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Platform Strategy

Platforms could power the circular economy

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If there’s one constant in the platform economy, it’s change. Platforms started out fueling the matchmaking economy (eBay) and have evolved to further encompass the sharing economy (Airbnb) and the gig economy (Upwork).

The next phase: platforms supporting the circular economy, which reuses raw materials and products by connecting consumers to enterprises and to each other to reuse, repair, refine, or recycle goods.

“When it comes to the future of platforms, one of the big forces at work is growing concern about sustainability and climate change. The heat waves, the fires, and all sorts of other phenomena happening in the world are increasing anxiety,” said Peter Evans, PhD ’05, the chief strategy officer at McFadyen Digital. “There’s an opportunity for platforms to be incredible engines for driving a circular economy, not just the linear economy.”

Speaking at the 2023 MIT Platform Strategy Summit, Evans offered a look at why platforms are a good fit for the circular economy and the questions that remain about circular platform adoption.

A new use for goods, thanks to a wider reach

In a linear economy, goods move in one direction, from raw material to production, use, and then waste. Making new goods requires finding and using new and increasingly scarce resources. Meanwhile, products that are “used” but still have value often end up in landfills, waterways, or the atmosphere.

A circular economy, however, keeps raw materials and products “in circulation for as long as possible,” in the words of the U.S. Environmental Protection Agency. It’s a matter of reusing materials, redesigning products, and recapturing waste — scrapping a car for its parts rather than sending it to the dump, for example.

Platforms have excelled in the linear economy, Evans said. But while they’ve disrupted innumerable markets by reducing the friction of matching buyers and sellers, they haven’t disrupted underlying economic models. “It’s actually making the existing system more efficient,” he said. “It’s reinforcing the linear model and not changing it very much.”

But platforms could adapt well to the circular economy, Evans added, and provide benefits such as lower transaction costs, more buyers and sellers, and positive network effects.

$410B

The circular economy has an estimated global value of nearly $410 billion, with platforms accounting for roughly a quarter of that.

One key outcome would be expanding the reach of materials beyond the industry in which they originated. Batteries in electric vehicles, for example, can have a second life in the energy sector once the car itself is out of commission.

“What do consumers of vehicles know about the power sector? Not very much. The platform could set up new matching markets,” Evans said. “If you keep in your own industry, you’re not going to take advantage of where the highest use value is.”

Current success, future uncertainty

McFadyen Digital estimates that today’s circular economy has a global value of nearly $410 billion, with platforms accounting for roughly a quarter of that. By 2030, the circular economy should be worth $1.5 trillion — and circular platforms will account for nearly 60% of that, or $863 billion.

Success stories abound. ThredUp, which connects buyers and sellers of secondhand apparel, went public in 2021 at a $1.3 billion valuation. Paris-based Back Market, an online marketplace for refurbished electronics, reached a valuation of $5.7 billion in 2022 after raising $510 million in a Series E funding round. Alibaba subsidiary Idle Fish has 500 million registered users in China and hosts transactions for secondhand goods worth $70 billion annually, Evans said.

That said, two key questions remain, according to Evans. One is whether large-scale efforts to fund the circular economy, such as the recent commitment from five multilateral development banks, will extend to platforms. The other question is about who will orchestrate circular platforms. Public initiatives are a possibility, as are public-private partnerships, particularly if public entities ultimately provide funding.

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Existing platforms could take the lead. Grab Holdings, a Singapore-based platform with 180 million users across Southeast Asia, could see integrating its existing linear platforms with various marketplaces for selling secondhand items or sharing surplus food as an opportunity, Evans said. (This raises the question of whether Grab or Alibaba, or American counterparts such as Amazon or Facebook, will continue to amass too much influence if they expanded their reach to circular marketplaces.)

The first step toward seeing circular platforms reach their potential is bringing together the disparate communities of the circular economy and the platform economy, Evans said.

“There’s a tremendous opportunity and pressing need for these communities to learn from each other,” Evans said. “I challenge the platform community to start looking at circular platforms more deeply, to understand what’s going on with them, and I challenge the circular economy community to start looking at platforms as a mechanism for driving what they aspire to see.”

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