razor and blade strategy. This strategy, whose name can be traced to
Gillette’s practice of charging a low attractive price for the razor and higher price
for blades, is now used in other industries too. Canon, for example, takes advantage
of digital technology to sell ink printers at fair prices and charges very high prices
for replacement ink cartridges, which are automatically ordered through the Inter-
net, once the ink runs low.
Covering the Platform Costs
To enter a market (e.g., e-commerce, taxi apps, digital goods marketplaces, and de-
livery apps), insurgents engage in a “blitzscaling strategy”5 with the hope of getting
over the crowd before running out of cash. This strategy allows them to rationalise
their pricing strategy according to the expectations of investors to see the accrual of
profits. What is at stake here? The Profit Formula is quite simple (see Figure 7-B).
 As defined by Reid Hoffman and Chris Yeh in their book: ‘Blitzscaling: The Lightning-Fast Path
to Building Massively Valuable Companies’, Currency, 2018.

− +
− [ + ]
Figure 7-B: Simplified Profit Formula for a Brokerage Model.

(Adapted from our fictional example)
As we can see in the simplified profit formula for a brokerage model:

– options to increase revenue rely on the left side of the formula:
– increasing the Number of Transactions (NT) and/or
– increasing the Average Order Value (AOV) per Transaction and/or
– increasing fees
– whereas, to improve profits, you can also (maybe even need) to maintain costs:
– limit Fixed Costs (FC) and reduce variable costs (VC)
– reduce the Customer Acquisition Costs (CAC), play on word of mouth and
referrals, and develop inbound marketing instead of outbound marketing
tactics.
– reduce the Cost of Service (CS), by playing on automation of processes to
avoid a trader behind each transaction.
The major issue is that a large part of FC is supported at the beginning of the en-
trepreneurial journey (e.g., development of the platform) and CAC and CS are
higher at the beginning due to a lack of efficiency in operations (economy of scope
and experience). Sustaining and winning the battle of establishing the positioning
require a lot of working capital and the backing of investors. Amazon waited till
2001 to generate its first operating profits. It took 16 years for its profits to cover its
peak cumulative losses of $3 billion. Equally, it took 8 years for BlaBlaCar to gener-
ate its first profits. The tipping point of revenues and breakeven is hard to find, and
it requires considerable energy for entrepreneurs to financially achieve the poten-
tial of network effects in their markets. Nowadays, BlaBlaCar represents a commu-
nity of more than 100 million users (drivers and passengers) worldwide.
In the UK, BlaBlaCar fees are between £2 and £9 depending on the price of the
ride. This means that the margins are low and could be easily eaten up if VC get out
of control. To sustain profitability, BlaBlaCar relies on automation. About 98% of
transactions are effective and without incident. Still, customer service represents
one-seventh of its workforce (700 employees). This makes customer service at

BlaBlaCar one of the most efficient, as each customer service representative is on

average and theoretically responsible for a million users!
Transaction Size and Volume Matter
By design, revenues for digital brokers and marketplaces adopting fees are intrinsi-
cally correlated to the AOV and the number of transactions. To continue with the ex-
ample of Airbnb and BlaBlaCar, the average order value is no comparison between
the two companies. Airbnb generates an average transaction of more than $200:
users book for a weekend (two nights) or a week (five nights) for an average cost per
night of $70 initially but rising continuously since then. The carpooling service pro-
moted by BlaBlaCar generates an average transaction of 13€. BlaBlacar does not
charge fees to drivers who will get “the exact amount they set when offering a ride” –
as pointed out in BlaBlaCar conditions of sale. For most markets, BlaBlaCar charges
between 0 and 30% according to the order value with a minimum of 1€. Thus, each
transaction on BlaBlaCar generates on average 2€ – which is 10 times lower than
Airbnb commission fees or, put differently, BlaBlaCar needs 10 times more transac-
tions to generate the same revenue. Nevertheless, the business architecture remains
as complex and difficult to scale as previous developments demonstrated.
Entrepreneurs eager to develop a digital service and a viable business model
need to consider a sustainable and scalable business model capable of generating re-
current revenue that will lead to profitability. It may not be viable immediately, as
business models may evolve over time through trial and error. BlaBlaCar, which is
present in 22 countries, tested different business models over time and geographical
markets. Business models are organic and must evolve over time according to the
characteristics of the markets and their participants–so too are the digital business
models; and, among them, the brokerage model, which is enticing as it is simple and
frictionless to scale and yet also needs to be tested and fine-tuned over time.
1. Fees can be seen as a frictionless pricing strategy for digital platforms and
marketplaces.
2. Fees should entice fluidity in the marketplace and reflect transparency.
3. The value of the brokerage activities justifies the value of the fees.
4. The pricing strategy and value capture mechanism should be adapted to differ-
ent market configurations.

Airbnb: Fees are Moving, Does it Change the Business Model?
The pandemic has grounded travellers and business trips for the last two years: bad
news for AirBnB. Research by the analysis website AirDNA showed bookings in
some cities to have fallen by as much as 96%. But even before this, AirBnB had ex-
perienced some level of difficulty. For example, many voices on social media have
criticised the balance between the price per night listed and the effective guest
price paid per transaction, which can double with local taxes, cleaning fees, and of
course, service fees.
In parallel, Airbnb revised its pricing policy in 2020 with the “Airbnb Simplified
Pricing”. This is what the Airbnb website says:6
Historically, Airbnb has had a single fee structure for all hosts, in which a service fee is
charged to both the host (3%) and the guest (under 14.2% in most cases). Last year, based on
feedback from many professional hosts, we launched a new fee option for software-connected
hosts to remove the guest service fee and provide hosts with more control over their rates. This
fee structure is known as Simplified Pricing.
From December 7th2020, Simplified Pricing (15% host fee) will be the only available fee
structure to all software-connected hosts on Airbnb globally (excludes US, Canada, Mexico,
Uruguay, The Bahamas, Argentina, and Taiwan).
Airbnb claims that benefits are there, especially on the host side:
This new service fee structure will allow you to have a simpler pricing strategy as you’ll be
able to set what the guests will pay. We’ll also highlight the fact that there is no guest service
fee added to your rates, making your listings more attractive to many guests. Hosts that have
decided to switch and keep their prices competitive across channels have seen an overall in-
crease in their bookings (~17%*).
*Average observed bookings increase for hosts using host-only fee in Europe between Novem-
ber 2019 and February 2020. Actual results may vary for each host.
We tested with the previous example the consequences of the move in the pricing
strategy (see Figure 7-C).
What do we see? Let’s ask the following questions:
– Will hosts adjust their rates?

Probably yes. Airbnb proposes to host a “Software Provider” to ensure that hosts’
earnings will not be impacted. But at the same time, Airbnb calls on its hosts to
remain competitive. And for that, they developed a tool–“smart pricing” to provide
advice to hosts on positioning their prices competitively according to seasonality
and alternatives. Hence, we can assume that prices will appear higher for the guests
in listings (negative impact) but with a pleasant surprise at not having to pay ser-
vice fees upon check-out (positive impact).
 See dedicated page on Airbnb website consulted in May 2022.

airbnb’s old conditions of service: airbnb’s new conditions of service*:

3% on the host side 15% on the host side
14,2% on the guest side* 0% on the guest side
*average commission estimated by Airbnb *in the United States, Canada, the Bahamas, Mexico, Argentina, Taiwan, or Uruguay
transaction value used for the example* What the traveller (guest) will see and pay:
3 nights @ $100 per night = $300
* amount expected for the host and to maintain $114,2 x 3 nights $342,36
Cleaning fees $34,27
Service fees $0
What the host will receive after the stay: Lodging taxes* $34,20
$114,12* x 3 nights $342,36 Total $410,83

Cleaning fees $34,27
Service fees -$56,50 *(10% of nightly rate + fees)
Total $320,13
*To maintain its objective of $100 per night, the host will have
to adapt the pricing as follow: airbnb commission on transaction
Guest service fees $00,00

Host service fees $56,50
Total $56,50
the total represents 16,5% of the $342,36 transaction

and 18,83% of the old value order ($300 transaction)
Figure 7-C: Example Based on the New Airbnb Simplified Pricing.
– If things do not change for Airbnb, why change?

In the example and based on our hypothesis that hosts will adjust their rates, we
observe a jump from $52.50 to $56.50 for the commissions perceived by Airbnb, rep-
resenting an increase of more than 7% of their commission per transaction.
Of course, it is slack, as potentially, the competitive pressures on hosts will
limit the adjustments of rates. But Airbnb will generate higher revenues with that
strategy.
– Can those adjustments change the business model?

Over the years, Airbnb has lost the community aspects that characterised it in its
early days. Nowadays, many commentators feel that it is more of a nicely branded
marketplace. Professional hosts have populated the website and have benefitted
greatly from Airbnb as a distribution channel. The move in the pricing strategy can
be seen as defending this community sense and differentiating pricing among partic-
ipants on the host side. As Airbnb explicitly mentions, this move affects “software-
connected hosts” – meaning professionals multihoming their listings and managing
them with a channel manager. Accordingly, it is not a change in the business model
but certainly a marketing re-orientation. Guests will not see these behind-the-scenes
manoeuvres. Airbnb will increase its revenue with this apparent transparency for
hosts, which in fact will induce opacity for guests and inflate the rates applicable on
Airbnb.

8 The Magnitude of Subscription: Monetisation
of “Everything-as-a-Service”
The world is moving from the ownership model to the subscription model – thanks to the adop-
tion of a service-dominant logic in the firms. How digital is enhancing that? And what is the
rationale for a subscription-based business model?
8.1 A Subscription Economy?
Subscription models are not new but can be extremely efficient as a competitive differ-
entiator and value capture mechanism – Xerox provides a good example of how pow-
erful and disruptive it can be (see box below). Apart from day-to-day needs such as
newspapers or milk, car leasing is an excellent example of the subscription economy.
Here, the car manufacturer’s margins are not made on the sale of the car but gener-
ated from the finance plans involved in the leasing agreements or the maintenance
fees. By requiring the user to have maintenance performed by the manufacturer’s me-
chanic, annual service fees generate higher revenue for the company, while the user
enjoys the assurance of a functioning car and a fixed budget free of repairs and main-
tenance. The effortless or worry-free principle partially explains the attraction of this
mode of value exchange mechanism for users in a digital world.
The Birth of a Subscription Mindset

In the late 1950s, Haloid Xerox innovated with a disruptive and incredibly fast and efficient
printer. With a capacity of 2,000 prints per day, the XEROX 914 had a serious competitive advan-
tage over other printers available then. The main issue for Haloid Xerox was its price. Between
1947 and 1960, Haloid spent $75 million – twice its operational earnings – on xerography
research.
To recoup the costs of developing this innovation, the printer would have to be sold close to
eight times the price of a traditional printer. Not surprisingly, a top consulting company advised
Xerox that at that price, “there is no market for such a printer”. The solution was found with a
shift in the value proposition: “companies do not need printers; they look for a printing service”.
Instead of selling a product, Haloid Xerox designed an offer around service with an incentive
subscription plan: $95/month for 2,000 prints per day (+2 cents/print outside the plan). This
marketing shift was a success for the company, gaining a lot of traction on the market with com-
panies rapidly consuming 2,000 prints a day.
Even if the financial results were not released by Haloid Xerox, the XEROX 914 is credited
with the financial success of the company, which generated over $243 million of total operating
revenues by 1965. More importantly, the subscription model radically transformed the printing
industry.
https://doi.org/10.1515/9783110762556-008

108 8 The Magnitude of Subscription: Monetisation of “Everything-as-a-Service”
The number of subscription-based digital business models has proliferated largely

due to this new marketing approach – the service-dominant logic of the firm, which1
describes service as the core purpose of exchange and how firms, customers, and other
market actors co-create value through their mutual service interactions.
Digital contents/products are extremely well suited to the subscription logic.
Music, movies, or software are dematerialised items that can be stored on servers
and delivered through dedicated platforms. The increasing speed and bandwidth of
the internet enable the existence and proliferation of streaming services such as
Amazon Prime, Disney plus, and Netflix. The content is provided as a service and
the user does not own the content as such. At the B2B level, cloud computing has
heralded the era of subscription-based technology services such as Amazon web
services, Microsoft Office 365, or Salesforce service cloud.
Consumers are now well accustomed to this model of value exchange. Some
studies estimate that two-thirds of our monthly expenses are based on subscriptions
(mobile plans, streaming services, leasing, Internet, electricity bill, bank services,
etc.). For companies, a subscription is a good opportunity to present value-added as-
sets before equity and liabilities on a balance sheet.
The Subscription Trade Association estimates that by 2019, 18% of all global
payments (around $41 trillion) were recurring payments, or generated by subscrip-
tion. It also predicts that around 75% of the organisations that are selling directly to
consumers will offer subscription services by 2023.
Subscription-based business models are at the core of the access economy. They rely on a shift
from ownership to access by delivering products or services as long as the customer pays for it
with recurring subscription fees (usually monthly or yearly). So saying, subscription-based
business models rely on a simple recurring pricing mechanism to access a good or service.
8.2 “Everything”-as-a-Service
Underlying the subscription-based business models is the emergence of a service-

dominant logic by the firms (Vargo & Lusch, 2004, 2008).
 Often named S-D logic, service-dominant logic was largely conceptualized by Vargo and Lusch.
See Vargo, S. L. & Lusch, R. F. (2004). The Four Service Marketing Myths: Remnants of a Goods-
based, Manufacturing Model. Journal of Service Research, 6(4), 324–335; and Vargo, S. L. & Lusch,
R. F. (2008). Service-Dominant Logic: Continuing the Evolution. Journal of the Academy of Market-
ing Science, 36(1), 1–10.

Service as the Dominant Basis for Exchange
The traditional demarcation of service and goods has become partially obsolete due
to the servitisation of the economy, especially in developed economies. Owning an
iPhone or MacBook is not just a question of buying a device. The device is just the
entrance to an overall service experience. Consumers pay to benefit from the Apple
ecosystem and access its service offerings.
Those who cannot afford the latest iPhone do not have to miss out if they lease
one for an affordable monthly payment through a mobile operator like Sprint. Sprint,
a mobile leasing service, does not make a profit on the handset in the short term but
does so in the future. The company provides financial convenience that keeps its cus-
tomers loyal in the long term. The same may be true even for “hard” goods such as
cars, where after-sales services are equally important as the sales, not to mention ad-
ditional services like financing and payment installments.
Accordingly, by adopting a subscription-based business model, companies ex-
tend their value proposition to a “bundle of products and services”. The subscription
plan removes economic friction in accessing and testing a user experience and lock-
ing in the customer in the service, as long as (s)he is satisfied.
Customer as Co-creator of Value
According to the service-dominant logic, customers are not only a receiver of value,
but also essentially the co-creators of value. Vargo and Lusch (2008) argue that the
firm does not create value by itself; it can only propose a value (value proposition)
to interested parties. With a subscription plan and the monitoring of the user expe-
rience, companies can identify the value adopted by customers and the most rele-
vant features in the service.
In this sense, customers select the attributes/features on:
– an active mode by adjusting their user experience according to the personalisa-
tion tools provided with the product and service.
– a passive mode by providing data on the most-consulted contents and recom-
mendations automatically formulated, as they are not necessarily aware of
being spied on.
The value is created when the consumers engage with the application to create,
share, and consume content. Marvel Cinematic Universe or games such as Fortnite
create such a huge value for the company primarily owing to their large and loyal fan
base. The Lego Group has explicitly tapped the potential of customers as co-creators
by inviting ideas from Lego enthusiasts and using those ideas in their offerings.

Value Creation as a Network Process
Vargo and Lusch (2008) observe that a service-dominant perspective is not dyadic
(i.e., an exchange between the firm and the consumer). They argue that the process
of value creation unfolds at multiple levels, involving multiple stakeholders. For in-
stance, Amazon as a retailer creates value based on the work of the manufacturers,
packaging facility, supply chain network, internet technology, and, most impor-
tantly, the substantial number of buyers and sellers present on the platform. Vargo
and Lusch (2016) aver that the work of the enterprise is to integrate and transform
various competencies into complex service arrangements valued by the end con-
sumers. So, the servitisation of the economy goes with a more interconnected econ-
omy where complementors can interconnect easily through technological gateways
(APIs and platforms) and extend progressively the value proposition which can be
pushed forward. A perfect example is EVENTBRITE and Spectrum initiative2 (App Mar-
ketplace). The ticketing company enhances the user experience for both sides (creators
and consumers) by developing a third-party platform where other companies can plug
in their services and technologies to add value. This is the birth of an ecosystem
around a value proposition.
But how does the servitisation of the economy relate to the rise of the subscrip-
tion economy? A good example is provided by the software industry.
From “Software as a Product” to “Software as a Service”
A few years ago, the majority of software needed to be installed on your device to
be used with physical media (disk, CD, or DVD). This could be the Microsoft Office
suite for your personal use or SAP enterprise systems to be used by your company.
While the cost of a personal copy of Microsoft Office may not be much, installing
multiple copies for all employees was a cost and source of “pain” for companies.
The software-as-a-product generated frictions: on the provider side, the sold licence
did not permit the lock-in of customers for a longer period beyond the next release;
on the customer side, the purchase of a licence represented an important financial
investment that would depreciate over time.
Software-as-a-service, commonly known as SaaS will change all this. As the name
suggests, SaaS architecture allows software components to be delivered to clients
through the internet. The user just needs an active internet connection and a working
machine to access the functionality. Since the service is hosted and managed remotely
by the vendor for several clients (resource pooling), it can be offered at the fraction of
the cost of the in-house software installation and to a large number of users. The
 See Eventbrite app marketplace consulted in May 2022.

client pays a subscription fee on a monthly or annual basis. Microsoft Office 365 is
one such example of subscription-based SaaS.
Along with other innovations like infrastructure as a service and platform as a ser-
vice, this phenomenon is commonly known as cloud computing. The majority of ven-
dors now offer industrial software such as customer relationship management, supply
chain management, enterprise resource planning, payroll management, and data
centres as subscription-based cloud services. Gartner estimates3 the worldwide cloud
market to be $182.4 billion in 2018, which is expected to reach $354.6 billion by 2022,
at a compounded annual growth rate of 12.6%. Thus, the entire software product and
infrastructure industry have moved to a subscription-based service model in recent
years.
In recent years, the sharing economy is also partially responsible for the mo-
mentum of subscription business models (see Chapter 6).
Pricing in Subscription Business Model
Potential disadvantages of the subscription-based business model relate to fixed costs

and fixed prices. A subscription-based service incurs certain fixed costs irrespective of
the number of subscriptions. Thus, companies need at least a certain number of users
to cover their operational expenses. Fixed price means that even if customers were
probably willing to pay more for a service, the service could not tap it. This means po-
tential revenue opportunities are lost.
In the US, MoviePass is a perfect example of subscription-based pricing gone
wrong. MoviePass was trying to establish itself as an intermediary between the cin-
ema halls and the audience. In August 2017, it offered a subscription plan of $9.95 per
month, less than the price of a movie ticket, to offer its subscribers one movie ticket
per day in any cinema hall. The thinking was to establish a large subscriber base and
negotiate a bulk pricing discount from cinema hall owners. They also counted on sub-
scribers not using their service very frequently. After all, who would go to the cinema
hall to watch a movie every day?
The long-term plan of MoviePass was to become a Netflix of cinema business,
including generating its own content. However, not only did the subscribers use the
service with great zeal (meaning the company was shelling out more tickets than en-
visaged), but the negotiations with the cinema halls also did not work out. Thus, even
with a monthly subscriber base of 3 million, the service had to be shut down in two
years, in September 2019. The cost of running the service was significantly higher
than the earnings from the subscriptions.
 See Gartner Forecasts Worldwide Public Cloud Revenue to Grow 17.5 Percent in 2019, consulted
in May 2022.

