Transition of the platforms: Everything new is old again

Sajith Pai September 25, 2018


Even more interesting than the quote, which went viral subsequently, is how quickly it has dated. Today, Uber ‘owns’ cars, Facebook ‘creates’ content, and Alibaba holds inventory. Only Airbnb, of the above quartet, still owns no real estate but it has gone well beyond its initial business model of aggregating houses to offer entire buildings of ‘branded apartments’ — a.k.a hotels.

Closer home, Oyo which started out aggregating hotel rooms now operates entire hotels branded Oyo Townhouses. Ola recently inked a deal with automaker Mahindra to acquire as many as 40,000 cars. Zomato and Swiggy are setting up cloud kitchens and inviting their partners to move in there. And so on.

Snark attack

This process of the disruptor introducing services that mimic the disrupted has been the subject of several snarky tweets, which have become a meme in themselves.

One that went viral referring to Airbnb’s expansion into branded apartments (hotels) was from an Australian journalist Asher Wolfe:

And then there was this tweet referring to Lyft Shuttle which mimics a bus:

Ola Zero Wait Time offering at the Bengaluru airport was called a “taxi stand” when it launched a service where you could get into the first available Ola cab in the waiting line, share the OTP, and start riding.

So, it seems that platforms will not stay pure platforms forever. They seem compelled to move full-stack, i.e., take over the creation and delivery of some parts of the experience. How does the new full-stack service offered by these platforms differ from what they are mimicking?

In this post, I want to take a stab at some explanations around why platforms (marketplaces) go full-stack. And then as to how we should look at and understand the full-stack product that now emerges. Essentially, I ask:

1. Why does the lean assetless platform that is disrupting the flabby asset-stuffed operator grow to look more and more like the latter?

2. What makes the disruptor’s mimicked services different from the original service? e.g.: Is Oyo Townhouse or Ola’s Zero Waiting Time superior in any way compared to the original hotel or taxi /taxi stand?

Plus ça change, plus c’est la même chose

There are, I think, broadly two key reasons for platforms to start creating and delivering services:
– expand the market to reach out to non-consumers, who weren’t on board either because the existing suppliers aggregated on the platform weren’t meeting their need. e.g.: Oyo Townhouse attracted a breed of well-heeled business execs who otherwise went with four-star options on MakeMyTrip.
– deliver better service to existing customers i.e., hold on to these customers who may have come aboard thanks to it meeting their needs, but may be finding service or the offerings inconsistent

The platform is able to understand these unmet and badly met consumer needs thanks to the immense number of data points it collects from its daily interactions with consumers. Thus, Zomato was able to use its internal data to suss out locations with unmet consumer needs to locate its cloud kitchen project. It would have been next to impossible for its partners to have had that insight on their own.

Similarly, Bookmyshow is leveraging its data hoard of consumer tastes to launch its original content foray JukeBox as well as events such as the Cirque du Soleil show in Mumbai and New Delhi.

I wonder if the move towards full-stack is encouraged also by the need to deploy funds. Oyo has raised $450 million thus far, a large chunk of it from SoftBank, which thanks to its massive Vision Fund has lots more money waiting to be deployed. Where does all that money go? Building your own assets is one way as is expanding abroad – both of which are being done. And there is more coming their way if the rumoured billion dollar fund raise is to be believed.

And from what this tweet says, Oyo builds out its assets in a way that is distinct from how traditional five-star hotels do it: where franchisees put up the real estate and build out the assets.

A similar move away from a pure marketplace/aggregation platform is seen with Netflix, Facebook, and YouTube. Each of them has moved into backing original content, albeit at their own different paces. Netflix has been the most aggressive and, perhaps, Facebook the least. In Netflix’s case, its willingness to spend on original content, as opposed to aggregate, has been driven by the fear that it will lose more and more content (Disney has withdrawn its content from their platform), hence rendering a pure platform play unviable. How powerful your suppliers are is clearly another factor why a pure aggregation play might be difficult to sustain.

To translate the French, “the more it changes, the more it’s the same thing”.

It is a ‘bus’, a ‘hotel’ and a ‘taxi stand’

Now, what of the view that these innovations are reinventing existing concepts? That Airbnb’s Branded Apartments are essentially hotels. That Lyft Shuttle (a predetermined route for its pooled taxis) was essentially the bus.

There is a fair bit of truth to this; after all it does deliver exactly the same service.

But it is also true that moving the interaction layer between the service and consumer online into the mobile phone makes for dramatically-different use cases and interaction models. On the Lyft Shuttle, you could literally see where the ‘bus’ (actually a cab) was on the route and you could walk towards it. The cabbie knew there was an entry at a point and would wait for you even if you took an extra minute or two – unlike (mostly) a bus driver. You could also speak to the driver if you wished. On the business side, depending on the demand, Lyft could increase the availability on the route or decrease it. It is a bus, yes, but one that is part of a more ‘intelligent system’ thanks to the phone.

Oyo Townhouse, too, is a vanilla hotel but given that the booking is primarily through the app, and allows feedback and complaints to be captured on the app, it transforms the entire experience. Feedback about the breakfast or issues in a room are flagged off faster. Oyo can capture a lot more feedback and faster thanks to this.

It is a bus, a hotel, and a taxi stand. Yes, but it also means thanks to the mobile interaction layer, there is continuous tracking, feedback etc., changing the nature of the product experience entirely. So in some sense, you are getting a similar service or product, but how you get it and consume it is entirely different. The entire experience is transformed as the mobile interaction layer is embedded.

Bundling and unbundling

Sometime back, during the Netscape IPO, the then-CEO Jim Barksdale famously said that there are two fundamental ways of making money: bundling and unbundling (businesses). Marc Andreessen, who invented the Netscape browser and Barksdale’s then-colleague, clarified recently that bundling emerges as a consequence of the then-state of the technology which means that unbundling makes sense when the underlying technology changes. What is unbundled is then rebundled to suit the new state of tech. A good example is music, which got unbundled from the CD to individual tracks, and now has got rebundled into a Spotify stream.

Marc Andreesen, co-founder, Netscape
Marc Andreesen, co-founder, Netscape

Seen from this perspective, the disruptors unbundled the stack and are now rebundling parts of it back to make a new bundle. So, Zomato unbundled the entire restaurant stack and it then put it back again with cloud kitchens. And similarly, Airbnb with its ‘branded apartments’ has put back the ‘hotel’ together. But the new ‘hotel’ or ‘taxi stand’ is but a new bundle, reflecting the new technology layer – that of the mobile phone – underlying it. As the Thais say, “It is same same but different.”

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