Platform Revolution

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* Book: Platform Revolution. BY Geoffrey Parker, Marshall Van Alstyne and Sangeet Paul Choudary. 2016



By George Zarkadakis:

"In their book Platform Revolution (2016), Geoffrey Parker, Marshall Van Alstyne and Sangeet Paul Choudary argue that businesses used to be ‘pipes’ (linear models) and are becoming ‘platforms’ (networked models). Before the digital revolution, firms created goods and services, which they pushed out and sold to customers. The flow was from point A to point B – like pipes connecting deep-sea oil wells to the person who fills up the tank of their car with refined petrol.

Unlike pipes, however, platforms disrupt the clear-cut demarcation between producer and consumer, because they enable users to create as well as to consume value. Platforms need a different, non-pipe-like infrastructure. The major business challenge is to attract creators and consumers in the right proportions for transactions to occur. Platforms are in fact very similar to marketplaces: both create economic value by fostering exchanges between two (or more) groups. Now, though, this value can be generated within a company, not just outside it.

Uber is the classic case: for consumers to be interested, there have to be enough drivers on the platform to make it easy to order a ride. But for drivers to be interested, there have to be enough consumers to guarantee a basic income. Finding this equilibrium requires significant capital upfront – essentially, you have to spend money or give an incentive for suppliers to jump onboard while consumers are still virtually absent, until a critical mass is reached on both sides. But at a certain point, if all goes well, so-called ‘network effects’ kick in. The platform suddenly becomes very attractive to many more suppliers and consumers, which can lead to transactions increasing exponentially. Now the owners of the platform can make money by charging ‘rent’, which entails taking a percentage from every transaction. Rents continue to grow with the network, and are siphoned off to whoever owns it. This is what makes those platforms economically valuable." (