Digital transformation and its influence on platform business

Abstract

Platform business model is increasingly gaining popularity among academics and practitioners. New start-ups to established incumbent companies have all shifted or are adjusting their business model from traditional linear to platform-based approach. Platform is a business model that creates value by connecting multiple interdependent participants and facilitating exchanges among these participants. Digital technologies such as connectivity, cloud computing, big data analytics, machine learning, and artificial intelligence play important role in making these multi-party connections and exchanges possible. There is considerable amount of literature published on platform business and digital transformation. Platform business literature often discusses the strategies of platform business and various methods of designing and setting up platform business. The digital transformation literature often discusses various digital technologies and ways of using those technologies to improve efficiency and performance. The main purpose of this study is to empirically analyze relationship between degree of digital transformation and platform business model and contribute to literature with insights gained from the results of the analysis.

This study analyzes 753 USA based active public nonfinancial firms from 16 industries existed on year 2018. The degree of digitalization measured as number of digital technologies involved in operations and products was related to existence of platform business. Analysis was done for both product platform and industry platform. This study finds that degree of digital transformation is significantly positively related to the likelihood of existence of both product platform and platform business. The study also finds that out of 16 industries studied, six industries are more likely to have platform business. This study also related other company characteristics with platform business. The findings include: Platformization is positively related to firms' size and number of complementors a firm has. Firm's age is negatively related to platformization. Digitalization of value chain has positive relationship with product platform while no relationship with industry platform. And, R&D spending does not influence platformization.