In the past decade and a half, I have seen entire industries being disrupted by upstarts using absolutely none of the traditional resources businesses needed in the past to keep growing. Examples: Uber vs. Taxis, Twitter vs. the Press, Netflix vs. Cable. Uber doesn’t own a single car, Twitter doesn’t have a newsroom, Netflix doesn’t own a content distribution network.
How are they doing it? They’re all platforms, they use technology to connect and manage supply and demand in real time. Platforms are powerful because they eliminate gatekeepers and create community feedback loops called network effects. Example: more demand attracts more drivers, more drivers increases geographic coverage, more coverage gets faster pickups, fast pickers means more users join the platform, and so on. In turn, driver downtime goes down, which reduces prices, which leads to more scale.
In the past, dominance was achieved through supply economies of scale via increased production efficiencies. Today, it’s all about creating demand economies of scale using technology on the demand side to create ever larger networks of value and scale.
Building a platform: This isn’t about creating a good or service and channeling it to customers!
First, a platform starts with enabling a direct interaction and the exchange of value between participants – producers and consumers. The platform also enables the quantification of value by creating a sort of value unit between participants. Example: for AirBnb the value unit is the listing information created by the seller that is served to buyers based on their search criteria.
Second, platforms are really good at attracting users and encouraging interactions. The most difficult is to generate pull because it’s pretty much a chicken-and-egg-type problem: users won’t come to a platform unless it has value and a platform won’t have value unless it has users. The solution to that is called the feedback loop. Example: Facebook realized it had no value unless users had a meaningful number of connections. So instead of trying to get more people to the platform, they focused on getting the existing users find their friends and help them connect.
Third, platforms use the data they collect about producers, consumers, the value units created and the goods or services exchanged in order to get the best matching between supply and demand possible, and most importantly, in real time: the more data a platform has and the more effective it becomes to use this data to foster more effective matching and more interaction the more successful it will become. That’s the feedback loop.
Iterate to remain: Once a platform has established its core interactions, it’s time to iterate by layering more peripheral interactions on top of them. Let’s by the way take this with a grain of salt, as we need to remember that platforms aren’t entirely planned – most of the activity is controlled by the users which means platform builders must allow themselves to expect serendipitous discoveries by closely monitoring usage behavioral data to unlock new value … Uber X and Uber Pool are great examples, cloud kitchens and Doordash are also coming up to change the way we eat (see my note about cloud kitchens here).
Let me know what you think! DM me @philippemora
My name's phil mora and I blog about the things I love: fitness, hacking work, tech and anything holistic.
Head of Product and VP Engineering.
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