Subscription-based business models rely on a long-term perspective and a life-

time value of their customer base, but the right formulation of a subscription plan
is tricky, as it needs to balance fixed costs supported whatever the service reaches a
critical mass; and also, variable costs associated with the service – and these can
also be dependent on the critical mass to negotiate with suppliers and complement-
ers’ specific conditions.
It is therefore in a company’s interest to have tiered service plans. That is why
Netflix offers basic, standard, and premium service levels with benefits increasing at
each level, which lets different family members watch different movies on different
screens or in ultra-high-definition resolution if they have a premium subscription.
Having different tiers like this generates additional revenue from customers willing to
pay more for a more benefit-rich service.
8.3 Monitoring Subscription
In essence, subscription-based business models secure the way revenue is made so

that each customer makes recurring payments to access a good or service for a period.
Accordingly, it locks in customers to the service and aligns activity KPIs with financial
KPIs.
The goal of any subscription plan is to generate enough cash flow from custom-
ers’ subscription fees to offset outgoing expenses like employee salaries, which it
can do effectively. Subscription-based business models rely mainly on five major
financial KPIs to “predict” revenue growth – and for which activity KPIs can be
aligned to monitor and develop revenue generation.
The Monthly Recurring Revenue (MRR)
This is the main metric (one metric to rule them all!), which defines financially the
performance of the business model adopted. It is a clear and sharp way to go beyond
the diversity of pricing plans, as it sums up for a defined period (usually monthly) of
all the revenue generated.
The calculation is quite simple, as it is the turnover that flows from customers
effectively onboarded.
MRR Formula
X
n
MRR = ðPrice.i × NB.CiÞ
i=1
where Price.i = subscription plan i; and NB.Ci = number of customers for subscription plan i

Imagine a SaaS service with three plans:

– Plan1 = 9,99€ – NB.C1 = 1.000
– Plan2 = 12,99€ – NB.C2 = 900
– Plan3 = 15,99€ – NB.C3 = 500
Then, the MRR is 29.676€.
MRR = ð9, 99 × 1.000 + 12, 99 × 900 + 15, 99 × 500Þ
Simple as it is, and representing the monthly turnover, the monthly recurring reve-
nue (MRR) needs additional KPIs to decrypt what is at work. So, usually, additional
KPIs are used to pilot trends and insights according to growth, customer segments,
and the complexity of pricing plans.
– New MRR, for example, refers to the MRR generated from new customers on-
boarded in the defined period (month). It can be interesting to observe whether
this number increases or decreases, to reveal pricing plans which perform the best.
– Conversely, churn MRR refers to the MRR lost from one period to another due to
the unsubscriptions or downgrading in plans. It can reveal a structural problem
in the design of the pricing strategy or a cyclical shift in the price elasticity.
– Add-on MRR (or expansion MRR) can be relevant if your pricing plan leaves
open the possibility of contracting extra features from the initial plan. This KPI
can help you reveal which customers are more sensitive to these additional
buyings, and the performance of your add-ons.
Like a pilot in the plane, these metrics can help adjust marketing campaigns and
reveal the long-term projections, especially the annual recurring revenue, by antici-
pating the balance and annual turnover expected from present customers and peri-
ods of subscription.
The Average Revenue per User/Account (ARPU/ARPA)
According to the plans and billing options, the average revenue per user (ARPU)
(often used for end-user subscription plans) or average revenue per account (ARPA)
(for business subscription plans for multiple users) offer an indication of the average
amount to be gained per month / year and per customer.
Calculation and Example of the ARPU/ARPA
MRR
ARPA =
NB.C
where NB.C = Total number of effective customers for a defined period

Reverting to our previous example:

– Plan1 = 9,99€ – NB.C1 = 1.000
– Plan2 = 12,99€ – NB.C2 = 900
– Plan3 = 15,99€ – NB.C3 = 500
The MRR is 29.676€ and NB.C is 2.400, then
ARPA = ð29.675 2.400Þ = 12, 365 €
Again here, by itself, this metric is quite simple to estimate most customers (those for
whom the subscription exceeds the ARPU) contributing to your MRR, and those you
should push to shift to an extra plan.
In the same vein, you should look from one month to another at the growth
rate for your ARPU/ARPA to monitor whether the growth is in volume or value.
Customer Acquisition Cost
The customer acquisition cost (CAC) (often called COCA – the cost of customer acqui-
sition) is not only relevant for subscription-based business models but should be
considered as a “killer” metric for all businesses, as it refers to the cost supported
in marketing and sales to transform potential leads into effective customers.
Calculation and Example for the CAC
Total cost of marketing and sales

CAC =
Number of deals closed
Coming back to our previous example:

– Plan1 = 9,99€ – NB.C1 = 1.000
– Plan2 = 12,99€ – NB.C2 = 900
– Plan3 = 15,99€ – NB.C3 = 500
During the period, they acquired 300 new customers and budgeted for 15.000€ in marketing
and sales in the previous month, then
CAC = ð15.000 300Þ = 50 €

Each of the 300 customers costs 50€ to acquire. This CAC will be important to track from one pe-
riod to another to evaluate the performance of acquisition strategies, compared to the ARPA/ARPU
generated.

Understanding how much it costs to acquire new customers and identifying the
most profitable marketing and sales channels are the key to profitably scaling
businesses.
– The CAC will increase with outbound marketing activities such as field sales
and paid traffic.
– The CAC will decrease with inbound marketing activities such as word of
mouth, organic traffic, viral sales, strategic partnerships, free trials, and affilia-
tion programs.
– The CAC will increase with a low conversion rate, as the business will need
more touch to complete a sale.
By encouraging a viral effect through inbound marketing, companies can reduce

the CAC to virtually nothing, while opening the door to an ever-larger base of users.
For instance, The Dollar Shave Club, a subscription service delivering razors and
blades to customers monthly, famously achieved excellent brand awareness and at-
tracted high volumes of new customers through humorous videos that went viral
on YouTube. The cost of producing the video was minimal, vis-a-vis the number of
views and conversions it generated.
Obviously, a business should recover the CAC in less than 12 months. Other-
wise, the business will require too much capital to grow and “subsidise” the acqui-
sition of a customer database.
The Churn Rate
Churn rate refers to the proportion of customers who leave their subscription plan
during a given period. It is often an indicator of customer dissatisfaction (intrinsic
motivations), cheaper and/or better offers from the competition, aggressive and
successful marketing by the competition (extrinsic motivations), or reasons beyond
your control, like business failure or strategy shifts.
Calculation and Example for the Churn Rate
NB.Cðm − 1Þ − NB.CðmÞ
Churn =
NB.Cðm − 1Þ
Reverting to our previous example:

Last month, the company had 2,700 customers [NB.C(m–1)], and they started the month with
2,560 customers [NB.C(m)]. Then:
Churn = ð½2, 700 − 2, 560 2, 700Þ ’ 5.2%

Churn can rapidly sink a subscription-based business. Monitoring it from one pe-
riod to another and understanding what motivates customers to cancel/downgrade
their plans is essential to track whether it is due to a bad user experience (low cus-
tomer satisfaction) or competitiveness of the pricing plan and service. In addition to
the raw rate in the volume of customers lost, businesses should consider whether
the churn MRR is critical or whether those cancellations impact the majority top tier
customers or low-tier customers.
The churn rate will be higher for end-user-oriented businesses but with a smaller
impact on MRR, than for business-oriented businesses, for which the impact on MRR
will be higher.
Observers assume that a 5–7% annual churn rate is acceptable and related to
an organic churn.
Whatever the number, it is important to track the determinants of your cohorts
(usage, connections, activity, etc.) to see what can impact your churn positively– i.e.,
keeping customers active and reducing the probability of a churn. This will impact
your cost of customer support.
The Customer Lifetime Value
The final KPI is customer lifetime value(LTV or sometimes CLV). The LTV represents the
economic value earned from the customer over the total time they remain a customer.
Thus, LTV is an expectation, which means that it is averaged or statistically
inferred.
Calculation and Example for the LTV
1
LTV = × ARPA
Churn
Coming back to our previous example:

As Churn = ð½2, 700 − 2, 560 2, 700Þ ’ 5.2 %
And ARPA = ð29.675 2.400Þ = 12.365 €
Then LTV = ð 1 0.052Þ ’ 19 months × 12.365 = 237.79 €
Theoretically, and according to the churn of the period, if activity maintains those KPIs, the com-
pany will generate more than 237€ from each customer (a customer remaining a customer for
19 months on average).
If we compare this number to the CAC, LTV covers 4.75 times the CAC.
The LTV is considered a usual aspect for potential investors to understand the lock-
in effect and economic value, which drift from each customer. And as it normally
costs less to retain a customer than acquire a new one, this metric is often com-
pared to the CAC.

Observers consider that the LTV should be at least about thrice the CAC for a
viable subscription-based business model.
LTV also constitutes a KPI very relevant for assessing the potential of trans-
forming growth into revenue. Thus, it is a key indicator of the sustainability of a
business model and exponential profits which investors and founders can expect
from scalability – as the cost of service will decrease with the number of users, prof-
its will increase proportionately.
To increase the LTV, a company must continually carry out R&D to improve the
quality of service to maintain customers and reduce the churn rate.
1. Users’ appeal for experience rather than ownership makes subscription-based

pricing more attractive than one-shot payments.
2. Increasing servitisation relies on the goods/services to be offered through a
subscription plan.
3. Due to network effects and resource pooling, subscriptions may be offered at a
fraction of the cost of selling the product. The service provider makes money
due to the network effect (more subscribers) and resource pooling (lower cost).
4. Recurring billing offers predictable revenue and realigns activity KPIs to finan-
cial KPIs.
Why Is Data so Important for SaaS Businesses?
Listening to music informs artists, producers, and music labels about where we lis-
ten to music, which songs we like, etc. But, inter alia, most importantly, it tells
them when we skip songs. This piece of information influences producers in design-
ing the songs. Still, Spotify leverages this to create ad hoc playlists that we usually
enjoy a lot and that takes away from us even the burden of picking the song we
would like to listen to. And this is obviously easier to track than it was with CDs
and music tapes.
We can also apply the same reasoning to Netflix: the data collected shapes our
experience, suggesting what we see and the likelihood that we will like it.
We can have our smartphone telling us when we should buy something just
when we need it or when we should go running and which training session fits our
plan the best.
The moment you turn on a digital device, you generate a trail of digital data
recognised as your digital footprints. These are linked to:

– Who you are, digitally identified with an IP address and a device identification
number. And once you are logged into a service, it matches your personal
details.
– Where you are, as the IP reveals a region; perhaps you activated the access to
your location for the service app- then they have a better location of your
position.
– Where you come from, as the cookies activated behind each Internet page can
indicate your buying decision process and reveal patterns of your customer
journey
– When and how long you connect, as all our connections are time-stamped,
and our interactions can be tracked.
These digital footprints can be actively shared by the Internet users and subscribers
(by accepting cookies, conditions of use, and conditions of service); or they can be
passively generated once the user does not give her/his explicit consent.
Whether they are active or passive digital footprints, they serve a subscription-
based business model as its rationales, pushing the firms behind the service to de-
velop resources on data analytics along the customer journey. Data are important
in at least three aspects.
First, behind digital subscriptions, we find data-driven services and digital
products (applications) behind: fuelling the recommendation system to lock cus-
tomers in the service and continuously improving the user experience on the app.
Thus, data are important to objectify and prioritise the product development road-
map so that it can induce partnerships and listing requirements to better match
content and users.
Second, a data-driven company behind the service can limit and optimise oper-
ating costs by revealing the needs and opportunities for the automation of internal
processes such as onboarding and customer relationship.
Finally, a data-driven marketing effort for which the benefits of data allow bet-
ter user acquisition and converting processes to customers (funnel of acquisition).
Data can help to model the segmentation of customers, predict their actions, and
avoid churn (e.g., extend the LTV) with suitable call-to-action to lock them in the
subscription.
We just opened a pandora’s box of data-driven digital businesses and touched
on how important they can be for not only subscriptions but also all digital busi-
nesses, as they are born to be “plug and play” with data for better services, at times
raising suspicion and ethical concerns. We will revert to that in our concluding
chapter.

9 “Free” is Not a Business Model: Business
Models Behind Free
Who can boast of not having any free applications on their phone, looking for and testing new
web services, especially if they are free, and appreciate being able to do a lot of research on
the Internet for free? We are all free riders and digital businesses have understood this. Free
access is an integral part of our digital experience, but what are the business models and their
characteristics behind this free access? Often used to attract new users rapidly, what are the
business challenges behind free-based business models? And can “free” work as a long-term
strategy?
9.1 Free as a “Hot Button”
All the top 10 most downloaded apps in the world in 2021 are free to download and
free to use. Equally and excluding e-commerce websites, the top 20 most popular
websites in the world are also accessible at least partly for free. These illustrate the
prominence of ‘free’ in the digital economy. Most digital users consult their emails,
connect with friends, read the news, watch videos, and listen to music for free. And
yet, there is another ranking that is worth considering. The ranking of the apps is
according to the level of revenue they generate. Here, the app that tops the list is also
free to download and partially free to use. This app–the dating app Tinder–offers free
and premium subscriptions. This is called a “freemium” model: consumers can
download the app and get access to a certain range of features for free, but if they
want to use the app’s full range of features, they need to pay. These rankings illus-
trate the counter-intuitive and paradoxical nature of ‘free’ as a business model. It can
be seen as a marketing tool to achieve scale but can also be the foundation of a pow-
erful business model. In this section, we review the marketing function of ‘free’ and
then turn our attention to the diverse types of free-based business models.
The popular adage There is no such thing as a free lunch conveys the idea that it
is impossible to get something for nothing. The “free lunch” in the saying refers to
the formerly common practice in American bars of offering a “free lunch” to entice
drinking customers. So, “free” is very rarely free. In this case, users will pay for
something else – for example, the drink. If a group of users does not pay for any-
thing, then they probably have their own intrinsic value. For example, nightclubs
may offer free entrance to women. Women who tend to drink less may not be the
ultimate target. Instead, through such a promotion, clubs expect to attract the more
profitable “men segment”. However, men want to meet women; hence the need to
offer women a free pass. In other words, men will pay for admission and drinks to
meet women. “Meeting women” constitutes an element of the value proposition
https://doi.org/10.1515/9783110762556-009

120 9 “Free” is Not a Business Model: Business Models Behind Free
offered to men by the nightclub. It is the real “job-to-be-done”, for which the value
proposition of the nightclub captures the value.
Digital companies use similar tricks. For instance, when users access Google’s
search engine for free, they essentially become part of the value proposition to attract
paying advertisers. Many digital companies provide a free basic offer. The dating app
Tinder lets users “swipe to date” but gives them only a limited number of opportunities
to do so. If users want unlimited swipes, they must pay a monthly subscription fee for
the premium service. Likewise, Dropbox offers a small amount of free cloud storage in
the hope that users upgrade to its premium plans. Finally, Netflix offers a free month
of their service to new users hoping that they would continue after this expires. By ask-
ing customers to enter their credit card details before receiving their free month, they
still can be automatically billed, should they forget to cancel before the trial ends.
9.2 Who/What Subsidises the Value?
The previous examples range from short-term marketing tactics to potentially

long-term sustainable marketing strategies. They illustrate the idea that “free is
not really for free”. Users will pay later or for something else; otherwise, someone
else will pay instead of them or literally for them. Google, Tinder, Dropbox, and
Netflix do not have the same digital business model. Instead, ‘free’ is used differ-
ently from one business model to the other.
A Constellation of Free-Based Business Models
Because there is no associated value capture with the “free” offers, there is no busi-
ness model if the company’s plan does not go further than the free offer. Business
models, defined as a company’s plan for making a profit, imply revenue models.
Hence, ‘free’ can be a business model only if a subsidy process is involved. This
subsidy may be provided by a diverse set of stakeholders and can serve different
strategies behind free-based business models. Based on the seminal work of Ander-
son (2009) in the book Free: The Future of a Radical Price, four distinct subsidy
mechanisms can be identified (Figure 9-A). The subsidy technique enables compa-
nies to still capture value while operating a “free-based” business model.
Cross subsidy: In this configuration, a product is offered for free with the expecta-
tion of making money from another related product (often requiring repeated pur-
chases of consumables). This technique can also be called “razor and blades” or
“hook and bait”. The basic product (bait/razor) is offered cheaply or for free; the com-
plementary product or refill (hook/blades) is sold expensively. The basic product can-
not be used without the complementary product. A similar mechanism exists in the

Free 1 Free 2
CROSS SUBSIDY THIRD-PARTY SUBSIDY
Product 1
FREE 1 FREE 2 P
cross-subsidy
(ad space)
Product 2
FREE ad-supported
get one thing free,

C P third-party C $ $
pay for another $ subsidizes second
party A
Product 2
Free 3 Free 4
FREEMIUM NON-MONETARY MARKETS
C Product
FREE 3 FREE 4
freemium C Gift Economy
FREE FREE
C P
a few people People give away C P
subsidize everyone C $ things for non-
else C monetary rewards
Attention, Reputation
Figure 9-A: Subsidy Mechanisms Behind Free-Based Business Models.

(Adapted from Anderson, 2009)
traditional economy. Printer companies sell printers at a low price and make money
on cartridge purchases; even Nespresso machines are available for an affordable
compensation of 1 euro in exchange for the subscription to monthly billing of credits
for Nespresso Pods.
Some apps use this strategy to entice and connect with users and sell in-app
tools to extend the user experience. The most downloaded mobile app video
games include “Clash of Clans”, “Angry Birds”, “Candy Crush”, “Hill Climb Rac-
ing”, and “Subway Surfers”. They are all free but all of them also practise in-app
purchases. The average spending of Clash of Clans users, for example, is $112. In-
app purchases may include full game unlock, bonus game levels, game currency,
such as coins or gems, or simply removing painful ads.
Third-party subsidy: This category epitomises the adage “if it’s free, you are the
product”. The product or service is free for the end-users, subsidised by a third
party. In many cases, the third party is a business side, often advertisers who wish
to reach a targeted user base. Google’s search engine and Facebook (Meta) are such
examples where third-party advertisers pay the company to access users. Adver-
tisers pay the platform when users click on their advertisements and watch their
promotional videos so that ultimately, they visit their website and buy their serv-
ices. We (as users) passively accept and appreciate this mechanism: how many
times do we go on page 2 of results on Google?

Freemium: In this scenario, a basic service is provided to the users free of charge.
The service is subsidised by a small number of users (people subsidy)–as few as
1% – who subscribe to the premium offer. Music streaming service Spotify, for exam-
ple, offers a free version and a premium one with additional features. The next sec-
tion discusses the freemium model in detail.
Non-monetary markets (the gift economy): The company provides a free prod-
uct/service/content in exchange for attention or brand reputation. Google offered a
free Wi-Fi service to the millions of users of the Indian railway, as part of a corpo-
rate social responsibility initiative but also to promote Internet usage – which ulti-
mately led to the usage of their product and services. Wikipedia is another example
of a non-monetary market. Here, experts contribute articles on specialist subjects to
the site, which acts as a platform they can use to build their reputation. The Guard-
ian newspaper in the UK also proposes to its readers to “support our journalism
with a contribution of any size”. The same is the case with influencers on YouTube
or other social platforms who create tutorials, reviews, and so on, in the hope of
gaining followers. Ultimately, these influencers can develop a third-party subsidy
business model. This happens when brands provide free products or pay social
media influencers to mention them in sponsored blogs or posts to reach the influ-
encers’ followers.
Offering something free in the short run may appear unsustainable. However,
as we will discuss now, it can also lay the economic foundation to develop a scal-
able digital business model.
The Underlying Rationale for a “Free” Strategy
As seen earlier, a traditional business model implies a value exchange. Companies

provide something of value to consumers, who in return offer money. “Free” is,
therefore, a very risky strategy/tactic, as businesses need to develop an offering
without receiving the normal necessary monetary exchange for the value they have
created. Hence, before initiating such strategies, it is necessary to review the condi-
tions under which they make sense. Those conditions depend on the characteristics
of the offering or the market.
Offering’s Rationale for Free
‘Free’ is the proverbial carrot dangled before the users to give them the sense that
they have “nothing-to-lose” in the absence of a monetary recompense, besides the
time spent and data provided as investments. For the entrepreneurs, this free expe-
rience good/service should remain financially sustainable.

