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

The value unit. As we’ve noted, every interaction starts with an exchange of information that has value to the participants. Thus, in virtually every case, the core interaction starts with the creation of a value unit by the producer.

The filter. The value unit is delivered to selected consumers based on filters. A filter is an algorithmic, software-based tool used by the platform to enable the exchange of appropriate value units between users.

successful platforms begin with a single core interaction that consistently generates high value for users.

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.

As you can see, a focus on the value unit is extremely important if you’re running a platform. Deciding who can create value units, how they are created and integrated into the platform, and what differentiates a high-quality unit from a low-quality one are all critical issues,

The whole purpose of a platform is to make core interactions possible—indeed,

The platform must pull the producers and consumers to the platform, which enables interactions among them. It must facilitate their interactions by providing them with tools and rules that make it easy for them to connect and that encourage valuable exchanges (while discouraging others). And it must match producers and consumers effectively by using information about each to connect them in ways they will find mutually rewarding.

policies that make usage difficult—will

licencing

And a platform that fails to match participants accurately will waste their time and energy,

Pull. Attracting consumers to platforms presents challenges that pipeline companies don’t face. Consequently, the approach to marketing such platforms is likely to seem counterintuitive, especially to business leaders who grew up in the old pipeline-dominated universe.

To begin with, platforms need to solve a chicken-or-egg problem that pipeline businesses don’t suffer from: users won’t come to a platform unless it has value, and a platform won’t have value unless users use it. Most platforms fail simply because they never overcome this problem. It’s such an important challenge that we’ll devote all of chapter 5 to analyzing it and helping you solve it.

Facebook, for example, discovered that users found the platform valuable only after they had connected to a minimum number of other users.

what are the aha! moments that keep ppl coming back

Effective feedback loops help to swell the network, increase value creation, and enhance network effects.

One kind of feedback loop is the single-user feedback loop. This involves an algorithm built into the platform infrastructure that analyzes user activity, draws conclusions about the user’s interests, preferences, and needs, and recommends new value units and connections that the user is likely to find valuable. 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.

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Facebook’s news feed is a classic multiuser feedback loop.

Status updates from producers are served to consumers, whose likes and comments serve as feedback to the producers. The constant flow of value units stimulates still more activity, making the platform increasingly valuable to all participants.

Instagram and WhatsApp pulled in tens of millions of participants in a few years mainly by piggybacking on their users’ Facebook networks.

In other cases, platforms must develop intrusive rules for curating value units and other producer-created content in order to encourage desirable interactions and discourage undesirable ones.

A successful platform creates efficiencies by matching the right users with one another and ensuring that the most relevant goods and services are exchanged. It accomplishes this by using data about producers, consumers, the value units created, and the goods and services to be exchanged. 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 part of the design process, platform companies need to develop an explicit data acquisition strategy.

Some platforms use incentives to encourage participants to provide data about themselves; others leverage game elements to gather data from users. LinkedIn famously used a progress bar to encourage users to progressively submit more information about themselves, thereby completing their personal data profiles.

As of mid-2015, Craigslist continues to rule the classifieds space despite a poor interface, an utter lack of governance, and an unsophisticated data system. Craigslist’s massive network keeps pulling users back. Thus, this platform’s enormous advantage in pull has compensated for its weaknesses in facilitate and match—at least, so far. Vimeo and YouTube coexist in the video sharing arena by focusing on different functions. YouTube employs a strong pull and deep understanding of the use of data in matching, while Vimeo differentiates itself through better hosting, bandwidth, and other tools for facilitating production and consumption.

in the long run, a successful platform must have a more modular approach.

We argue that the fundamental architecture behind all platforms is essentially the same: namely, the system is partitioned into a set of “core” components with low variety and a complementary set of “peripheral” components with high variety. The low-variety components constitute the platform. They are the long-lived elements of the system and thus implicitly or explicitly establish the system’s interfaces, [and] the rules governing interactions among the different parts.

application programming interfaces, or APIs.

facilitate access by external entities to core resources.

The reason that most platforms launch with a tightly integrated architectural design is that there is significant work involved in carefully specifying subsystem interfaces—and even in simply documenting them. 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.

Intel took the lead by investing in a new Peripheral Component Interconnect (PCI) to better connect the main subsystems, and the universal serial bus (USB) standard which fostered tremendous amounts of innovation in connected devices such as computer mice, cameras, microphones, keyboards, printers, scanners, external hard drives, and much more.

one of the key characteristics that distinguishes a platform from a traditional business is that most of the activity is controlled by users, not by the owners or managers of the platform.

