Tag Archives: Sangeet Paul Choudary

Platform Scale by Sangeet Paul Choudary

  1. Choudary explains how technology, democratization of connectivity and rise of data-driven decision making systems are enabling a new type of business model – platforms. Platforms are so powerful because they enable efficient interactions, create excess value and are able to scale rapidly
Key Takeaways
  1. The Platform Manifesto
    1. The ecosystem is the new warehouse
    2. The ecosystem is also the new supply chain
    3. The network effect is the new driver for scale
      1. Platform scale is achieved by maximizing the repeatability and efficiency of the platform’s core interaction. Interactions must be executed smoothly and in a manner which kick-starts the next interaction organically
      2. Achieving platform scale requires the ability to scale value creation to scale value exchange – the ability to scale production and consumption simultaneously – and to repeat the two so that each reinforces the other
      3. 5 drivers of platform scale – minimal marginal costs of production and distribution, network effects powered by positive feedback, behavior design and community culture, learning filters, virality
    4. Data is the new dollar
    5. Community management is the new human resources management
    6. Liquidity management is the new inventory control
    7. Curation and reputation are the new quality control
      1. One of the platform’s main focus is limiting poor behavior and interaction risks
      2. Quality control (screening, curation) is vital. Can be done through an in-house editor, through algorithms or through social signals (rating, voting)
      3. 3 factors governing platform adoption – network effects (most important), curation of content, curation of participants (through ratings, reputation, incentives – indicating quality and reliability)
    8. User journeys are the new sales funnels
    9. Distribution is the new destination
      1. New focus on how to distribute its experience into multiple user contexts
    10. Behavior design is the new loyalty program
      1. 3 core principles to platform design
        1. Start with defining the value that is created or consumed, the core value unit
        2. The core interaction – the set of actions that enable the creation and consumption of that value – should be laid out around the core value unit
        3. The design of the platform’s features, functionalities and management should stem from the design of the core interaction
    11. Data science is the new business process optimization
    12. Social feedback is the new sales commission
      1. Platforms often create new behaviors and reward/reinforce the most beneficial
    13. Algorithms are the new decision makers
    14. Real-time customization is the new market research
    15. Plug-and-play is the new business development
      1. Platform as an enabler of interactions – plug-and-play business design, balancing value creation for both producers and consumers, strategic choice of what is “free”, pull/facilitate/match, layering on new interactions, enabling end-to-end interactions, creation of persistent value beyond the interaction
      2. At their core, platforms enable a plug-and-play business model. Other businesses can easily connect their business with the platform, build products and services on top of it, and co-create value. Platforms primarily benefit not from internal production but from a wider source of open co-creation and open market interactions. This ability to drive interactions through a plug-and-play infrastructure is a defining characteristic of platform scale
    16. The invisible hand is the new iron fist
  2. Business model transition from pipes to platforms
    1. Choudary calls traditional companies like manufacturing, “pipes.” Pipes build products or craft services, push them out, and sell them to customers. Value is produced upstream and consumed downstream, creating a linear flow of value, much like water flowing through a pipe. In effect, pipes were designed to enable the flow of value in a straight line
    2. Three forces today are driving a whole new design for business, platforms – increasing connectedness, decentralized production and the rise of AI. These businesses create a plug-and-play infrastructure that enables producers and consumers of value to connect and interact with each other in a manner that wasn’t possible in the past
    3. In this new design of business where the firm is no longer the producer of value, platforms perform two specific roles
      1. They provide an open, participative, plug-and-play infrastructure for producers and consumers to plug and interact with each other
      2. They curate participants on the platforms and govern the social and economic interactions that ensue
    4. Shift in markets from consumers to producers (both can and do add value on platforms whereas only one side typically did in the past)
    5. Shift in competitive advantage from resources to ecosystems
    6. Shift in value creation from processes to interactions
  3. The Broad Goal of Platforms
    1. Goal of platforms is to enable interactions between producers and consumers repeatedly and efficiently
      1. Build platforms with an interaction-first, not a technology-first mindset! Technology should be built only after understanding the interaction that needs to be enabled. Without this in mind, one often ends up with a platform that nobody wants to use.
