Platform Revolution

second pull challenge revolves around keeping the interest of users who visit or sign up for the platform. The large social networks of our day have all faced this problem at some point. Facebook, for example, discovered that users found the platform valuable only after they had connected to a minimum number of other users. Until then, they were likely to stop using the network entirely. In response, Facebook shifted its marketing efforts away from recruiting new members to helping them form connections.

he importance of these effects for stimulating network growth is so great that platform businesses will often spend money to attract participants to one side of the market. They know that, if they can get one side to join the platform, the other side will follow. Two-sided network effects with positive feedback explain how Uber can afford to use millions of dollars of money from Bill Gurley and other investors to give away free rides worth $30 each. Uber’s coupons buy market share in a way that attracts a virtuous cycle of drivers and riders who will later pay full price to participate in the network.

In classic platform style, Uber performs a matching service. It helps riders find drivers, and vice versa. As drivers sign on and coverage density rises within a city, a number of striking growth dynamics are set in motion. Riders tell their friends about the service; some even start driving themselves in their spare time. Wait time falls for riders, and downtime falls for drivers. Less downtime means that a driver can make the same amount of money even if fares are lower, because he has more riders during the same number of working hours. Thus, less downtime means that Uber can cut fares and stimulate even more demand, which creates a virtuous cycle that increases coverage density still further.

“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.”

the key terms used to define systems of message delivery have shifted from broadcast to segmentation, and then to virality and social influence; from push to pull; and from outbound to inbound.

By providing default insurance contracts and reputation systems to encourage good behavior, platforms dramatically lower transaction costs and create new markets as new producers start producing for the first time.
Platforms beat pipelines by using data-based tools to create community feedback loops. We’ve seen how the Kindle platform relies on reactions from the community of readers to determine which books will be widely read and which will not. Platforms of all kinds rely on similar feedback loops. Platforms like Airbnb and YouTube use such feedback loops to compete with traditional hotels and television channels. As these platforms gather community signals about the quality of content (in the case of YouTube) or the reputation of service providers (on Airbnb), subsequent

platforms unlock new sources of value creation and supply

One reason is that pipelines rely on inefficient gatekeepers to manage the flow of value from the producer to the consumer

Rather than flowing in a straight line from producers to consumers, value may be created, changed, exchanged, and consumed in a variety of ways and places, all made possible by the connections that the platform facilitates.

Now incumbent giants from Walmart and Nike to John Deere, GE, and Disney are all scrambling to adopt the platform approach to their businesses