The economics, structure, and behavior of platform ecosystems and organizations

Rent the Runway has become one of the biggest stories in fashion since its founding in 2009. With its recent Series F round bringing in $125 million at a $1 billion valuation, the company has cemented its position as the market-defining leader in rental fashion.

The subscription model -- where members can spend $159 per month for an ‘endless wardrobe’ -- allowing users to receive up to four items at a time. As soon as an item is returned, a new one can be requested. Sounds a lot like the original Netflix DVD rental service, doesn’t it?

The company has grown in a conventional way by broadening its offerings beyond work and dress clothing to include street wear, and also adding children’s clothing, and furniture and home decor (through a partnership with West Elm). They have not expanded internationally, as yet, but that is an obvious possibility.

However, late last year Rent the Runway announced RTR Platform, which has opened the doors to true exponential growth.

As Lulu Chang reports,

With the introduction of RTR Platform, designers will be able to work directly with Rent the Runway in order to create a curated collection of pieces meant specifically for Runway customers.

Before the launch of Platform, COO Maureen Sullivan explained to Business Insider, the primary way the company secured inventory was by simply purchasing pieces directly from its 500+ designer brand partners. Now, Sullivan says, "Our partnerships with designers, beyond just traditional wholesale relationships, are deeper partnerships; from creating capsule collections, to sharing insights on the designer's product in the rental ecosystem, to the designers creating exclusive inventory for RTR based on our data and insights, and our knowledge of what customers want to rent."

Clearly, having to purchase all the inventory requires a huge capital investment. Imagine if Uber had to buy all the cars in its network, or Airbnb had to acquire all the real estate rented by its guests. It’s essential  to lower that barrier to growth by shifting to a platform ecosystem model, where the investment costs are distributed across the ecosystem.

What’s the the clothing retailers and designers’ rationale for joining RTR Platform? Simple: access to Rent the Runway’s 10 million plus members, and more importantly, access to the data about what the customers want.

Cathaleen Chen spoke with Jennifer Hyman, the co-founder and CEO of Rent the Runway, and her ambitions are fairly grand:

“The goal here is to create the Amazon Prime of rental, to usher in a new form of dynamic ownership,” said Hyman. “This round gives us the ability to have full control over our financial destiny,” Hyman continued, adding that a public listing was a future possibility.

Partners joining the ecosystem have access to critical data, to help guide their plans about what to rent through the service. But much more importantly, they can learn more about their clients’ preferences, which will ultimately lead to faster iteration in design of their next generation of clothing and accessories.

Aside from that, Rent the Runway provides the platform services that it has pioneered: fulfillment, reverse logistics, cleaning, inventory care (repairs, etc.), and customer service.

The rental revenues are shared between the partners and Rent the Runway, which from the perspective of the partners is an additional stream of revenue. Meanwhile, Rent the Runway extends its ecosystem, broadening its offerings with minimal costs and without having to purchase the inventory. The broader inventory attracts more customers, which attracts more designer partners, and so on: a fully virtuous cycle.

The focus on access to data is in fact demonstrating that an obsession with the customer is infectious, and behind it all is the second engine of platform strategy: learning how to innovate as quickly and inexpensively as possible to better serve the customer. That’s what has fueled the growth of all the most successful platform orchestrators. And Rent the Runway is no exception.

Perhaps Jeff Bezos should give Jennifer Hyman a call, and have Amazon take a plunge in the market for rental.