Platform Revolution: How Networked Markets Are Transforming the Economy - and How to Make Them Work for You

“The platform’s overarching purpose: to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants.”
“By providing default insurance contracts and reputation systems to encourage good behavior, platforms dramatically lower transaction costs and create new markets as new producers start producing for the first time.”
“Metcalfe’s law is a useful way of encapsulating how network effects create value for those who participate in a network as well as for those who own or manage the network. Robert Metcalfe, co-inventor of Ethernet and founder of 3Com, pointed out that the value of a telephone network grows nonlinearly as the number of subscribers to the network increases, making more connections among subscribers possible.”
“Virality can attract people to a network — for example, when fans of an irresistibly cute, funny, or startling video persuade their friends to visit YouTube. But network effects keep them there. Virality is about attracting people who are off the platform and enticing them to join it, while network effects are about increasing value among people on-platform.”
“When the quality of a platform is effectively curated, users find it easy to make matches that produce significant value for them; when curation is nonexistent or poorly handled, users find it difficult to identify potentially valuable matches amid a flood of worthless matches.”
“As we’ve seen, in the industrial era, giant companies relied on supply-side economies of scale. By contrast, most Internet era giants rely on demand-side economies of scale.”
“Thus, platforms are “information factories” that have no control over inventory. They create the “factory floor” (that is, they build the platform infrastructure within which value units are produced). They can foster a culture of quality control (by taking steps to encourage producers to create value units that are accurate, useful, relevant, and interesting to consumers). They develop filters that are designed to deliver valuable units while blocking others. But they have no direct control over the production process itself—a striking difference from the traditional pipeline business”
“When it is adroitly designed and programmed, the single-user feedback loop can be a powerful tool for increasing activity, since the more the participant uses the platform, the more the platform “learns” about him and the more accurate its recommendations become.”
“The more data the platform has to work with—and the better designed the algorithms used to collect, organize, sort, parse, and interpret the data—the more accurate the filters, the more relevant and useful the information exchanged, and the more rewarding the ultimate match between producer and consumer.”
“As self-serve systems, platforms grow and conquer markets when they minimize the barriers to usage for their users. In particular, every time a platform removes a hurdle that makes the participation of producers more difficult, value creation is reconfigured and new sources of supply are opened up.”
“We describe these three forms of platform-driven disruptions as de-linking assets from value, re-intermediation, and market aggregation.”
“The answer: you de-link ownership of the physical asset from the value it creates. This allows the use of the asset to be independently traded and applied to its best use—that is, the use that creates the greatest economic value—rather than being restricted to uses specific to the owner. As a result, efficiency and value rise dramatically.”
“The reality has proven to be somewhat different. Across numerous industries, platforms have repeatedly re-intermediated markets, introducing new kinds of middlemen rather than simply eliminating layers of market participants. Typically re-intermediation involves replacing non-scalable and inefficient agent intermediaries with online, often automated tools and systems that offer valuable new goods and services to participants on both sides of the platform.”
“In another form of re-intermediation, platforms create a new layer of reputational information by leveraging social feedback about producers.”
“Most big companies have evolved metabolisms that reflect this relatively slow pace of change: their processes for strategic planning, goal-setting, self-evaluation, and course correction operate on leisurely schedules with annual or, at best, quarterly checkpoints. However, in the world of platforms, dominated by networks that interact rapidly and unpredictably, the market can change quickly and customer expectations can change even faster. Management systems need to change accordingly.”
“Platforms create value by reducing the friction and barriers that prevent producers and consumers from interacting.”
“Platforms that charge producers fees for better targeted messages, more attractive presentations, or interactions with particularly valuable users are using enhanced access as a monetization technique.”
“An application programming interface (API) is a standardized set of routines, protocols, and tools for building software applications that makes it easy for an outside programmer to write code that will connect seamlessly with the platform infrastructure.”
“Finally, as the platform matures and a self-sustaining business model has been developed, the challenge of user retention and growth requires the platform to innovate. This is the best way to maintain and enhance the business’s value proposition relative to competing platforms. Metrics then must sensitively gauge the ongoing engagement of users and the degree to which they continue to discover new ways to create value on the platform.”
“The real question, which you should never lose sight of, is: are people happy enough with the ecosystem to continue participating in it actively?”
“today’s hypercompetitive environment enabled by technology, ownership of infrastructure no longer provides a defensible advantage. Instead, flexibility provides the crucial competitive edge, competition is perpetual motion, and advantage is evanescent.”
“Rather than re-dividing a pie of more-or-less static size, platform businesses often grow the pie”
“Platform businesses seek to discourage multihoming, since it facilitates switching—when a user abandons one platform in favor of another.”
“Platform businesses can use data to improve their competitive performance in two general ways—tactically and strategically. An example of tactical data use is in the performance of A/B testing, to optimize particular tools or features of the platform. Strategic data analysis is broader in its scope. It seeks to aid ecosystem optimization by tracking who else is creating, controlling, and siphoning value both on and off the platform and studying the nature of their activities.”
“supply economies of scale are an industrial-era source of market power driven by the massive fixed costs of production in such industries as railroads, oil and gas exploration, mining, pharmaceutical development, and auto and aircraft manufacture. In industries like these, volume matters, since amortizing costs over more buyers means that margins improve with scale.”
“Think about the advertising industry, for example. In a world of pipelines, businesses’ access to consumers was limited to media and retail channels: television networks, newspapers and magazines, department stores. Very few businesses could afford to own their own direct-to-consumer channels for promoting their goods and services. By contrast, in today’s world of Internet-powered platforms, any business can engage with consumers directly, capturing data about their preferences, connecting them with external producers, and offering personalized services that provide individual customers with unique value.”
“Logistics companies such as FedEx have enjoyed significant competitive advantages because of the huge fixed costs of owning a fleet of cars, trucks, and planes, which create enormous barriers to entry for competitors. But a platform approach doesn’t require fleet ownership. Platforms that can aggregate real-time market information on the movement of physical goods and carriers can orchestrate an ecosystem of third-party delivery agents to manage an efficient logistics and delivery system while requiring minimal capital investment.”
“As we noted when discussing the regulation of platforms in chapter 11, the growing dominance of the world of platforms will create genuine challenges for society. Traditional corporate employment once provided a safety net for millions of workers and their families. As the platform revolution shreds the final vestiges of that safety net, it seems clear that government—or some other new social institution, as yet unenvisioned—will have to find a way to fill the gap.”
“With designers and engineers finding more and more ways to usefully link the machines, gadgets, and other devices people interact with daily, a vast new layer of data infrastructure is emerging that has been dubbed the Internet of things.”