Platform Revolution

“The platform’s overarching purpose: to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants.”

Key takeaway

The platforms purpose is to match two sides who in turn create value for each

“By providing default insurance contracts and reputation systems to encourage good behavior, platforms dramatically lower transaction costs and create new markets as new producers start producing for the first time.”

Key takeaway

By digitizing trust you not only increase the supply side but can also move the focus to the user experience

“Metcalfe’s law is a useful way of encapsulating how network effects create value for those who participate in a network as well as for those who own or manage the network. Robert Metcalfe, co-inventor of Ethernet and founder of 3Com, pointed out that the value of a telephone network grows nonlinearly as the number of subscribers to the network increases, making more connections among subscribers possible.”

Key takeaway

Metcalfe’s Law talks about positive network effects where the value grows exponentially as more people join the network

“Virality can attract people to a network — for example, when fans of an irresistibly cute, funny, or startling video persuade their friends to visit YouTube. But network effects keep them there. Virality is about attracting people who are off the platform and enticing them to join it, while network effects are about increasing value among people on-platform.”

Key takeaway

Virality gets people to the platform while network effects keep them on the platform

“When the quality of a platform is effectively curated, users find it easy to make matches that produce significant value for them; when curation is nonexistent or poorly handled, users find it difficult to identify potentially valuable matches amid a flood of worthless matches.”

Key takeaway

Curation should be used to better match people to the value on the platform

“As we’ve seen, in the industrial era, giant companies relied on supply-side economies of scale. By contrast, most Internet era giants rely on demand-side economies of scale.”

Key takeaway

Internet giants are valuable because of the communities that participate on their platform, giving them leverage over suppliers

“Thus, platforms are “information factories” that have no control over inventory. They create the “factory floor” (that is, they build the platform infrastructure within which value units are produced). 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”

Key takeaway

Platforms can do their best to influence exchanges in certain ways but when it’s all said and done they don’t have control like pipeline companies did

“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.”

Key takeaway

If you can get someone to use the platform more you theoretically can learn more about them and then create an even better experience for them

“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.”

Key takeaway

Virtuous cycles applied to machine learning

“As self-serve systems, platforms grow and conquer markets when they minimize the barriers to usage for their users. In particular, every time a platform removes a hurdle that makes the participation of producers more difficult, value creation is reconfigured and new sources of supply are opened up.”

Key takeaway

Self serve model allows for much more scale

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

Key takeaway

AGGREGATION THEORY!

“The answer: you de-link ownership of the physical asset from the value it creates. This allows the use of the asset to be independently traded and applied to its best use—that is, the use that creates the greatest economic value—rather than being restricted to uses specific to the owner. As a result, efficiency and value rise dramatically.”

Key takeaway

The rise of services, APIs and the sharing economy is basically just being more efficient

“The reality has proven to be somewhat different. Across numerous industries, platforms have repeatedly re-intermediated markets, introducing new kinds of middlemen rather than simply eliminating layers of market participants. Typically re-intermediation involves replacing non-scalable and inefficient agent intermediaries with online, often automated tools and systems that offer valuable new goods and services to participants on both sides of the platform.”

Key takeaway

Law of conservation of (insert term here). It never goes away but it moves within a value chain

“In another form of re-intermediation, platforms create a new layer of reputational information by leveraging social feedback about producers.”

Key takeaway

Platforms utilize the digitization and commoditization of trust

“Most big companies have evolved metabolisms that reflect this relatively slow pace of change: their processes for strategic planning, goal-setting, self-evaluation, and course correction operate on leisurely schedules with annual or, at best, quarterly checkpoints. However, in the world of platforms, dominated by networks that interact rapidly and unpredictably, the market can change quickly and customer expectations can change even faster. Management systems need to change accordingly.”

Key takeaway

You need to be more agile with platforms

“Platforms create value by reducing the friction and barriers that prevent producers and consumers from interacting.”

Key takeaway

platform value often comes from reducing friction between two sides

“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.”

Key takeaway

Pro+ ALERT!

