Platform Revolution book gives an excellent analysis of the Platform as a new business model and its influence on other businesses and society in general.
Platforms, in general, “eat pipelines” – traditional organization of the business, where a product is designed, created, and later offered to the consumer. Platforms are not limited by the constraints of creating or owning physical goods, what allows exponential growth of the business. Platforms exist to facilitate an exchange of “value units” by providing the place for the exchange.
Value unit – The most basic item of value that may be exchanged by users on a platform—for example, a photo on Instagram, a video on YouTube, a craft product on Etsy, or a freelance project on Upwork. When a value unit is spreadable, it can be easily distributed by users both on and off the platform, thereby helping to fuel viral growth.
Comparing to pipelines, networks have “chicken and an egg” problem – attracting consumers and producers to the network. Network can generate value only when both parties joined the network in comparable proportion. Platform needs to resolve curation issue to keep productive balance. (Examples: Quora started with staff asking questions and curating conversations, what later moved to algorithm/community curation. Dating platforms trying to attract women (men will come if women are there), and carefully match profiles to assure that the most attractive women do not receive too many unsuitable requests and leave).
Networks need to manage 4 types of relationships:
- Consumer to Consumer
- Producer to Producer
- Consumer to Produces
- Producer to Consumer
Network effects can be positive and negative. Positive (typical understanding of network effect – the more participants are involved into the network, the more value for each participant). Negative network effects can be an excessive possibility of an undesirable interaction – in the example of dating networks, too many poorly matched inquiries resulting in too high rejection rate.
Platforms would not be subject to classic Porter competitive forces approach.
As buyers and suppliers become platform participants, a coopetition is a likely outcome.
However, network owners need to assure that producers do not create platform extensions limiting innovation of other producers. Platform owners also try to prevent “multihoming” to discourage simultaneous use of competing platforms.
Multihoming – The phenomenon of users engaging in similar types of interaction on more than one platform. A freelance professional who presents his credentials on two or more service marketing platforms, a music fan who downloads, stores, and shares tunes on more than one music site, and a driver who solicits rides through both Uber and Lyft all illustrate the phenomenon of multihoming. Platform businesses seek to discourage multihoming, since it facilitates switching—the abandonment by users of one platform in favor of another.
Interesting – authors suggest that in platform business marketing needs to be baked into the product. Traditional pipelines could create a product completely independently from marketing. It makes sense, but wouldn’t any product benefit from “baked-in marketing?” 😉