The financial attributes of the service/product are important to consider. Free

offerings are easier to deploy when they do not imply variable costs or only mar-
ginal ones for the cost per unit. It is not surprising in this sense to see several play-
ers across different industries adopting a free offering in their business model:
software as a service (SaaS) (Dropbox, Slack), media portals (Facebook, Newsfeeds
websites, YouTube), bit vendors (App Editors), search agents (TripAdvisor), and so
on. Accordingly, instead of developing new features, entrepreneurs can present
their minimum feature set to a large audience for free, as a way for experiencing
their basic services and gaining traction in their markets.
In the world of digital business and network economies, the law of marginal
cost is an important economic motivator. When deploying its network, a business
must cover its start-up costs while investing in supporting infrastructure. However,
once the infrastructure is in place, the cost of each new user is close to zero – what
we call the law of marginal costs adapted to network economies: If the cost to serve
a customer (support aside) is close to zero, the long-term price of the product in the
market will be zero (because of competitive pressure).1 That remains the case until a
point is reached where no more users can be accommodated without adversely af-
fecting the service and the cost to serve.
Their enormous capacity is the reason mobile phone service providers can incre-
mentally increase the amount of data offered with their monthly plans. Just a few
years ago, an average plan might have offered 5 GB of data. Now, 20 or 40 GB data
plans are standard, with some plans even offering unlimited data. Most customers
signup for the large data plan because they want the comfort of knowing they can use
their phones without running the risk of incurring unexpected charges. However, if
they were to check, they might find that they are using only 10 GB of data per month
on average – that is, nowhere near their data limit. Hence, offering 40 GB per month
is a useful marketing strategy for mobile phone carriers, as it costs them nothing.
Even if a few users come close to or even exceed their data plan limit, the carrier has
the capacity to accommodate them at virtually no cost.
For start-ups, this means the flow of marginal costs is reversed, as they know
the long-term cost will be zero. As Anderson put it: “when something halves in
price each year, zero is inevitable” (Anderson, 2010, 163). By starting with a cost of
zero to the customer, they can lock in long-term users in the hope they will sub-
scribe to a paid-for plan, or the advertisers will flock to the platform seeking access
to a wide user base. Accordingly, they anticipate the lifetime value of their custom-
ers at the price of negative cash flow in the short run. Thus, free is not essentially
free of financial consequences for digital ventures. It needs to be subsidised by
other stakeholders (shareholders by raising money in this case).
 The Complete Guide to Freemium Business Models, blog article on TechCrunch (September 5,
2011) – accessed on April 14, 2022.

9.3 Mind the Paywall
The Critical Mass Imperative
Digital ventures sometimes bring radically new value propositions, implying that
the user experience does not compare to any known customer journey. In those
cases, companies need to find ways to give a taste of the new experience and entice
initial users.
In this context, free is undoubtedly a huge accelerator of the adoption of novelty.
On streaming platforms’ highly competitive battlefield, “free” is a way to lock in the
user. It allows to quickly reach a critical mass of users to validate the minimum via-
ble product, convince investors to back up the scaling phase, and reach a dominant
position before the competitors.
Whatever the configuration, somewhere and/or at some time, someone must
pay to ensure the sustainability of the business. The risk is that free users become
reluctant to become long-term paying customers. When people get used to “not pay-
ing” for a service, it becomes more difficult to get even a penny from them. This is
called the “penny gap”. This expression means that there is a market for a “free”
offering and no market at all for a paid solution, no matter how cheap it is.
Playing on the emotional hot button of “free” has radically changed since the
beginning of the Internet. People are now used to free and expect free digital offer-
ings. Mobile phone users download dozens of free apps and are equally used to free
social media platforms. Those behaviours may also affect SaaS providers or stream-
ing platforms. Further, many consumers have developed a “multi-homing strategy”
for their cloud storage by creating profiles on different cloud storage services before
reaching the size limit of the free service.
Free can rapidly become a market entry necessity. If this is the case, then com-
panies have to offer a free taste of the service at least for a limited period and/or
limited features. But companies need to pay attention to their customers, not only
users. In that sense, companies do not have to engage specific financial resources to
attract “free users”. This psychological price should be by itself a marketing tactic to
attract users, a viral lift. The more users are satisfied with the service, the more they
become ambassadors and promoters to their connections: spreading the word of
mouth at no marketing costs for the company to attract new users. If the viral lift
works perfectly, the marketing activities will be focused on the conversion of free
users into customers and the lock-in of users by enhancing features and encourag-
ing them to connect often to the service.
Then, Is “Free” Part of a Long-term Strategy or a Short-term Tactic?
The answer depends on the company’s vision and how they integrate the scaling am-
bition into this vision. Reid Hoffman, the founder of LinkedIn, named this strategy
Blitzscaling in a reference to the blitzkrieg performed by the German Army during

World War II: Blitzscaling is what you do when you need to grow really, really quickly.
It’s the science and art of rapidly building out a company to serve a large and usually
global market, with the goal of becoming the first mover at scale. [. . .] If a start-up de-
termines that it needs to move very fast, it will take on far more risk than a company
going through the normal, rational process of scaling up. (Interview with Reid Hoffman
in Harvard Business Review, May 2016, 46)
Accordingly, “free” can be seen as a short-term tactic to grow quickly and scale
faster than competitors, even if it implies cumulative losses to subsidise the adop-
tion curve and learn during this period on which customer segments to focus on, to
quickly balance the cumulative losses during ignition and scale phases and starting
to compensate costs by a worldwide base revenue stream.
As we will see now, with freemium, the question of keeping the offer free in the
long run remains open, as the novelty of the service wears off and the penny gap
makes it difficult to convert users into customers.
Free + Premium = Freemium
As described previously, intuitively, when we figure out some free-based business

models, we refer easily to freemium, where a few customers subsidise a large base
of free riders. Let us introduce some key characteristics and challenges faced by
businesses in this context.
The key idea behind freemium can be summarised thus:
Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers
[users] very efficiently through word-of-mouth, referral networks, organic search marketing, etc.,
then offer premium priced value-added services or an enhanced version of your service to your
customer base. (Quoted from Fred Wilson on his blog, in March 2006)
This is how Fred Wilson, a personality in the US landscape of venture capitalists,

described a common pattern of business plans he received at the time. As he was
asking in his blog post for a name for this business model, one of his followers sug-
gested “freemium”.
Beyond the catchy story of wording concepts with the crowd, we have here
the foundations of a generic pattern to create, deliver, and capture value – viz., a
business model.
In a “freemium” business model, a product or service is offered free alongside a
premium subscription version. The free version is the hot button that encourages
users to try the service in the hope that they will adopt it and some of them will pay
for it and subsidise the free riders. If the “people subsidy” mechanism is a systemic
understanding of this archetype business model, Fred Wilson also sought a way to
describe how these businesses, particularly the cash-strapped ones, were using in-
novative and viral marketing strategies and tactics like word-of-mouth, referrals,

and organic search to cut the cost of gaining traction and acquiring new users –
which became known as growth hacking.
Freemium: Blitzscaling or Long-term Strategy?
Strategists at companies using freemium business models must really understand

their markets if they are to attract sufficient new users through outbound marketing
activities, as well as enhance and promote service quality to premium customers so
they continue to subscribe. By employing growth hacking tactics to attract free
users, more of the marketing budget can be aimed at premium customers. By treat-
ing them well, the business can increase the potential for referrals and cut its churn
rate by converting more free users to premium plans.
Besides using freemium as a short-term marketing tactic to capture many indi-
vidual users, some businesses use it as a long-term strategy to penetrate business
markets. Dropbox encourages the uptake of its service by rewarding everyone with
free storage. It employs free offers to full advantage by creating a viral lift through
three service tiers – a free Dropbox Basic, Dropbox Pro, and Dropbox Business.
Since those who want to share and receive files through Dropbox must both have
accounts, the service makes it extremely easy to invite others on board. In fact, it
incentivises them to do so. For example, if a university lecturer uses Dropbox to
share files with students, they get additional storage for “recruiting” them, as will
those students when they, in turn, recruit new Dropbox users. The higher number
of new users someone recruits, the more free storage they receive. Dropbox does
this in the hope that when these students graduate and some of them start their
own companies, they will convert to the subscription service because they see the
benefits of using Dropbox in business. Thus, the real revenue for Dropbox comes
from B2B subscription plans based on user numbers, storage amounts and other
services.
In freemium business models, revenue can also be generated by monetising the
data gathered by the service. If data can be valued for a third-party stakeholder,
then gathering data can be a long-term strategy, as it enables better profiling. This
means ads and information can be more effectively targeted at users based on the
way they use the service, such as the type of music they listen to.
The app economy has also reinvented freemium business models through in-
app payments. While the TV show South Park may have satirised free gaming apps
as just barely fun, many have proven addictive, hooking players by offering a lim-
ited number of free games but then requiring in-app payment to keep playing or
advance to the next level. The payments, though small, sometimes less than a dol-
lar or Euro, add up when millions of users make them. Some paid applications also
offer in-app purchases. A photo-editing application, for instance, might include a
limited range of filters as part of the original purchase, with the option to buy

additional filters later. Invesp reports that as of 2017, while just over 5% of the users
spent money on in-app purchases, global sales from the in-app purchases were
pegged at $37 billion.
Candy Crush Saga is a mobile gaming app that lets users make in-app pur-
chases to acquire “extra lives” or access additional features. Its growth strategy re-
volves around creating a game that is sufficiently addictive to go viral. In 2013, it
did just that, with over 300 million playing the game by the end of the fourth quar-
ter. Of these, 12.2 million made in-app purchases, a conversion rate of 4%. It is esti-
mated that the app earned around $693 million in 2018 through in-app purchases
across Google Play and the App Store.
Candy Crush Saga illustrates just how a free offer can act as a hot button that
attracts users. If a company’s ambition is to go global and its service costs the same
whether it has 10 million or 300 million users, even a relatively small percentage of
paying users is enough to create a lucrative business when the service goes viral.
Though less visible than premium subscription offers, in-app payments are the
new freemium, relying on the “barely fun” aspect of games to create an addictive
quality that expands the user database through the social value derived from word-
of-mouth recommendations and user referrals. Conversions to paid use are encour-
aged through micropayments that are so small they seem inconsequential, but
which may add up to more than the cost of a subscription plan. Such micropay-
ments are also a source of controversy, with children clicking payment buttons to
continue playing a game on their parents’ phones or tablets, without realising they
are accumulating charges on mum or dad’s credit cards.
When determining whether to adopt a freemium business model, a company
must consider three questions:
1. How big does the company want to become? If the goal is to create a dominant
worldwide platform within a specific industry, a free offer should be a short-
term tactic and possibly even a long-term strategy.
2. What will be the value of free users? Will the free offer be a downgraded version
of the premium offer, or will it include only basic features? In other words,
when explaining the value of being a free user, the company also must explain
the value of being a premium customer.
3. How much will it cost to serve free users? Before embarking on a freemium strat-
egy, a company must be sure the cost of free users is close to zero and that they
can count on a viral lift from word-of-mouth, referrals, and incentives to rapidly
reach a critical mass of users. Once this is achieved, marketing activities should
be focused on converting free users into premium ones, while retaining those
already acquired. This aspect is detailed in the last section.

The key to determining whether a business model is truly freemium is revenue gen-
eration. If most of the revenue stream does not come from the premium offer, then the
company is not a freemium company.
For instance, though LinkedIn began with a freemium business model, its pre-
mium offer no longer generates most of its revenue. By 2018, premium subscriptions
represented just a small portion (17%) of LinkedIn’s revenue, the majority of which
was from its talent solution (65%) and marketing solutions (18%). In the long run,
instead of premium account payments, data generated by free users have proven
valuable for LinkedIn, as this can be used for marketing and to generate brand
awareness. User profile data is also valuable to recruitment companies and HR de-
partments wanting to identify suitable job candidates. Thus, it has not remained a
freemium company, as the real value proposition now no longer revolves around
individuals but businesses, making revenue generation B2B-oriented.
Key Performance Indicators behind “People Subsidy” Mechanisms
As a starting point, critical mass refers to the minimum number of users required to
get the business model operational. Critical mass should not be confused with the
breakeven point, which relates to the number of customers required to balance ser-
vice costs. For an online game, the critical mass would be the number of players
needed at any given time. For a communication tool, the critical mass refers to the
minimum number of users required to spark the initial liquidity to find value in the ser-
vice. This metric is not associated specifically with the freemium business model, as
it is mostly dependent and required for any network-based service – for example, a
service for which the value is dependent on the participation of at least two sides.
But in the context of freemium, the critical mass will depend on the viral lift which
can enhance the outbound marketing and limit inbound marketing to develop and
sustain the initial adoption of free users.
As mentioned previously, the freemium business model involves a “people sub-
sidy”, as premium users’ payments support the free users of the service.
The easiest way to get 1 million people paying is to get 1 billion people using (Phil Libin,
Founder of Evernote)
In a freemium business, the critical mass must be known to calculate the percent-
age of users the business must attempt to convert to premium users. To be sustain-
able, freemium relies on the big numbers required to support a consistent revenue
stream. So, one of the key performance indicators (KPIs) for the freemium business
model is the conversion rate, which refers to the percentage of users who decide to
adopt the premium version of the service. By monitoring this metric, a business can
gauge how successful they are at bridging the penny gap. By experience, this ratio
is often low: 4% conversion rate for Dropbox, 0.5% for Google Drive, and 4.1% for

Evernote. In other words, out of every 100 users, there are just 2 to 4 who become
paying customers. When Phil Libin mentions a far lower conversion rate (1/1,000
instead of 1/100), it is a prudential way to design the costs of the service and not
overestimate the adoption rate necessary to support an expected conversion rate.
Because a freemium business model requires such large numbers of users, it is of
the greatest applicability to companies with ambitions to reach millions, if not bil-
lions, of users, and function as global services and companies.
Before being acquired by Facebook (Meta), messaging app WhatsApp employed
an interesting revenue generation strategy by making the first year of usage free but
charging an annual fee of $0.99 thereafter. This gave users time to establish chat
groups on the app and to experience the convenience of communicating with friends
anywhere in the world at a low cost. After enjoying these benefits, users were more
than happy to pay the virtually insignificant follow-on fee. This locked them in and
overcame the penny gap. Considering that the platform had 500 million users and
was growing at a rate of 1 million users per day, even such a small annual fee had
the potential to generate over $500 million in annual revenue. This, of course,
changed once the application was acquired by Facebook which decided to subsidise
the service and maintain it free for its users after the year test.
Then comes an important metric for the sustainability of the freemium model:
the freemium ratio, which is the number of premium users required to subsidise
free users. For instance, a ratio of 1/10 would mean that one premium user is
needed to support nine free users.
To Have a Sustainable Freemium Business Model, the Conversion Rate
Should be Greater than the Freemium Ratio.
Let us understand these ratios using some examples (see box below). For sim-
plicity of calculation, assume that each user costs the business €1 to serve and a
single premium user is charged €10 – that is, covers 10 users (including him(her)
self). A freemium ratio of 10% means that out of every 100 users, 10 would convert
to premium. Thus, there would be no profit or loss. If the conversion rate is 1/5, 2
out of every 10 users would convert to premium and the business is profitable with
a €5 margin for each premium user. If the conversion rate is below 1/10, say 1/15 –
less than the freemium ratio – the business loses money, and the freemium busi-
ness model would not be sustainable.

A Simulation of Freemium KPIs

Conversion rate of / ( free users are required to get a premium user)
Cost of acquisition and service: €✶ = € (cost structure)
Premium VP: €✶ = € (revenue stream)
Margin = € (break-even)
Conversion rate of / (five free users are required to get a premium user)
Cost of acquisition and service: €✶ = € (cost structure)
Margin = € (profit)
Conversion rate of / ( free users are required to get a premium user)
Cost of acquisition and service: €✶ = € (cost structure)
Margin = € (loss)
Similarly, to any subscription-based business model (as we will explore in the next
chapter), the sustainability of a freemium business model depends on paying cus-
tomer loyalty. This can be described by two KPIs:
The customer lifetime value (CLV) refers to the revenue stream generated by a
customer as long as he/she remains a customer of the service. Understanding the
lifetime value of diverse types of premium users can help determine how best to
direct marketing activities. For instance, LinkedIn Premium marketing would be
better off targeting salespeople searching for leads as well as professional users,
who are likely to have a greater CLV, than targeting a job seeker. According to your
subscription plan structure for the premium service, CLV is dependent on the pric-
ing plan adopted and the duration a customer remains a customer.
The duration will be impacted by the churn rate, which is the proportion of
customers or subscribers who leave the service during a given period (yearly or
monthly). The reasons can vary from low quality of service or a better service of-
fered by a competitor.
Evernote was another successful freemium business model. This famous app
for note taking, organising, and task management was very efficient in the design
of their service and the monitoring of KPIs to be sustainable. In a founder’s inter-
view in 2010, Phil Libin shared their books and emphasised the key elements to
pave the freemium performance:
Two conditions of value proposition design are:
1. The way the product/service is designed should influence a significant portion
of free users to cross the paywall.
2. The more a user spends time on the service, the more he/she values it, and the
more this user is closer to hitting the free service limit.

And three steps to pave the freemium success:

1. Win millions of free users: Freemium sustainability is primarily dependent on a
large adoption base, which should be acquired at a low cost (no customer ac-
quisition cost for the free users) by extensive outbound marketing strategies
and a viral lift.
2. Convert more active users to premium status over time: The path of conversion
should improve over time to demonstrate the sustainability of the freemium
model and also on an organic basis, as the free riders spend time on the service.
3. Keep costs down, whether they are associated with customer acquisition or the
cost of the service. Again, those costs should be mainly fixed not to be depen-
dent on the volume of service and explode with the number of users and cus-
tomers on board.
In 2013, Evernote was considered a unicorn – a start-up with a valuation above

1 billion dollars:
– 41 million users were active in 2013 versus 34 million in 2010.
– 1.5 million premium users in 2013 (3.7% conversion rate) versus 1.4 million in
2010 (4.1% as conversion rate in 2010).
– Gross revenue was estimated at $0.25 per premium customer ($0.09 towards
costs and $0.16 as net profit).
– These metrics supported an expanding product range over time to sustain con-
tinuous growth.
1. To be a business model, ‘free’ needs a revenue mechanism. Free-based business

models rely on subsidy mechanisms, whether they are features, people, third
parties, or a non-monetary counterpart of free riders.
2. The Freemium model works by offering basic services free and premium/busi-
ness services for a payment.
3. The freemium strategy works only with many users.
4. In the absence of other revenue sources, freemium may not be a sustainable
business model in the long run.
A Value Proposition Canvas for Freemium?
As noted earlier, in the freemium model, the free offers are used to introduce a new
service or product that consumers could use at no cost. The free service is used as a
hot button to entice would-be buyers to try out the novelty aspect of a value propo-
sition. Freemium business models require a value proposition canvas (Figure 9-B)

different from the traditional business model or that of the two-sided platform be-
cause, with freemium, the canvas must present separate value propositions for free
and premium customers.
Free Value Proposition Free Customer Segment(s)
Downgrading the experience
CONVERSION RATE
Premium Value Proposition Premium Customer Segment(s)
Enhancing the value
Revenue Streams
Ad revenues Premium Subscriptions Data Trading
Figure 9-B: Proposition of an Adapted Value Proposition Canvas for Freemium.
Moreover, the business must also define a limit, or paywall, at which value is either
enhanced for premium customers or downgraded for free users. There is a difference
between the two approaches. In some business models, the premium offer extends the
number of features available to users. LinkedIn Premium is an example. Here, pre-
mium users get access to InMail and can see who has viewed their profile. In contrast,
Spotify keeps the value of its free offer low by exposing free users to ads. This is done
in the hope that the users would jump to the premium plan to avoid being annoyed by
promotional messages when listening to music.

