1 - Platforms: Definitions & Core Concepts

Question 1

Definition of platform:

Answer 1

A platform is an entity that brings together different groups of economic agents and facilitates interaction among them by managing network effects, creating value for all participants.

Question 2

Three conditions for a platform to exist:

Answer 2

1. A set of economic agents wish to interact
2. The interaction generates network effects.
3. An intermediary is more efficient in organizing the interaction

Question 3

What value is added by platforms?

Answer 3

They solve coordination problems for group who wish to interact by reducing the transaction costs for them to do so

Question 4

WGNE, is it a direct or indirect and can it be pos/neg?

Answer 4

WGNE is a direct effect and can be either positive or neg.

Question 5

Attraction loop is?

Answer 5

It is when we have positive WGNE - the higher activity and number of users, the more attractive the network is to join. When new joins, it becomes even more attractive and so on.

Question 6

2 sources/channels for attraction loops:

Answer 6

1. If a user benefits form more interaction with a larger number of users.
2. If the user benefits from better quality of the service, which in turn depends on the number of users. This is called data network effect. Ex. Googles search.

Question 7

Three outcomes of CGNE:

Answer 7

1. Attraction spillover - positive effect from A to B, but no effect in the reverse direction. Ex. professionals and amateurs.
2. Mutual attraction spiral - positive feedback loop where there are positive effects in both directions. Ex. Ebay. AND we also have positive indirect network effect, ex more sellers on eBay attracts more users which positively affects all sellers.
3. Attraction/Repulsion pendulum - when higher activity in group A affects group B positively so they increase their activity too, but then group A suffers from group B’s higher activity. Negative feedback loop. negative indirect network effect.

Question 8

Difference between pipelines and platforms:

Answer 8

Pipelines own their means of production (internal focus), whereas pure platforms simply enable interactions between agents (external focus) and don’t own their means of production.

Question 9

Must platforms be two-sided?

Answer 9

No, as the definition says, it is about managing network effects so if a company manages WGNE, then it should be considered as a platform too. For ex, Netflix.

Question 10

The typology of platforms that helps us distinguish them:

Answer 10

• Value creation: either the platform focuses on WGNE and this is where value is created, like Facebook. Or they focus on CGNE (two-sidedness) such as Airbnb.
• Value capture/monetization strategies. Here they can either charge the users for enjoying their positive network effect, for ex a freemium strategy like Spotify. Or they can include “bads”/shadow price like Youtube.

Question 11

4 platform models that focuses on WGNE

Answer 11

1. Resellers/streaming platforms
2. Social networks
3. Search engines.
4. Communication services.

Question 12

7 platform models focusing on CGNE

Answer 12

1. Exchanges
2. Matchmakers
3. Peer-to-peer marketplaces
4. Advertising-supported content providers.
5. Transaction systems
6. Software platforms
7. Crowdfunding platforms