The Power of Platform: A Case Study of BlaBlaCar
- pundarika lestari
- Jan 5, 2021
- 6 min read
Updated: Jan 26, 2021
Over the past decade, digital platforms have grown dramatically, disrupting the conventional business model, and challenging the well-established players. Many young companies have been able to achieve higher market values than the incumbents. Take a look at Uber's valuation that surpasses BMW, Facebook's market cap that valued 3x higher than Walt Disney's, and Airbnb's market value that matches Marriot's (1). Along with Uber, Airbnb, and Amazon, BlaBlaCar has been renowned as one of the world’s most successful digital platforms (2).
This case study discusses BlaBlaCar’s strategy in building a two-way platform, starting from establishing the critical mass, building a cross-side network effect, and avoiding multihoming and disintermediation. The learnings from this case study will be valuable for practitioners and entrepreneurs who are building their digital platforms and for researchers or students who study the key elements of platforms.
How it all started
During a Christmas break in 2003, a Stanford University student Frédéric Mazzella returned to France to visit his family in Paris countryside. The train was all fully-booked, so his sister made a large detour to pick him up. On his way home, Mazzella saw the crowded trains passing in the distance but noticed that most cars on the highway carried only one person. He saw an opportunity: all those empty seats could be the beginning of a new travel network. That’s how BlaBlaCar was born.
BlaBlaCar is a digital platform that connects drivers with empty seats to passengers looking for a ride to the same destination. Starting from its humble start in 2006, the firm is now valued at €1.4 billion and had raised nearly €300 million (2). The firm's major milestone is summarized in the image below.
BlaBlaCar implements different strategies in different markets. In Europe, BlaBlaCar is positioned as the low-cost travel that offers alternatives to intercity trains and buses, with passengers pay 10% to 15% commission fee per trip (2). In emerging markets like Brazil or India, BlaBlaCar positioned itself as covering routes that are not on the national rail system or areas that are unserved by public transport. From this business model, BlaBlaCar has acquired 90 million members in 22 countries.
The success factors
Now, let's take a look at BlaBlaCar's secret formula to building its platform.
Achieving the critical mass
Critical mass is often referred to as getting both sides of the parties on board. For BlaBlaCar, having sufficient drivers and passengers is paramount to establish the network effect, a condition when more usage of the product increases the product's value for other or all users (3). The more drivers joining BlaBlaCar, the more passengers attracted to use the platform, and vice versa.
In their early years, BlaBlaCar struggled to reach the critical mass because of users’ unfamiliarity with carpooling and trust issues. The turning point came in 2007 when a strike shut down the French transportation system and passengers were looking for alternatives (4). This situation put BlaBlaCar under the spotlight and the business suddenly attracted huge media attention. Furthermore, rising fuel prices and the eruption of the Icelandic volcano in 2010 caused massive disruption to European air travel. It resulted in a new influx of users, who tried BlaBlaCar as an alternative. It then attracted car owners to offer the rides, in hope of sharing their transportation cost. Thanks to these external circumstances, BlaBlaCar was able to obtain its critical mass.
The firm also did strategic actions to acquire both sides of the users. First, when BlaBlaCar’s price skyrocketed as a result of air-travel disarray, the founders decided to cap prices to retain the spirit of sharing economy. That decision means drivers do not pay tax income as they are not making profit. Furthermore, their insurance is not affected as it is not treated as a commercial venture. By doing this, BlaBlaCar has lowered down the barrier of entry for drivers and thus encouraged more people to sign-up. Second, BlaBlaCar gradually improved its features to address the distrust issues, such as removing anonymity and adding rating systems (will be discussed further in the following section). Afterward, the business continued to grow. BlaBlaCar hired its first employee and opened its first office in 2009, and officially passed the 1 million user mark in 2011.
Building trust to strengthen the network effect
Trust is one of the key drivers to build the network effect. The online platform requires users to trust each other, as they will engage in high-stakes exchanges with people they never meet. For BlaBlaCar, the network between drivers and passengers is the key to grow the business, yet its trust challenges were far more complex than other platforms. Traveling with a stranger for hours needs a greater leap of trust compared to, for instance, trusting someone to ship you a box from Amazon. Thus, the firm invested heavily to build trust.
