Book Summary — Platform Revolution

Source: www.amazon.com

🚀 The Book in 3 Sentences

1. A book about platform business in the internet era
2. Step by step guide to being a platform manager
3. Several case studies of platform business are mentioned

🎨 Impressions

This book changed my business mindset from the old business model also known as pipeline to platform business model. The theory stated in this book is new to me and it excited me until the end.

🙍‍♂️ Who Should Read It?

Everyone could read this book since it provides an overview of platform business that is around us such as Facebook, Agoda. Highly recommend it for start-up entrepreneurs.

☘️ How the Book Changed Me

• I was enlightened by the power of platform business
• I was inspired to have my own business

✍️ My Top 3 Quotes

• Platform creates value from outside the company
• Platform competition is like 3D chess
• The rise of platforms is causing structural changes in many industries

📒 Summary + Notes

👇 Today

• Pipeline: producer sell product/service to customer, linear value chain
• Platform: producer have interaction with customer to form a network and create value, producer and customer can switch
• Platform replace pipeline because
• Scale faster by eliminating gatekeeper
• Unlock new source of value creation and supply
• Use database tool to create community feedback loop
• Create value from outside company

🌐 Network Effect

• Change from Supply economic of scale → Demand economic of scale (network effect)
• Scaling network effect using frictionless entry to increase demand both producer and customer
• Prevent negative network effect using effective curation to match producer and customer effectively
• 4 kinds of network effect

1. Cross-side (Positive & Negative)
2. Same-side (Positive & Negative)

🏗️ Architecture

• The design of a platform should begin with its core interaction that creates value
• 3 key elements define the core interaction:

1. the participants (producer & consumer)
2. the value unit: most crucial but most difficult ‼️
3. filter: make interaction properly

• 3 crucial functions to make core interaction easy and even inevitable,

1. pull: attract consumer using feedback loop (understand user and value exchange between user)
2. facilitate: making it as easy as possible for producers to create and exchange
3. match

• As a platform grows, it often finds ways to expand beyond the core interaction. New kinds of interactions may be layered on top of the core interaction.
• It’s also important to leave room for serendipity and the unexpected, since users themselves will find new ways to create value on the platform.

🔀Disruption

• Platforms are able to outcompete pipelines because of their superior marginal economics and the value produced by positive network effects.
• Platform disrupts business because it is reconfiguring value creation to tap new sources of supply; reconfiguring value consumption by enabling new forms of consumer behavior; and reconfiguring quality control through community-driven curation.
• The rise of platforms is also causing structural changes in many industries — specifically, through the phenomena of reintermediation (introducing new kinds of middlemen), de-linking assets from value, and market aggregation (centralized markets).
• Incumbent companies can fight back against platform-driven disruption by studying their own industries through a platform lens and beginning to build their own value-creating ecosystems

🚀 Launch

• One difference between platform businesses and traditional pipeline businesses is that, in the world of platforms, pull strategies designed to encourage virality are more important than the push strategies (such as advertising and public relations) used in conventional marketing.
• 8 strategies to launch

1. follow-the-rabbit strategy: building a platform business on the foundation of an existing pipeline or product business
2. piggyback strategy: Connect with an existing user base from a different platform and stage the creation of value units in order to recruit those users to participate in your platform
3. seeding strategy: Create value units that will be relevant to at least one set of potential users. When these users are attracted to the platform, other sets of users who want to engage in interactions with them will follow.
4. marquee strategy: Provide incentives to attract members of a key user set onto your platform.
5. single-side strategy: 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 set.
6. producer evangelism strategy: Design your platform to attract producers, who can induce their customers to become users of the platform.
7. big bang adoption strategy: Use one or more traditional push marketing strategies to attract a high volume of interest and attention to your platform. This triggers a simultaneous onboarding effect, creating an almost fully-developed network virtually instantaneously.
8. micromarket strategy: Start by targeting a tiny market that comprises members who are already engaging in interactions. This enables the platform to provide the effective matchmaking characteristic of a large market even in the earliest stages of growth.

