Platform Revolution is a book about how platforms have become the dominant market force in today’s world, and how they are changing the way we do business. It also includes tips on founding and managing platforms.
Key Idea #1 – Platform Revolution
It seems everything successful is a “platform” now: Airbnb, Facebook, Twitter, Uber etc. These upstarts have conquered whole industries and revolutionized the way business is done. Platforms don’t produce anything, they simply match potential users with each other to make financial or social transactions that create value. Platforms are transformative and capable of producing impressive results.
As you’re here to get the low down, here’s everything you need to know:
● Platforms don’t own the resources that create value meaning they can grow much faster than a traditional business.
● Platforms scale better as growth isn’t tied to resources.
● Platforms bring new supplies to market because users are always coming up with new ideas from a gigantic pool of ideas, something a traditional business cannot compete with.
Key Idea #2 – Platform Power
Supply would typically determine scale; The more things Walmart had to sell, the greater the revenue and so the profit. However, when it comes to scaling, it is now a result of demand. However now, the size of the network has become the determining factor of scale.
Here’s everything you need to know:
● Networks grow exponentially. As people join, the potential number of connections between people skyrockets.
● Platforms typically enjoy two-sided network effects. This means the presence of buyers attracts sellers, and the presence of sellers attracts buyers.
● Platform businesses are the most efficient value creators as the focus comes from outside the company allowing for a greater diversity of thought. Company employees turn into the public. Innovation no longer happens in-house; instead, the users drive innovation.
Key Idea #3 – Designing a successful platform
Design is difficult. Imitating other companies doesn’t always work as platform business tends to be unique and because of this, the focus should be on the core interaction. Three of the most important functions of a platform are pulled, facilitate and match.
● Pull attracts users to the platform.
● To facilitate transactions the platform provides tools and rules; this is the scaffolding of interactions.
● And platforms must match users to each other. The right consumers should find the right producers.
Remember: Always leave room for organic and spontaneous change. Look at how users are behaving. Are they putting the system to unexpected uses? This can suggest new directions for the platform to take.
Key Idea #4 – How platforms conquer and transform traditional industries
Nowadays we have digital technology and the “traditional” sense of the platform has changed. We can communicate all over the planet and instantly. The internet speeds up existing platforms like the New York Stock Exchange and thrusts it into the present.
here’s everything you need to know, the three different kinds of platform distribution:
● Separating assets from value. Ownership of assets like equipment should be separated from value. For example, a hospital buying an MRI machine means everyone can use it without individuals having to make the very expensive purchase and buy their own.
● Re-intermediation. They are middlemen. For example, executives in the music industry used to rely primarily on talent agents. Now they are just as likely to look through platforms like Youtube, Soundcloud, Spotify etc to find new talent.
● Market aggregation. For example, Amazon has created a single platform for small and medium-sized businesses to sell their products.
Key Idea #5 – Eight ways to launch a successful platform
What came first, the chicken or the egg? This age-old question impacts every platform at startup. How do you attract both sides to a platform when no one is on it? Here are eight proven strategies that platforms that’ll help you out:
1. Follow the rabbit. Set up a non-platform demonstration so people will know how cool your platform is.
2. Recruit users from other platforms.
3. Create value that will appeal to at least some users. When these folks get on the platform, they’ll draw others in other roles. For example, producers draw consumers.
4. Identify key users. Bribe them; treat them well.
5. Create a business around products or services that benefit a single set of users. Later, convert the business into a platform business by attracting the second set of users who want to engage in interactions with the first group.
6. Design your platform to attract producers; their customers will become users.
7. Use traditional push marketing to create a big splash that draws attention to the platform — for example, the way that Twitter was introduced at SXSW.
8. Target a tiny, existing market. Effective matches can be made even at the very beginning.
Key Idea #6 – Capturing the value created by network effects
Charging users will discourage them from joining your platform, but a business has to make money. It’s important not to alienate the users so here are some useful techniques that can help.
There are several suggested monetization methods:
● Charge a transaction fee. People aren’t discouraged from joining the site, to begin with.
● Charge for access. For example, on employment websites, recruiters usually pay to list jobs.
● Charge for enhanced access. E.g LinkedIn is free to users, but they can pay a fee to see complete listings of the people who have looked them up
● Charge for better curation. Offer people higher quality. People are more than happy to pay a premium to purchase the things they want if they can easily get exactly the thing they want.
