Sangeet Paul Choudary

Geoffrey G. Parker

Marshall Van Alstyne

A practical guide to the new economy that is transforming the way we live, work, and play.

How Networked Markets are Transforming the Economy and how to Make Them Work for You

Platform Revolution

matej yangwao

** spoiler alert **
           Building new marketplace for X? You'll probably value this book, great overview what's needs to be done.

Learned about bootstrapping strategies, like follow the rabbit, piggyback and seeding.

≥This business format creates and exchanges value by using technology to design an ecosystem where organizations, people, and resources can smoothly interact.

≥The conventional business model is a linear value chain that operates basically like a pipeline. It facilitates the transfer of value from producers on one end to the consumers on the other end. A platform business, however, promotes value-creating interactions between users and external producers.

≥Companies are dropping the conventional linear value chain and adopting the matrix of a platform.

≥Platform businesses achieve exponential growth through a virtuous feedback loop known as network effects

≥Companies were able to gain market power, increase productivity, and crush competitors by boosting their production efficiencies.

≥Suppose a company wants to dominate a market sector. In that case, it simply gives itself a cost advantage by finding means to reduce the unit cost of manufacturing its goods or services as the quantities produced increase.

≥The low cost of doing business gives the company a competitive advantage by allowing it to reduce prices. The attractive prices on products drive sales, permitting the company to increase its production volume further, resulting in even lower prices. Once a firm puts itself in this virtuous loop, it monopolizes the market and leaves its competitors with very little chance of survival.

≥Supply-oriented economies are driven by production efficiencies, while demand-oriented economies are driven by network effects.


≥Greater value attracts more participants, which creates even more value.

≥Positive network effects are the major source of value creation and competitive advantage in a platform business.

≥In essence, any company that wants to grow in the Internet economy must learn to leverage the “demand economies of scale” by achieving a positive network effect. That is, such a firm must create a large, well-managed platform that will produce significant value for each of the participants on the platform.

≥Platforms are designed one interaction at a time.


≥Thus, in order to deliver the best experience, a platform should be designed to ensure an easy transition from role to role.

≥The value unit. The creation of a value unit by the producer on a platform is the most essential element of its core interaction. Users must be given a basis for deciding whether or not they want to engage in an exchange.

≥There are three key components of the core interaction:
• The participants
• The value unit
• The filter

≥The filter. A filter is an algorithm incorporated into the platform to enable the exchange of appropriate value units between participants. Selected users are served the value units based on filters. This ensures that consumers don’t get bombarded with units they find irrelevant and valueless, which may drive them away from the platform.

≥The first and most important thing to do when designing a platform is to specify its core interaction. The second step is to define the participants, the value units, and the filters to bring such core interactions into fruition.

≥What can a platform designer do to ensure that there is a continuous occurrence of valuable core interactions drawing more and more participants to the platform?

≥A platform must be able to carry out three important functions to make core interactions easy, inevitable, and highly valuable:
• Pull
• Facilitate
• Match

≥By analyzing user activity, this program “learns” the interests and preferences of each participant and gives out highly accurate recommendations of value units. This ensures that users keep coming back to the platform; the more they return, the more the algorithm learns about them, and the more valuable the recommendations they get.

≥Facilitate. Once there are buyers and sellers, the platform must facilitate their interactions by providing them with an infrastructure and a set of rules that make it easy to connect and make valuable exchanges.

≥Match. The platform must create efficiencies by matching producers and consumers effectively. This can be done by using information about each group to connect them in ways they’ll both find rewarding.

≥Effective platform design is all about creating systems that can pull users, facilitate interactions, and match participants to ensure a satisfactory exchange of value.

≥New platforms can boost their adoptions by riding on the growth waves of established platform businesses.

≥Dating services kickstart their platforms by creating fake profiles and conversations. To attract men, they rig the system to showcase the profiles of attractive women. When users visit and see the level of activities, they are motivated to stay.

≥The inherent value of a platform business lies chiefly in the network effects it creates. But monetizing network effects poses a unique challenge.

≥One way to monetize the value created on your platform without alienating the participants is to charge a transaction fee.

≥As a platform owner or manager, you must try out different fee levels and come up with something justifiable by the value created.

≥To monetize a platform without driving users away, charge a fee that captures a fair percentage of the value units participants enjoy.

Platform Revolution How Networked Markets are Transforming the Economy and how to Make Them Work for You

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