    2. The movement from pipe-based, user-first view to the platform-based, interaction-first view is best captured through the following shift: We are not in the business of building software. We are not in the business of selling products and services. We are in the business of mediating and enabling interactions
      1. The importance of an interaction-first approach to building platforms cannot be emphasized enough. Focusing on the actions involved in an interactions helps us design the tools and services as well as the rules required to facilitate the interaction. Understanding the players participating in the interaction and their motivations helps us design the actions and rewards that create pull on the platform. Finally, only by focusing on the core interaction can a platform know what data it needs to capture
  4. The Core Value Unit
    1. The core value unit is the minimum stand alone unit of value that is created on top of the platform. It represents supply or inventory created on top of the platform and without this, the platform has very little value in and of itself
      1. For network/marketplace/community-dominated – goods, standardized services, non-standardized services
      2. Infrastructure dominated – apps
      3. Data dominated – data helps the platform become more efficient overtime, data itself is the source of value
      4. To increase platform scale, focus on increasing the quality and quantity of core value units on the platform. However, platforms are unique in that they don’t control this inventory as this is produced outside the platform
      5. All actions in the core interaction fall into one of the following buckets – creation, curation, customization, consumption. The keys to platform scale lie in simplifying each constituent action in the core interaction
      6. Information exchange has 3 components – The producer creates a core value unit, the consumer sets up a filter of some combination of overlap and data, the value unit that best passes through the filter is served to the consumer (based on good data and filters). Filter can be point in time (search) or cumulative (taking account of past history or behavior) or some combination
  5. 6 elements of execution
    1. Choice of the overall interaction space – connection, content, clout, coordination, competition, culture and code
    2. Production incentives – tools/access/both, simplify production process, great curation, clear, democratic and equal access path to the top, great conversion rates, good feedback mechanisms, removal of skill, time/effort/investment, resource, access barriers (removal of frictions)
      1. Frictions can sometimes be useful when trying to discourage the repeatability of undesirable interactions and can indicate quality, superior signaling or a barrier of some sort
    3. Building long-term cumulative value – reputation, influence, collections, learning filters
    4. Strong curation mechanisms and trust
      1. 7 Cs of Trust – confirmed identity, centralized moderation, community feedback, codified behavior, culture, completeness, cover
    5. Strong filters and relevance
    6. Ownable interactions – more difficult for platforms offering nonstandardized services (TaskRabbit) but in order to own the interaction, all platforms must create more value than they capture
  6. The Chicken and the Egg Problem
    1. All platforms must overcome the chicken and egg problem until they reach critical mass, the minimum network size at which there are enough producers and consumers of value on the platform to ensure that interactions spark off reliably
    2. Solutions to the chicken and egg problems have a few defining characteristics:
      1. Breaking the vicious cycle – platform should have standalone value, users to derive value even without other users
        1. The standalone mode, for producers, should encourage the creation of value units on the platform, which can then be used to pull in the consumption side
        2. Faking initial supply may often help kick start network effects (YouTube had pirated content early on) – seeding and weeding, seeding demand, seeding supply
        3. Identifying a group of power producers and providing them with tools and incentives to better “harvest” their following can solve the chicken and egg problem very effectively
        4. Get more difficult side on board through curation and incentives
        5. Often, the solution to finding adoption lies in providing backward compatibility with existing solutions
        6. Focus on value-creating interactions and then scaling those interactions instead of focusing entirely on scaling the user base. Small user bases with thriving interactions trump large user bases with low activity
          1. Solve a pain point for a niche segment, target a micro-market where small is good, leverage existing interactions in the micro-market, find a micro-market that encourages spread, find a micro-market that is representative of the final market, a micro-market may be a thin-sliced use case, make a two-sided market one-sided
          2. A platform can scale well only if it encourages interactions within a small user base before attracting a large number of users
      2. Positive feedback
      3. Maximizing overlap between consumers and producers
      4. Getting the harder side in first (through incentives)
      5. On-boarding of two distinct markets
    3. Five design principles for solving chicken and egg problems
      1. Finding a compelling bait to start the loop
      2. Ensuring there is no friction in the feedback loop
      3. Minimizing the time it takes for the startup to reach critical mass
      4. Incentivizing the role that is more difficult to attract
      5. Staging the creation of two-sided markets
  7. Scaling & Virality
    1. Scaling strategies
      1. Bump – non-sustainable exposure such as PR, advertising and events; important for initial traction
      2. Engines – an internal engine of growth and designed to grow as a consequence of usage
      3. Also needs to create the hooks and motivations that will enable and incentive users to expose the offering to others, every time they use it
    2. Misconceptions about virality
      1. Virality and word of mouth are two names for the same phenomenon – virality a consequence of users using the platform, not loving the offering. Virality does not need fans, it merely needs users who are encouraged to bring in other users
      2. Virality and network effects are the same and lead to rapid growth – open platforms like email do not benefit form network effects whereas closed ones do (but both can have virality)