“An application programming interface (API) is a standardized set of routines, protocols, and tools for building software applications that makes it easy for an outside programmer to write code that will connect seamlessly with the platform infrastructure.”

Key takeaway

APIs are at the heart of platform companies because they allow others to build on top of it

“Finally, as the platform matures and a self-sustaining business model has been developed, the challenge of user retention and growth requires the platform to innovate. This is the best way to maintain and enhance the business’s value proposition relative to competing platforms. Metrics then must sensitively gauge the ongoing engagement of users and the degree to which they continue to discover new ways to create value on the platform.”

Key takeaway

i.e. visual match and view in my room

“The real question, which you should never lose sight of, is: are people happy enough with the ecosystem to continue participating in it actively?”

Key takeaway

The middle is disappearing, direct and brand are converging as you need to tell your brand story but then allow them to purchase easily

“today’s hypercompetitive environment enabled by technology, ownership of infrastructure no longer provides a defensible advantage. Instead, flexibility provides the crucial competitive edge, competition is perpetual motion, and advantage is evanescent.”

Key takeaway

being nimble and adaptable is often the best advantage to have today

“Rather than re-dividing a pie of more-or-less static size, platform businesses often grow the pie”

Key takeaway

Platforms are valued so much because they are aggregating entire industries at a scale never seen before because of mobile

“Platform businesses seek to discourage multihoming, since it facilitates switching—when a user abandons one platform in favor of another.”

Key takeaway

Often times the experience is the best way to discourage multi-homing since it is so easy to switch services nowadays

“Platform businesses can use data to improve their competitive performance in two general ways—tactically and strategically. An example of tactical data use is in the performance of A/B testing, to optimize particular tools or features of the platform. Strategic data analysis is broader in its scope. It seeks to aid ecosystem optimization by tracking who else is creating, controlling, and siphoning value both on and off the platform and studying the nature of their activities.”

Key takeaway

Data can be used for execution (A/B testing) or for strategy (see where patterns are forming)

“supply economies of scale are an industrial-era source of market power driven by the massive fixed costs of production in such industries as railroads, oil and gas exploration, mining, pharmaceutical development, and auto and aircraft manufacture. In industries like these, volume matters, since amortizing costs over more buyers means that margins improve with scale.”

Key takeaway

But the internet creates zero marginal costs so you can now focus on demand economies of scale

“Think about the advertising industry, for example. In a world of pipelines, businesses’ access to consumers was limited to media and retail channels: television networks, newspapers and magazines, department stores. Very few businesses could afford to own their own direct-to-consumer channels for promoting their goods and services. By contrast, in today’s world of Internet-powered platforms, any business can engage with consumers directly, capturing data about their preferences, connecting them with external producers, and offering personalized services that provide individual customers with unique value.”

Key takeaway

Internet flips the model on its head. Cuts out the middlemen

“Logistics companies such as FedEx have enjoyed significant competitive advantages because of the huge fixed costs of owning a fleet of cars, trucks, and planes, which create enormous barriers to entry for competitors. But a platform approach doesn’t require fleet ownership. Platforms that can aggregate real-time market information on the movement of physical goods and carriers can orchestrate an ecosystem of third-party delivery agents to manage an efficient logistics and delivery system while requiring minimal capital investment.”

Key takeaway

Uber can aggregate users then leverage them to move up the ladder

“As we noted when discussing the regulation of platforms in chapter 11, the growing dominance of the world of platforms will create genuine challenges for society. Traditional corporate employment once provided a safety net for millions of workers and their families. As the platform revolution shreds the final vestiges of that safety net, it seems clear that government—or some other new social institution, as yet unenvisioned—will have to find a way to fill the gap.”

Key takeaway

We need new solutions to the inevitable problems platforms will create

“With designers and engineers finding more and more ways to usefully link the machines, gadgets, and other devices people interact with daily, a vast new layer of data infrastructure is emerging that has been dubbed the Internet of things.”

Key takeaway

Data scientists will only be in higher demand the more everything turns into a computer through IoT