10 Looking Forward: Is Winter Coming?
Our approach was to present some broad features that were so specific and/or representative
of digital business configuration that they deserved to be treated as a business model in a ded-
icated chapter. Our approach revealed some common threads. In this conclusion, we focus on
those common patterns revolving around the notion of customer intimacy and data. Data have
been one of the common threads throughout this book. We then reflect on the domination and
concentration of players in digital markets. Finally, we analyse emerging current patterns of
the digital economy and eco-system to consider whether a dark “winter is coming” or whether
a brighter “future is already there”?
Our analysis of business models has presented some categories of methods of creat-
ing and capturing value. This was not a precise taxonomy of mutually exclusive and
collectively exhaustive shapes of possible business models. Companies can have a
social platform element combined with a subsidised ad (free) or freemium value cap-
ture mechanism based on subscription business models. This very much describes
LinkedIn, for example. In this concluding chapter, we analyse the common thread of
data and its implications, before looking at the future of digital businesses.
10.1 Customer Intimacy, Data, and Its Implications
We live in a world abounding with data. The ubiquity of digital and mobile technol-
ogy implies that most of our movements, interactions with apps, websites, and
friends generate data. Whatever we do, we leave digital footprints behind every ac-
tion. This presents both huge opportunities and challenges for digital companies.
Customer Intimacy and Data-Driven Opportunities
The most successful and omnipotent digital players in each of the business categories
described earlier (sharing economy, marketplace, software as a service, social platform,
etc.) share a level of understanding and a proximity with users that is virtually un-
matched. This understanding is sometimes–but rarely–based on a fantastic intuition.
Steve Jobs is often cited as an example of someone who had a vision that no market
data could have instigated (e.g., the iPad). Yet, for all the related services of Apple, as
well as most of the services offered by Google, Facebook, Microsoft, Hubspot, Amazon,
and BlaBlaCar, user data is key in predicting and shaping the next wave of offerings.
In the B2C markets, these companies have all developed an app, which, if used
regularly, literally means that they have penetrated the intimacy of users. Several
https://doi.org/10.1515/9783110762556-010

134 10 Looking Forward: Is Winter Coming?
studies have proposed that the mobile phone is an extension of the human self.1
Most of us are incapable of separating ourselves from our phone and when we do,
most likely by accident, we feel incomplete. That is because smartphones contain
information that used to be stored in our brain (now retrieved on the Internet via
Google), social connections that used to be made physically (Facebook, Instagram),
mood that used to be dictated by our hearts (now triggered by a playlist on Spotify).
It is the thumb that allowed us to hitchhike (now replaced by the BlaBlaCar App),
the arm that hailed a taxi (Uber), the feet that walked us to the store (Amazon), the
cinema (Netflix), the bookies (Bet365, PaddyPower), and so on. This consumer inti-
macy produces data about who, when, where, what, how, with whom, and how
often, in combination with what other things users watch, scroll, listen, hear, ex-
change, sell, and, most importantly, buy. In 2020, IBM estimated that every person
generated 1.7 megabytes of data per second! Intimacy belongs to users, but data be-
long to the app owner. Digital businesses are in a unique position to exploit this.
We already saw how data were instrumental to the success of Netflix. Using ad-
vanced data and analytics, Netflix can provide users with personalised movie and
TV show recommendations, as well as marketing trailers, predict the popularity of
original content, and therefore optimise production planning, and as any other
business, inform and enhance decision-making. According to some commentators,
Netflix saves $1 billion per year on customer retention because of data exploitation.
Similar reasoning – possibly with less impressive figures – could be applied to most
of the companies that have been mentioned in this book. Data are the new oil. Ex-
ploiting Data is and will continue to be at the heart of digital business models,
whether it is to continuously improve the service and the business or even capture
value from it through a data trading business model.
Data trading, the Example of Twitter

Twitter is one of the pioneers in this field of data exploitation. In 2012, the American social net-
work created the Twitter Political Index, a live tool that was measuring the sentiment of the
tweets related to Barack Obama and Mitt Romney during the presidential campaign. At the
time, it was an innovative experiment to show the value embedded in the tweets. Soon, Twitter
transformed this experiment into a real service. At first, it licensed all tweets to a selected pool
of companies that could sell data to universities, market research agencies, and so on.
Tweets are an incredible source of value. They are public (the goal of Twitter is to share your
thoughts with anyone interested in the topic, through the hashtags, and not only with your
friends or followers), and can give great insights on what a (significant) part of the world thinks
on a given topic in real time.
Therefore, Twitter stops making all the tweets directly available through the internal search
engine, while organisations can buy access to the tweet stream on a given topic for research
purposes. After some years, Twitter made this business line internal and declared data licens-
ing among its revenue sources.
 Belk, R. W. (2013). Extended Self in a Digital World. Journal of Consumer Research, 40(3),
477–500.

10.1 Customer Intimacy, Data, and Its Implications 135
This model is called “data trading”; Twitter is probably one of the earliest cases, and one of
the most virtuous. Still, it is not the only one (Trabucchi et al., 2017). The value embedded in
data is simply too relevant to be overlooked✶.
✶
See other examples and further developments on that in Trabucchi, D., Buganza, T., & Pelliz-
zoni, E. (2017). Give Away Your Digital Services: Leveraging Big Data to Capture Value. Re-
search-Technology Management, 60(2), 43–52.
Yet, it is precisely this grey area between the privacy and intimacy of users overlap-
ping the ownership and exploitation of data by businesses that creates tensions
and crises. So far, data-driven businesses have been able to trade on the online be-
haviour of users, which does not seem to match their privacy concerns.
Data (Privacy) Concerns and Regulatory Considerations
Human beings are complex. Users of digital services have expressed concerns
over the use of their personal data. A 2021 KPMG report titled “Corporate Data
Responsibility: Bridging the Trust Chasm” reports that 86% of the Internet users
feel a growing concern about data privacy, while 78% expressed fears about the
amount of data being collected. They seem ill-informed about the specifics of the
data collected, by whom and for what purpose. Despite this, they remain reluc-
tant to change their online privacy behaviour or limit their online activity. Rather
than showing restraint in online data sharing behaviour, users seem to be volun-
tarily posting extremely personal information about themselves online for the
world to see.
This apparent contradiction between online privacy concerns and actual online
privacy behaviour is called the privacy paradox. There are several factors that could
explain this contradiction, including a lack of knowledge. Few people read privacy
policies, while others find the information too difficult to comprehend. Poor inter-
face design, and in some cases, interface complexity, certainly contribute to this
problem. Facebook, for example, has approximately 50 settings and more than 170
options, just for privacy alone; therefore, it is little surprise that users have severe
problems with handling privacy settings on SNSs.
In any case, regulators have eventually taken into consideration the concerns
of the public. The 2018 implementation of the General Data Protection Regulation
(GDPR) in the European Union represents an effort by regulators to push back
against increasingly data-reliant digital business models. The GDPR attempts to pro-
tect user privacy, requiring firms to notify users about how their data will be used,
so that they may provide informed consent. GDPR “obliges the controller to take ap-
propriate technical and organisational measures to implement data protection prin-
ciples to ensure that by default only personal data that are necessary for each
specific purpose of the processing are processed”. The United States is following

suit, in terms of privacy regulation, with California passing the California Privacy
Protection Act,2 which is similar to the GDPR. One could argue that the new regula-
tions regarding privacy data are coming a little late and may have a relatively lim-
ited impact, while the GDPR, for example, does not constrain the errant behaviour
of digital businesses. Users do not necessarily have a choice; they are simply made
aware that their data is being used but cannot refuse the terms and conditions of
the service. Corporate interests typically eschew regulation, and industry self-
regulation has shown its limits for protecting user privacy on numerous occasions.
There is a case for introducing regulations before a pattern of data usage emerges.
It seems incredibly difficult for regulators to introduce effective regulations once
an entire data privacy industry and business ecosystem has been established. Reg-
ulations were introduced in 2018, 10 to 20 years after Google, Facebook, YouTube,
etc. became mainstream media.
Most corporate technological giants are struggling with the challenge of balanc-
ing a data monetisation business model with protecting the privacy of their users.
Apple, Amazon, Netflix, Spotify, and YouTube have all recently been hit with accu-
sations of GDPR breaches by allegedly failing to provide basic information to citizen
requests, such as how they buy, share, and store user data, a violation of the “right
to access” enshrined in Article 15 of the GDPR.
It is difficult to envisage a future with less data. Data embed so much value that
it would simply be a waste not to leverage them to create value for companies,
users, and society. Nevertheless, the current situation seems hardly sustainable.
Perhaps the order of priority for creating value should be reversed: society first,
then users, and then companies. Users who are also citizens are continuing to raise
important and valid questions such as: Is privacy now considered a matter of de-
mocracy? Should our personal data be a tradable good?
Data may be the real oil of the years to come. Digital businesses should there-
fore be aware of the hazardous nature of oil, if they want to avoid disasters such as
the Deepwater Horizon oil spill.
10.2 Winners of Today and Winter of Tomorrow
The Red Queen effect refers to the increased pressure to adapt faster just to survive.
It is driven by an increase in the evolutionary pace of rival technology solutions
(Barnett & Hansen, 1996). Many businesses already feel that it takes all the running
you can just to keep in the same place. No matter what they do, they will never
catch up with the digital giants.
 See Government of the State of California. (2013). Privacy Laws. (Accessed: 26 May 2022).

10.2 Winners of Today and Winter of Tomorrow 137
Winners-Take-All Dynamics
Tech Giants, “Big Five”, previously named as GAMAM, represent the big winners
from the decades of digital adoption, technology, and business developments un-
derlying them.
In 2021, Alphabet, Amazon, Apple, Meta, and Microsoft represented on their
own more than $1,4 trillion in revenue – equal, for example, to the Brazilian GDP,
as pointed out by Visual Capitalist3 analysing their 10-k reports. It continues to
trust the top tier of most value companies in the world.
Amazon is the most impressive, with total revenue close to $470 billion in
2021 – largely supported by the original eCommerce activity but sustained in net
income by clouding services.
Apple generates the highest net income in volume with almost $95 billion for a
$366 billion revenue in 2021 – more than 80% of which is from hardware sales (iPhone,
iPad, Mac, and wearables), whereas services generate the highest gross margins.
Alphabet dominates the online advertising industry, which sustains its reve-
nues and net income. More than 85% of all Internet searches are done on Google
search engines, and thanks to this large and massive user base, Alphabet generates
a strong 30% net profit margin and $76 billion in net income.
Microsoft has the most diversified revenue sources with clouding services, sub-
scriptions to Office products, and royalties on the Windows operating system. Mi-
crosoft has the highest 36% net profit margin and is more focused on B2B than B2C.
Meta is still the largest social media platform, with approximately 2.9 billion
monthly active users. If they generate the lowest revenues and net income among
the Big Five (close to $118 billion in revenue and $40 billion in net income), Meta
generated for 2021 an impressive average revenue per user higher than $40.
These numbers are stunning confirmation, if at all needed, of winner-takes-all
benefits and dynamics, as these Big Five were able to capture a disproportionately
large share of the value in their own industries. This was possible due to the strong
network effects at work in their market configurations, the strong brand effects they
created, the high multi-homing costs (especially on social networks) and the exten-
sive use of big data and machine learning to continue to lock-in users and sides on
board.
All these Big Five reached a position of dominance worldwide and game chang-
ing in advertising, media, commerce, applications, etc. Even if they were not initially
directly fighting in the same industries, they constituted giant ecosystems and digi-
tal conglomerates operating and fixing the rules of the game in the digital arena.
They have strong brands, financial power, and trust technology developments. Even
 “How Do Big Tech Giants Make Their Billions?”, Published on Visualcapitalist on April 25, 2022 –
and consulted in May 2022.

if governments–especially in the US and EU–are gradually enforcing anti-trust legis-

lations, they are here to stay and shape our present and future realities; as they
opened it in the past, why does it matter now?
The Red Tape of Self-Organised Creative Destruction?
From the traditional players’ viewpoint, the Big Five have been perceived as disrup-
tors and game changers in their initial industries. Digital was catalyst for value crea-
tion, as it opened up new avenues to exploit the technologies and reshape business
model potentialities.
Disruption is a word often associated with digital business. Coined by the econo-
mist Clayton Christensen in the 1990s, disruption refers to A process by which a prod-
uct or service takes root initially in simple applications at the bottom of a market –
typically by being less expensive and more accessible–and then relentlessly moves up-
market, eventually established displacing competitors (Christensen Institute4).
At the core of all digital disruption dynamics, we find the Schumpeter’s gale and
the famous work of the economist Joseph Schumpeter on “creative destruction”
which he defines as the process of industrial mutation that continuously revolutionizes
the economic structure from within, incessantly destroying the old one, incessantly cre-
ating a new one (Schumpeter, 1942, 82–835). Effectively, the Big Five and other digital
winners (Uber, Airbnb, Netflix, etc.) have revolutionised their respective industries,
thanks to their business models. Initially, many claimed that leaders will not be able
to retain their position in the future. Certainly, if they did not adapt/reinvent their
value proposition, value architecture, and value capture mechanisms– that is, their
business models. However, what was true in the past may no longer be relevant
today. Internet is nowadays controlled by a few players, placing barriers to disruption
and the ability of insurgents to become the future giants. The concentration of power
and assets tends to annihilate the possibility for newcomers (entrepreneurs) to get
out from the crowd and challenge their dominant positions. This is why.
First, it is easier for newcomers to envelop their services in the ecosystems of
the Big Five, instead of starting their own infrastructures from scratch.
Second, it may be less possible to find any investors ready to wait for 8 to 10
years to reach a net profit margin or a break even, as was the case in the 1990s and
2000s for some of those winners-take-all players.
Third, the battle for a critical mass requires financial resources and a strong do-
mestic market to sustain the local critical mass. For this, the potential future giants
usually come from the United States or China, as they have the sufficient size, in
 “Disruptive Innovation”, on Christensen Institute website, consulted in May 2022.

 Capitalism, Socialism and Democracy, J.A. Schumpeter (1942), reedited by Routledge in 1994.

terms of unified regulation and inhabitants, to potentially sustain a traction to con-

vince investors. Until recently and with a few exceptions, few fast-scaling European
Unicorns have emerged, partially due to the complexity of the EU (languages, laws,
and regulations differ from one country to the other).
Fourth, and maybe it is the main argument of a broken creative destruction engine,
the Big Five have deep pockets, and as such, have the financial power to acquire na-
scent promising ventures whether it is for their technologies, talents, or user database.
All the Big Five regularly make the headlines in the business press for their billion dol-
lar acquisitions (WhatsApp and Instagram by Facebook; Skype and LinkedIn by Micro-
soft; Waze and Fitbit by Alphabet; Beats and Intel Smartphone Modem by Apple; Zapos
and MGM by Amazon), but each of them has acquired more than a hundred companies
along with their development and history.6 If a large majority are related to their core
business, they also use this strategy to grow and continuously enhance their ecosystem
towards new sectors and consolidate their dominant position.
It is again important to dissociate services from the companies underlying
them. Often, we see, as users, these services and not competitive dynamics at the
level of ecosystems.
The conditions for a conducive environment changed along the way since the
early 1990s. It is widely assumed that the size and savviness of the digital user, as
well as an open innovation culture, can now be taken for granted. As a result, the
competitive pressure is more on recruitment and retention of talent; monopoly and
leadership over technology governance; and also, the ability to lobby for appropri-
ate policies and regulations.
10.3 “Winter is Coming” or “the Future is Already Here”?
To the relatively negative picture that we have depicted above, there may be an alter-
native view. ‘Winter is coming’ means something bad is going to happen. It is a pop-
ular Game of Thrones saying. Indeed, the market dominance of digital giants is
worrying. Many commentators argue that the GAFAM constitute a form of global oli-
gopoly against public interest. As mentioned, the role of the GAFAM in the evolution
of the global economy (technological convergence, deregulation, tax optimisation,
etc.) as well as their grip on the potential innovation cannot be ignored. Yet, in these
concluding paragraphs, we would like to propose an alternative view that epitomises
the expression The future is already here: it’s just not very evenly distributed.
Attributed to fictional writer William Gibson, this expression alludes primarily to
the fact that the things that will constitute the normal or every day in the lives of
 For further developments, readers can consult this article from The Washington Post (April 21,
2021), “How Big Tech got so big: hundreds of acquisitions”, consulted in May 2022.

those living in the future already exist for some today. Today, there are more than 700
unicorns – defined as privately owned, VC-backed companies valued at $1 billion or
more – around the world. They are valued at just under $2 trillion. As predicted ear-
lier, future businesses are likely to emerge out of the USA and China. Approximately
50% of unicorns are from the United States, another 25% are now from China and the
rest from the other parts of the world. Many digital giants have built their hegemony
by intermediating via apps or website services that already existed: food delivery (De-
liveroo), taxis (Uber), and hotels (TripAdvisor, Airbnb, Booking.com).
Unicorns are scaling at an unprecedented rate. At the start of 2016, there were
165 unicorns, and by mid-2021, there were 743, an increase of 350%. A new genera-
tion of digital companies that – at least for some – seem to be a little more sophisti-
cated in their business model ecosystem is emerging.
First, if fintech is one of the sectors that is booming (15–20% of unicorns),
other sectors are prevalent too. Software & services represent 14–18%, e-commerce
(10–14%), artificial intelligence (7–10%), and the health space 6–8% . Fintech,
which uses innovative technologies to automate and disintermediate financial
services, is symptomatic of a platformisation that affects many sectors. Finance
app platforms are now expanding beyond payments to lending, digital banking,
mortgages, insurance, and wealth management. Examples include Alan, a French
start-up that offers health insurance coverage for individuals and businesses.
Through an app, the platform connects individuals who can send medical bills and
be reimbursed almost immediately, doctors who can be reached through the app’s
messaging and video call services, employers who can manage sick leave. Other
examples include US-based SoFi (a social lending platform) and Affirm (“buy now,
pay later” or BNPL platform).
Second, environmental concerns combined with servicisation of the economy are
revolutionising some traditional industries. The automotive industry, for example, is
digitalising its business models to also become platform-based. US-based Charge-
Point, for example, operates the largest online network of independently owned EV
charging stations. These initiatives are not only backed by consumer demand and
VC, but also widely supported by international organisations and national govern-
ments. The European Union has committed to invest more in green digital technolo-
gies to achieve climate neutrality and accelerate the green and digital transitions in
priority sectors in Europe, by using the NextGenerationEU and InvestEU funds.
Finally, the pandemic has accelerated the emergence of new business ap-
proaches in the fields of education, gaming, and virtual meetings. As students and
employees were quarantined for prolonged periods, they sought virtual options for
training, personal skill development, and peer interactions. They have now changed
their behaviour and continue to seek solutions for remote learning, working, gam-
ing, and meeting. GoStudent, an Austrian-based platform now valued at €3 billion,
provides paid, one-to-one, video-based tutoring to primary, secondary, and college-
aged students in 30+ subjects, using a membership model. Another example is

India’s BYJU’S, an education-tutoring app that runs on a freemium model, offering

educational content for students who are 4 to 12 years old.
Gaming is also undergoing a substantial transformation into an environment
for social connectivity and use of new technology. Dapper Labs, for example, is a
consumer-focused cryptocurrency company that builds blockchain games and sup-
ports digital collectables!
Working remotely is also a big structural change that has occurred thanks to
the pandemic. Remote, a Portuguese Unicorn, is considered as one of the most dis-
ruptive global payroll, tax, HR, and compliance solution. Founded in 2019, Remote
targets any company with distributed teams (virtually all companies) with the mis-
sion of opening up the world of work for every person, business, and country.
These trends show that digitalisation of industries with the corollary need for
new business models is not over. New businesses are emerging which are based on
the combination of innovative technology and innovative business models. The fu-
ture is already here. It is up to us to embrace, adapt to it and profit from it.