      3. Virality is all one needs for a growth strategy – should be complemented with other user-acquisition models
      4. Virality involves manipulating users to send out invites to other potential users
    3. Networks spread like diseases do
      1. The sender – a user on the platform sends out a message about the platform
        1. Sender incentives – why will the sender send units out of the platform?
      2. The core unit – message is typically the core value unit
        1. Spreadable unit – what is the minimum transferable unit on the platform that one can move on an external network?
      3. The external network – units spread on an external network, connecting people
        1. External network – Where will the unit from the platform meet current non-users
      4. The recipient – recipient on the external network interact with the unit and is brought back to the original platform
        1. Recipient incentives – why will a non-user on an external network convert to a user on the platform?
        2. The recipient, if interested, then joins and becomes a sender and starts the process over
    4. Virality is a design problem, not an optimization problem. Take into account:
      1. Sender incentives, low friction in creating core value units, high percentage of producers, spreadable core value units (triggers an interaction on an external network), plays on the producer-as-sender dynamic, the spread of the unit helps to complete an incomplete interaction)
      2. External network – choice of network which takes into account relevant interactions, relevant connections, relevant look and feel, add value to users on this external network, create an unfair advantage and make integration as easy as possible
      3. Recipient incentives – unit should serve as a compelling pitch to the platform and a call to action embedded within the unit
      4. 4 key optimization priorities for achieving sustainable viral growth
        1. Send: maximize outflow of units from the platform
        2. Spread: ensure that units spread on the external network
        3. Click: maximize clicks on an external network
        4. Convert: minimize cycle time
    5. Producers never spread the word about the platform, they merely spread the word about their creations
    6. Platforms that succeed with viral growth reward users with accelerating social feedback
    7. Network effects can work against platforms if higher adoption gets in the way of interaction efficiency and repeatability, reducing interaction quality. To achieve sustainable scale, a platform needs to scale both the quantity and the quality of interactions that it enables
      1. A scaling strategy for platforms should involve scaling of production, scaling of consumption, strengthening of filters through ongoing data acquisition, scaling social curation, scaling community culture, minimizing interaction risk
      2. Lack of curation scaling is very common when platforms fail. Platforms need to ensure that access and creative control, as well as curation and customization, scale well as the platform scales
      3. Platforms must encourage cross-cluster interactions as well as cross-cluster incentives
  8. Other
    1. Platforms aren’t truly software but they are eating the world – efficient social and business interactions, mediated by software
    2. Value creation still dependent on aggregation, but not of labor or resources. Rather, the ecosystem is the new warehouse, supply chain and scale through network effects. Shift from culture of absorption to data absorption. Manage community incentives and governance
    3. Must ensure there is never unfilled demand
    4. While platforms can be incredibly different, the following three distinct layers tend to emerge repeatedly: data, infrastructure, network-marketplace community. These 3 can play varyingly large or small roles depending on what the platform wants to achieve, how to differentiate itself and what the key drivers of value are
    5. The single most important decision in testing is the choice of the hypothesis to be tested. Without clarity on this, one can waste a lot of time testing irrelevant hypotheses and optimizing poor design. Laying out the overall architecture of the platform helps us understand the key points of failure for the ensuing platform business and shows us what needs to be tested. All design decisions should ensure the repeatability and sustainability of the core interaction that the platform enables
    6. The platform canvas is a framework for makers to build interaction-first platform businesses and includes the value-creating interaction, the platform that enables the interaction, a mechanism for value capture, enablement of a plug-and-play business model  through channels (websites and apps) and access control for producers and filter creation for consumers. The platform must provide tools and services of creation, curation, customization and consumption.
