Co-authored by Geoffrey Parker, Sangeet Paul Choudary, and Marshall Van Alstyne the Platform Revolution Book is a comprehensive guide for companies building platforms or competing in the platform economy. Deep-dive into the what, how, and why of creating a successful platform businesses get a conceptual understanding of the key drivers of value creation in the platform economy including network effects, economies of scale, virality, scalability, monetization and launch strategies, platform governance and regulation.

An introduction to platform business models

What are platforms? Unlock the power of platform business models. Explore their dynamics, network effects, and transformative potential in this insightful introduction. of a successful platform business.

Key Takeaways

1. A platform’s overarching purpose is to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants.
2. Because platform businesses create value using resources they don’t own or control, they can grow much faster than traditional businesses.
3. Platforms derive much of their value from the communities they serve.
4. Platforms invert companies, blurring business boundaries and transforming businesses’ traditional inward focus into an outward focus.
5. The rise of the platform has already transformed many major industries—and more, equally important transformations are on the way.
6. How to build a business model that can orchestrate supply and demand and get to network effects.

 

“An authoritative guide to the role of online platforms: what they are, how they work, and what they mean for business and economics. Platform Revolution demystifies the concept by providing clear prose, insightful examples, and practical lessons.”

― Hal Varian,  Chief economist, Google, and author of Information Rules

1. A checklist of the critical 10 questions that you should constantly seek to answer while building platforms and marketplaces. 
2. Where giant industrial-era firms were made possible by supply economies of scale, today’s giants are made possible by demand economies of scale—expressed as network effects.
3. Network effects are not the same as price effects, brand effects, or other familiar growth-building tools.
4. Frictionless entry and other features of scalability maximize the value-building impact of network effects.
5. A two-sided market (with both producers and consumers) gives rise to four kinds of network effects: same-side effects (positive and negative) and cross-side effects (positive and negative). A growing platform business must manage all four.
6.  The key to minimizing most negative network effects is quality curation, which increases the chances of a happy match between producer and consumer.

 

The guiding principles of platform design

Platform design involves balancing  infrastructure, governance, market dynamics, and participant incentives to enable interactions in its ecosystem.

Key Takeaways

1. The design of a platform should begin with its core interaction—one kind of interaction that is at the heart of the platform’s value-creation mission.
2. Three key elements define the core interaction: the participants, the value unit, and the filter. Of these, the value unit is the most crucial, and often the most difficult to control.
3. In order to make the core interaction easy and even inevitable, a platform must perform three crucial functions: pull, facilitate, and match. All three are essential, and each has its special challenges.
4. As a platform grows, it often finds ways to expand beyond the core interaction. New kinds of interactions may be layered on top of the core interaction, often attracting new participants in the process.
5. It’s important to design a platform thoughtfully to make mutually satisfying interactions easy for large numbers of users. But it’s also important to leave room for serendipity and the unexpected, since users themselves will find new ways to create value on the platform.

 

“Thorough and often provocative.”

― Jeremy G. Philips, The Wall Street Journal

 

Platform disruption: Transforming industries

The platform revolution is disrupting and transforming traditional industries in a number of ways. 

1. Platforms are able to outcompete pipelines because of their superior marginal economics and because of the value produced by positive network effects. As a result, platforms are growing faster than pipelines and taking leading positions in industries once dominated by pipelines.
2. Platform revolution is disrupting business in other ways. It is reconfiguring value creation to tap new sources of supply; reconfiguring value consumption by enabling new forms of consumer behavior; and reconfiguring quality control through community-driven curation.
3. The rise of platforms is also causing structural changes in many industries—specifically, through the phenomena of re-intermediation and market aggregation.
4. Incumbent companies can fight back against platform-driven disruption by studying their own industries through a platform lens and beginning to build their own value-creating ecosystems, as Nike and GE are doing.

“In a very cohesive and comprehensive way, the authors provide deep conceptual insights and rich practical advice on platforms, the most important business organizations of our time.”

—Ming Zeng, chief strategy officer, Alibaba

Also Read : Bigtech platforms in healthcare

 

8 proven strategies to launch a successful platform

The chicken-or-egg problem is a common challenge faced by platform businesses, especially in the early stages. It is the challenge of attracting both producers and consumers to a new platform, when both sides need the other to be present for the platform to be valuable.  

This book provides in-depth understanding of the chicken-or-egg problem and proven strategies to overcome the challenge

1. One difference between platform businesses and traditional pipeline businesses is that, in the world of platforms, pull strategies designed to encourage virality are more important than the push strategies (such as advertising and public relations) used in conventional marketing.
2. Successful platforms use one of eight proven strategies for solving the chicken-or-egg problem: the follow-the-rabbit strategy; the piggyback strategy; the seeding strategy; the marquee strategy; the single-side strategy; the producer evangelism strategy; the big bang adoption strategy; and the micro-market strategy.
3. The speed of a platform’s expansion can be accelerated through viral growth. This depends on four key elements: the sender, the value unit, the external network, and the recipient.

Related Reads

PayPal, YouTube, Stumbelupon’s piggyback strategy

Micro-Market Strategy

 

Platform Monetization : Capturing value created by network effects

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Defining platform user and partner rights

A key concept in platform design – openness refers to the extent to which a platform is open to third-party developers and users. Open platforms provide developers with access to APIs and other tools that allow them to build new products and services on top of the platform. Open platforms also allow users to control their own data and interactions with the platform. Defining platform user and partner rights is essential for ensuring that a platform is open and fair. 

