Platform mediated networks have changed the rules of several industries by significantly altering the way of doing business. We encounter platforms everywhere, from the travel industry to the transportation industry. By taking this fact into account, platforms were bound to dominate the ecommerce industry as well. Specifically, ecommerce platforms are becoming the optimal solution for creating an online shop for B2C and B2B businesses, instead of hiring a developer team and creating a webshop from the beginning. In this blog, we will examine two prominent ecommerce solutions, Shopify and Magento, as well as their unique characteristics as platforms mediating networks.
An e-commerce platform is a solution that allows businesses to set-up an online store to sell their goods by letting them organize their products, customize their storefront, accept credit card payments, track and respond to orders. On the other hand, independent developers create a myriad of apps and plugins to provide to the platform, completing the triangular relationship of e-commerce platform, merchants and developers.
Shopify and Magento are two main players in the ecommerce platform industry. Both are tools that help businesses and individuals streamline the webshop creation process, but Shopify is a closed platform and Magento is an open platform. The main difference is that for Shopify, the roles of platform provider and sponsor are closed while for Magento they are open. Shopify is the only firm that provides the Shopify platform and has full control of developing its code. On the other hand, any party under the terms of Magento licenses may modify and distribute its source code commercially or non-commercially. In addition, the code of each new version of the Magento platform is developed and coordinated publicly on GitHub.
This difference in openness is what shapes the strengths and weaknesses of each platform and distinguishes their business models.
As platforms, Shopify and Magento govern their network by monetizing one side of the network and subsidizing another side. Specifically, Shopify draws income from its demand side, namely the merchants. Magento’s strategy is different with its Community Edition where no side is monetized or subsidized, as everyone enjoys access to the platform for free.
Due to their natures as platforms, Shopify and Magento enjoy positive cross side network effects. As one side of the network increases, there are incentives for more individuals to enter the other side of the network. The value of the network as a whole is increased due to these network effects.
While the future looks promising for both Shopify and Magento, there are significant threats to both platforms. The threats derive from envelopment and from Winner-Take-All dynamics that may begin to affect the industry. As the industry reaches maturity, key players are constantly gaining market shares and multi-homing costs are quite high, which leaves less and less room for small players. In order to boost their competitive advantage, the key players in the e-commerce platform industry would also have to put a huge emphasis on social networks. Even if social media may still only drive a small % of total online sales, its impact is impossible to ignore.
Group 54 Video Link: https://www.youtube.com/watch?v=5yeS9wUZzWQ
References
.Eisenmann, T., Parker, G., and Van Alstyne, M.W. 2006. Strategies for Two-Sided Markets. Harvard Business Review 84(10) 92-101.
Eisenmann, T., Parker, G., and Van Alstyne, M.W. 2009. Opening Platforms: How, When and Why? in Platforms, Markets and Innovation, Gawer, A. (ed.), Northampton, MA: Edward Elgar, pp. 131-162.
http://www.businessnewsdaily.com/7709-best-enterprise-ecommerce-software.html
https://magenable.com.au/magento-ecommerce/magento-shopify-features-comparison/