Through a gradual process of learning and iterations, BlaBlaCar developed a framework called D.R.E.A.M.S that became the company’s building block of trust (5). D.R.E.A.M.S is created through a combination of the six following pillars:
The framework is then manifested in the app's interface and user profile as seen on the image below:
The trust framework has enabled BlaBlaCar to strengthen its network effect. A research collaboration between BlaBlaCar and NYU reveals that a BlaBlaCar member with a full profile has a similar level of trustworthiness to friends and family (5). As seen on the graph, 88% of BlaBlaCar members reported a high level of trust in fellow users—higher than that reported for colleagues (58%) or neighbors (42%). With a high level of trust amongst members, they are more likely to use the platform and stick with the community.
Avoiding disintermediation
BlaBlaCar has done various mechanisms to deter disintermediation and ensure all transactions are done within the platform. Disintermediation is defined as a phenomenon where network members bypass the hub and form transactions outside the platform (6). It can threaten platform businesses whose core competency lies in connecting people or facilitating transactions. BlaBlaCar mitigates this risk in multiple ways:
1. All rides booked via BlaBlaCar are automatically covered by insurance from AXA. This protection gives a clear advantage for members to transact inside the platform, as it offers extra peace of mind and security.
2. BlaBlaCar makes it harder for members to exchange contact information before a transaction takes place. User’s contact details like phone number and e-mail are hidden prior to the booking. As seen in the figure below, direct messages can only be done via the platform, where the messages will be moderated. When the booking is confirmed, contact details will be released to ease the communication between drivers and passengers. This strategy has helped the platform to protect its core competency of connecting users and prevent them from bypassing their payment system.
Minimizing multihoming through price cap and acquisition
Multihoming happens when a user participates on multiple competing platforms concurrently. While drivers do not have many alternatives to BlaBlaCar, passengers can easily switch to intercity buses, trains, airplanes, or other ride-hailing platforms. However, BlaBlaCar has a clear price advantage which creates user stickiness to the platform. The typical cost for the passenger was about €20 with BlaBlaCar, instead of €54 by train. For on-demand services, the price per shared kilometer is around €1-€3 per kilometer compared to just €0.06 with BlaBlaCar. This competitive price is resulted from BlaBlaCar’s capped-price policy.
To keep users within the BlaBlaCar platform and strengthen its leadership in intercity travel, the firm also did aggressive acquisitions. In 2015, the company acquired its key competitor Carpooling.com and AutoHop (Dillet, 2015). In 2018, the company also acquired French bus operator Ouibus, knowing that intercity buses are the biggest competitor in terms of price. Ouibus, whose name is now transitioned to BlaBlaBus, is being integrated into the platform. By acquiring other intercity travel providers, the firm gives more options to its members with the hope to retain them within the BlaBlaCar ecosystem.
Conclusion
This case study summarizes BlaBlaCar’s strategy in building its platform. External circumstances like transport strikes and natural disasters, combined with the internal strategy of price capping, have enabled the firm to achieve the critical mass and form the network effect. The firm then established trust between drivers and passengers using the D.R.E.A.M.S framework, which helped to reinforce the network effect. To avoid disintermediation and multihoming, BlaBlaCar implements various strategies, from providing complimentary insurance, limiting the contact before booking, capping the price, to acquiring the competitors. All of these measures have helped BlaBlaCar to grow the platform, retaining member’s loyalty, and ultimately capture value from its network.
(1) Alstyne, M. V., Jacobides, M. G., & Sundararajan, A. (2019). Platforms and Ecosystems: Enabling the Digital Economy. World Economic Forum.
(2) Lakhani, K. R., Sundararajan, A., Billaud, E., & Caltagirone, C. (2017). BlaBlaCar: The Road Ahead... Harvard Business Review.
(3) Sundararajan, A. (2006). Platform. Retrieved from http://oz.stern.nyu.edu/io/network.html
(4) Hickey, S. (2014). BlaBlaCar is to car hire what AirBnB is to the hotel industry. Retrieved from https://www.theguardian.com/business/2014/apr/13/blablacar-hire-airbnb-hotel- car-share-service
(5) Mazzella, F. & Sundararajan, A. (2016). Entering the Trust Age. Retrieved from BlaBlaCar.com: https://blog.blablacar.com/wp-content/uploads/2016/05/entering- the-trust-age.pdf
(6) Zhu, F., & Iansiti, M. (2019). Why Some Platforms Thrive and Others Don’t. Harvard Business Review, January–February 2019 Issue. Retrieved from https://hbr.org/2019/01/why-some-platforms-thrive-and-others-dont
#platform #business #innovation #digitalplatform #startup #BlaBlaCar #onlinetransportation #networkeffect
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