      1. Value is derived from charging one side to access the other, charging a third party for advertising, charging producers and consumers for premium tools and services, charging consumers for access to high quality, curated producers and charging producers for an ability to signal high quality
    7. The TRIE Framework – tools and rules, interaction, experience
      1. Platforms allow the users to shape their own experience and not just accept the maker’s ideas
      2. Platforms must allow for emergent behavior to arise, some of which may redefine the architecture and lead the platform in entirely new directions
    8. Everything old is new again! The answers lie in using the old to interpret the new
    9. Platform strategy involves 3 primary priorities, aligned with the three layers of the platform stack – pull, facilitate, match
    10. Two critical factors will determine the success of a company in the on-demand economy: multihoming costs (ease of switching between platforms) and interaction failures
    11. Best way to launch a platform business at a conference is to ensure that the core interaction on the platform is organically embedded into the conference experience and that it fits in with the activity at the event
What I got out of it
  1. A dense and extremely insightful book on how to design, think about, build and spread successful platform companies. At the core of it, platforms must make sure they enable their core value unit to foster interactions which are as frictionless as possible in a repeatable, efficient and effective manner

Platform Revolution by Geoffrey Parker, Marshall Van Alstyne and Sangeet Paul Choudary

  1. This book seeks to describe how and why platforms are coming to dominate the market today ranging from Google, AirBnb, Uber, Amazon, eBay, Facebook, YouTube, Wikipedia, Pinterest, Alibaba, Kayak, Instagram, PayPal and more
Key Takeaways
  1. The platform business model
    1. One which uses technology to connect people, organizations and resources in an interactive ecosystem in which incredible amounts of value can be created and exchanged.
    2. Network effects are the main source of value creation and competitive advantage in a platform business – It encourages an open, cooperative interaction which removes friction from matching suppliers and consumers, also removing barriers of time and space.
    3. Frictionless entry to the network is key.
    4. Because they create value with resources they don’t own or control, they can grow much more rapidly.
    5. Side switching, ability for consumers to easily become producers, is also important
  2. Traditional linear businesses, aka pipelines, cannot scale as efficiently as platforms since platforms eliminate gatekeepers which typically slow down flow of information from producers and consumers. Platforms can also “unbundle” services so consumers can get exactly what they want for less. Everyone wins except for the traditional players. Platforms bring new sources of supply online and pits high fixed cost companies against low fixed cost companies (Hyatt vs AirBnb)
  3. In platform markets, the nature of supply changes and harnesses feedback from consumers and the community which only used to consume. Platforms use database tools to create community feedback loops in which the users’ reputations are always at stake and to determine which projects are most promising
  4. Platforms often invert traditional business models by focusing more on functions outside of the business than internal to it
  5. Network effects – can be both positive and negative. Positive effects occur when additional value is created for each new member that joins a network. This is the principal competitive advantage of platforms
  6. Traditional businesses dominated through supply economies of scale – efficiencies in production from scale. New businesses tend to dominate from demand economies of scale – take advantage of efficiencies from technological advancements on the demand side such as efficiencies in social networks. This is one of the key reasons network effects are so powerful
  7. Two sided markets feed the network effects. At Uber, riders attract drivers and drivers attract riders in a powerful positive feedback loop
  8. Important to distinguish between network, price and brand effects. Network effects leads to a virtuous cycle that is more sustainable whereas price and brand can be fads or not as sustainable. Most platform failures rely mostly on price or brand effects
  9. Virality about attracting people to join network, network effects about delivering more value once on platform. Temporary vs. sustainable
  10. Skillful curation helps mitigate negative network effects (OK Cupid and how originally all men flocked to most beautiful women who then left, and then men left because there were no more attractive women)
  11. Data driven network effects – the more users and therefore the more data you have, the more effectively you can curate
  12. Same side network effects – the effects consumers have on other consumers and producers on producers
  13. Cross side network effects – effects consumers have on producers and vice versa
  14. 4 broad buckets for different companies – asset providers (Ford), service providers (United Healthcare), technology providers (Microsoft), network organizers (platform businesses and are the most efficient value creators)
  15. Every exchange between producers or consumers involves 3 things – information, goods or services and some sort of currency (money, attention / reputation / other forms of social currency)
    1. Value creation for platform directly depends on what kinds of currency are being exchanged and how much of it the platform can capture
  16. The why of platform design – core interactions.
    1. The core interaction is the most important form of activity of the platform and has 3 core areas – participants, the value unit (any info which helps users decide if they want to proceed – price and description of item on eBay) and the filter (search query or any other filter which effectively provides users only value units they’re interested in). These 3 must be designed very well to make the core interaction as frictionless and value accretive as possible