Smart design is essential to building and maintaining a successful platform. But sometimes the best design is anti-design, which makes space for the accidental, the spontaneous, and even the bizarre.

The design of a platform should begin with its core interaction—one kind of interaction that is at the heart of the platform’s value-creation mission.

download. preferences? remove layes? hidden geometry?

Three key elements define the core interaction: the participants, the value unit, and the filter.

a platform must perform three crucial functions: pull, facilitate, and match. All three are essential, and each has its special challenges.

The Internet and its associated technologies give today’s platform businesses a truly breathtaking ability to transform industries, often in unpredictable ways.

Combining the platform model with another technology that is rapidly moving from the drawing board to the showroom—the self-driving car—will improve Uber’s already stellar economic model and could lead to a series of cascading impacts that extend beyond the taxi industry. One futurist foresees a time when millions of people will eschew car ownership altogether, instead relying on an instantly deployable fleet of driverless Uber vehicles to take them wherever they want to go at a cost of around fifty cents per mile. Uber cofounder and CEO Travis Kalanick comments, “We want to get to the point that using Uber is cheaper than owning a car.” The ultimate promise: “Transportation that’s as reliable as running water.”3

And if all that is not enough, consider this observation by Kalanick: “If we can get you a car in five minutes, we can get you anything in five minutes.”5 Anything at all? One wonders what limits can be set on Uber’s disruptive potential. Kalanick seems not to acknowledge any.

Business revolutions such as these embodied Andreessen’s vision of “software eating the world.” Today, having attained the status of a cliché, his vision needs an update: “Platforms are eating the world.” We’ve entered stage two of the disruption saga, in which platforms eat pipelines.

In the world of platforms, the Internet no longer acts merely as a distribution channel (a pipeline). It also acts as a creation infrastructure and a coordination mechanism.

A platform’s ability to scale rapidly is further enhanced by network effects. When positive network effects kick in, higher production leads to higher consumption, and vice versa. More freelancers participating on Upwork make it more attractive to companies looking to hire, which in turn attracts more freelancers; a wider array of merchants on Etsy attracts more customers, who in turn attract more merchants.

We are hopping into strangers’ cars (Lyft, Sidecar, Uber), welcoming them into our spare rooms (Airbnb), dropping our dogs off at their houses (DogVacay, Rover), and eating food in their dining rooms (Feastly). We are letting them rent our cars (RelayRides, Getaround), our boats (Boatbound), our houses (HomeAway), and our power tools (Zilok). We are entrusting complete strangers with our most valuable possessions, our personal experiences—and our very lives. In the process, we are entering a new era of Internet-enabled intimacy.9

However, over time, as the curation mechanism starts to work, the platform improves its ability to match consumers with relevant and high-quality content, goods, and services from producers. Strong curation encourages desirable behavior while discouraging and eventually weeding out undesirable behavior.

Once platforms start scaling, they need to ensure that the curation mechanism doesn’t break down. Platforms that successfully scale their curation efforts gather better data on their users and improve their matching algorithms over time. They also ensure that manual curation is gradually phased out in favor of automated curation mechanisms based on socially driven feedback loops.

We describe these three forms of platform-driven disruptions as de-linking assets from value, re-intermediation, and market aggregation.

Which processes that we currently manage in-house can be delegated to outside partners, whether suppliers or customers? • How can we empower outside partners to create products and services that will generate new forms of value for our existing customers? • Are there ways we can network with current competitors to produce valuable new services for customers? • How can the value of the goods and services we currently provide be enhanced through new data streams, interpersonal connections, and curation tools?

The ability to sync contents and data over iTunes and iCloud makes the ownership of multiple Apple products particularly valuable,

Data acts as an integration glue to make all these products and services perform in concert.

This leads to a new form of growth. When multiple products and services connect and interact using data, pipelines can start behaving like platforms, producing new forms of value and encouraging users to engage in more interactions.

Nike is building an ecosystem of users using the data it captures about them. Over time, it can leverage this data to create more relevant experiences for its users and connect them with one another to enable valuable interactions.

Can any product or service become the basis of a platform business? Here’s the test: if the firm can use either information or community to add value to what it sells, then there is potential for creating a viable platform.