Appendices: Illustrative Case Studies

A The OLIO Case Study: A Social Enterprise App
Tackling the “Chicken and Egg” Paradox
The Context
In December 2014, OLIO’s co-founder Tessa Clarke was packing in her apartment in
Switzerland to move back to the UK. Despite her best efforts, she had some leftover
food in the cupboard. She desperately tried to give it away, but after hours of look-
ing for someone who might want it, she failed (OLIO, 2020b). Thus was born the idea
for OLIO – an app connecting users with each other and local businesses to share
surplus food and fight food waste.
The business was officially incorporated in February 2015, with the help of co-
founder Saasha Celestial-One, and the IOS and Android app launched in July. From
being available in just five London postcodes, OLIO is now present in more than 60
countries, counts over 6 million users (OLIO, 2020a), raised over $50 million in five
rounds of funding, and generates slightly less than £1 million in revenue each year
(Table A-A)
Table A-A: OLIO Facts and Figures.
Date of app launch July 
Number of active users to-date ,,
Number of active businesses and ambassadors to-date Over ,
Annual revenue Over £,,
Countries where the app is present Over 
Funding rounds 
Total funding raised Over $,,
Portions of food saved to-date  million
Number of employees 
(Source: OLIO website and email exchange with co-founder Tessa Clarke).
Business Model
By acting as an intermediary between users and businesses trying to sustainably ac-

cess and dispose of excess food, OLIO fits into the category of multi-sided platforms
Note: Appendix A by Elena Cherubini
https://doi.org/10.1515/9783110762556-011

146 A The OLIO Case Study
(MSP, see Figure A–A). These businesses create value by enabling direct interactions
between two or more sides of the market, generally consumers and producers, with
both parties benefiting from gaining access to the other side (Hagiu & Wright, 2014).
MSPs also tend to have a dual-value proposition, specific to each side of the market,
with the two often strictly interlinked (Muzellec, Ronteau, & Lambkin, 2015).
Access to consumers’
network
Search for
free food Looking to sustainably
dispose of food BUSINESS/PRODUCERS
Access to producers’
free food Looking to sustainably
USER/CONSUMERS dispose of food
USER/PRODUCERS
Figure A-A: OLIO’s Multi-Sided Platform Model.
In OLIO’s case, the platform enables consumers (users) to share leftover food as well
as pick it up from their peers and/or producers (businesses). They gain value by shar-
ing their food without wasting it, as well as receiving free goods. Businesses, on the
other hand, by accessing the consumer network, get to dispose of their excess food
for a flat fee, compared to the charges of a traditional waste disposal company. They
also gain access to OLIO’s Food Waste Heroes (volunteers), who take care of picking
up and sharing the food, simplifying the process for business partners. Both sides
also experience the benefit of knowing they are contributing to OLIO’s mission of
ending food waste (Figure A–B).
Unlike its main competitor, food-sharing app Too Good To Go, the interactions
on OLIO are completely free – with the company generating revenue from the busi-
ness side – and they are not limited to a B2C model but also offer the possibility of a
C2C exchange.
The “Chicken and Egg” Challenge
Due to their being so co-dependent, OLIO’s value propositions rely on the company’s
ability to generate a positive cross-side network effect, where the larger the number of
consumers, the higher the value to producers and vice versa (Hinz, Otter, & Skiera,
2020). By scaling both sides of the market, the platform increases its attractiveness
and value to both consumers and producers, encouraging increased use and sign-ups.
However, since both sides are needed to incentivise each other to join, OLIO faced
what is commonly known as the “chicken and egg paradox” (Bakos & Katsamakas,
2008). To attract businesses, a platform needs a large base of registered users but, at

Overcoming the Challenge 147
Customer Segment: Users (Consumers)
Gain creators Gains
Messaging function built in the app Meeting new people

within the community
Forum to educate about waste issues

Feeling good about Customers jobs
helping to end food Access free food
waste from nearby people
Products &
Services Share leftover food
with nearby people
Difficulty to find and gain
Search function to find nearby food access to free food from Contribute to help
App
nearby people ending food waste
Distance feature and map Hard to find ways of donating
leftover food within the
Easy interface to share food community
Trust issues when meeting
User profiles and rating system to increase
people to exchange food
trust Pains
Pain relievers
Customer Segment: Business (Producers)
Gain creators Gains

Flat fee comparable to waste disposal Spending the same, or less, than
Forum to educate about waste issues if they disposed of their leftovers
Feeling good about helping
Food hero feature to highlight to end food waste
the business Customers jobs
Olio’s Ambassadors Reputational benefit
Products & Dispose of excess
Services food cheapy
App waste disposal Contribute to help

Flat fee companies are costly ending food waste
Food gets shared and not wasted throwing away food could still
be eaten
Ambassadors take care of picking up
and uploading on the app Trying to share/donate food
takes time and effort
Pain relievers Pains
Figure A-B: OLIO’s Value Proposition Canvas for Users and Businesses.
the same time, users will be willing to register only if they can access products from
the other side (Caillaud & Jullien, 2003). In OLIO’s case, businesses will not join the
platform unless there are users interested in picking up their food, but users will also
not join unless there are businesses, or other users, supplying the free food. Onboard-
ing both sides was therefore a crucial step towards sustainability for the company.
Overcoming the Challenge
To overcome the “chicken and egg” challenge and generate positive network effects,
OLIO engaged in a mix of platform launch strategies and marketing techniques to
seed both sides and achieve scale. It started with a very narrow focus, just five

London postcodes, to test its value proposition and iterate the product (Ajilore, 2018).
This enabled it to reduce the total market size and gain loyal users who were highly
committed to OLIO’s mission of ending food waste.
Further, to kickstart the initial user onboarding, even with a very limited mar-
keting budget, OLIO took advantage of the word-of-mouth power by launching an
ambassador programme, recruiting volunteers to spread the word in their local
communities (McMullen, 2018; OLIO, 2020d). Currently, the platform still offers
many volunteering opportunities for people to collaborate with them, continuing to
leverage the word-of-mouth power to further enhance its user base (OLIO, 2020c).
Digitally, it is also focusing strongly on leveraging electronic word-of-mouth by
using its website and email marketing techniques to encourage registered users to
share the app with their networks on social media (Figure A–C).
Figure A-C: OLIO’s Email Marketing to Encourage e-WOM.

(Source: Screenshot of Olio email sent to account after signing up for the app)
However, the most effective strategy was what Stummers et al. (2018, 171) described
as the side-switching tactic, where an MSP becomes one-sided by “finding a plat-
form design that allows users to fill both market sides” simultaneously. OLIO’s ini-
tial proposition followed this method by allowing subscribers to fulfill both the role
of the end-consumer, by picking up the free leftover food, and that of the producer,

References 149
by uploading and sharing their own food. This way, users would find value in the
platform even without the presence of the business side, and a positive network ex-
ternality would be generated, avoiding the issue of the “chicken and egg”.
Of course, since OLIO offers its services to users entirely free, at this stage, de-
spite the growing number of users, the company was still not generating revenue
and could therefore not be considered a viable long-term business. However, by the
end of 2017, it was able to reach enough scale on the user side – 340,000 – to inter-
est paying businesses to join, as there was enough activity on the platform for them
to perceive value in their participation. Once businesses were added in 2018, under
the label of Food Waste Heroes, OLIO was able to become a revenue-generating
company, while also increasing the value provided to its users by ensuring a steady
supply of food to the platform.
The company took things further in 2020 with a UK-wide partnership with Tesco
(Smithers, 2020), proving that once the network effects start kicking in, the app can
convince even the UK’s biggest supermarket (Kantar, 2020) to buy into its mission.
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B Amazon Versus Alibaba: Amazon is Amazing,
but can Alibaba Dethrone it?
Amazon
Amazon belongs to the quartet of business giants – Google, Apple, Meta, and Amazon –
collectively known as “GAMA”. While Apple and Meta have relatively straightforward
and well-known business models, Amazon’s is more complex. Seemingly a simple
e-commerce multi-sided platform, Amazon offers a variety of services and products
connected through an infrastructure that is invisible to the end customer. An on-
line retailer before becoming a multi-sided platform, now only a small part of Ama-
zon’s revenue comes from e-commerce activity.
Since its inception in 1995, Amazon did not generate yearly profit until 2003 (it
reported a quarterly profit in the Q4 of 2001), eight years after it was founded. This
made it appear a risky proposition, leaving founder, Jeff Bezos, struggling to find
investors. Things were not helped by a lack of infrastructure to support digital busi-
ness in the early days of e-commerce, as it scaled up.
To counter this problem, Amazon developed its own infrastructure by develop-
ing specific business models for different aspects of the business. For instance, in
1998, Amazon patented the “1-click” system, allowing customers to purchase an
item with a single click. Until 2017 (i.e., until the patent lasted), other businesses
paid a license fee to the company for using this technology. Similarly, Amazon also
launched a marketplace named zShop (now renamed Amazon marketplace) in 1998
to bring third-party sellers on its platform. This, effectively, was the foundation of
Amazon’s emergence as a multi-sided platform.
As these matured, together they created an ecosystem that was of value to
other businesses. It is this ecosystem that has enabled Amazon to move beyond
being just a multi-sided e-commerce platform. In 2003, the company launched Am-
azon Web Services (AWSs), by licensing its platform to other businesses. The early
version allowed developers to use and customise Amazon’s platform for their use.
By 2006, Amazon had launched cloud services in the form of AWS, which Microsoft
and Google were yet to do. This provided them a head-start in the Software as a
Service (SaaS) market (see Chapter 6 on sharing economy) and established them as a
technology service provider. In fact, the company went a step further and launched
AWS Marketplace – a multi-sided platform for software products – in 2012, thereby
drawing on its expertise from the technology and platform businesses. In line with its
strategy of developing the infrastructure, it also acquired a robotics company – Kiva
Systems – in the same year, to automate its fulfillment centres.
Note: Appendix B by Sebastien Ronteau
https://doi.org/10.1515/9783110762556-012

152 B Amazon Versus Alibaba: Amazon is Amazing, but can Alibaba Dethrone it?
In its core business, sensing the move to the digital version of books, Amazon
launched Kindle in 2007 (for eBooks) and acquired Audible (for audiobooks) in
2008. This was followed by the acquisition of Twitch – a social video game stream-
ing site – in 2014. This way, the company ventured into the bit-vendor category dis-
cussed in Section 3.2. Amazon Prime, for instance, besides targeting e-commerce
customers, also provides an infrastructure for developers of applications like the
Kindle Fire or Fire TV and publishing tools such as eBooks for Kindle, as well as the
shipping infrastructure for Amazon Fresh.
Drawing from the long tail strategy, Amazon also acquired businesses in certain
sectors to enter certain segments. For instance, after a limited presence in the shoe
market, Amazon acquired Zappos, a prominent shoe shopping site with a loyal cus-
tomer base, in 2009. Similarly, after struggling in the grocery delivery market, Ama-
zon acquired Whole Foods in 2015.
Many of these business models, on their own, are not unique to Amazon. How-
ever, taken together, this constellation of business units most differentiates Amazon
from other large businesses like Google, Apple, or Facebook. This enables Amazon to
generate revenues not only from its marketplace and reseller activities but also in
other ways. For instance, many companies in sectors from banking, social media,
and travel through to entertainment, productivity and healthcare now use AWS, so
much so that when in early 2017 there was an outage of AWS, 60% of the Internet
was inaccessible. Such is the volume of transactions that Amazon’s revenues now ex-
ceed those of Facebook and Google (Alphabet).
Amazon CEO, Jeff Bezos, says that the development of this galaxy of services and
products is motivated by the desire to “sell and deliver stuff to customers”. Amazon’s
definition of “stuff” is extensive, encompassing not only physical and digital products
but also services. The company is further differentiated by its prices, which are lower
than those of other physical and online merchants in what is a commoditised market.
Following the idea of a long tail, a large selection also makes Amazon a one-stop
shopping destination, putting it on top of consumers’ minds as a single point-of-sale
for everything. The convenience of the user interface and the ergonomics of the web-
site add to a positive user experience, which includes shipping capabilities and the
company’s mastery of the supply chain. In every respect, Amazon is an innovator.
For example, it uses predictive shipping to ensure local warehouses are appro-
priately stocked with items of interest to that area’s customers. The algorithm an-
ticipates the trends that will drive higher sales of certain items in specific locations
by drawing on data from site visits, traditional media, social media influencers, so-
cial media listening, and other sources.
This means Amazon can determine that it is likely that 100 people will buy the
new Dan Brown novel next week and accordingly ship 100 copies to the warehouse
so that when customers push the “buy” button, their book is delivered to their door-
step within two days. This fast shipping means customers avoid the inconvenience

Alibaba 153
and cost of travelling to a physical store, enabling Amazon to compete with physi-
cal retailers locally.
Amazon’s strategies have been effective in changing the way customers buy
and consume products. Just think about Kindle, a “digital book reader” Amazon
launched despite its disrupting its own business model as an online seller of physi-
cal books. However, in creating the Kindle, Amazon was offering its consumers
extra value. By working backwards from where customers like to read, Amazon
solved a problem for many in urban areas who want to read while commuting to
work on public transport but find hardbound books heavy, cumbersome, and tak-
ing up too much space in their bags.
With Amazon offering base-model Kindles at low, subsidised prices in anticipa-
tion of generating future sales of digital books with an inventory cost of almost zero,
suddenly commuters had an inexpensive device holding thousands of books in a frac-
tion of the space of a paperback. Moreover, if they used a Kindle app, they did not
even have to buy an e-reader because they could read any digital title on the smart-
phone or tablet that they already owned. A publishing tipping point was reached in
2012 when on Christmas Day, Amazon’s sales of digital books exceeded those of physi-
cal books.
Amazon adopted a similar strategy for B2B services. They changed the way how
software was delivered – from software as a product to software as a service. While the
world was still relying on on-premise technology infrastructure and software installa-
tions, Amazon launched cloud-based AWS services in 2006. Google and Microsoft
could follow the suit only after a couple of years in 2008 and 2009, respectively. In this
situation, it is no wonder that in 2019, one-third (33%) of the cloud market was still
owned by AWS, with Microsoft being a distant second at 16% and Google with a mea-
gre 8% of the cloud market.
In contrast, eBay largely remained an online marketplace. While it acquired
PayPal – a third-party payment provider – in 2002, the latter spun off from the for-
mer in 2014. eBay’s primary source of revenue is still in the form of transactions,
with secondary revenue coming from marketing services (e.g., advertisements on
its site). This demonstrates that eBay is a much more traditional e-commerce busi-
ness than Amazon. It relies primarily on the intermediation between sellers and
buyers and has not followed Amazon by selling its infrastructure/services or ventur-
ing into other domains.
Alibaba
Being the biggest eCommerce company in China, Alibaba is often compared to

Amazon. However, upon closer inspection, one finds that Alibaba combines ele-
ments from Amazon, eBay, and Google, with a dash of PayPal thrown in.

154 B Amazon Versus Alibaba: Amazon is Amazing, but can Alibaba Dethrone it?
The biggest share of Alibaba’s business comes through TaoBao marketplace, on

which Alibaba matches the buyers and sellers. In this regard, it is closer to eBay
than to Amazon since Alibaba does now own an inventory and engages in direct
sales. However, unlike eBay which charges the sellers for the listing, listings are free
on Taobao. Instead, taking a leaf from Google’s playbook, Alibaba offers marketing
tools to sellers through its TaoBao marketplace. While it is free to sell on the plat-
form, sellers must pay if they want to be visible and rank higher in searches. This
strategy, which is like Google AdWords, provides the income that subsidises the
platform and allows it to remain free to users.
While Amazon offers a single marketplace (disregarding AWS marketplace that
is for software) for eCommerce retail, Alibaba operates several marketplaces aimed
at different segments. While Taobao is geared towards the traditional retail market-
place open to any seller, TMall is a branch of Alibaba that acts as a marketplace for
established international brands to access Chinese customers, while AliExpress al-
lows Chinese manufacturers and retailers to target international consumers.
Alibaba has separate offerings in the B2B marketplace. While 1688.com is
geared towards domestic B2B business, Alibaba.com aims to become a leading mar-
ketplace for global B2B business. Alibaba is also present in the B2B cloud market,
with its offering Alibaba Cloud, since 2009. It is the biggest cloud service provider
in China and Asia-Pacific.
Alibaba also has a payment system, named Ant Financials, which is like PayPal.
However, it also acts as a bank that offers loans to small and micro businesses. This
combination of Alibaba’s branches creates a highly appealing galaxy of services. Per-
haps not surprisingly, at its initial public offering, the biggest in US stock market his-
tory, Alibaba was valued at nearly 50% more than initial estimates. A domestic market
in China of almost 1.4 billion people, approaching four times that of the US, puts Ali-
baba in a dominant position. Moreover, with China as a worldwide manufacturing
hub, Alibaba can connect directly with manufacturers and suppliers. To exploit its po-
tential, Alibaba has invested in what they call Cainiano Network to provide logistics
services and supply chain management solutions for order fulfillment.
In terms of threats to Alibaba’s growth in non-Chinese markets, protectionism
may be a factor as the US moves towards policies that limit foreign companies’ abil-
ity to expand into its market. However, even if Alibaba’s marketplace cannot oper-
ate in the US, its banking system and financial dynamics might be able to, even if
indirectly, as their social media branch, WeChat, could function as an interface
through which users pay for goods and services. With its ability to combine social
media, digital currencies, and mobile at a global level, Alibaba could shape global
e-commerce trends in the future.