    2. Platforms don’t create value units so platforms are information factories where producers can provide value units
  17. The how of platform design – pull, facilitate, match.
    1. Platforms face a chicken and egg problem where consumers won’t come if there are no producers and vice versa. Most platforms fail because they don’t effectively pull consumers and or producers into the platform. Finding and leveraging feedback loops which drive engagement is vital (FB changed focus from getting new members to helping current members establish new connections)
  18. Modularity in a platform is important – structures which are designed independently but can all function together. Subsystems can interact in a way that yields complex adaptive behavior without any one subsystem being too complicated
  19. Inevitable that users will use platforms in ways the designers never anticipated. Sometimes the best design is anti-design – allowing space for the bizarre and unanticipated to grow and expand
  20. Software eating the world is evolving to platforms eating pipelines. Internet no longer just a distribution channel, a pipeline, but also acts as a creation infrastructure and coordination mechanism. Physical and digital are also rapidly merging. Platforms enjoy two main advantages – superior marginal economics of production and distribution and network effects allows platforms to scale much more quickly
  21. Platforms eliminate barriers to entry, bringing in more supply and therefore competition
  22. All platforms struggle early on with quality due to abundance but as the community grows and curation improves, quality typically improves
  23. Delinking assets from value allows B2B to move to more profitable B2C
  24. Re-intermediation is the process of adding new, nimble, automated, customer rated, value-add middlemen to transactions. Separating ownership from control
  25. Nike is one of the most successful pipeline companies turning themselves into a platform. Fuel band, apps, Apple Watch and more helps connect products with platform businesses – fueling growth and keeping customers engaged in a new ecosystem. Eventually allowing them to make better products. Under Armour attempting same thing with purchase of MapMyFitness  MyFitnessPal and Endomondo- all about platforms, data and users, not products.
  26. IoT allowing industrial companies like GE potentially create a viable platform
  27. Chicken and egg problem with platforms occurs when both sides of the market are equally valuable and PayPal overcame by reducing friction involved in online transactions, making very user friendly, gave new customers money for just signing up ($10-$20).
    1. Getting users to sign up is step one, then must realize value and become regular users – user commitment more important than user registration. Multiple positive feedback loops fed at this point and explosive number of customers fueled sellers to promote their acceptance of PayPal. Enabling service on eBay made it even more visible and reduced friction
  28. Platforms must rely on pulling in customers rather than push like most pipelines do. Marketing must be built into the platform
  29. Knowing value proposition of competitors, even if seemingly similar product or service, can help you structure your own
  30. Strategies for beating chicken and egg problem
    1. Follow the rabbit – build on top of already successful pipeline or platform, attracting both consumers and producers (Amazon Marketplace, Intel)
    2. Platform from scratch
      1. Staging value creation – attract initial users who attract more users and so on. Huffington Post started with very high quality content, attracting first consumers to engage more and therefore attracting more users
      2. Designing platform to attract one set of users – critical mass on one side will come to attract other side
      3. Simultaneous onboarding – value for those who first join but increasingly more valuable as more join (Facebook)
    3. Piggyback strategy – connect with a user base from an an existing platform and stage the creation of value units to recruit those users
    4. Seeding strategy – create value units for at least one set of users who will then attract other users because they want to interact. Platform owner can be first customer, leading way in showing how to take advantage of value units and what types of rules and interactions are recommended (Google and $5m prize for best apps when first launched Android; Quora at first would ask and answer their own questions, showing how it’s done)
    5. The Marquee Strategy – sometimes one side of the market can make or break the platform so targeting them is key (may purchase marquee producer like Microsoft did with Bungee which eventually became Halo)
    6. Single side strategy – develop platform for only one side and then entice other side to join
    7. Producer evangelism strategy – platform helps producers better serve consumers and cross-pollination can then ensue (Kickstarter, Udemy)
    8. Big Bang Adoption Strategy – use one or more push strategies (marketing, etc.) to attract a high volume of interest, creating a nearly fully formed network almost instantaneously. Less effective in today’s world with so many ads and distractions
