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

by Geoffrey G. Parker

pull-based process based on encouraging users to spread the word about the platform to other potential users.

host, germs, a medium, and a recipient.

the sender, the value unit, the external network, and the recipient. Let’s consider the viral growth

It encouraged them to share their photos on external networks like Facebook, converting a single-user activity into a social, multi-user activity.

OpenTable similarly encourages diners (hosts) to share their dinner reservations (value units)

Word of mouth happens when users like your platform so much, they can’t stop talking about it.

they aren’t talking about your platform—they are spreading their own creations, and indirectly generating awareness of and interest in your platform.

units to get social ...

create natural incentives for users to share.

Instagram, Twitter, Zynga, Slide, and other platforms have achieved viral growth by leveraging Facebook as an underlying network. Airbnb spread on Craigslist; OpenTable spreads on email.

LinkedIn chose instead to engineer a more technologically challenging integration with Microsoft Outlook, the software that housed most of the business connections that LinkedIn wanted to access. The integration was time- and cost-intensive, but it helped LinkedIn establish itself as the premier social network for business.

moguls

gazed

These founders shouldn’t charge either side to be listed on their platform. Doing so would put terrible friction on entry into the ecosystem, discouraging many potential participants from becoming users.

That’s bad. It reduces potential interaction volume, not to mention realized interactions.

They can charge users for the value they accrue from the ecosystem, but the charge should be levied on deal completion, not at the time of listing.

Not only would this fee create no friction on a deal, but it would reflect the value of the feedback provided; it would be recurring revenue rather than one-time revenue;

Higher value creation by producers on the platform attracts more consumers, who, in turn, attract more producers and further value creation.

Many online service platforms, including Dropbox and MailChimp, work this way. Both the razors-and-blades model and the freemium model monetize the same user base, or portions thereof.

that the value it gives away to one side can be used to capture value on the other side.

Well-run platforms build and maintain curation systems that connect the right consumers with the right producers quickly and easily.

hogtie

The problem was that consumers who visited Zvents expected to find a comprehensive listing of local events. If only a few of the available options were included, the interest of users would quickly evaporate.

Network effects as measured by numbers of visitors alone don’t necessarily reflect the monetary value of a platform. The interactions facilitated must generate a significant amount of excess value that can be captured by the platform without producing a negative impact on network effects. When that’s not the case, monetization may not be possible.

In some cases, the ability to monetize a platform may actually increase dramatically when the number of users declines—reflecting the power of negative network effects to impact the value of a platform.

The number of people who actually showed up for events was different from the number who signed up, and Meetup had no way of counting heads to determine an appropriate fee.

tested advertising, but failed to attract significant numbers of advertisers. It tried offering a premium product called Meetup Plus, but the additional value provided generated little interest.

This was the growth of negative network effects. As the platform grew, with low barriers to planning a meetup, many meetups were being started without a clear purpose or adequate planning.

backlash

The number of meetups promoted on the site fell drastically, but their quality, and therefore the quality of the interactions generated, improved significantly.

Because buyers and sellers are charged only when an actual transaction occurs,

Platform managers may need to experiment with various levels of fee to find the rate that captures a fair percentage of the value created without driving users away.

create tools and services that benefit both parties by removing friction, mitigate risk, and otherwise facilitate interactions.

may need to move to the enhanced access monetization model, which we’ll describe in a later section of this chapter.

This refers to the provision of tools that enable a producer to stand out above the crowd and be noticed on a two-sided platform, despite an abundance of rival producers and the resulting intense competition to attract consumer attention. 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.

When this happens, consumers may be willing to pay for access to guaranteed quality—in other words, for enhanced curation.

transition from a transaction-fee-only model to a model that provides enhanced value upon payment of a subscription charge.

Charging all users would, in most cases, discourage participation, thereby reducing or destroying network effects.

was unable to charge transaction fees simply because its primitive software had trouble tracking the flow of online deals. CEO Jack Ma was forced to charge membership fees instead—an option he would have preferred to avoid because of the entry friction it creates. Alibaba managed to overcome this problem by offering sizeable commissions to salespeople who convinced others to sign on to the platform. When word got around that some Alibaba sales agents were earning commissions in excess of a million Chinese yuan, equivalent to well over $100,000, the drive to enlist members shifted into high gear despite the friction caused by the entry fees. To this day, Alibaba charges no transaction fees, having managed to monetize the platform through advertising—as if a company that facilitated transactions, like Amazon and eBay, were to generate its profits by selling ads like Google.

If possible, avoid charging for value that users previously received for free.

Instead, when transitioning from free to fee, strive to create new, additional value that justifies the charge.

Consider potential monetization strategies when making your initial platform design choices.

slanting

The decision affects usage, developer participation, monetization, and regulation.

basic types of participants use the platform to connect with each other and to engage in exchanges—first, an exchange of information; then, if desired, an exchange of goods or services in return for some form of currency.

are both platform managers and platform sponsors.

In general terms, the platform manager organizes and controls producer/consumer interactions, while the platform sponsor controls the overall architecture of the platform, the intellectual property that underlies the platform (such as the software code that controls its operations), and the allocation of other rights.

cumbersome.

handful

cash flow, inventory turns, and operating income.