• The speed of a platform’s expansion can be accelerated through viral growth. This depends on four key elements:

1. The sender. A user on Instagram shares a picture that he has just created. This launches the cycle that will eventually bring in a new user.
2. The value unit. On Instagram, the value unit is the picture that the user shares with friends.
3. The external network. For Instagram, Facebook serves as a very effective external network, allowing value units (photos) to spread and be exposed to potential users.
4. The recipient. Finally, a user from Facebook gets intrigued by the picture and visits Instagram. This user may create her own photo and start the cycle all over again. Now the recipient is acting as the sender.

💰 Monetization

• Platform can create excess value in four ways: access to value creation, access to the market, access to tools, and curation. Monetization is about capturing a portion of the excess value created.
• Techniques for monetizing a platform: transaction fee, charging users for enhanced access, charging third-party producers for access to a community, and charging a subscription fee for enhanced curation.
• Deciding whom to charge: Charging all users, Charging one side while subsidizing another, Charging most users full price while subsidizing stars, Charging some users full price while subsidizing users who are price-sensitive
• Design monetization strategies since initial platform design

🚪 Openness

• There are three kinds of openness decisions that managers face: those regarding manager/sponsor participation, developer participation, and user participation.
• Management and sponsorship of a platform may be controlled by a single firm, by different firms, or by groups of firms.
• The open/closed isn’t black or white. There are shades of gray. Similar platforms could have differing openness policies.
• Maturing platforms often evolve in the direction of greater openness. This demands continually reevaluating and adjusting curation processes to ensure consistently high quality of platform content and service value.

😇 Governance

• Governance is necessary because absolutely free markets are prone to failures.
• Market failures are generally caused by information asymmetry, externalities, monopoly power, and risk. Good governance helps prevent and mitigate market failures.
• The basic tools for platform governance include laws, norms, architecture, and markets. Each must be designed and implemented with care in order to encourage platform participants to engage in positive behaviors, incentivize good interactions, and discourage bad interactions.
• Self-governance is also crucial to effective platform management. Well-run platforms govern their own activities following the principles of transparency and participation.

📏 Metrics

• Since the value of a platform is derived primarily from network effects, platform metrics should measure the rate of interaction success and the factors that contribute to it. Interaction success attracts active users and thereby enhances the development of positive network effects.
• 🐣 Startup phase Metrics that track the strength of characteristics that enable core interactions on the platform, including liquidity (a number of producers and consumers and the percentage of successful interactions), matching quality, and trust.
• 🐥 Growth phase Metrics that are likely to impact growth and enhanced value creation, such as the relative size of various portions of the user base, the lifetime value of producers and consumers, and the sales conversion rate.
• 🐔 Maturity phase Metrics that drive innovation by identifying new functionalities that can create value for users, as well as metrics that can identify strategic threats from competitors to which the platform needs to respond.

🛤️ Strategy

• Platform competition is like 3D chess, involving competition at three levels: platform against platform, platform against partner, and partner against partner.
• In the world of platforms, competition becomes less important than cooperation and co-creation. Control of relationships becomes more important than control of resources.
• Methods that platforms use to compete: preventing multihoming by limiting platform access; fostering innovation, then capturing its value; leveraging the value of data; nurturing partnerships rather than pursuing mergers and acquisitions; platform envelopment; and enhanced platform design.
• Winner-take-all markets exist in certain platform markets. They are driven by four main factors: supply economies of scale, network effects, multihoming and switching costs, and the lack of niche specialization.

👮‍♂️ Policy

• Some level of societal regulation of business is healthy and beneficial both to the economy and to society as a whole.
• There are a number of regulatory issues that are unique to platform businesses or that require fresh thinking in the light of the economic changes that platforms are causing. These include access to platforms, compatibility, fair pricing, data privacy and security, national control of information assets, tax policy, and labor regulation.
• The flood of new data made suggests the possibility of new regulatory approaches based on after-the-fact transparency and accountability rather than restrictions on market access.
• Economic frameworks for industries with network effects suggest that dominance alone is not necessarily a cause for government intervention. Rather, failure to manage externalities, abuse of dominance, manipulating populations, and delaying innovation can indicate when intervention in platform markets is necessary and appropriate.