Platform Revolution

A platform is a business based on enabling value-creating interactions between external producers and consumers.

A platform is a business based on enabling value-creating interactions between external producers and consumers. Fundamental shift in business models. Platforms are transforming entire sectors of the economy by facilitating connections between producers and consumers. Unlike traditional pipeline businesses that create and deliver value linearly, platforms create value by enabling interactions between participants. This allows platforms to scale rapidly and efficiently. Three key exchanges. Platform interactions typically involve three types of exchanges: Information exchange (e.g. product listings, user profiles) Exchange of goods/services Exchange of currency (money or other forms of value like attention) Industry examples. Platforms are disrupting diverse industries: Transportation: Uber connects riders and drivers Hospitality: Airbnb connects travelers and hosts Retail: Amazon Marketplace connects buyers and sellers Media: YouTube connects content creators and viewers

Positive network effects are the main source of value creation and competitive advantage in a platform business. Virtuous cycle of growth. Network effects create a powerful feedback loop: More users attract more users More producers attract more consumers and vice versa Value of the platform increases for all participants as it grows Types of network effects. Platforms experience four types of network effects: Same-side positive (e.g. more Facebook users attract more users) Same-side negative (e.g. too many sellers on eBay increases competition) Cross-side positive (e.g. more Uber drivers attract more riders) Cross-side negative (e.g. too many ads on Facebook annoy users) Competitive advantage. Strong network effects create high barriers to entry for competitors. This allows successful platforms to achieve dominant market positions rapidly. For example, Facebook quickly overtook MySpace by leveraging superior network effects.

Platform managers need to continually monitor their platforms' boundaries between openness and closedness and ensure they are set appropriately. Spectrum of openness. Platforms must decide how open or closed to be across multiple dimensions: Access (who can participate) Development (who can build on the platform) Commercialization (who can profit from the platform) Trade-offs of openness. More openness can: Accelerate innovation and growth Increase value creation Reduce platform control Create quality/trust challenges Finding the right balance. Successful platforms: Open gradually over time as they grow Maintain control over core functions Create rules and standards for participation Use curation to maintain quality Examples: Apple's iOS: Relatively closed, tightly controlled Android: More open, allows customization by manufacturers Linux: Fully open source

Platforms are designed one interaction at a time. Thus, the design of every platform should start with the design of the core interaction that it enables between producers and consumers. Core interaction components: Participants: Producers and consumers Value unit: The core content or service exchanged Filter: Tools to enable relevant exchanges Key platform functions: Pull: Attract participants…