    9. Micro market strategy – target a tiny market which is already engaging in interactions – enables platform to act as a market even in earliest stages of growth
    10. Viral growth (complements all strategies above) – encourages users to spread the word about the platform to other users, network thus becomes the driver of its own growth – positive feedback loop in action
  31. Key pillars
    1. Sender (love the platform and often get some benefit such as money or notoriety)
    2. Value Unit (spreadable value units key, can’t be secret or hard to spread)
    3. External Network (Instagram leveraging Facebook)
    4. Recipient (responds and spreads word if find enough value)
  32. Monetizing platforms – about capturing a portion of excess value created
    1. Determine value of platform is step 1 – only way to be sustainable is if it doesn’t hamper network effects and even better if it reduces possibility of negative network effects
      1. Consumers – access to value created on the platform
      2. Producers – access to a community or market
      3. Both – access to tools and services which improve interactions
      4. Curation mechanisms – connecting right to consumers with producers through curation is key
    2. Often a good strategy is not to charge either side early on but simply take a small transaction fee. Transaction will occur and feels like only a small tax on the service provided by the platform
    3. Another good tactic is to charge companies for postmortems to help them understand what they did well and where they can improve
    4. Charging for access or enhanced access. Alibaba charges no transaction fees but fueled network effects by paying members who recruited others
    5. Freemium – charge full price to a certain set of customers and give to free or at least subsidized to those who value it less
    6. Charging one side will often drastically reduce volume but drastically improve quality and engagement and discourage second rate participants. Deciding which side to charge and how much is one of the most crucial decisions
    7. Should try to keep as many monetization opportunities open as possible
  33. Openness – Determining what users can and cannot do is key
    1. No restrictions placed in participation of platform’s development, commercialization or use or any restrictions and applied uniformly to all participants
    2. Openness encourages innovation but obviously gives up much control
    3. Determining how open and which areas to leave open is important – can keep key pillars closed but leave other areas open for others to play with and innovate on. Facebook platform opened up massive innovation of apps
    4. As platforms by definition derive value from outside producers and consumers, key to find right level of openness. Defining exactly who should have access to the platform and how they can participate is absolutely vital with huge strategic repercussions and why openness at the top of every platform manager’s agenda
    5. 3 key decisions about degrees of openness – decisions regarding manager and sponsor participation, developer participation, user participation
      1. Proprietary (Apple), licensing (Google with Android), joint venture (Visa when first started), shared (Linux)
      2. As a platform manager, cannot let an outside developer drive too much of the value creation on the platform – buy the app or the company that created at this point (Apple bought Siri)
      3. Absolute openness is usually not chosen in attempt to provide highest quality but getting a lot of user participation often leads to very engaged and sticky customers – AirBnb customers can also be suppliers
    6. Platforms in similar arenas may choose to differentiate themselves through varying levels of openness
  34. Data aggregation can be very effective but it must be done appropriately to not feel intrusive or creepy
  35. Good governance – set of rules of who gets to participate in an ecosystem, how to divide the value created and how to solve conflicts
    1. Always create value for the consumers you serve, don’t use your power to change the rules in your favor, don’t take more than your fair share of the wealth (don’t make Keurig’s mistake of blocking out all competition from coffee making platform)
    2. The scale and scope of today’s largest platforms like Facebook and Alibaba often have direct or indirect consequences on tens of millions of people and hundreds of billions of dollars. They can learn much from cities and states – namely, how best to create wealth and distribute it fairly
      1. 1% drop in a state’s anti-corruption leads to ~1.7% rise in GDP! Multiplier effect of loyalty, trustworthiness! Singapore is the prime example and has grown GDP at 6.7% for over 50 years. Good governance matters
    3. Absolute openness doesn’t work in companies or states because it can’t always be relied upon to be fair and satisfactory for all
    4. Governance failures occur because of information asymmetries, externalities, monopoly power and risk
    5. Good governance increases trust and transparency thereby enabling good interactions to occur, allows people on different sides of the market to find each other more easily, minimizes congestion when too many people are involved or quality is too low and minimizes repugnant activity.