Key elements of openness in platforms

1. There are three kinds of openness decisions that platform managers face: those regarding manager/sponsor participation, developer participation, and user participation.
2. Management and sponsorship of a platform may be controlled by a single firm, by different firms, or by groups of firms. The four possible combinations lead to differing patterns of openness and control, with various advantages and disadvantages.
3. The open/closed dichotomy isn’t black or white. There are shades of gray, and benefits and drawbacks to every point on the spectrum. Sometimes, similar platforms choose to compete on the basis of differing openness policies.
4. Maturing platforms often evolve in the direction of greater openness. This demands continually reevaluating and adjusting curation processes to ensure consistently high quality of platform content and service value.

 

Platform Governance

Strategies for enhancing value and growth through policies

Managing and regulating a platform business is a complex and challenging task, but essential for the success of platform businesses. 

Key points to remember

1. Governance is necessary because absolutely free markets are prone to failures.
2. Market failures are generally caused by information asymmetry, externalities, monopoly power, and risk. Good governance helps prevent and mitigate market failures.
3. The basic tools for platform governance include laws, norms, architecture, and markets. Each must be designed and implemented with care in order to encourage platform participants to engage in positive behaviors, incentivize good interactions, and discourage bad interactions.
4. Self-governance is also crucial to effective platform management. Well-run platforms govern their own activities following the principles of transparency and participation.

In an opening keynote speech at the 2016 Social Business Forum, Sangeet Paul Choudary shares on the impact of the platform economy and the need for proper governance of large platforms.

Platform metrics: Which ones matter and how do you measure

• Since the value of a platform is derived primarily from network effects, platform metrics should ultimately seek to measure the rate of interaction success and the factors that contribute to it. Interaction success attracts active users and thereby enhances the development of positive network effects.
• During the startup phase, platform companies should  concentrate on metrics that track the strength of characteristics that enable core interactions on the platform, including liquidity, matching, and trust. These characteristics can be measured in a variety of specific ways, depending on the nature of the platform.
• During the growth phase, platform companies should focus on metrics that are likely to impact growth and enhanced value creation, such as the relative size of various portions of the user base, the lifetime value of producers and consumers, and the sales conversion rate.
• During the maturity phase, platform companies should focus on metrics that drive innovation by identifying new functionalities that can create value for users, as well as metrics that can identify strategic threats from competitors to which the platform needs to respond.

Winning in the platform economy – How platforms change competition

Winning in the complex competitive world of platforms is not easy, but it is possible. By understanding the power of network effects and how to leverage them businesses can create and grow successful platforms.

1. Platform competition is like 3D chess, involving competition at three levels: platform against platform, platform against partner, and partner against partner. 
2. In the world of platforms, competition becomes less important than cooperation and co-creation. Control of relationships becomes more important than control of resources.
3. Among the methods that platforms use to compete with one another are preventing multihoming by limiting platform access; fostering innovation, then capturing its value; leveraging the value of information; nurturing partnerships rather than pursuing mergers and acquisitions; platform envelopment; and enhanced platform design.
4. Winner-take-all markets exist in certain platform markets. They are driven by four main factors: supply economies of scale, network effects, multihoming and switching costs, and the lack of niche specialization. In winner-take-all markets, competition is apt to be particularly fierce.

“In the digital economy, platforms are transforming industries at high speed. Platform Revolution is an inspiring guide for business leaders to transform existing businesses to platform businesses.”

― Jim Hagemann-Snabe, former CEO of SAP

Also Read: The Uber Lyft Competition 

 

Platform Regulation: How platforms should (and shouldn’t) be regulated

Platforms should be regulated to protect users from harm, promote innovation, and ensure fair competition. However, regulation should also be carefully crafted to avoid stifling innovation and harming consumers.

Dos and don’ts of platform regulation

1. Opponents of regulation point to phenomena like regulatory capture to argue that government intervention in business is usually ineffectual. But history suggests that some level of societal regulation of business is healthy and beneficial both to the economy and to society as a whole.
2. There are a number of regulatory issues that are unique to platform businesses or that require fresh thinking in the light of the economic changes that platforms are causing.
3. These include access to platforms, compatibility, fair pricing, data privacy and security, national control of information assets, tax policy, and labor regulation.
4. The flood of new data made available by today’s information age technologies suggests the possibility of new regulatory approaches based on after-the-fact transparency and accountability rather than restrictions on market access. But such new approaches will need to be designed thoughtfully and carefully to fully protect the public.
5. Economic frameworks for industries with network effects suggest that dominance alone is not necessarily cause for government intervention. Rather, failure to manage externalities, abuse of dominance, manipulating populations, and delaying innovation can indicate when intervention in platform markets is necessary and appropriate.

 

The future of platforms

The platform revolution is already having a profound impact on the platform economy at a global scale. The future of the platform business models is bright, and it is likely to continue revolutionizing the  way we work.

• Industries that are most prone to transformation due to the platform revolution phenomenon in the near future include those that are information-intensive, those with unscalable gatekeepers, those that are highly fragmented, and those characterized by extreme information asymmetries.
• Industries that are less likely to be transformed by platform revolution in the short run include those with high regulatory control and high failure costs as well as those that are resource-intensive.
• It’s possible to foresee some of the specific changes that are likely to impact selected industries in the decades ahead, including education, health care, energy, and finance.
• The platform model will continue to shape transformations in the markets for labor and professional services as well as the operations of government.
• The burgeoning Internet of things will add a new layer of connectivity and power to the platforms of the future, linking people and devices to one another in new value-creating ways.
• The platform revolution will ultimately transform our world in unpredictable ways, calling for society as a whole to develop creative, humane responses to the challenges this change will produce. 

“In the digital economy, platforms are transforming industries at high speed. Platform Revolution is an inspiring guide for business leaders to transform existing businesses to platform businesses.”

―Jim Hagemann-Snabe, former CEO of SAP

Strengthen your understanding of how successful platform companies are built with a personal copy of your The Platform Revolution Book