Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You

315 Pages·2016·2.98 MB·English

by  Parker

PLATFORM
REVOLUTION
HOW NETWORKED MARKETS
ARE TRANSFORMING THE ECONOMY—
AND HOW TO MAKE THEM WORK FOR YOU
Geoffrey G. Parker,
Marshall W. Van Alstyne, and
Sangeet Paul Choudary
To the memory of my mother, Mary Lynn Goodrich Parker.
For my A., my X. and my E.
For Devika, for always being there.
CONTENTS
PREFACE
1. TODAY: Welcome to the Platform Revolution
2. NETWORK EFFECTS: The Power of the Platform
3. ARCHITECTURE: Principles for Designing a Successful Platform
4. DISRUPTION: How Platforms Conquer and Transform Traditional Industries
5. LAUNCH: Chicken or Egg? Eight Ways to Launch a Successful Platform
6. MONETIZATION: Capturing the Value Created by Network Effects
7. OPENNESS: Defining What Platform Users and Partners Can and Cannot Do
8. GOVERNANCE: Policies to Increase Value and Enhance Growth
9. METRICS: How Platform Managers Can Measure What Really Matters
10. STRATEGY: How Platforms Change Competition
11. POLICY: How Platforms Should (and Should Not) Be Regulated
12. TOMORROW: The Future of the Platform Revolution
ACKNOWLEDGMENTS
GLOSSARY
NOTES
INDEX
ABOUT THE AUTHORS
PREFACE
Platform Revolution is our attempt to provide the first clear, complete,
authoritative guide to one of the most important economic and social
developments of our time—the rise of the platform as a business and
organizational model.
The platform model underlies the success of many of today’s biggest, fastest-
growing, and most powerfully disruptive companies, from Google, Amazon, and
Microsoft to Uber, Airbnb, and eBay. What’s more, platforms are beginning to
transform a range of other economic and social arenas, from health care and
education to energy and government. No matter who you are or what you do for
a living, it’s highly likely that platforms have already changed your life as an
employee, a business leader, a professional, a consumer, or a citizen—and are
poised to produce even greater changes in your daily life in the years to come.
Over the past two decades, we have come to recognize that powerful
economic, social, and technological forces are transforming our world in ways
that few people fully understand. We’ve dedicated ourselves to studying those
forces and how they work—how they are disrupting traditional companies,
upending markets, and altering careers, and how they are being leveraged by
startup businesses that are using them to dominate traditional industries and
launch new ones.
Realizing that the platform business model is the leading embodiment of
these forces, we began branching out from our academic and corporate
backgrounds to work closely with companies that are deeply engaged in creating
platform businesses, including Intel, Microsoft, SAP, Thomson Reuters, Intuit,
500 Startups, Haier Group, Telecom Italia, and many others. We’ll recount their
stories in the pages that follow.
Our goal in writing this book is to solve a number of puzzles posed by the
rapid rise of the platform model. These puzzles include:
• How have platform businesses such as Uber and Airbnb managed to disrupt and dominate vast
traditional industries within just a few years of their own launch? (We address this question
throughout the book, and focus on it especially closely in chapter 4.)
• How can platform businesses outcompete traditional companies while employing just a tiny fraction
of the number of people the incumbents employ? (See chapters 1 and 2.)
• How has the rise of the platform transformed the principles governing economic growth and
business competition? How do platform businesses resemble the industrial giants of the past—and
how do they differ? (See chapters 2 and 4.)
• How and why have specific companies and business leaders soared to the heights of success,
plummeted to the depths of failure—or both—as a result of their use, or misuse, of platform business
methods? Why did Blackberry fall from 49 percent market share to 2 percent in just four years? How
did Steve Jobs fumble his company’s platform-model choices in the 1980s … and then get them
dramatically right in the 2010s? (See chapters 2 and 7.)
• How do some companies solve the challenge of attracting producers and consumers to a new
platform simultaneously, while others fail miserably? Why is free pricing sometimes a brilliant
business move, and sometimes a fatal error? (See chapters 5 and 6.)
• Why do competitive markets flourish in some platform arenas, while in others winner-take-all
markets dominated by a single platform swiftly emerge? (See chapter 10.)
• As platforms grow, they are subject to abuse: customers shopping on eBay can be defrauded, women
seeking dates on Match.com can be assaulted, homes rented on Airbnb can be ransacked. Who
should pay the price? And how should platform users be protected? (See chapters 8 and 11.)
In answering questions like these, we’ve sought to create a practical guide to
the new economy that is reshaping the world in which we all live, work, and
play. Platform Revolution is an outgrowth of three careers that have been spent
immersed in studying and unraveling the mysteries of the platform model.
Two of the authors—Geoff Parker and Marshall Van Alstyne—became
interested in the emerging network economy during the dot-com boom of 1997–
2000, when both were PhD students at MIT. Those were heady times. The
NASDAQ stock index spiked by more than 80 percent as venture capitalists
poured investment money into startups boasting cool new technologies and