    6. 4 tools of good governance (as used by nation states but should be adopted by platforms) – laws, norms, architecture and markets
      1. Laws of platforms are its explicit rules which determine behavior by producers and consumers
      2. A dedicated community is one of the most powerful forces a platform can have
      3. Trigger – Action – Reward – Investment is the process platform managers use to entice behavior they want and improve engagement and stickiness
    7. Important to give outside stakeholders as much of a voice as inside stakeholders or else decisions will inevitably be made more for the platform’s benefit
    8. Act consistently – commitments to act or not act must be able to be counted upon
    9. Don’t surprise people and don’t play favorites with news
    10. Don’t promise not to change, simply promise early notice
    11. Must have skin in the game
    12. It is alright to provide differentiated access and value but must clarify what qualifies
    13. Promote welfare and health of partners, especially smaller partners
    14. Fairness creates wealth in two main ways – sharing of ideas, wise allocation of resources (less fear of being taken advantage of)
  36. Metrics – how to measure what really matters
    1. Cash flow, inventory turns, operating income, gross margin, overhead, ROI – the efficiency through which value flows through the pipeline
    2. Must be able to get close to solidly understanding positive network effects and what drives them
    3. Goal is to measure the rate of interaction success and the factors which contribute to it – most powerful metrics quantify the success of the platform in fostering sustainable repetition of desirable interactions
    4. Pipeline more concerned with flow of value through pipeline and platform manager about value creation for whole ecosystem, all users – both on and off platform
    5. Revenues, cash flow, profitability are key to pipelines but largely irrelevant for platforms during start up phase. Once critical mass is attained, conversion of active users to customers can take priority
    6. Crucial to measure extent to which both producers and consumers are interacting on the platform and increasing their participation over time
    7. Metrics during start up phase – core interaction and value it creates for both consumers and producers
      1. Liquidity – first and most important, minimum number of producers and consumer and percentage of successful interactions is high; interaction failure minimized and intent of users to interact is consistently satisfied within a reasonable period of time
        1. Most important metric early on is one that helps determine when liquidity is reached – tracking % of listings which lead to interactions within a given time period
        2. Must also track illiquid situations (such as when an Uber user opens app and sees no cars available)
        3. Most meaningful metrics are comparative ones – either between groups of users or over periods of time
        4. Don’t fall into the trap of over-measuring. What matters is having customers who love, rave and repeatedly use your service
      2. Matching quality – accuracy of search algorithm and the intuitiveness of search tools to connect with users to start value add interactions
        1. Achieved through product or service curation
        2. Sales conversion rate helpful – % of searches that lead to interactions
      3. Trust – degree to which users on a platform feel comfortable with the level of risk associated with interacting on a platform. Achieved through excellent curation of participants on both sides of the platform
      4. Actual metrics used to measure these 3 key areas must be relevant to the type of platform, the types of users and producers, forms of value being created and exchanged and so on
        1. Engagement per interaction, time between interaction, % of active users, number of interactions, interaction capture (for platforms taking a stake of every interaction), market access, producer participation
    8. Metrics during the growth phase – best metrics will change as company grows and it is important to determine when these inflection points occur
      1. A proxy for interaction success can be measured by the ratio of producers to consumers. The ratio of failed interactions and producer fraud are also important to monitor
      2. Using various metrics, producer and consumer lifetime values can be calculated and various strategies tested to see their effects on these important values
    9. Metrics during maturity phase – incremental innovation measured through key metrics must be closely monitored
      1. Studying extensions created by developers is important to keep on top of to see if any changes or adaptations are necessary
      2. Metrics must be actionable, auditable, accessible (comprehensible)
      3. Again, in the end, the most important metric is the number of happy customers on every side of the network who are repeatedly and increasingly involved in positive interactions
      4. Are people happy enough with the ecosystem to continue participating in it actively?
  37. Huge advantage of platforms is ability to incorporate products and services of outside partners into activities and capabilities of the platform
  38. Believes that sustainable advantages are illusory in today’s world with how fast technology is progressing. However, platform businesses tend to expand the pie rather than taking market share of a fixed market (like Amazon was able to do with Kindle and self-publishing) or goes sideways and creates new markets with new supply (like Airbnb did with supply of lodging). However, winner take all situations do lend to longer lasting moats as they encourage users to abandon other platforms – network effects, supply economies of scale, high switching costs and lack of niche specialization
  39. Platforms seek exclusive access to essential assets and create the platform to discourage multi-homing (same behavior on different platforms) as this facilitates switching. Apple and not making Flash compatible, Alibaba and not allowing Baidu’s bots to crawl their site so that they alone could sell ads to their customers
  40. Data is the new oil – fuels growth and aids ecosystem optimization
  41. The policy, regulation and tax regimes will need to adapt and evolve to take platforms into account since they provide so much value to both producers and consumers
  42. Future trends where platforms can disrupt – industries with non scalable gatekeepers (publishers), highly fragmented industries, important information close to the source (media and telecom , extreme information asymmetry
  43. Industries likely to fight off platforms – Industries with regulatory control (healthcare), high failure costs (banks), high resource industries (energy and mining)
  44. Education, finance, healthcare and renewable energy may be the most ripe for disruption by platforms
What I got out of it
  1. One of my favorite business and technology books of all time – shows the power of platforms and a roadmap to build or analyze them
Choudary’s website is worth checking out and has a good introductory page