Virtual Currency for Online Platforms - Business Model Implications

Abstract

Since the first loyalty program was introduced in the 1980s, many sectors and industries have adopted and configured these schemes to meet their specific requirements. But it is just recently that technological innovation has enabled the transfer of these schemes into the online environment, and, more concretely, to the increasing number of online platforms. Operating on two-sided markets, platforms started to deploy loyalty programs to address customers and Third parties such as retailers or merchants alike. Additionally they profit from the embedding in the digital environment, which enables the expansion of loyalty points to become a Virtual Currency with the power to affect platforms' business strategies. Based on the analysis of four case studies, this paper focuses on the effect of the implementation of a Virtual Currency scheme on the platforms' organizational, financial and service business model parameters. It shows how Virtual Currency schemes enable platforms to encourage loyalty of not only their customers but also in some configurations of third parties, sometimes to the extent that one or both sides of the market are locked-in. Second, Virtual Currency can be deployed as a source of revenue and thus play a role in the platform's financial design.