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“The open society and its enemies” – “Platformers” are alluring flowers

2020-04-19

Around this time last year, it was a topic in the news that apparel companies were leaving ZOZOTOWN. In exactly the same manner, Disney has announced that it will exit Netflix to start its own Disney+ service, adding on to the impression that more and more companies are becoming platform-independent. Although a slightly belated topic, I will address this in this post.

The US Toys“R”us filed bankruptcy in September 2017. The direct reason for its collapse was that they couldn’t compete against Amazon in the online toy market. Toys“R”us initially signed an exclusive agreement with Amazon to sell their products on the Amazon platform, but Amazon plainly ignored this contract and started doing business with many other toy brands to sell them on its platform as well. Toys“R”us sued Amazon and built its own online store, but couldn’t find its own way against Amazon’s strong presence and ultimately lost the battle. It became a typical example of a company with no EC (electronic commerce) experience innocently relying on a platform and losing all its marketing know-how and customers to it. The same can be said for Japanese companies that do business with, for example, Seven-Eleven; in the short-term, doing business with Seven-Eleven may bring profit, but once a product becomes a hit, it will most likely be copied and sold cheaper under the Seven-Eleven private brand, so this is tricky (so the same can be said for Amazon).

The “know-how” here basically refers to purchase history data. Only those platform providers (also called “platformers”) have the access to data that tell which customer bought which product at which time. Manufactures, on the other hand, are only informed of how many of which product were sold as SKU (stock keeping unit). Platformers then utilize this data to strengthen their product lineups and identify cheaper providers. Say Netflix has the access to all information regarding what type of customers watch which types of movies and when. It can even analyze when customers would quit watching. Using that knowledge, they create their own films, so this is obviously unfair and quite frustrating for film distributors (what’s more, Netflix films can also compete for the Academy Awards).

Considering this, companies trying to become platform-independent is quite understandable. When ZOZOTOWN started selling its own brand (when it is supposed to be a platformer that simply provides a place to sell), clearly there was a strong opposition by manufactures. However, what Amazon, Netflix, or Seven-Eleven are doing is essentially the same thing. When platformers are powerful, manufactures may decide to stick with it since doing so would bring a tangible increase in customers and thus profits. But if these benefits diminish, e.g. growth decelerates on the platform, there is less incentive to keep tagging along. From a platformer’s point of view, maintaining an abundant product lineup is one of its strengths, but ensuring concrete profits of its individual business partners is another essential task, so being tactical in this game is key for its success.

A maker with little or no ability to attract customers will not sell well no matter how great the product is; it would need a powerful platform that attracts people. On the other hand, for a firmly established brand with many advocates, the manufacturer’s direct EC is a more beneficial way to do business (as we call D2C, or direct to customer, these days). When making a purchase on a cyber platform through, say, a smartphone, there is no physical distance between the customer and the manufacturer. What matters for a customer is brand awareness, in other words, whether a customer has a special attachment to the name or not.

Unfortunately, Toys“R”us couldn’t establish a strong presence among its customers. Platformers promote themselves as an open service to any seller, but they can also turn into a fierce enemy like alluring, carnivorous plants. Yet sellers are vital for platformers. If they fail to attract insects, they won’t survive. Whether they are able to maintain the sensitive balance of business and stay attractive as platformers will be tested.

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