names featuring the prefix e or the suffix com. With traditional metrics of
business success seemingly rendered obsolete, several companies launched
hugely successful initial public offerings (IPOs) without ever having made a
dime in profit. Students and faculty alike were dropping out of school to launch
fledgling technology businesses.
Inevitably, the market came crashing down. Beginning in March 2000,
trillions of dollars’ worth of paper valuations vanished in a matter of months.
Yet amid the rubble, certain companies survived. While Webvan and Pets.com
disappeared, Amazon and eBay survived and thrived. Steve Jobs, who had lost
Apple to mistakes he made earlier, recovered, returned to Apple, and built it into
a juggernaut. Eventually, the online world emerged from the depths of the 2000
downturn to become stronger than ever.
Why were some Internet-based businesses successful while others were not?
Were the differences a matter of random luck, or were deeper design principles
at work? What are the rules of the new economics of networks? Geoff and
Marshall set about trying to answer these questions.
It turned out to be a harder challenge than they expected. They ended up
having to develop a new economic theory of two-sided networks. Their Harvard
Business Review article “Strategies for Two-Sided Markets,” coauthored with
Harvard professor Thomas R. Eisenmann, laid out what became one of the most
widely taught theories of Internet business, one that is still taught in MBA
programs around the world. Along with the work of other scholars, Geoff’s and
Marshall’s insights helped to reshape mainstream thinking about business
regulation. Later, at the MIT Initiative on the Digital Economy, they furthered
their work with such firms as AT&T, Dun & Bradstreet, Cisco, IBM, Intel,
Jawbone, Microsoft, Salesforce, SAP, Thomson Reuters, and many others.
The third author of this book, Sangeet Choudary, was a high school student
during the dot-com boom of the 1990s, but he was already fascinated by the
immense power of the Internet—particularly its power to create business models
capable of rapid, scalable growth. Later, while working as the head of innovation
and new ventures at Yahoo and Intuit, Sangeet started digging deeper into the
factors that spell success or failure for Internet startups. His research on business
model failure, coupled with his conversations with venture capitalists and
entrepreneurs, helped him identify the increasing importance of a new and
massively scalable business model: the platform.
In 2012, Sangeet started focusing on platform businesses full-time. His
premise: as the world becomes increasingly networked, businesses that do a
better job of harnessing the power of platform networks will win. Sangeet has
offered guidance on platform strategy to a wide range of companies around the
world, ranging from startups to Fortune 100 firms, and his popular blog
(http://platformed.info) has been featured on leading media globally.
In the spring of 2013, Marshall and Geoff came across Sangeet’s work, and
we immediately realized the value of a collaboration. Our partnership coalesced
in the summer of 2013 when we met for three weeks at MIT to work together on
building a cohesive view of platform dynamics. Since then, we’ve cochaired the
MIT Platform Strategy Summit, spoken about platform models at leading world
forums such as the G20 summit, Emerce eDay, and TED, taught about platforms
at the world’s leading universities, and collaborated on implementing platform
strategy with business clients around the world.
Now the three of us have written Platform Revolution, representing our first
attempt to bring together our thinking on platforms in a cohesive, comprehensive
fashion.
We’ve been fortunate enough to have access to the ideas and experiences of
some of the greatest firms in the world, having worked with more than a hundred
companies in diverse industries on developing and implementing their platform
strategies. At the MIT Platform Strategy Summit, leaders of organizations that
are building platforms, managing them, or reacting to them, including edX,
Samsung, Apigee, Accenture, OkCupid, Alibaba, and many others, have shared
their stories with one another and with us. We have also benefited from working
with a group of world-class scholars who have dedicated their careers to
understanding the digital economy, and who participate in the annual Workshop
on Information Systems and Economics (WISE) and the Boston University
Platform Strategy Research Symposium, as well as some of the world’s leading
thinkers in adjacent fields such as behavior design, data science, systems design
theory, and agile methodologies.
We have written this book because we believe that digital connectivity and
the platform model it makes possible are changing the world forever. The
platform-driven economic transformation is producing enormous benefits for
society as a whole and for the businesses and other organizations that create
wealth, generate growth, and serve the needs of humankind. At the same time, it
is creating sweeping changes in the rules that have traditionally governed
success and failure. We hope that Platform Revolution will help market upstarts,
incumbent organizations, regulators and policy-makers, and engaged citizens
effectively navigate the challenging new landscape of a world in which
platforms win.
GEOFFREY G. PARKER
MARSHALL W. VAN ALSTYNE
SANGEET PAUL CHOUDARY
PLATFORM
REVOLUTION