Understanding platform business models: A mixed methods study of marketplaces

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Abstract

Recent technological advances have enabled the emergence of novel business models based on digital platforms. Marketplace like Airbnb or Uber offer such digital platforms to connect previously unmatched demand-side and supply-side participants through innovative forms of value creation, delivery and capture. While countless firms claim to offer the next ‘Airbnb for X’ or ‘Uber for Y’, we lack knowledge about the defining business model characteristics of these marketplaces. To close the gap, this paper provides a conceptually and empirically grounded taxonomy of their business models. Applying a mixed methods approach, it first develops an integrative framework of marketplace business models. Guided by the framework, the research systematically analyzes 100 randomly selected marketplaces with content analysis and binary coding. The gathered data is analyzed with cluster analysis techniques to develop a taxonomy for marketplace business models. The clustering process reveals six clearly distinguishable types of marketplace business models and thus shows that there is no one-size-fits-all approach to creating, delivering, and capturing value with marketplaces and platforms in general. We characterize these distinctive types on basis of the qualitative and quantitative findings. Among others, we find that two of these types are highly aligned with business model characteristics associated with the so-called sharing economy. The findings are discussed against platform, marketplace, and sharing economy literature to contribute to a higher integration of different literature streams that are concerned with similar organizational types and phenomena.

Introduction

Marketplaces – such as Airbnb or Uber – open new ways for radical changes in the organization of economic activities (Parker, van Alstyne, & Choudary, 2016). Marketplaces, a rapidly emerging category of platforms (Gawer, 2014, McIntyre and Srinivasan, 2017), enable and support transactions between independent supply- and demand-side participants. Also discussed as transaction platforms (Evans & Gawer, 2016), they are characterized by their open business models that inherently rely on independent participants to co-create value. As they trigger network effects between the demand and supply side, they are particularly associated with rapid growth and the potential to dominate a market due to winner-take-all dynamics (Hagiu & Wright, 2015). As such, scholars from diverse fields have become interested in these organization types (Gawer, 2014, McIntyre and Srinivasan, 2017) and even suggest that they can become a core organizing principle for a new economy (Kenney and Zysman, 2016, Parker et al., 2016).

To date, however, there is a lack of understanding about the distinctive business model configurations of marketplaces. While scholars have been interested in internet-enabled marketplaces since the late 1990s (Bakos, 1998, Brunn et al., 2002, Ordanini and Pol, 2001, Vesa and van Heck, 2005), existing literature focuses primarily on business-to-business marketplaces as institutions for efficient procurement and sourcing within established industry settings (Choudhury et al., 1998, Dai and Kauffman, 2001, Giaglis et al., 2002). Yet, recent technological advances, such as novel search and matching algorithms or the broad diffusion of mobile devices, enabled the development of innovative marketplace business models that address diverse consumer markets, including transportation (Uber), accommodation (Airbnnb), or finance (Lending Club). Such marketplaces often provide entirely new value propositions, apply novel revenue models, or build on the assets of private individuals to create value (Parker et al., 2016). Their attractiveness is, among others, evidenced by more than 30 private marketplace firms that are currently valued at more than a billion dollars (CB Insights, 2017). Given these high valuations, it is not surprising that several hundred firms have launched new marketplaces over the last years, including an increasing number of new ventures that claim to provide an “Airbnb for X” or “Uber for Y”. Examples range from ‘Airbnb for food with strangers’ (BonAppetour), ‘Airbnb for 3D printing‘ (3D Hubs) to ‘Airbnb for toilets’ (Airpnp). In many cases, however, the meaning of these analogies remains ambiguous. As we lack a clear understanding about different types of marketplace business models, findings in related research streams – including research on the ‘sharing economy’ (Möhlmann, 2015, Sundararajan, 2016, Zervas et al., 2017) or ‘gig economy’ (Friedman, 2014) – remains largely unconnected and isolated. As such, we observe a great need for a more holistic perspective on how marketplaces create, deliver, and capture value through their business model configurations. To address this need, we aim at exploring the distinctive types of marketplace business models through a systematic study of their elements. The paper thus aims at answering two questions: (1) What are the business model types for marketplaces? (2) What value creation, delivery, and capture mechanisms characterize these types?

To answer these questions, we apply a mixed methods approach. Against the background of business model, marketplace, and platform literature, we develop an integrative framework that helps us identify the elements and competing options in marketplace business models. We subsequently use the developed framework to classify the business models of 100 randomly identified marketplaces along 24 elements, employing a qualitative content analysis. In a second step, we explore the relatedness of the business models along multiple dimensions using cluster analysis techniques. The identified clusters and an in-depth analysis of representative cluster firms allow for the development of a novel taxonomy and a systematic conceptualization of marketplace business models. The study demonstrates the value of the business model concept as a unit of analysis for classifying and exploring platforms. The empirical taxonomy further contributes to the marketplace literature by shedding light on how new digital technologies broaden the options for creating, delivering, and capturing value with platforms. The article discusses how our findings relate to previous marketplace and platform literature and how they can contribute to a more integrative and holistic approach to the exploration of such novel organizational types.

Section snippets

Theory

This research focuses on marketplaces that are enabled by digital technologies. Since previous definitions often relate to marketplaces as institutions rather than businesses, we propose four conditions for classifying a firm as a marketplace. First, digital marketplaces connect independent actors from a demand and supply side (individuals or organizations) via a digital platform (Bakos, 1998). Individual actors can, however, participate in the market on both, the supply side and the demand

Methodology

To gain deep insights into this topic, we decided for applying a mixed methods approach (Tashakkori & Teddlie, 2003). A mixed methods approach considerably differs from solely qualitative or quantitative research approaches as it combines both ways of proceeding and incorporates a unique set of ideas and practices (Creswell and Plano Clark, 2007, Denscombe, 2008, Creswell, 2014). Such an approach is especially beneficial in terms of increased data accuracy and allows for creating a more

Sample characteristics and key clustering variables

The 100 firms are equally distributed over several industries with the largest shares in hospitality (13%), delivery and professional services (12%), industrial goods (11%), consumer goods (10%), and education (9%). From the 100 marketplaces in the sample, 90 count less than 50 employees. Half of the firms consist of less than ten employees. Most of the firms were founded between 2010 and 2013, with only 15 firms founded before 2010 and 13 founded after 2013. The sample contains an almost equal

Classification of marketplace business models

The attributes identified with strong discriminatory power are subsequently used to determine the clusters. Visual examination of the dendrogram of the agglomerative hierarchical clustering suggests a solution with six clusters. In the clustering solution, each of the 100 firms belongs to one of the clusters, with only eight of them showing a distance higher than 1.3 from the cluster center. Table 3 lists the cluster centers for each of them in regards to the selected attributes. Subsequently,

Relevance of taxonomy

The clustering revealed six fundamentally distinctive business model types for marketplaces. Table 7 provides a summary of the business model characteristics of each of these types. It focuses on those business model elements that proved the strongest source of discrimination. In addition, it provides an interpretation of the value propositions, based on the qualitative analysis of firms within each cluster. The overview shows that while type 1 (efficient product transactions) and 3 (product

Conclusions and future research

This paper investigates marketplaces, a highly emerging platform type. Most importantly, it provides a novel taxonomy of their business models. The identified taxonomic clusters suggest that there exist six distinguishable types of marketplace business models: (1) ‘efficient product transactions’, (2) ‘digital product community’, (3) ‘product aficionados’, (4) ‘on-demand offline services’, (5) online services' and (6) ‘peer-to-peer offline services’. The taxonomy can serve entrepreneurs and

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