C BlaBlaCar: Value Creation on a Digital Platform
Abstract: From its humble origin in 2003, BlaBlaCar has become a preferred ride-
sharing platform for passengers across Europe. BlaBlaCar is an online marketplace
that connects drivers and passengers and helps them share the costs of journeys. In
the process, it creates value for both sides of the platform. Drivers save money on the
cost of the trip, and passengers get a low-cost option to reach their destination. The
case follows the company from the idea to its inception to its growth and current chal-
lenges. The case helps the students in understanding the business of digital platforms,
as it relates to value creation for the customers, matching the value proposition for
two sides, revenue and pricing strategies, and the crucial role of trust in sharing
economy.
Introduction
On April 24, 2018, the trains in France were on strike (again). For the international
press, strikes are an opportunity to mock French labour laws or praise workers’ es-
prit de corps in defending their rights. For commuters, however, strikes are neither
a laughable matter nor a source of pride. Strikes have practical implications for
commuters that include being stranded, missing work or a family reunion, getting a
much longer commute, or squeezing into one of the few trains that are still running.
However, over the last few years, an Internet platform has considerably contributed
to minimising the inconvenience caused by such events to commuters: BlaBlaCar.
BlaBlaCar is an online marketplace that connects drivers and passengers and
helps them share the costs of journeys. On April 24, 2018, Fred plays the role of a
driver and takes on board a retired couple who were using BlaBlaCar for the first
time. He listens to their complaints about the railroad service but also the difficul-
ties they encountered when signing up on BlaBlaCar. As they did not have a Face-
book account, they created one before they could sign up on the platform. It took
them a while to complete all the formalities. In the end, they are delighted to be in
the car with Fred, on their way to see their grandchildren. Fred listens carefully and
thinks of the solutions that could improve their experience. This is because Fred is
no ordinary member of the BlaBlaCar community. In fact, Fred is the founder of the
company. He uses every trip as an opportunity to understand consumers’ needs
and concerns better and think of solutions and/or innovations.
Note: Appendix C by Deepak Saxena, Laurent Muzellec, and Daniel Trabucchi. Originally published
in Journal of Information Technology Teaching Cases, 10(2), 2020.
https://doi.org/10.1515/9783110762556-013

156 C BlaBlaCar: Value Creation on a Digital Platform
How the Idea was Born
Around 15 years ago in December 2003, Fred Mazella was trying to go to his home-
town in the Vendée region (west of France), 500 km from Paris, to spend Christmas
with his family. All trains were fully booked, and no seats were available until after
Christmas. Eventually, he managed to convince his sister to pick him up from Paris, a
major detour for the sibling who lived in Normandy. As he was driving with her on
the highway, he saw a train that he wanted to take. It was indeed overbooked with
all seats occupied. At the same time, whizzing past his car were hundreds of cars that
were mostly empty except for the drivers. It was a eureka moment! Fred thought, “Oh
my God, there are seats for going to Vendee, but they are not on trains. They are on
cars!” He wondered about a platform that could enable people who did not have cars
to get lifts and drivers to find passengers who would share the cost of trips. He spent
the next few days doing an online search for platforms connecting passengers and
drivers. However, all he could find were some fairly confidential forums that were so
unorganised that finding someone who was taking the same trip at the same time
was practically impossible. His research convinced him of two things. First, the need
for such types of services indeed existed, and he was not the only one in France in
need of a ride to go home; in fact, a small community of users had started to emerge
through those forums. Second, what was really needed was a platform equipped with
a powerful algorithm that could match passengers and drivers based on the date of
departure, the point of departure, and the point of arrival.
For the next three years, Fred would spend his time coding for the platform
with two school friends, now engineers. When not coding, Fred would go to weekly
entrepreneurial meetups to discuss his ideas and gain feedback. It was in one such
forum that he met Francis Nappez, a technology expert, who offered his services if
Fred decided to use the mobile platform. Soon realising his lack of skills in market-
ing, management, and product development, Fred enrolled in an MBA course at IN-
SEAD. During his MBA, Fred not only learned about the best business practices but
also tested and refined several business models for his idea. It was at INSEAD that
he met Nicolas Brusson, who was immensely interested in the venture capital world
and start-up ecosystem. In 2006, Fred purchased the domain name Covoiturage.fr
(French for “car sharing”) and along with Nicolas and Francis (see Appendix 1 for a
brief bio of founders) founded a company called Comuto.1 Fred realised that the
reason why car sharing had not fully taken off earlier was not because of the lack of
interest from the potential users but rather because no platform had successfully
managed to match passengers and drivers using the date and time of departure,
travel origin, and travel destination. Now, Fred had a working platform that offered
 Until April 2012, “Commuto” was the brand name used in Spain, and until 2013, “Covoiturage”
was the brand name used in France.

Seizing the Opportunities and Facing Scaling Challenges 157
the best possible solution based on the three variables. With a working platform
and tentative business model, it was now time to market the services to a wider au-
dience. Although the company had rapidly become the market leader in France, it
required the final impetus to become a household name.
Seizing the Opportunities and Facing Scaling Challenges
In October 2007, Fred’s sister Helene saw an opportunity and immediately called
Fred. “Next week there’s going to be a train strike”, she said over the phone, “You’ve
got to own this moment and send out a press release!” What seemed a normal Sun-
day afternoon in October 2007 suddenly turned into an all-night workshop for the
siblings. As a communications expert, Helene helped Fred craft a message that por-
trayed BlaBlaCar as a travel option during the strikes and advised him to send the
press release out first thing on Monday morning.
Merely 30 min after sending the press release, Reuters and AFP picked up the
news and circulated it. Within seconds, Fred’s phone began ringing continuously, and
he could not sleep for the next 48 h. He ended up being on the TV and radio, and the
platform was featured in over 500 newspaper articles. It was massive publicity, and
for the first time, BlaBlaCar was thrown into the limelight. The fact that the platform
was available on mobile to help everybody find alternative transport options during
the train strikes was significant. As Fred was approached by many media outlets, Fran-
cis and the rest of the team were working full throttle behind the scenes. Owing to the
increase in traffic, they made continuous changes in the code to adapt to the new vol-
umes. The first version of the platform could handle only up to 100,000 members.
When Francis formally joined the company full-time in 2008, he modified the platform
architecture to accommodate another 5 million members. They continued to modify
the platform to support further user growth. The platform was now on the radar of
French media and would soon become a recurring topic every time there was a strike,
which was indeed frequent (see Appendix 2).
The train strikes of 2007 helped BlaBlaCar become a household name in France.
But now, it was time to think big and grow internationally. Once again, a shot in
the arm came from an unexpected event. An Icelandic volcano started erupting
on April 14, 2010, and ejected a significant amount of volcanic ash into the atmo-
sphere, creating a potential hazard for aeroplanes. For the next six days, as the ash
diffused the European airspace, fleets of airlines remained stationary, leaving ap-
proximately 10 million passengers stranded at European airports. BlaBlaCar again
became a preferred solution for people stranded far from home and, in one case, for
a bride who had to reach the wedding venue. Frequent strikes in France further
helped the company expand its market base.
However, while such strikes and disruptions are treated as “gold dust” by the
company, the platform business has its own share of complications. The main issue

with such platforms is the ability to attract both sides of the market simultaneously.
For the platform to be successful, both groups of customers – the consumers (pas-
sengers) and the producers (drivers) – need to be on the network. One group will
not come to the network unless the other does and vice versa. This situation is com-
monly known as the “chicken and egg paradox”. In the case of BlaBlaCar, passen-
gers and drivers are the two groups of customers. While the passengers join the
platform to search for rides offered by drivers, drivers search for passengers to
share their travel costs. BlaBlaCar offers a service to both. Train strikes constitute a
wonderful opportunity to advertise the services to both sides of the network, but
the company may face problems balancing the supply with the demand.
Fred recalls that while the number of passengers was growing rapidly, enough
drivers were not available to offer rides. This problem was especially acute during
strikes, as they brought more passengers than drivers. After considerable contempla-
tion, Fred and his team found a solution to the problem: emotional marketing. In this
regard, Fred recounts, “During a train strike, we started just calling for drivers, asking
for solidarity with passengers, saying ‘Ok, trains are on strike, lots of passengers will
be without a way to move around, please drivers if you have empty seats propose
your seats because there are plenty of passengers searching for a ride’”. The messages
were available across various marketing channels from the press to social media. The
notion of solidarity hit a chord with the drivers in those difficult moments.
Experimenting with Business Models
Interestingly, while the company made strides in terms of its user base and there was
no dearth of venture capital (see Appendix 3), it struggled to find the right business
segment and pricing model. The idea of a carpooling platform had the potential for
both individual and business consumers. Back in 2007, the company received many
requests from businesses and local authorities in France interested in integrating a
carpooling platform with their corporate intranet. Their main focus was facilitating
homework travel over short distances (usually less than 20 km). While this purpose
was not aligned with Fred’s original idea of long-distance travel (averaging 300 km)
between cities, it still was a lucrative option to customise the platform for other busi-
nesses. Carrefour, IKEA, and some hospitals in Marseille were among the first to inte-
grate the platform within their portal. Over the years, around 200 companies utilised
the service. In 2009, BlaBlaCar earned approximately €10k per month from the sales
of their platforms to businesses. Although it was a steady source of revenue for Bla-
BlaCar, it required investing considerable time, resources, and attention to deliver
such multiple customised platforms to various companies. Another issue for the com-
pany was that the solution was not scalable due to the differing requirements of cus-
tomers. Over time, it became clear to Fred and his team that the business-to-business

Experimenting with Business Models 159
(B2B) model would not flourish. Eventually, the decision to phase out the B2B model
was taken in 2012.
The closure of the B2B platform service allowed the company to exclusively
focus on the C2B2C (or B2C&C) model, where the platform would enable transac-
tions between the two sides of a market. Two-sided markets are economic platforms
having two distinct user groups that provide each other with network benefits. In
the case of BlaBlaCar, the two sides are the passengers and the drivers. They benefit
from and provide economic benefits to each other. The drivers can subsidise the
costs of their trips by sharing the costs of travel.2 The passenger(s) also benefit from
reduced prices as well as increased flexibility compared to the time, pick up, and
destination options available through public transport. The network benefits are
known as cross-side network externalities. This means that the value of the platform
for the passengers depends on the rides offered by the drivers, and at the same time,
the value for the drivers depends on the passengers asking for rides.
Within this model, however, BlaBlaCar still needed to figure out its revenue and
pricing scheme. For some time, a freemium model was adopted, in which the overall
service remained free, and the members had the option to pay for additional services.
By paying a monthly or annual fee, the premium members could have the benefit of
having their posts ranked higher in search engines and receiving text messages each
time they had a request. However, upon further deliberation, it was understood that
the option was not fair to other consumers. The team also deemed the option to be
financially unviable in the long run. Implementing a monthly subscription plan with
a flat fee was also considered. However, the subscription idea was also quickly dis-
carded because of the uneven use of the platform. While some members used the
platform sporadically (a few times per year), some others used it frequently (several
times a week). Consequently, it was impossible to devise a subscription formula that
was fair to all. BlaBlaCar also tested the advertising model as the majority of the inter-
net service providers do. However, there were concerns within the team about the
possibility of the misuse of the personal data of members by the affiliates for commer-
cial purposes. It was also antithetical to the philosophy of trust (see the next section)
that the company followed. Consequently, the company decided not to follow the ad-
vertising route, to protect the personal data of their members.
Currently, the pricing and revenue model differs from country to country (see
Appendix 4). For instance, the platform is free in the markets that it is penetrating.
With this strategy, the company has entered Eastern Europe including Russia,
South America, and India. In the matured markets, however, the company follows
transaction-based pricing with the passengers paying the transaction fee. Drivers
get the price they ask for, but the passengers pay a slightly higher price to cover the
 Drivers are supposed to cover only their fuel and road toll costs but not make a profit from the
passengers.

transaction costs. In other words, one of the two sides pays the platform for both,
while BlaBlaCar offers a service that matches the two sides (see Figure C-A). Fred
acknowledges the difficulties associated with the transactional model: “The hardest
one is the one (business model) we have, which is transactional, taking care of the
money and their transfer. Moving money from a million passengers to a million
drivers. And in some cases, you also have to give the money back because the trans-
action does not happen, and in some cases managing issues between the two.”
cross-side network externalities
Access to the Access to the

marketplace marketplace
Rides’ search Rides’ offer
PASSENGERS DRIVERS
Fees Revenue less fees
per transaction
Figure C-A: BlaBlaCar as a Two-Sided Platform.
Managing Trust and Expectations
Gaining consumer trust is crucial for any business for its long-term survival. In fact,
for a C2B2C platform like BlaBlaCar, it is their raison d’être. Most of the commuters
would not have met before, which is why they would be using the services of Bla-
BlaCar in the first place. Establishing trust and rapport traditionally takes time and
repeated interactions. In the beginning, the lack of trust was related to many di-
mensions, from getting into the car with a stranger to the actual chance of finding
the passenger at the meeting point or the driver arriving at the defined meeting
point. Indeed, overbooking and no show were concerns for the company in the be-
ginning. The drivers overbooked due to the fear of no-shows. The passengers over-
booked because they were unsure whether they would get a ride with the driver
they booked. This resulted in a vicious circle of overbooking and cancellations with
the rate of cancellation peaking at 35%.
To tackle the issues of overbooking and no-show, the company employed the
following strategies. First, the company tried a bidirectional rating system. This
worked well for the drivers who saw an increase in their ratings. However, it did
not exactly work for the passengers. The passengers with bad feedback would book

Managing Trust and Expectations 161
drivers with good ratings but then would not show up. The rating system resulted
in penalising good drivers with unreliable passengers, which led to good drivers
leaving the platform. To avoid this situation, the company asked users to pay up-
front if they wanted to book a ride. Once the advance payment method was intro-
duced, the number of cancellations plummeted to 3%.
Over the years, the company’s user interface has evolved to create and manage
the trust ecosystem using the six pillars of online trust (see Figure C-B) to gain
“trust capital”. It encourages its users to make an online trust profile based on veri-
fied information, declarative content, and others’ ratings from previous experien-
ces. Over the years, more trust features were introduced to create a trust ecosystem.
It was found that members with public profile pictures and social network activities
were trusted more. Based on this, the platform allows its users to log in through
their Facebook accounts, instantly utilising the trust capital built through another
platform. After each journey, both the passengers and drivers are encouraged to
leave reviews of each other. To ensure that fair and honest ratings are given and
discourage “revenge ratings”, the team introduced a feature that allows members
to view the rating they received only if they rate their co-travellers within 14 days.
However, the emphasis on trust goes beyond the user interface and forms the
backbone of the company’s operations. Back in 2012, Fred spoke at a TED event where,
to the utter surprise of his audience, he tore off his shirt to unveil an orange-green em-
blem declaring him as Trustman. At the same time, the other members of the team sit-
ting with the audience also unveiled themselves as Trustmen and Trustwomen.
Going beyond symbolism, BlaBlaCar teamed up with Prof. Arun Sundararajan, a
sharing economy expert with NYU Stern School of Business, to conduct a continent-
wide study on online trust with over 18,000 BlaBlaCar customers across 11 EU coun-
tries. To ensure that the results were unbiased and trustworthy, BlaBlaCar decided
not to sponsor the research but only provide access to their customers. The results of
the survey indicate that, in general, people trust members with a full BlaBlaCar pro-
file more than a colleague. In fact, the survey indicates that the level of trust in a
BlaBlaCar member is second only to the trust in family and friends. Around 70% of
the users declared that so many drivers and passengers being on the platform makes
them feel more comfortable ridesharing with BlaBlaCar.
Apart from trust, the comfort of co-passengers is also a significant factor when
sharing a long ride with somebody. To accommodate this, BlaBlaCar introduced pref-
erence settings for members to rate themselves on parameters such as smoking prefer-
ences or chattiness. For example, while some passengers like to chat a lot with fellow
passengers during a journey, some others may prefer to keep the chatter to a mini-
mum and enjoy the scenery. Aligned with the company’s name, members can rate
themselves Bla, BlaBla, or BlaBlaBla, with the last one denoting the chattiest. This
emphasises that the social nature of the BlaBlaCar community adds additional value,
where a rideshare is not just a means to decrease the cost of travel but also an avenue
that may help in forging long-term social relations based on one’s conversation

Figure C-B: The D.R.E.A.M.S Framework for Trust.
preferences. Later, the company also introduced verification information based on

members’ experience level, declared preferences, the inclusion of profile photos, the
percentage of positive ratings received, and their seniority in terms of usage. In the
order of reputation and trustworthiness, the experience levels are newcomer, interme-
diate, experienced, expert, and ambassador. Beyond trust, it also makes economic
sense to the members, as ambassadors find it much easier to get their cars quickly
filled. Ambassadors are also invited to focus groups where they provide feedback on
the new features to be launched. To encourage more participation from members, re-
cently, the company introduced a peer-to-peer chat of helpers (ambassadors who
meet certain criteria) to support other members. These helpers work in direct contact
with the company teams.
Challenges and Legal Issues
As BlaBlaCar grows both in size and geographical footprint, it also faces diverse
challenges. It is finding it difficult to sustain itself in some markets, for example,
far off in India, Mexico, Turkey, and closer in the UK. Interestingly, in most of the
non-European markets, trust is a major issue. In India, for example, people usually
travel long distances with friends and family and do not trust strangers to share a

The Journey Continues 163
ride. To tackle this cultural roadblock, BlaBlaCar introduced Government ID verifica-

tion, which requires members to be verified based on existing government IDs. The
company planned to introduce it in Mexico and Turkey as well. However, the com-
pany failed to get a significant amount of traction for its services and had to close
down local offices. The local websites are still operational, though mostly working on
autopilot. BlaBlaCar is still operational in the UK and follows the government ID veri-
fication scheme, but Nicolas Brusson (co-founder and CEO) admits that BlaBlaCar
“sort of works but it’s nothing exciting” in the UK. In recent years, the team has also
noted the limitations of geographical expansion as a growth strategy.
Closer to home in Germany, a country very fond of carpooling, BlaBlaCar is look-
ing for the right monetisation strategy. The Germans, who prefer cash payments, are
reluctant to go through the app to book trips and pay a commission in passing. In
Spain, a lawsuit was filed in 2015 by the Spanish Confederation for Bus Transport
(Confebus) against the company on the grounds that BlaBlaCar was in effect provid-
ing the services of a transport company and that was unfair competition. BlaBlaCar
eventually won the case in 2017 based on the argument that it is not a transport com-
pany but a broker that brings drivers and passengers together to share the costs of
trips and in the process earns money by charging a fee.
Despite its consistent focus on trust, BlaBlaCar is facing certain issues on the
customer front. In most of its markets, its existing model is primarily based on the
information supplied by the users, which has resulted in its being entangled in
some legal cases and attracting bad press. A driver in France was arrested in 2014
and later sentenced in 2017, for drugging and sexually assaulting the passengers
contacted through the BlaBlaCar platform. In September 2018, an Italian driver was
arrested on the French-Italian border because he unknowingly shared the ride with
two undocumented immigrants from Paris. The company maintains that the drivers
should check their passengers’ papers before starting a trip across the border. How-
ever, sceptics question the efficacy of this solution, as passengers could also be car-
rying prohibited substances or illegal items in their bags. Even if it is not a direct
responsibility of the company, it puts a dent in the BlaBlaCar trusted ecosystem,
which it is proud of so far.
The Journey Continues
Luckily, on April 24, 2018, Fred is on a domestic trip, and his elderly passengers are
gentle and kind. Before dropping them off at their destination, he informs them
that they could also use their e-mail to access the services of the platform and de-
link their Facebook account if they wish to. As he waves them goodbye and drives
home, he cannot stop thinking about what lies ahead. The company has existing
plans for new revenue streams. Remaining close to its origin, the company is exper-
imenting in France with a new offering. In April 2017, BlaBlaCar announced its

partnership with the car manufacturer Opel and the long-term car rental specialist
ALD Automotive that would enable its more than 300,000 French ambassador-level
members to rent Opel cars on long-term rentals for a year or more. The move is to
encourage its members to shift from the traditional car ownership model to a “car-
as-a-service” model. Within a month, in May 2017, BlaBlaCar also offered its new
platform called BlaBlaLines on two short routes in France – Reims to Châlons-en-
Champagne (45 km) and Toulouse to Montauban (50 km) – to fulfil the daily com-
muting needs of its members. The service, which was rebranded as BlaBlaCar Daily
is now growing rapidly due to the rise in gas prices and the corollary incentive to
share daily commute costs. The future looks both challenging and exciting for
BlaBlaCar.
Questions
1. How does BlaBlaCar create value? What is (are) the value proposition(s) of Bla-
BlaCar? How does it differ from other traditional businesses?
2. Explain the “chicken and egg” paradox in the context of the platform business.
How did BlaBlaCar manage to overcome this paradox?
3. Do you think BlaBlaCar is correct in using different pricing models in different
markets? Why or why not?
4. Explain the importance of “trust capital” in the context of C2B2C markets. Sug-
gest ways for maintaining trust in the wake of recent events described in the
case.

