A sneak peek into my next book (and how to get pre-launch copies)
Managing platforms involve much more than just getting the orchestration of supply and demand right. It involves much more than just getting to critical mass. There’s a whole range of issues that managers of successful platforms must constantly think about.
Last year, I wrote a book ‘Platform Scale’ which focused on the first part: How to build a business model that can orchestrate supply and demand and get to network effects. Much of my blog has also focused on answering some of those questions.
However, over the past two years, I’ve focused my research and advisory on a much broader and more comprehensive range of platform management issues, which I will increasingly start writing more about in the coming days. This article is a first step towards laying out a set of these issues that platform builders should constantly seek to address.
My next book, ‘Platform Revolution’, lays out a comprehensive analysis of all these issues involved in running and managing platforms. Co-authored with my research partners Marshall Van Alstyne and Geoff Parker at MIT, it lays out a detailed framework for understanding all factors involved in platform strategy.
I’ve written this article to share a summary of much of our work in this field, packaged as a checklist for startups as well as incumbents building platforms. These are issues explored in detail in ‘Platform Revolution’, and the checklist below is composed of 10 questions that you should constantly seek to answer while building platforms and marketplaces.
1. Building network effects:
What factors create network effects on the platform?
This is, by far, the most important question that platform builders should look to answer. The answers are much more nuanced than they appear to be. Platform growth is much more about the careful design of value proposition and structuring feedback loops than it is about growth hacking.
Another key issue is the management of negative network effects, where users coming on board may reduce value for certain other users on the platform. Identifying and mitigating causes of negative network effects should be an equally important part of any platform’s growth strategy.
2. Openness, access, and immigration
Who should get access and who should not? Platforms work like countries;
they need an immigration policy. More users aren’t necessarily always good. As mentioned above, some users can kickstart negative network effects. The platform needs to ensure that it has clear policies on who can come in and what they can do. This should also be baked into the architecture (and the algorithms) of the platform.
3. Governance issues
How do you govern user behavior and ensure fair distribution of incentives to all parties?
Stretching the platform-as-country metaphor further, platforms need to be governed. They need to be governed much like countries and this is where extremely tech-focused entrepreneurs may underestimate the importance of community management and education. Airbnb and Uber, for example, have vastly different approaches to community management. One nurtures the producers, the other treats them as substitutable commodities.
Governance extends beyond community management and even moves into the realms of behavior design where certain platforms may actively manipulate user behavior to maximize network effects. Such design decisions need to be taken carefully to balance individual outcomes with network ouctome.
Much of platform governance will benefit from the many improvements in machine learning that have been achieved over the last 3 years. The best governed platforms are the ones that learn fastest from their data. The more a platform learns about its ecosystem, the more resilient it becomes.
4. Policy and regulation
What regulatory aspects must you factor in while governing distributed producer bases and their data?
Policy and regulation can be tricky with platform business models. Labor and production paradigms are different. The lines between employee and ecosystem producer are often blurred. On-demand platforms are facing the heat of such regulatory issues currently. Creation of new producers can impact adjacent markets the way Airbnb has impacted the regular rental market in many US cities. Platforms also introduce new taxation issues when they start centralizing commerce and taking commerce away from local players. Finally, governing data businesses involves its own set of complications. Data residency is a contentious issue. Companies in the US arguably know more about people in India than the Indian government because of the data that several US-based platforms have about users.
5. Managing enemies
How can you compete and emerge the winner?
Like all firms, platforms also face competition. But here’s the interesting thing: Just like growth, competition also works exponentially on platforms. When a competitor takes users away from a platform, the platform’s ability to compete decreases because those users were creating value on the platform. Hence, the platform becomes even more susceptible to future competition. As a result, market leading platforms may fall rapidly if a competitor starts siphoning users away. Competitive strategy should always focus on the preservation of your own network effects and on attacking the factors that lead to network effects for competitors.
6. Managing friends
When can your ecosystem be a threat and how do you monitor for such occurrences?
The uniqueness of the platform business model brings with itself the added challenge of managing friends: partners in your ecosystem who may be helping your cause today but may turn against you tomorrow. Samsung helps Google but remains an ongoing threat and did try to fork Android and create its own little ecosystem.
Managing friends – partners in your ecosystem – can often be more challenging than managing enemies. Managing friends follows from good governance and should ensure that the platform constantly monitors activity in its ecosystem. The more the platform learns about how its ecosystem behaves (from activity data), the more resilient it becomes.
Most importantly, how do you monetize in a manner that strengthens network effects?
Platform monetization is probably the most mind-bending of the changes that come with the shift from pipes to platforms. Monetizing pipes was simple and straightforward. “How much should we charge?” – was the key question on pipes. Platforms need to struggle with the “how much?”, “who?” and “for what?” questions. Knowing who to charge and for what value must be determined based on whether these choices strengthen or weaken network effects. Very few platforms, with extremely strong network effects, – Facebook, for example – can afford to employ monetization strategies that have a negative impact on network effects.
‘Platform Revolution’ takes a long hard look at the various nuances involved in answering all these questions, and lays out a comprehensive management framework for all platforms – new or mature, run by startups or incumbents.
Additionally, there are three higher-level questions that are equally important for every platform builder to consider, that are explored in detail in ‘Platform Revolution’:
8. Platforms: Good idea or bad idea?
When is a platform business model a good idea? More importantly, is there a way to predict when it might be a bad idea?
Not all platform ideas are good. Many platforms may fail at execution, but some platforms are a bad idea to start with. Much of it goes down to insufficient incentives for users to participate. Platforms that seek to internalize an interaction which is already more efficient externally are bound to fail unless they can identify new ways to make the interaction more efficient.
9. Startups vs. incumbents
Are there industries where startups have a natural advantage with the platform business model? Are there other industries where the incumbents will have a natural advantage?
Are there industries where startups are better positioned to win and others where incumbents may have an advantage? Mining, for example, is an industry where incumbents are rapidly transforming themselves before startups can wrest advantage away. Likewise, an equally important consideration is to evaluate opportunities for startup platforms to collaborate with incumbent pipes in an industry where new platforms are changing dynamics rapidly.
10. What’s next?
Which industries are ripe for platforms to come in and change the rules of the game?
Question 9 leads us to the final question. When platforms transform an industry, timing plays an important role. Zipcar was launched many years before Uber but failed to have a significant impact on transportation. Understanding the factors that govern timing helps platform builders determine when they should launch.
‘Platform Revolution’ covers a lot of ground on the issues laid out above. It’s all set to launch on March 28th. Over the next few weeks, I will be sharing a lot of material on the blog that addresses many of the issues laid out above.
My publisher, Norton, is giving out 20 early copies of the book for anyone interested in covering or reviewing the book. If you’re interested in covering or reviewing the book in a media outlet or would like to host one of the three authors on your podcast, please visit the link below and leave your email and my publisher will get back to you with an early pre-launch copy of the book.
It has always been my express desire to distribute my work on platforms freely so that it reaches and impacts a wider audience. While my work on the blog is freely available, I had also distributed my previous book Platform Scale through a limited period free distribution. However, since Platform Revolution is coming out through the traditional publishing model, I will not have the rights to distribute the book freely. However, to provide maximum value to readers, we will be offering bonus material to readers who pre-order the book before the actual launch date of the book. We will also be running a giveaway on Goodreads soon. I will be sharing details on these shortly. Stay tuned!
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