More on this book
Community
Kindle Notes & Highlights
Read between
September 14 - October 1, 2017
Let’s start with a basic definition. A platform is a business based on enabling value-creating interactions between external producers and consumers. The platform provides an open, participative infrastructure for these interactions and sets governance conditions for them. 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.
In the process, they exchange, consume, and sometimes cocreate something of value.
Platforms beat pipelines because platforms scale more efficiently by eliminating gatekeepers. Until recently, most businesses were built around products, which were designed and made at one end of the pipeline and delivered to consumers at the other end.* Today, plenty of pipeline-based businesses still exist—but when platform-based businesses enter the same marketplace, the platforms virtually always win.
Strategy has moved from controlling unique internal resources and erecting competitive barriers to orchestrating external resources and engaging vibrant communities.
platform firms emphasize ecosystem governance more than product optimization, and persuasion of outside partners more than control of internal employees.
(Working in reverse, it explains the convex collapse of Blackberry in the 2000s: as users began to flee the Blackberry platform, the loss of network nodes caused the value of the network itself to plummet, encouraging still more people to abandon Blackberry for other devices.)
This concept is the equivalent, for a platform business, of a long-established computer networking idea known as the end-to-end principle. Originally formulated in 1981 by J. H. Saltzer, D. P. Reed, and D. D. Clark, the end-to-end principle states that, in a general-purpose network, application-specific functions ought to reside in the end hosts of a network rather than in intermediary nodes.6 In other words, activities that are not central to the workings of the network but valuable only to particular users should be located at the edges of the network rather than at its heart.
fibery
Only the highest-volume, highest-value features that cut across apps should become part of the core platform.
There are two reasons for this rule. First, when specific new features are incorporated into the core platform rather than attached to the periphery, applications that do not use those features will appear slow and inefficient. By contrast, when application-specific features are run by the app itself rather than by the core platform, the user experience will be much cleaner.
When firms are pursuing narrow market windows with limited engineering resources, they can easily be tempted to skip the hard work of decomposing systems into clean modules and instead proceed as quickly as possible to a viable solution. Over time, however, this approach makes it much more difficult to mobilize an external ecosystem of developers who can build on top of the core platform and extend its offerings into new markets.18 Thus, a firm that has an integral architecture will likely have to invest in remaking its core technology.
Platform designers should always leave room for serendipitous discoveries, as users often lead the way to where the design should evolve. Close monitoring of user behavior on the platform is almost certain to reveal unexpected patterns—some of which may suggest fruitful new areas for value creation. The best platforms allow room for user quirks, and they are open enough to gradually incorporate such quirks into the design of the platform.
if you’re an entrepreneur or a would-be entrepreneur, or if you help to run a small or midsized company that has its eye on a platform business opportunity, don’t be intimidated by the prospect of a giant competitor encroaching on your space. The rules of the growth game have changed, and if you understand and master the new rules, you have as good a chance of surviving and thriving as anyone.
When Google launched its Android smartphone operating system to compete with Apple’s, it seeded the market by offering $5 million in prizes to developers who came up with the best apps in each of ten categories, including gaming, productivity, social networking, and entertainment. Winners not only got the prize money but became market leaders in their categories, attracting large numbers of customers as a result.
Start by targeting a tiny market that comprises members who are already engaging in interactions. This enables the platform to provide the effective matchmaking characteristic of a large market even in the earliest stages of growth.
When users become senders and spread value units, they aren’t talking about your platform—they are spreading their own creations, and indirectly generating awareness of and interest in your platform.
But despite the backlash, the strategy worked. The number of meetups promoted on the site fell drastically, but their quality, and therefore the quality of the interactions generated, improved significantly. As
Chris DeWolfe, cofounder of Myspace, recalled the company’s flawed thinking in a 2011 interview: “We tried to create every feature in the world and said, ‘O.K., we can do it, why should we [open up to] let a third party do it?’ We should have picked 5 to 10 key features that we totally focused on and let other people innovate on everything else.”
Other platform businesses have reaped similar benefits from their APIs. Cloud computing and computer services platform Salesforce generates 50 percent of its revenues through APIs, while
Second, if particular functionality is reinvented by a number of extension developers and gains widespread acceptance by platform users, the manager of the platform should acquire the functionality and make it available through an open API. Widely useful functions such as video and audio playback, photo editing, text cutting-and-pasting, and voice commands have often been invented by extension developers. Recognizing their broad applicability, platform managers have moved to standardize these functions and incorporate them into APIs that all developers can use. This accelerates innovation and
...more
The underlying principle: Give fast, open feedback when applying laws that define good behavior, but give slow, opaque feedback when applying laws that punish bad behavior.
In fact, on many platforms, money is far less important than the more intangible, subjective form of value known as social currency.
Second, SAP has made a policy of partnering with developers financially or buying them out at a fair price. This assures developers that they will be fairly compensated for their work, reduces partner risk, and encourages outside investment in the SAP platform.
Market failures are generally caused by information asymmetry, externalities, monopoly power, and risk. Good governance helps prevent and mitigate market failures.
high ranking on TopCoder, a platform that hosts programming contests, will earn a developer a job at Facebook or Google just as fast as a computer science degree from Carnegie Mellon, Caltech, or MIT.
