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Digital Products Vs Digital Platforms – 5 Ways They Differ

  • Ashish Dhawan
  • By  Ashish Dhawan
  • |
  • 87D32530-FD6E-468E-BB24-045278513D21 Created with sketchtool. 4 MIN READ
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  • 6BCC25D0-42B3-420B-8C28-C5D7EF3F6856 Created with sketchtool. Updated: September 17, 2019

Technology has been paving the way for enormous business growth in every way possible. The two popular and trending business ideas triggered by the changing needs of both the providers and consumers point at digital products and digital platforms. Entrepreneurs are often confused when it comes to digital product vs. digital platforms. While they both add value to a business, they both hold a unique stand in the market.

Digital platforms constitute a business model that attracts value by connecting two or more parties, usually producers and consumers. Digital product design is focused on the end-user entity in the form of content or services sold to individuals seeking to benefit from what the product offers.

This is exactly what the two business models primarily focus on:

Platform = Communication

Product = Production

There is a fair range of other differences that significantly differentiate digital products from digital platforms. Let’s dive deeper into a meaningful analysis.

What is a Digital Product?

A digital product is something that can be offered online to sell or distribute and creates value for its buyers or users. This product, which is virtually offered, focuses on helping its consumers solve a problem, garner information, or learn more on their area of interest. Types of digital products include software, eBooks, games etc.

What is a Digital Platform?

A digital platform is a tool that enables communication between a supplier and consumer. This network also helps in facilitating activities between businesses and customers as well as within enterprises. A platform can become the most powerful tool for a company to enhance its customer experience. The popular OTT platforms and social media channels are among some of the best digital platforms today.

Digital Platform vs Product: The Dissimilarities

Here are the major parameters that differentiate digital products and services from digital platforms.

1. Linear Model Vs. Circular Model

A linear model of business attracts value by producing products that are, in turn, sold to consumers/clients down the supply chain. For example, a linear business could be a car manufacturer like BMW or a video content provider such as Netflix whose products are sold directly to the consumers, i.e., BMW cars and the video content respectively.

How a workflow in a linear business model works

The circular model defies the linear model approach to adapt to a better system where a business provides value by offering a means of communication between consumers and third-party businesses.

For example, YouTube can be considered as a platform where content creators from around the world share content with platform users. In a way, platforms have proved to be highly valuable. Even a study by Statista states that the top 10 companies by market capitalization are platforms.

How a platform based circular model works in case of a platform

2. The Anatomy of Business Models

As already discussed, a platform is all about facilitating communication and executing transactions between the concerned parties. It all comes back to the smooth facilitation of a transaction to produce and exchange value among the actors.

The four key functions to execute a transaction include:

  • Building an audience base (provider and consumer)
  • Connecting the right provider with the right consumer
  • Provision of core services and features for a great UX
  • Creating standards and T&Cs for maintaining authenticity

A platform needs to master the above core functions to facilitate a fruitful transaction.

the four functions of a platform business

On the contrary, a product has a much easier job at hand. It doesn’t have to worry about any transaction except product development itself. All it needs to plan is offering content/service to its end users.

This condenses its role to three main key functions:

  • Building an audience base (consumer)
  • Providing core services or content to the audience base
  • Creating standards and T&Cs for maintaining authenticity

3. The Complexity of Operations

A platform works on many make many sell concept, whereas digital product ideas work on a make one, sell one concept.

Digital platforms offer a solution that usually benefits both the parties involved in the interaction or transaction (the two functions of a platform). On one hand, there is a demand, and on the other hand, there is a supply.

In the case of YouTube, one of the top digital platforms, both content creators and content consumers, benefit from the transactions. And, surprisingly, neither of them turn out to be the platform owner. So, a platform bridges the gap by acting as an anchor between the two parties involved.

Parties involved in a YouTube transaction

Coming to products (traditional business entity), value is driven through the provision of one product to a single end-user. We can say that the business offers a product, and the user can only consume it, thus creating a single revenue stream.

Netflix, the best among digital products, revolves around the business owners providing entertainment services to consumers. These consumers buy the content, watch it, and enjoy it. In simple words, Netflix is a licensed product that is the owner of all its content.

Example of how Netflix acts as a product

4. Direct Network Vs. Indirect Networks

The incremental benefit gained from every new user that joins the bandwagon of connected networks is called the network effect. For example, if you have a smartphone but your friend doesn’t, there is no value associated with your phone as you cannot communicate.

Diagrammatic representation of a network effect

Having a look at the different types of digital platforms, we can say that there are two or more groups that exchange value with one other. This is thus a similar scenario where everybody has a cellphone and everybody can contact everybody.

Uber is an example of the indirect network. As more riders join in the network, the value it adds up to the drivers also escalates exponentially and better profits lie ahead of them.

5. The Economics of Products/Services

Products may not offer significant disruptive value in the times to come, while platforms are deemed to be much more valuable. The reason being, products need more financial resources and human resources to sell more digital products.

Here’s a graph that depicts the average cost curve for linear and platform businesses.

average cost curve explained

Referring to the same digital platform examples, when Netflix needs to add new content to the portal, they need to spend more on its creation, production, launch, marketing, etc. If the content created turns out to be great, profits would reap in, else all the money spent will go waste.

Contrarily, in the case of digital platforms, the marginal cost of production and distribution is considerably low. Which means, expenses are less, and revenues turn out to be manifold. Taking YouTube as an example, the cost to add new videos and content to the platform is negligible, as the platform only needs to add new users to produce new content.

Conclusion

Both the digital products and digital platform models have their own share of robust features and significance. No matter what business model you adopt, when it comes to platform vs. product, strategize well for the eventual digital transformation which is the most effective way to ensure a seamless customer experience. Collaborating with the right product development company can help build the most appropriate platform effectively for your business. After all, both the digital offerings are unique and help a business adding value to their end-user and target audience.

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Ashish Dhawan

About the Author

Ashish Dhawan is working as a Business Analyst at Net Solutions. His major interest and experience lies in the healthcare domain and enterprise-related applications.

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