The big 5G marketplace revolution: Power of the network effect

By Shuba Sridhar

The increasing adoption of 5G, is enabling a marketplace revolution that will allow many more businesses to realise the benefits of “network effects”.

The network effect is a key enabler of marketplace success. Platform companies like Amazon, Airbnb, Facebook and Uber are successful because of this phenomenon. Platforms that attract more participants than their competitors thrive because the larger the network, the better the matches between buyers and sellers.

These network effects can be direct or indirect. A direct effect takes place when the value of a service increases because the number of users increases. Second-hand reseller OLX is a good example: The more people who join and create pages, the more valuable the service becomes to participants and advertisers.

Also read: 5G in India to reach ~300 mn subscribers by March 2025 as Reliance Jio, Airtel roll out aggressively 

An indirect network effect takes place when a platform connects two groups of users, like buyers and sellers. As more people from one group join the platform, people in the other group benefit. For example, as more car owners (partners) join Zoomcar, customers’ choices expand. This draws even more people to the platform and increases Zoomcar’s revenue as more transactions occur between buyers and sellers.

Digital transformation through 5G 

5G is ushering in a new era of platform revolution as companies with more traditional business models begin to understand that digital transformation and 5G together present new opportunities for network effects. Companies that were not born digital, such as the more traditional banks, healthcare companies, manufacturing companies, communications service providers and others, are digitalizing their businesses, often starting with the customer experience and then moving to other parts of the business.

The cloud has also been instrumental in offering scale and agility to businesses looking to transform digitally. Many are migrating operations to the cloud, enabling them to expand access through application programming interfaces, more commonly known as APIs. A good example of this transformation is Amazon, which began connecting its software through APIs to create Amazon Web Services (AWS). Today, AWS is by far the most valuable part of Amazon and, according to some financial analysts (registration required), is on track to become a $3 trillion company.

Successfully launching a 5G marketplace

Figuring out how to launch a marketplace can seem like a daunting challenge. It doesn’t have to be if companies think big but start small. The first and most important step in the process is understanding what makes a marketplace successful and why they often fail.

A key parameter of marketplace success is to monetize the trust it has with customers. Founder and CEO of Redbus Phanindra Sama, opines, “I think if you are running an online platform, you are in the trust business. Your number one priority is to help people trust each other on your platform.”

Also read: Airtel crosses 10 million unique customer mark on 5G network

Another key factor for a successful marketplace is to define the business KPIs of the marketplace and its success parameters. This will ensure repeat business transactions through the platform. Generating repeat business can be a big challenge if partners and customers use the platform as a means to get the right “contacts” i.e., they meet on the platform but then leave after the first transaction to conduct business on their own.

To overcome this challenge, the platform provider needs to deliver value that partners cannot independently provide. Consider a fin-tech ecosystem as an example. A marketplace might bring together loan providers, banks, insurance companies, and utility providers. To deliver added value and “stickiness,” the platform provider could offer a loyalty system that incentivizes all the players.

Why marketplaces fail

While the marketplace platform is a fairly new concept, it is littered with failures in its short tenure. These failures may be a result of key misses along the way; however, it predominantly comes down to businesses not understanding the market they are trying to serve. As a result, they may not be able to attract enough consumers for the products or services offered by producers, or there may not be enough producers to meet customers’ requirements.

To counteract this increasing trend, platform businesses should think big (in the long-term) but eventually, start small.  One way to go about starting small is to develop a six-to-nine-month marketplace pilot to check for proof of concept from the market. Depending on the response from the pilot, the marketplace owner can enhance or shift the value proposition by creating a pivot. The pilot should be executed with a startup mindset and will potentially save years of investment. 

Final thoughts

Traditional businesses that are transforming digitally can capitalize on creating and participating in 5G-enabled platforms and marketplaces. This will allow them to add value and increase revenue beyond their existing lines of business. Fear of failure should in no way be a hindrance to creating platform business models and marketplaces. By ensuring the marketplace meets crucial, carefully thought-out KPIs, companies have the best chance at success in ensuring happier customers who are willing to spend more on their existing services and a path to new revenue beyond core services.

(The author is vice president – strategic initiatives, Torry Harris Integration Solutions. Views expressed are personal )