D Hubspot: A Complex Subscription Model
for Inbound Marketing
HubSpot offers subscription-based SaaS solutions for inbound marketing, sales, and
customer service. As opposed to outbound marketing, in which marketers try to
reach the customers via advertisements or e-mails, inbound marketing creates con-
tent, such as blogs or information videos that interested customers would want to
see. The solution offered by the company offers tools to create high-quality content,
increase exposure to interested customers, and tools to analyse the results. It also of-
fers tools to qualify the leads and close the sale on its platform.
After initially contemplating a product-based and SaaS model for different customer
segments, the adoption of subscription-based SaaS delivery seemed the right strategy
for HubSpot from a long-term value creation perspective. However, soon they found
two distinct segments among their subscribers. While the marketers from the big
firms continued with their subscription and continued to extract value, small firm
owners cancelled the subscription after gaining initial value from the offerings. It
was crucial to reduce the churn rate for the subscription-based business model to be
viable for the company. To manage the churn rate, HubSpot made a conscious choice
of avoiding signing up the customers who would possibly renege. The sales team’s
incentive was determined based on the retention of the customers. Moreover, the
company focussed on continuously improving its onboarding and customer support
process, including dedicated help centres, a knowledge base portal, and certification
programs. These steps resulted in lower churn rates for the company.
HubSpot currently offers all its services on a subscription-based model with a
SaaS delivery. Instead of paying upfront to install and use software, HubSpot’s cus-
tomers subscribe to the solutions by paying a monthly/annual fee. HubSpot follows
a tiered subscription model. Some basic CRM and marketing functionality are avail-
able free of cost, followed by a starter, professional, and enterprise solutions. The
subscription tiers are offered in three distinct yet inter-related areas of marketing,
sales, and customer service. The subscription tiers differ in terms of the number of
users supported and additional features for the subscribers (see Table A for sub-
scription tiers and indicative features for the marketing function).
While Table D-A is not exhaustive (e.g., there are more features offered in the
professional and enterprise packages), it is clear from the table that the company
offers distinct value addition across subscription tiers, especially to those opting for
professional or enterprise packages. The success of HubSpot’s multi-tier subscrip-
tion pricing strategy may be gauged from the fact that out of their total revenue of
$674.9 million in 2019, around 95% ($646.3 million) was earned as subscription
revenue.
Note: Appendix D by Deepak Saxena
https://doi.org/10.1515/9783110762556-014

166 D Hubspot: A Complex Subscription Model for Inbound Marketing
Table D-A: HubSpot Subscription Tiers for Marketing Function.
Plans
Features Free Starter Professional Enterprise
Pricing – Starting at Starting at Starting at

€. per € per month €, per month
month / /€, per year / €, per year
€. per year
Contacts – , , ,

included
Email , email X contact tier X contact tier email X contact tier email
marketing sends per email send limit send limit per calendar send limit per calendar
calendar month month month
Ad $k spend limit $k spend limit $k spend limit $k spend limit
management Simple website  contact list  audiences  audiences
audiences only audiences
List  smart lists,  smart lists, , smart lists , smart lists
segmentation  static lists  static lists , static lists , static lists
Conversations    

inbox
Reporting    
dashboards
Custom  , , ,

properties
Ad retargeting None All available ad All available ad types All available ad types
types $k spend limit $k spend limit
$k spend limit  audiences  audiences
 audiences
Multiple None  currencies  currencies  currencies

currencies
Social media  connected accounts  connected accounts

for social media for social media
, posts per month , posts per month
Subdomain  subdomain Unlimited subdomains

availability
Marketing  workflows , workflows

automation
Custom  
reports
(Source: HubSpot)

E AirBnB: Managing Trust and Safety on a Platform
Business
Abstract: AirBnB has become a preferred accommodation marketplace for travellers

worldwide. AirBnB is a two-sided digital platform that connects guests and hosts. In
the process, it creates value for both sides of the platform. Guests save money on the
accommodation and hosts generate earnings from their otherwise idle space. The
case follows the company from its inception to its growth and current challenges
with the wider community. The case enables understanding the key features of digital
platforms: how they create value for all users, how they shape value propositions for
two sides, and how the community becomes a stakeholder in the platform business.
It also focuses on the issue of trust and the need for the company to integrate the
concerns of other stakeholders such as communities and local authorities. Finally,
the case highlights the impact of Covid-19 on the company and the travel industry.
Keywords: digital platform, multisided platform, value proposition, business model,

trust
Introduction
AirBnB is a digital accommodation marketplace providing access to 7 million places

of stay in more than 100,000 cities and 220 countries/regions globally.1 It does this
by connecting the owners of accommodations (referred to as hosts) with customers
(guests) who would like to use this accommodation on their travels. The company
had been experiencing exponential growth since its inception in 2007. However, in
recent years, it has started experiencing some difficulties. For example, during the
autumn of 2017, five people died in a shooting incident during a Halloween party in
Orinda, California. The property was rented using the AirBnB platform. This reflects a
growing discontent of the community in AirBnB hotspots. The company has faced
lawsuits in France, its biggest market outside the US. In Ireland, AirBnB is blamed for
a reduction in the supplies of long-term rentals in Dublin, thereby fuelling the hous-
ing crisis. Such incidents started to put a question mark on the trust ecosystem that
the company has built over the years. Yet, these criticisms were small waves, com-
pared to the tempest around the corner. In the spring of 2020, the covid-19 pandemic
took the world by surprise. To slow down the spread of the virus, governments across
 Source: AirBnB.com; Available at https://news.airbnb.com/fast-facts/.
Note: Appendix E by Caoimhe Walsh, Deepak Saxena, and Laurent Muzellec. Originally published
in The Irish Journal of Management, Sciendo, 39(2).
https://doi.org/10.1515/9783110762556-015

168 E AirBnB: Managing Trust and Safety on a Platform Business
the world imposed travel restrictions. This practically annihilated all AirBnB revenue
until the beginning of summer 2020. In the words of the AirBnB CEO, the pandemic
presents a ‘prolonged storm’ for travel. Consequently, on May 5, AirBnB announced
that it was getting rid of one-fourth of its workforce, which is about 1,900 employees.
The Covid-19 pandemic meant that AirBnB had to review its marketing strategy or
even reinvent its business model, which reinvented the accommodation marketplace
in the first place.
Starting the Business
AirBnB’s saga began in 2007, when Brian Chesky and Joe Gebbia (see Appendix 1 for a
brief bio of co-founders), both graduates of the Rhode Island School of Design, having
moved from New York to San Francisco, were unemployed and having trouble paying
their rent (see Appendix 2 for AirBnB’s journey). It came to their attention that all the
hotel rooms in the city were booked out due to a local industrial design conference.
They saw the opportunity to make some money by renting out some of the space they
had in their apartment. They bought some airbeds and quickly set up a simple website
called Air Bed & Breakfast. Their first guests were a 30-year-old Indian man, a 35-year-
old woman from Boston, and a 45-year-old father of four from Utah. They charged
each of them $80 a night. Shortly after this beginning, Nathan Blecharczyk, a Harvard
graduate, and technical architect joined the team as the third co-founder and chief
technical officer.
While the founders initially found it difficult to attract investors to their new ven-
ture, in 2009, they raised $20,000 from their first investor, Y Combinator. They used
this money to fly to New York City, their biggest market at the time, to meet users and
promote the business. They found that a key problem was that the photos of the ac-
commodations were not of good quality. They bought a high-quality camera and vis-
ited each accommodation, taking new photographs for the website. Returning to San
Francisco with a more viable business model, they shortened the name to AirBnB.com
and expanded their offering from just airbeds and shared accommodation to a range
of properties from entire homes and apartments to private rooms. By March 2009, the
site had 10,000 users and 2,500 listings.
AirBnB’s business model is referred to as a two-sided (more specifically, C2B2C)
digital platform, matching the guests (travellers) with the hosts (property owners).
In so doing, it creates value for both sides of the platform. Guests save money on the
accommodation (compared to hotels), and hosts get earnings from their otherwise
idle space. The company has a simple revenue model. There is no charge for the
hosts to list their accommodation on the website. When guests book a property,
AirBnB receives its revenue from two sources. First, it charges a flat 10% commis-
sion from hosts for every booking made through the platform. Second, it charges 3%
of the booking amount as a transaction fee from guests on every confirmed booking.

Business Expansion 169
cross-side network externalities
Access to the Access to the

marketplace marketplace
Accommodation Accommodation
Offer Search
HOSTS GUESTS
Fees Fees
per booking per booking
Figure E-A: AirBnB as a Two-Sided Platform.
Business Expansion
In November 2010, AirBnB launched its iPhone app along with an Instant Book fea-
ture that enables bookings without the host’s prior approval. The following year,
they opened an office in Germany, which marked the beginning of their international
expansion. In May 2012, AirBnB introduced its $1 m Host Guarantee, which provided
property damage protection of up to $1 m for every host at no extra cost. In 2014, the
company hosted more than 100,000 guests during the Rio World Cup and relaunched
their brand. Over the following three years, AirBnB held open events in San Fran-
cisco, Paris, and Los Angeles with the number of hosts attending growing from 1,500
to 7,000.
To add value to the customers, in 2016, AirBnB announced the launch of Trips,2
which expanded its services beyond accommodation to local experiences recom-
mended by hosts. With Trips, they also introduced a new identity authentication
process that requires hosts and guests to provide an official government ID and a
separate photograph that is matched to the authenticated ID. AirBnB notes that this
more robust standard of authenticating identity made their community stronger
and reaffirms their commitment to authenticity, reliability, and security. In 2017,
AirBnB expanded the Trips services to 20 more cities globally and launched its Chi-
nese brand. The following year, AirBnB introduced a new accommodation category
AirBnB Plus, which recognises exceptionally high quality and comfort, at an extra
 Source: AirBnB.com; Available at https://news.airbnb.com/airbnb-expands-beyond-the-home-

with-the-launch-of-trips/.

charge of $149 per host. In 2019, AirBnB signed an agreement to acquire HotelTo-
night,3 an online app that allows users to find discounted last-minute hotel accom-
modation. This makes it easier for people who use AirBnB to find last-minute places
to stay when home hosts are often already booked. This, together with the Trips ser-
vice, further expanded AirBnB’s range of offerings for its customers. From its humble
beginnings in 2007, AirBnB now connects travellers to more than 7 million places to
stay and tens of thousands of experiences around the world. It is now the most
searched for accommodations brand on Google.
To fund their expansion, AirBnB raised $4.7 billion in total funding across 10
funding rounds (see Appendix 3 for more details on funding rounds). To undertake an
initial public offering, the business was valued at $31 billion at the beginning of 2020.
In the last six years alone, in its key US market, it has seen substantial gains in sales
vis-à-vis key industry competitors and similar gains in market share. Its yearly reve-
nue has increased from $8.4 billion in 2010 to $3.6 billion in 2018 (see Appendix 4 for
yearly figures). In 2018, its sales surpassed the Hilton group, and it is also gaining on
the Marriott hotel chain. On March 27, 2019, the company celebrated a key milestone,
with the announcement that since its founding in 2007, half a billion guests had
checked in at AirBnB listings worldwide.4 In May 2019, the company announced that
it had added 1 million new listings since July 2018, while in the same period, Marriott
had added 46,101 new rooms.5 In August 2019, Reuters reported that AirBnB had re-
corded $9.4 billion in total booking value in the first quarter, corresponding to a book-
ing of 91 million nights on its platform in the same quarter.6
Breaches of Trust
While in the initial years, multiple bookings and stranded hosts were key issues, in
recent years, several cases were reported in which guests have discovered hidden
cameras in their accommodation. One recent case occurred in Cork city in Ireland
in April 2019.7 A family from New Zealand found a camera hidden in a smoke alarm
in the living room. The father of the family, an IT consultant, discovered the camera
 Source: AirBnB.com; Available at https://news.airbnb.com/airbnb-signs-agreement-to-acquire-

hoteltonight/.
 Source: AirBnB.com; Available at https://press.airbnb.com/airbnb-celebrates-half-a-billion-
guest-arrivals/.
 Source: AirBnB.com; Available at https://press.airbnb.com/airbnbs-growth-and-summer-travel-
updates/.
 Source: Reuters.com; Available at https://www.reuters.com/article/us-airbnb-results/airbnb-re
cords-30-growth-rate-in-first-quarter-on-booking-strength-source-idUSKCN1V700L.
 Source: Irish Times; Available at https://www.irishtimes.com/news/consumer/family-felt-sense-
of-danger-after-finding-hidden-live-cam-in-cork-airbnb-1.3850498.

Ensuring Trust and Safety 171
after trying to connect his phone to the Wi-Fi. He found a link to a device that en-
abled him to watch a live video stream on his phone. His wife Ms. Barker said, “We
felt a sense of danger the moment we discovered the camera. It felt like a huge inva-
sion of our privacy, and it felt like the exact opposite of what AirBnB should be
about – mutual trust.” The family was very disappointed and upset with how
AirBnB handled the investigation initially. They felt they had to chase the company
to get answers and even when the listing was removed from the platform, they were
not informed by AirBnB. The Cork city hidden camera incident is not an isolated
one. Similar cases were reported in Miami, Florida, California, and Bulgaria, cov-
ered widely in the international press.
A spokesman for AirBnB responded in a press statement:
We have permanently removed this bad actor from our platform. Our original handling of this
incident did not meet the high standards we set for ourselves, and we have apologized to the
family and fully refunded their stay. The safety and privacy of our community – both online
and offline – is our priority. AirBnB policies strictly prohibit hidden cameras in listings, and
we take reports of any violations extremely seriously. There have been more than 500 million
guest arrivals in AirBnB listings to date and negative incidents are incredibly rare.
Ensuring Trust and Safety
AirBnB indeed realises trust and safety are central to their platform, as noted by Joe
Gebbia in his 2016 TED talk. AirBnB has a ‘Trust & Safety’ team that deals with trav-
elling, hosting, community standards and home safety. A study8 conducted jointly
with Stanford University found that strong reputational mechanisms on the plat-
form can overcome bias and boost trust. It employs three reputational mechanisms
to help its users overcome the anxiety associated with dealing with strangers:
Profile: Guests and hosts on AirBnB need to create a profile for using the platform. A
basic profile includes fields such as full name, phone number, payment information,
and email address. The hosts also need to provide photographs of the accommodation.
Secure messaging: The platform provides a secure messaging tool for communica-
tion between the guest and the host. The two parties may use the tool for sharing
additional information/requests and for coordination.
Reviews: The reviews, in which the guests and hosts can review each other after the
reservation, arguably provide the strongest reputational mechanism on AirBnB. The
 Abrahao, B., Parigi, P., Gupta, A., & Cook, K. S. (2017). Reputation Offsets Trust Judgments based
on Social Biases among AirBnB Users. Proceedings of the National Academy of Sciences, 114(37),
9848–9853.

Stanford study found the rating system and textual reviews to be strong mecha-
nisms for maintaining trust.
To boost its trust ecosystem, AirBnB started a superhost programme in which ex-
ceptional hosts are eligible for a ‘superhost’ status, based on the following criteria –
average rating of 4.8 or above out of 5, having completed at least 10 stays (or 100
nights over the last 3 completed stays) over the last year, less than 1% cancellation
rate, and more than 90% response rate. Superhosts get benefits in the form of get-
ting featured on the platform, attracting more hosts, and receiving an additional
bonus from the platform. There are around 400,000 superhosts on the AirBnB plat-
form, around 10% of the overall number of hosts.
Moreover, to enhance the trust and safety of its platform, AirBnB provides the
following features:
Account protection: AirBnB employs multifactor authentication on its platform,

whenever there is an attempt to log in from a new device or location. It also sends
alerts whenever there is any change in the account or the transaction.
Scam prevention: AirBnB provides multilayer defence mechanisms against scams.

As long as the users stay on and communicate within the platform, they are pro-
tected from scams.
Secure payments: AirBnB transfers payments through its own platform and discour-
ages users from paying via other means such as wire transfers or cash, which are
outside the platform. This helps to ensure the traceability and security of the
transactions.
Risk scoring: AirBnB scores each reservation for potential risk based on machine
learning and predictive analytics. The scores are based on hundreds of flags derived
from past transactions.
Watchlists and background checks: AirBnB also regularly checks its hosts and
guests against sanctions, regulatory, and terrorist watchlists. It also conducts its
own background checks for its US customers.
Home preparedness: AirBnB runs home safety workshops for the hosts, in conjunc-
tion with local experts. The hosts are supposed to provide important local informa-
tion to the guests. The company also provides free smoke and/or carbon monoxide
detectors to the hosts if they wish. Regarding hidden cameras, their policy9 for
hosts clearly states:
 Source: AirBnB.com; Available at https://www.airbnb.ie/help/article/887/what-are-airbnbs-

rules-about-security-cameras-and-other-recording-devices-in-listings.

From Two-Sided to a Multisided Platform? 173
You should not spy on other people; cameras are not allowed in your listing unless they are
previously disclosed and visible, and they are never permitted in private spaces (such as bath-
rooms or sleeping areas).
From Two-Sided to a Multisided Platform?
However, with time, AirBnB’s trust and safety concerns have expanded beyond the
two sides–hosts and guests–to the wider community. The concerns are mainly related
to its legality in certain markets and the impact on city life in general.
Consider the example of New York City. For short-term rentals (less than 30 days)
in the city, the host must be present on the property, the rooms must be unlocked,
and they cannot host more than two guests. While short-term rentals are possible in
small buildings (less than three residential units), larger buildings with three or more
residential units must be rented at least for 30 days or more. Consequently, many list-
ings on the platform were deemed illegal. To enforce the rules, the city administra-
tion enacted a law in 2018, requiring such platforms to provide the hosts’ names and
addresses to the authorities every month. In August 2018, AirBnB took the city ad-
ministration to the court arguing that this would breach the privacy of its hosts and
endanger their freedom of activity. A federal court blocked the law in Jan 2019, term-
ing it unconstitutional. Similar problems with the legality of AirBnB’s listing exist
across the globe, in Barcelona, Berlin, Dublin, Paris, Perth, Tokyo, etc. For instance,
it was reported10 in Feb 2020 that only around 250 property owners from Dublin city
applied to register their short-term rentals with the council, even though there were
more than 7,000 AirBnB properties listed in the area.
France is AirBnB’s largest market outside the US, with around 65,000 homes in
Paris listed at the time. A French tourism association complained in early 2019 to the
European Union, noting that AirBnB was acting as a real estate agent and not comply-
ing with EU property rules, thus representing unfair competition to the hotel industry
and representing a significant threat to the existing hoteliers in the city. The matter
was referred to the European Court of Justice, which issued an opinion in April 2019
stating that AirBnB should be treated as a digital service provider and free to operate
across the European Union. The Court noted that AirBnB Ireland (from where AirBnB
runs its French website) “may be regarded as an information society service” and
should benefit from the EU’s free movement of information.11
 RTE. (2020). Low compliance rate under laws restricting AirBnB lettings in Dublin city. Avail-
able at: https://www.rte.ie/news/dublin/2020/0219/1116267-airbnb-dublin-lettings/.
 Source: Lexology.com; Available at https://www.lexology.com/library/detail.aspx?g=fe934b09-
9da5-41e3-969d-df4f98545f55.

