The Rise of Platform Conglomerates

On Tuesday, June 11th Mary Meeker released her 2019 Internet Trends report at Recode’s Code Conference. One particular insight stood out to us on slides 95-97. Fortnite, which began as an addictive battle royale video game, has evolved into a multi-platform behemoth that can serve up unique in-game ads (check out the NFL’s), experiential brand moments (e.g. Wendy’s in-game Food Fight), and even concert space. In February of this year, Fortnite held its first ever in-game concert put on by DJ Marshmello. It was attended by 11 million people.

Fortnite is no longer just a game. It’s also a social media platform, voice-chat, event space, and a unique adtech vehicle for companies targeting Gen Z. Fortnite’s owner Epic recently bought popular teen video chatting app Houseparty. We’d argue its multi-platform shapeshifting is only just beginning. As Henry Cowling, MediaMonk’s creative managing director, told AdAge, Fortnite’s 250 million young users, “are much more used to living on platforms like Fortnite” when compared to platforms like Facebook.

Slides about Fortnite taken from Mary Meeker's 2019 Internet Trends report demonstrating how platform conglomerates grow.

From Mary Meeker’s 2019 Internet Trends report.

Fortnite is not the first company to embrace multi-platform synergies. From FAMGA* to Uber to Expedia, companies that embrace multiple platforms create synergies that promote growth, increase revenue, and satisfy all of their customers’ needs.

*Facebook, Amazon, Microsoft, Google, Apple

How Platform Conglomerates Develop

Uber began as a ride-hailing app. Today it offers more than cab hailing. Uber’s JUMP rents electric scooters and bikes. Uber Freight connects truck haulers with shippers. Uber Copter connects helicopter owners and pilots with high-income urban passengers. Uber Eats connects restaurants with delivery drivers. As stated in Uber’s S-1 SEC filing ahead of its IPO, Uber’s business is now focused on “Personal Mobility,” a concept that can straddle many industries, and that for Uber is a natural extension of its platform.

Recall that a platform is a business model that creates value by facilitating exchanges between two or more interdependent groups. Uber’s premier app connects drivers and passengers. Having successfully grown that network, Uber now has two types of captive audiences: drivers and (largely urban) passengers.

When building Uber Eats, Uber could boost the demand side of the new food delivery platform with its large base of urban customers, and it also had the drivers necessary to make those deliveries. When launching Uber Copter, it could take its market of urban passengers and carefully segment the market into high-income, middle-income, and low-income customers and assess whether or not a particular city has enough demand for an expensive helicopter ride sharing platform.

Google is currently trying to leverage its positive relationships with developers on the Android Play Store into a new video game platform called Stadia. Notice how Stadia’s developer website makes an overture to developers based solely on the brand trust that Google has earned with that type of user group which Google (via Android’s app store) already serves.

Google Stadia leverages an existing relationship with developers to build a new video game streaming platform.

Screenshot of Google Stadia website for developers. Highlight ours.

However, suppliers of an existing platform don’t always translate into suppliers of a new platform. It’s just as likely that suppliers of the original platform could be customers to the new. For example, Amazon’s relationship with vendors on its marketplace (suppliers of the platform) helped Amazon seed demand for its logistics platform.

Capturing the supply chain with platforms

Often, converting the suppliers of one platform into the customers of another represents a move along the existing supply chain. For example, sellers on Amazon’s marketplace (the suppliers) are customers of Fulfilled by Amazon, which sources many of its trucks and drivers from Amazon Logistics which is a platform. By doing so, Amazon owns multiple transaction points in the typical retail supply chain. The diagram below compares  simplified version of the supply chain with four core transactions.

  • The retailer buys product from the manufacturer.
  • The manufacturer ships products to the retailer (often via a third-party shipping company for SME).
  • The customer pays the retailer for products. Non-cash payments are processed by an external company such as a credit card company.
  • The retailer delivers product to the customer (sometimes via local delivery for large items like furniture or for online orders).

Amazon uses multiple platforms to own various transactions in the retail supply chain.

In an idealized platform state (for Amazon), Amazon’s multiple platforms have captured three of the four transactions (though conceivably manufacturers could also process payments from vendors via Amazon Pay). In reality not all merchants ship through Fulfilled by Amazon/Logistics and not all customers pay for products with Amazon Pay. None of Amazon’s platforms have captured 100% of the market.

And indeed, owning multiple touch points in the supply chain isn’t new. Large traditional retailers in the era before platforms also captured many of these same transactions. Walmart has long owned a proprietary fleet of delivery trucks and offered payment options through a Walmart credit card (in partnership with credit card companies).

Nonetheless, none of those linear supply chains could achieve the massive scale of platform conglomerates. Amazon Logistics is not constrained by Amazon’s inventory of trucks and staff of drivers, because it doesn’t need to directly own as many trucks or employ thousands of drivers.

Are platform conglomerates good?

Platform conglomerates are able to do the following

  1. Move into entirely new supply chains with overlapping labor and customers. For example, Uber’s shift from ride-hailing to food delivery. The two services are extremely similar in the type of labor and customer, but different in the value chains they belong to.
  2. Move up and down the value chain to own multiple touchpoints and make the suppliers of one platform the customers of another further up the value chain.

In doing so, platforms open up the markets they enter on the supply-side. On the demand-side, customers often have a wider array of better, cheaper options.

Ridehailing is no longer the dominion of a few ruling taxi companies. Small and independent video game developers can build new and interesting games for a wider audience of gamers. Anyone can launch a new product with minimal setup. It would be counter productive, even regressive, to legislate platforms out of existence. Small and medium businesses, and consumers, would lose these advantages.

But of course, as we observe how one company can exercise too much outsized power over an entire ecosystem, or can take over how an entire city moves, questions arise about how prudent it is to let these companies operate unchecked. The U.S. government has recently opened antitrust cases into the big four platforms companies: Amazon, Google, Facebook, and Apple.

As we’ve written about before, the key to regulating platforms lies in offering protections not only for the customers of the platforms, but also for the suppliers as well. Platforms have made it easier than ever for small businesses to tap into massive markets yet they (sometimes) charge them exorbitantly for the privilege. Platforms serve multiple user groups, producers and consumers, and can likewise be tempted to use their market power to squeeze either of those two groups. Customers are usually more protected. Supply on platforms must be ensured protections too.

Filed under: Platform Regulation | Topics:

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