Key Idea #7 – Openness
To be open means to have no restrictions on development, commercialization or use. In another definition, it can mean that any restrictions — like rules and fees — are reasonable and nondiscriminatory. Wikipedia is a good example of this as it’s an open-source reference platform that allows the public to contribute and edit content. Here’s what to focus on:
● Openness encourages innovation, but the more openness there is the harder it is to monetize and control a platform.
● Bad decisions in regards to the level of openness can doom a platform. Before Facebook was the dominant social network, Myspace was the main platform however, Myspace was buggy and of poor quality. They didn’t allow outside developers to work on the website’s features.
● Facebook opened their site to apps created by outside developers and enthusiastic partners created a huge amount of interesting apps that made the users happy. Facebook took off and Myspace tanked as a result.
● Control the level of openness for users. Openness is important however platforms can descend into cesspools of trolls and unwanted explicit content. Some controls are required.
Key Idea #8 – Governance: Policies to increase value and enhance growth
Governance is all about creating good rules. A platform is composed of a community of users. Like all healthy communities, there need to be rules protecting the members of the community. The wrong kind of rules, however, can alienate users. To avoid this, platforms should observe three fundamental laws of good governance. First, rules should always create value for the customer. Second, those writing the rules shouldn’t use their power to change the rules in their favour. And finally, platforms should never take more than a fair share of the wealth.
Tools for governance:
● Laws or platform rules: this helps with the desired behaviour in the community.
● Architecture or programming code: this can be used to reinforce desirable behavior and discourage unwanted behavior.
● Markets: Including not just financial monies but also social currency. Orderly markets reduce risk for the participants.
Key Idea #9 – Metrics: Why they matter
The way to understand what’s going on with a system is through metrics. By measuring the right things, needs, performance and other aspects of the system can be assessed.
Platforms must track and manage a different set of metrics than the old pipelines did:
● Matching quality: This measures how well the search algorithms match users to make transactions.
● Liquidity: This means that there are some producers and consumers as well as a high percentage of interactions. You can track liquidity by measuring the percentage of listings that lead to interactions.
● Trust: Trust is essential and potentially overlooked. No one will risk money to buy something if they can’t trust the site to provide them with high-quality information about the product and the transaction. Trust is built through careful curation.
Key Idea #10 – Strategy: How platforms change competition
The world of platforms has three levels of competition. Platforms compete with each other, they compete with their partners and partners on the platform compete with other partners. But competition isn’t the whole story.
Things to remember:
● Competition for platforms is less important than cooperation and collaboration. Partners may represent potential competition, but they are more likely to add value to the platform than anything else. In such an environment, controlling relationships is more important than controlling resources.
● It’s better for the platform if it can keep all those lucrative transactions on the platform. One way to accomplish this is to limit platform access. Platforms should try to get exclusive access to essential services to stop users from leaving for other platforms.
● Promote innovation and capture its value. Keep a close watch on the apps that are developed for the platform.
● Analytics can help to increase value on the platform and reinforce network effects.
Key Idea #11 – Policy: How platforms should (and should not) be regulated
Regulations should be reevaluated everywhere because the whole game has been changed by platform businesses. Often enough, new economy businesses have just ignored existing regulations. This has brought a host of ethical problems.
Regulation is something out of your control but it’s important to understand and recognise so here are the key points:
1. Regulation provides important services to society and it probably would be bad to eliminate it. For example, regulating food standards makes what we eat safe and I can’t think of many people who’d want zero food standards regulation etc.
2. Some companies engage in predatory pricing to price out their competitors and gain a monopoly on the market. Price regulation stops this and allows all platforms to engage relatively equally.
3. Data protection regulation protects customers and e.g. EU privacy laws. 4. Taxes is a sore subject and too convoluted to get into but loopholes exist giving larger platforms like Amazon an advantage.
5. Regulation will always change our time and platforms will have to adapt.
Key Idea #12 – Tomorrow: the future of the platform revolution
Here’s a list of some likely scenarios for how platforms are likely to affect different sectors of the economy:
● Education: People can learn online instead of attending a physical classroom.
● Healthcare: There is currently lots of fragmentation and friction. Inefficiencies can be reduced. But there are huge barriers to reforming this industry, however.
● Energy: Smart grids gather and make use of data on energy usage patterns. The industry is likely to change massively over time.
● Finance: The ultimate platform business. Platforms have helped financial companies find new sources of value. Financial platforms tend to be conservative as regards to change.
● Logistics and transportation: Platforms are the obvious tool for coordinating the movement of resources.
● Government: Many world governments use platforms e.g. for socialised health systems, license registrations etc.