Apart from legality, societal concerns are also coming to the fore.12 For in-
stance, the boom in AirBnB properties in Dublin and Lisbon is often blamed for the
skyrocketing long-term rental market, fuelling the problem of homelessness in the
city. In cities like Barcelona or Florence, locals are complaining about the ‘touristifi-
cation’ of their city and the loss of cultural capital, for instance, loss of community
networks in a locality. In Athens, there have been complaints of too much noise
from tourists’ late-night parties and their mishandling of the rubbish. Thus, while
the guests and hosts might rate each other high on the platform, AirBnB needs to
generate trust with the local community.
The appointment of Margaret Richardson as the company’s Vice-President of
trust in September 2019 was an attempt by the platform to ensure trust and safety
among guests, hosts, and the community. The Vice-President of trust is responsible
for developing and implementing strategies that would make AirBnB one of the
most trusted online communities in the world.
Airbnb in a Covid-19 World
While the company has battled accusations that it drove up rents in many markets
and contributed to the nation’s housing affordability crisis, the criticism and associ-
ated trust issues did not slow the company’s explosive growth. It was something else
that put a question mark on the future of the company. During the spring of 2020,
the Covid-19 pandemic and subsequent travel restrictions caused serious threats to
AirBnB.
In the major markets of AirBnB, the effect of the Covid-19 pandemic started man-
ifesting towards the end of February 2020. In the North of Italy, thousands of people
were infected. Government agencies like the Centre for Disease Control in the US and
European Centre for Disease Prevention and Control recommended avoiding all non-
essential international travel. As the pandemic spread to Spain, France, the UK, Ire-
land, and the US, stricter confinement measures eliminated tourism opportunities.
By the end of April 2020, data from the United Nations World Tourism Organisation
(UNWTO) showed that 100% of the destinations had restrictions in place.
While AirBnB did not communicate the extent to which it was affected, it is
likely that most, if not all the revenues for March, April, and May 2020 dried up.
According to AirDNA, an outside tracker of AirBnB listings, hosts saw $1.5 billion in
bookings dissipate for March 2020 in the USA alone. By April 2020, AirBnB’s valua-
tion plummeted from $31 billion at its 2017 fundraising to $18 billion. The company,
 FT.com. (2019). Are AirBnB investors destroying Europe’s cultural capitals? Available at:
https://www.ft.com/content/2fe06a7c-cb2a-11e9-af46-b09e8bfe60c0.

Questions 175
which was initially due to go public in 2020, announced on May 5, 2020, that it will
slash one-fourth of its workforce – around 1,900 people.
The pandemic represents an immense challenge to the travel industry. It is
likely to substantially change our travel habits but perhaps more fundamentally,
where we live and how we work. All these changes represent some challenges and
some opportunities too for AirBnB.
A report by the Bain Group notes how distance is one of the most fundamental
economic factors in today’s economy.13 Traditionally, cities were considered a corner-
stone of spatial economics – highly dense urban hubs minimising the cost of moving
raw materials, labour, and finished goods. However, thanks to technology, the “cost
of distance” is declining in recent times. For instance, big, energy-consuming data
centres are usually hosted far from the cities. Such trends are likely to accelerate as a
result of the coronavirus crisis. If proximity to one’s job location is no longer a signifi-
cant factor in deciding where to live, for instance, then the appeal of the suburbs
wanes; and remote but digitally connected villages become extremely attractive.
AirBnB, which is in the business of leveraging idle capacity, could benefit from this
trend. This would however require the company to revise its current approach. The big
question is how.
Travel habits are also likely to be affected. Using the hashtag #traveltomorrow, the
United Nations specialised agency for tourism (UNWTO) invites people to travel differ-
ently in the future. It believes that people may travel to learn from diverse cultures and
return home enriched to advance development and promote sustainability. Similarly,
it is reported that tourists may not travel as far as they used to and start (re)discovering
the world around them instead of far away. Could these concerns and opportunities be
integrated by AirBnB in its attempt to build trust with various stakeholders?
Less than 13 years after its inception, AirBnB, which has been a major disruptor
in the travel industry, is now being disrupted. The company needs to think of solu-
tions to sustain its business model and participate actively in the shaping of a better
world, post-Covid-19.
Questions
1. How does AirBnB create value? What is (are) the value proposition(s) of AirBnB?
How does it differ from other traditional businesses?
2. Explain the importance of reputational mechanisms in maintaining trust in the
context of online C2B2C markets. Explain how AirBnB uses reputational mecha-
nisms to ensure and enhance trust between the two sides of the platform.
 Source: https://www.bain.com/insights/spatial-economics-the-declining-cost-of-distance/.

3. How can AirBnB maintain a sustainable tourism platform reputation and ad-
dress the concerns over its alleged negative impact discussed in the case?
4. What are the possible behavioural changes of business and personal travel-
lers resulting from the covid-19 pandemic? How can Airbnb address these long-
term changes? Should it be reconsidering its target audience, its value proposi-
tion, or its business model? How?
Appendix 1 – Founders’ Profiles
Source: AirBnB.com; Available at https://news.airbnb.com/about-us/.
Brian Chesky is the co-founder, head of community, and CEO of AirBnB, which he
started with Joe Gebbia and Nathan Blecharczyk in 2008. Originally from New York,
Brian graduated from the Rhode Island School of Design, where he received a Bache-
lor of Fine Arts degree in industrial design. Brian sets the company’s strategy to con-
nect people to unique travel experiences and drives AirBnB’s mission to create a
world where anyone can belong anywhere.
Joe Gebbia is the co-founder and CPO of AirBnB, serving on the board of directors
and executive staff while leading Samara, AirBnB’s in-house design and innovation
studio. Like Brian, he is also an alumnus of the Rhode Island School of Design,
where he earned dual degrees in graphic design and industrial design. An entrepre-
neur from an early age, AirBnB’s ground breaking service began in his San Fran-
cisco apartment. He is involved in crafting the company culture, shaping the design
aesthetic, and innovating future growth opportunities. Joe has spoken globally
about both entrepreneurship and design and received numerous distinctions such
as the Inc. 30 under 30 and Fortune 40 under 40. Gebbia now serves on the institu-
tion’s board of trustees.
Nathan Blecharczyk is the co-founder, chief strategy officer, and chairman of AirBnB
China. Nathan became an entrepreneur in his youth, running a business while he was
in high school that sold to clients in more than 20 countries. He earned a degree in
computer science from Harvard University and held several engineering positions be-
fore co-founding AirBnB. Nathan plays a leading role in driving key strategic initia-
tives across the global business. Previously, he oversaw the creation of AirBnB’s
engineering, data science, and performance marketing teams.

Appendix 3: AirBnB Funding Rounds 177
Appendix 2: AirBnB’s Development Story
Based on data available at https://news.airbnb.com/fast-facts/.
Brian Chesky and Joe Gebbia use 2007

air-beds to make rent money when
hotels are sold out 2008 Officail launch; Formal website; Founders
raise $30,000 by selling election-themed
Name changed to Airbnb; Expands 2009 cereals
beyond rooms to include apartments
and houses 2010 Launch iPhone app and Instant Book feature
International expansion begins with 2011

German office
2012 Introduces $1m Host Guarantee to protect
against property damage
Moves headquarters to 888 Brannan 2013
Street in San Francisco
2014 100,000 guests during Rio World Cup; 1,500
hosts attend Airbnb Open in San Francisco
Offivial alternative accommodation 2015
supplier for Rio Olympics; 6,000 hosts
attend Paris Arirbanb Open 2016 Launches Trips; 7,000 people attend Airbnb
Open in Loss Angeles
Expands Trips to 20 more cities; 2017
Launches Chinese brand
2018 Launches Airbnb Plus; Celebrates 10 years
Acquires Hotel Tonight to provide 2019

options when Hosts unavailable
Appendix 3: AirBnB Funding Rounds
Funding type Date Amount raised Post-money valuation
Seed Jan  $ k $. m
Seed Apr  $ k
Series A Nov  $. m $ m
Series B- Jul  $. m $. b
Series B- Jul  $. m
Series C Oct  $ m $. b
Series D Apr  $. m $. b
Series E- Jun  $. b $. b
Series E- Nov  $ m
Debt Jul  $ b

(continued)
Funding type Date Amount raised Post-money valuation
Series F Sept  $ b $ b
Unattributed Apr  $. m
Unattributed Aug  $. m
Source: https://craft.co/airbnb/funding-rounds.
Appendix 4: AirBnB Revenue over the Years
Revenue (in millions USD)

4000
3600
3500
3000
2600
2500
2000
1500
1500
900
1000
423
500 189 250
8.4 52.8
0
2010 2011 2012 2013 2014 2015 2016 2017 2018

List of Figures
Figure 1-A The Digital Business Model “Iron Triangle” 9
Figure 2-A Value Driven Approach of a Business Model 17
Figure 2-B A Transactional Approach to Business Models 18
Figure 2-C Value Drivers Behind e-Businesses 20
Figure 3-A Most Valuable Companies 2018 vs. 2008 27
Figure 3-B Value Chain of Traditional Businesses 30
Figure 3-C Value Chain of Two-Sided Digital Platform 30
Figure 3-D Illustration of Same-Side and Cross-Side Network Effect 32
Figure 3-E Platform Launch Rocket 33
Figure 3-F A Two-Sided Value Proposition Canvas 44
Figure 3-G An Alternative Digital Platform Canvas 44
Figure 4-A The Long Tail Economics 51
Figure 4-B Continuum of eRetailing Practices Regarding the Digital Nature of
Products/Services 52
Figure 4-C Four Dimensions to Consider For Your E-commerce Business Model 56
Figure 4-D Towards an Integrated Touchpoint Architecture 63
Figure 5-A User Acquisition and Monetization for Facebook 68
Figure 5-B Network Effects Explained 69
Figure 6-A A Typology of Business Models Behind the Sharing Economy 86
Figure 6-B Characteristics of the Value Proposition in Context of Sharing
Economy 91
Figure 7-A Breakdown of a Typical Transaction on Airbnb 100
Figure 7-B Simplified Profit Formula for a Brokerage Model 103
Figure 7-C Example Based on the New Airbnb Simplified Pricing 106
Figure 9-A Subsidy Mechanisms Behind Free-Based Business Models 121
Figure 9-B Proposition of an Adapted Value Proposition Canvas for Freemium 132
Figure A-A OLIO’s Multi-Sided Platform Model 146
Figure A-B OLIO’s Value Proposition Canvas for Users and Businesses 147
Figure A-C OLIO’s Email Marketing to Encourage e-WOM 148
Figure C-A BlaBlaCar as a Two-Sided Platform 160
Figure C-B The D.R.E.A.M.S Framework for Trust 162
Figure E-A AirBnB as a Two-Sided Platform 169
https://doi.org/10.1515/9783110762556-016

Index
Airbnb 1, 6, 13, 15, 18, 22, 28, 29, 31, 81, 168 Ebay 25, 40, 43, 49, 52, 53, 55, 56, 57, 58, 77,
Amazon 2, 14, 15, 19, 24, 25, 27, 28, 32, 37, 38, 102, 153, 154
42, 49, 50, 52, 53, 54, 55, 57, 58, 59, 60, Externalities 159, 160, 169
61, 82, 95, 98, 102, 103, 108, 110 133, 134,
136, 137, 139, 151, 152, 153, 154 Facebook 1, 2, 14, 15, 18, 25, 28, 32, 34, 36, 37,
Android 14, 31, 102, 145 40, 41, 65, 66, 67, 68, 70, 71, 72, 73, 75,
Apple 1, 14, 19, 27, 28, 38, 95, 98, 99, 101, 102, 77, 79, 98, 121, 129, 133, 152, 161
109, 133, 136, 137, 139, 151, 152 Freemium 4, 78, 98, 119, 121, 122, 123, 125,
126, 127, 128, 129, 130, 131, 132, 133, 141,
B2A 22 159, 179
B2B 49, 55, 66, 96, 108, 126, 128, 137, 153,
154, 159 Google 1, 14, 17, 19, 20, 21, 25, 27, 28, 29, 31,
B2C 22, 41, 49, 66, 133, 137, 146, 159, 160, 36, 37, 38, 45, 50, 55, 62, 63, 67, 69, 77,
164, 168, 175 101, 120, 121, 122, 127, 128, 133, 134, 136,
Big data 22, 135, 137 137, 151, 152, 153, 154, 170
BlaBlaCar 15, 22, 32, 41, 82, 83, 85, 87, 88, 90,
95, 103, 104, 133, 134, 155, 156, 160, 161, IBM 24, 25, 134
162, 163, 164, 179 iOS 14, 99, 129, 145
Blockchain 24, 25, 141
Booking 18, 29, 140 Linkedin 1, 28, 65, 78, 79, 89, 124, 128, 130,
132, 133, 139
C2A 22
C2B 22, 159, 160, 164, 168, 175 Marketplace 8, 14, 49, 50, 52, 54, 57,
C2C 22, 146 76, 82, 95, 98, 104, 110, 133, 149,
Canvas 43, 44, 45, 131, 132, 147, 179 151, 160, 167
Chicken-and-egg 27, 38, 39, 41, 42, 57, 100, Meta 14, 15, 19, 22, 35, 39, 66, 68, 72, 74, 75,
145, 146, 147, 149, 158, 164 121, 129, 137, 149, 151
Commission 29, 54, 55, 95, 96, 97, 98, 99, 100, Microsoft 19, 24, 25, 27, 42, 79, 101, 108, 110,
101, 102, 104, 106, 163 111, 133, 137, 151, 153
Cost 7, 9, 14, 17, 18, 22, 23, 25, 31, 33, 38, 40,
44, 51, 52, 53, 57, 58, 59, 60, 64, 69, 80, Netflix 1, 14, 22, 25, 28, 35, 53, 108, 111, 117,
82, 85, 90, 91, 95, 99, 101, 102, 103, 104, 120, 134, 136, 138
107, 110, 111, 112, 114, 115, 116, 117, 118, Network effect(s) 32, 34, 41, 67, 69, 72, 117,
123, 124, 125, 126, 127, 129, 130, 131, 153, 146, 179
155, 175 Networks 2, 8, 11, 14, 15, 21, 27, 28, 30, 32, 34,
36, 38, 40, 42, 44, 65, 66, 71, 77, 78, 82,
Data 1, 5, 6, 7, 8, 13, 17, 21, 23, 28, 33, 35, 55, 84, 125, 137, 148, 174
61, 65, 66, 67, 71, 72, 74,90, 117, 118, 123,
126, 133, 135, 136, 149, 152, 159, 175 PayPal 25, 55, 153, 154
Deliveroo 28, 86, 99 Price 2, 17, 28, 29, 32, 34, 36, 40, 54, 55, 59,
Digital platform 30, 44, 65, 87, 155, 167, 61, 64, 67, 73, 82, 87, 91, 98, 99, 101, 102,
168, 179 103, 105, 107, 111, 112, 113, 120, 121, 123,
Disruption 13, 14,15, 22, 25,138, 157 124, 125, 152, 153, 159, 164
https://doi.org/10.1515/9783110762556-017

182 Index
Scalab* 31, 33, 104, 117, 158 Transaction 6, 8, 16, 17, 18, 21, 22, 30, 33, 35,
Sharing economy 8, 15, 27, 81, 87, 89, 91, 111, 36, 37, 40, 42, 54, 55, 59, 62, 76, 77, 83,
133, 151, 155, 161, 179 85, 86, 87, 88, 80, 90, 95, 96, 97, 98, 99,
Slack 1, 123 100, 101, 102, 103, 104, 105, 106, 152, 153,
Smartphone 1, 2, 13, 15, 21, 31, 50, 117, 159, 160, 168, 172, 179
134, 139 Trust 15, 30, 31, 36, 38, 39, 57, 58, 60, 62, 84,
Social network 8, 13, 15, 32, 34, 87, 88, 89, 90, 137, 147, 160, 161, 162,
65, 66, 67, 73, 74, 75, 167, 171, 174, 175, 178, 179
78, 161 Twitter 1, 2, 14, 28, 60, 65, 66, 67, 76, 134, 135
Spotify 1, 28, 36, 42, 52, 117, 122, 132,
134, 136 Uber 1, 6, 13, 28, 30, 32, 36, 42, 63, 82, 87, 95,
Strava 1 99, 134, 138, 140
Subscription 4, 5, 7, 8, 17, 19, 27, 28, 36, 78,
79, 80, 98, 100, 107, 108, 109, 110, 111, Value capture 2, 5, 7, 8, 17, 19, 65, 66, 95, 98,
112, 113, 114, 115, 116, 117, 118, 119, 120, 104, 107, 120, 138
121, 125, 126, 127, 128, 130, 132, 133, 159, Value creation 17, 20, 21, 31, 33, 65, 71, 110,
165, 166 155, 165
Subsidization 8, 36, 37, 40, 42, 72, 97, 115, Value proposition 3, 4, 7, 21, 33, 35, 37, 40, 41,
120, 121, 122, 123, 125, 128, 129, 131, 133, 42, 43, 44, 45, 54
153, 154, 159, 179
Sustainabl* 1, 8, 35, 38, 80, 86, 104, 120, 122, Whatsapp 14, 15, 32, 65, 66, 69, 70, 71, 74, 78,
129, 130, 131, 136, 145 80, 129, 139
Tesla 15 Youtube 1, 28, 35, 36, 38, 40, 42, 44, 65, 71,
Third-party subsidy 36, 97, 121, 122 72, 75, 78, 79, 115, 122, 123, 136

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Sébastien Ronteau, Laurent Muzellec, Deepak Saxena, Daniel Trabucchi

Digital Business Models

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The New Value Creation and Capture Mechanisms

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This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0

Library of Congress Control Number: 2022940112

Bibliographic information published by the Deutsche Nationalbibliothek

© 2023 the author(s), published by Walter de Gruyter GmbH, Berlin/Boston

Cover image: antoniokhr/iStock/Getty Images Plus

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Symplatform continues to influence a growing community around a yearly event

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Laurent Muzellec is a professor in Marketing and the founder and

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Deepak Saxena is an Assistant Professor at the School of Management

Daniel Trabucchi is an assistant professor in Innovation Management

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About the Authors IX

1 Beyond Digital Ubiquity: The Digital Business Model Iron Triangle 1

Part 1: Mastering the Power of Networks: Who is Creating

3 Digital Platforms: Unlocking the Power of Networks 27

Part 2: Reshaping Markets: How is Value Configured?

4 Marketplaces: Better, Faster, Stronger? Removing Frictions

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5 “Social” at the Core of a Digital Business: Valuing Audience or the

6 Unlocking the Sharing Economy: Scaling Trust with Digital 81

Part 3: Capturing (and Locking) the Value: How Is Value

7 Brokerage Model: Scaling with Fees on Marketplaces? 95

8 The Magnitude of Subscription: Monetisation of “Everything-as-a-

9 “Free” is Not a Business Model: Business Models Behind Free 119

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10 Looking Forward: Is Winter Coming? 133

Appendices: Illustrative Case Studies

B Amazon Versus Alibaba: Amazon is Amazing, but can Alibaba Dethrone

C BlaBlaCar: Value Creation on a Digital Platform 155

D Hubspot: A Complex Subscription Model for Inbound Marketing 165

E AirBnB: Managing Trust and Safety on a Platform Business 167

List of Figures 179

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1.1 Be Kind, Rewind

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We Were Going Fast. . .

We Need New Ways of Reading the Reality Surrounding Us

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1.2 Spotify and Netflix: Spotting the Uniqueness

Value Proposition: What is the Clearest Benefit for Users?

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Let’s put it in a very straightforward way: artists cannot be suppliers. Suppliers

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Value Capture: Where is the Money?

1.3 The Digital Business Model Iron Triangle

Three questions have obvious answers in a traditional business: Who creates

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Who is Creating Value?

How Do Digital Businesses Reshape Market Configurations?