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

Sometimes, a less-than-optimal monetization strategy can be made workable through ingenuity. During its early years, Alibaba, the e-commerce platform company that has been called China’s eBay and Amazon rolled into one, 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.