Can technology platforms persuade existing providers?
The balance of interests of platforms, providers, consumers
A technology platform has emerged between consumers and providers. Today, platform startups are connecting providers and consumers in a variety of fields, including restaurants, finance, mobility, law, and healthcare. In particular, platforms in the lemon market sector, which has been a site of severe information imbalances between producers and consumers, seem to have succeeded in attracting consumers through innovation.
However, the more technology platforms benefit platforms and consumers, and the more these platforms maximize their profits, the more intense their conflicts with existing providers become. In turn, intensified competition with suppliers leads to increased government regulation. Platforms must thus carefully balance their interests in increasing profits, the interests of existing providers, and the interests of consumers. The examples of Baedal Minjok, TADA, Lawtalk, gangnamunni all showcase this situation.
Baedal Minjok's success
Baedal Minjok, a food delivery platform, is a representative successful O2O (Online to Offline) startup in Korea. It is well-known that founder Kim Bong-jin collected flyers from restaurants one by one in the early days of the start-up.
The strategy Baedal Minjok has used to attract consumers is “connection and review.” Baedal Minjok collected restaurant information that was previously shared sporadically in booklet form and provided it consistently and clearly to consumers. This information also includes consumer reviews that were not previously provided in the booklet.
Thanks to this strategy, Baedal Minjok was acquired by Germany's Delivery Hero in December 2019 for €5.7 billion. According to Delivery Hero, transactions made through the Baedal Minjok platform (GMV) totaled €11.6 billion, representing an increase of 73% year-on-year. Elegant Brothers’ 2020 sales grew 102% to €918 million. The number of orders made through Baedal Minjok in 2020 increased 75% year-on-year, reaching €729 million.
However, Baedal Minjok’s goal to balance the benefits between the company, the providers and the consumers remains elusive. Baedal Minjok is currently receiving criticism from its providers (i.e., restaurant owners) for high advertising and delivery costs. These costs charged to restaurant owners are also reflected in the food prices, leading to complaints from consumers. As a result, the government is moving to regulate the platform, and competitors such as Yogiyo and Coupang are growing. Baedal Minjok is struggling to increase its added value through its one-hour mart delivery service Bmart.
TADA's disappearance
For a platform business to succeed, consumers, suppliers, and governments must be persuaded. However, there are many cases that fail at the stage of persuading existing operators and disappear due to government regulations. The ‘TADA Basic’ service of the mobility platform TADA, which appeared in April 2018, is representative of this scenario.
TADA banked on the fact that passengers are often uncomfortable using taxi services due to factors such as taxi drivers deliberately taking longer routes to get high fares, refusing to accept customers who want to go to areas where taxi fares are not high, or engaging customers in excessive conversation. TADA hired drivers without a taxi license. The service was initially well received by consumers due to three key features: drivers were prohibited from refusing passengers, driving recklessly, and speaking to passengers.
However, the taxi industry strongly protested this service, due to TADA taking away taxi customers and using unlicensed drivers. Eventually, the government passed an amendment in favor of taxi operators to the Transportation Business Act, called the TADA Prohibition Act. After a year and a half, TADA announced the end of its service. Currently, Kakao T, which connects existing taxis with customers, has a near-monopoly on the market.
Legal and medical innovation in progress
Currently, there are sharp conflicts between platforms and providers in the medical and legal fields. Lawtalk, Korea's representative legal tech platform, is currently in conflict with the Bar Association. Lawtalk matches lawyers and clients for free and generates profits from lawyers’ advertising fees. As a result, since the launch of the service in 2014, Lawtalk has attracted 1920 million users and has reached 510,000 counseling cases, and about 4,000 (17%) of the 30,000 Korean lawyers have joined Lawtalk. Among them, 78.7% have less than 10 years of experience.
As Lawtalk grew, the Korean Bar Association recently revised its rules for advertising for lawyers and decided to implement them in August 2021. The amendment calls for disciplinary action against lawyers who commission advertisements on platforms that promote lawyers for financial consideration such as fees and advertising fees.
Gangnamunni, a medical information platform, connects people seeking plastic surgery counseling and treatment with hospitals. The platform usually earns profits by receiving advertising fees from hospitals. In addition to free counseling, consumers can see the price of procedures such as plastic surgery, dermatology, and dentistry at non-paid medical hospitals. They can also see before and after photos of the treatment and can receive a discount if they make an appointment through the app. At the end of 2020, five years after the platform’s launch, the cumulative number of subscribers exceeded 2.5 million, and the cumulative number of hospital counseling applications exceeded 1 million. One of three plastic surgery clinics in the country is listed on Gangnamunni.
At the end of 2020, the Korean Medical Association defined such apps as “illegal patient placement apps” and instructed its members not to sign contracts with the company. In addition, Gangnamunni recently asked the government for a bill to expand the scope of medical advertisement deliberation and strengthen the authority of the deliberation committee, due to the possibility of violating the Medical Advertising Act. Gangnamunni and other startups stated that self-regulation and strengthened post-regulation and supervision of illegal medical advertisements are preferable to expanding the scope of deliberation, particularly at a time when the expertise and objectivity of the review body are suspect.
As platforms change consumers’ consumption behavior, the interests of platforms, suppliers, and consumers can clash. While the platform is trying to maximize its profits, suppliers do not want to lose their existing profits, and consumers are trying to innovate at a minimum cost. In addition, differences in needs of suppliers further complicate conflicts. At this point, questions should be asked regarding what role the government and the public should play.
[by Sejin Kim]
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