3a. Disruption and Platform Launch

Question 1

Two historical stages of internet-enabled disruption

Answer 1

Efficient pipelines ate inefficient pipelines

Platforms eat pipelines

Question 2

Platforms enjoy two significant competitive advantages over pipeline businesses. What are the two?

Answer 2

1. Superior marginal economics of production (costs pr. unit significantly lower)
2. Network effects. When positive network effects kick in, higher production leads to higher consumption and vice versa. A virtuous feedback loop is set in motion, fueling the growth of the platform at minimal cost

Therefore, firms that continue to compete on the basis of resources that are owned internally are increasingly finding it difficult to compete with platforms

Question 3

How does platforms reconfigure value creation to tap new sources of supply?

Answer 3

Lower barriers for users that might discourage both users and producers - making it the easy choice (e..g, Twitter making the quotes short instead of long blogs that are time consuming)

New production technologies further enables the emergence of new groups of producers - e.g., 3D printing making room for platforms for industry design

Question 4

How do platform reconfigure value consumption by enabling new forms of consumer behaviour?

Answer 4

Inspiring people to use products and services in ways that have never been thought of before (e.g., hopping intro strangers cars, renting other’s apartments etc.)

Question 5

How does platforms reconfigure quality control through community-driven curation?

Answer 5

Strong curation encourages desirable behaviour while discouraging and eventually weeding out undesirable behaviour. As the platform nurtures quality, it develops the reliability needed to attract a wide array of customers

Platforms that successfully scale their curation efforts gather better data on their users and improve their matching algorithms over time. Further, more users give more data and hence, provide better foundation for curation

Question 6

The rise of platform businesses is transforming the structure of the business landscape in three specific ways:

Answer 6

De-linking assets from value: You de-link ownership of the physical asset from the value it creates. This allows the use of the asset to be independently traded and applied to its best use. E.g., creating an Airbnb for expensive hospital equipment like Cohealo

Re-intermediation: Re-intermediation involves replacing non-scalable and inefficient agent intermediaries (mediators making deals between producer and consumer) with online, often automated tools and systems that offer valuable new goods and services to participants on both sides of the platform. While traditional intermediaries relied on manual efforts, platform intermediaries rely on algorithms and social feedback. platforms create a new layer of reputational information by leveraging social feedback about producers (e.g., Trustpilot and TripAdvisor) and empower small and nimble service providers who leverage the platform to provide services to end users

Market aggregation: Market aggregation is the process whereby platforms provide centralised markets to serve widely dispersed individuals and organisations. Market aggregation provides information and power to platform users who formerly engaged in interactions in a haphazard fashion, often without access to reliable or up-to date market data (e.g., Amazon marketplace). Aggregating unorganized markets

Question 7

The chicken and the egg problem

Answer 7

Occurs when a business is designed to serve two sides of the market . When trying to build a two-sided market in which both sides are equally essential – what comes first? And how do you attract one without the other?

Example with PayPal paying customers 10 dollars for signing up and the existing customers for referrals. Once users experienced the convenience of PayPal, they often insisted on paying by this method (commitment is more important than sign-ups)

Question 8

Pull or push strategies?

Answer 8

Creating awareness alone does not drive adoption and usage, and pushing goods and services toward customers is no longer the key to success. They need to be pulled in.

For a platform business, user commitment and active usage, not sign-up or acquisitions, are the true indicators of customer adoption. That is why platforms must attract users by structuring incentives for participants – preferably incentives that are organically connected to the interactions made possible by the platform

Question 9

The incumbent advantage. Reality or an illusion?

Answer 9

Large enterprises do have some advantages when launching platform businesses. They have existing value chains, powerful alliances and partnerships with other companies, pools of talent to draw upon, and vast arsenals of resources – including loyal customer bases

However, in the world of platforms, dominated by networks that interact rapidly and unpredictably, the market can change quickly, and customer expectations can change even faster. Management systems need to change accordingly. As new and smaller firms are more flexible, this give them an advantage

Question 10

The later mover problem

Answer 10

The problem of not being the first company providing the service

However, if you are launching a platform, knowing the value proposition offered by your competitors can help you structure your own, allowing to claim a relatively untouched market niche – even if your basic value unit may appear similar on the surface

E.g. YouTube and Viemo

Question 11

1/8 strategies for the chicken or egg-problem: The follow the rabbit strategy

Answer 11

Building a platform business on the foundation of an existing pipeline or product business

Use a non-platform demonstration project to model success, thereby attracting both users and producers to a new platform erected on your project’s proven infrastructure

Involves three steps:
Staging value creation:
The platform managers arrange for the creation of value units that will attract one or more sets of users and demonstrate the potential benefits of participating in the platform. Those initial users create more value units, attract still other users, and set up a positive feedback loop that leads to continuing growth

Designing the platform to attract one set of users: To start, the platform creates conditions such that value units can be created that are relevant to users even when the overall size of the network is small. It then strives to stimulate a burst of activity that will simultaneously attract other consumers and producers in sufficient numbers to create larger number of value units and value-producing interactions, so that network effects can begin to kick in

Simultaneous on-boarding:
the platform creates conditions such that value units can be created that are relevant to users even when the overall size of the network is small. It then strives to stimulate a burst of activity that will simultaneously attract other consumers and producers in sufficient numbers to create larger number of value units and value-producing interactions, so that network effects can begin to kick in

Question 12

2/8 strategies: The piggyback strategy

Answer 12

Connect with an existing user base from a different platform and stage the creation of value units in order to recruit those users to participate in your platform

PayPal used this strategy when it piggy-backed on eBay’s online auction platform (created a bot that bought goods at eBay and insisted on paying with PayPal (p. 83)

Question 13

3/8 strategies: The seeding strategy

Answer 13

Create value units that will be relevant to at least one set of potential users. When these users are attracted to the platform, other sets of users who want to engage in interactions with them will follow

The platform company takes the task of value creation upon itself by acting as the first producer. In addition to kickstarting the platform, this strategy allows the platform owner to define the kind and quality of value units they want to see on the platform

In still other cases, seeding is done through simulated, “fake”, value units or borrowed ones from other sites

Question 14

4/8 strategies: The marquee strategy

Answer 14

In many cases, there is a single group of users who are so important that their participation can make or break the success of the platform. It may, therefore, make sense for the platform manager to incentivise their participation, either through cash payment or through other special benefits

E.g., having attractive games on a gaming platform

Question 15

5/8 strategies: The single-sided strategy

Answer 15

Create a business around products or services that benefit a single set of users – later concert the business into a platform business by attracting a second set of users who want to engage in interactions with the first set

Question 16

6/8 strategies: The producer evangelism strategy

Answer 16

Design your platform to attract producers, who can induce their customers to become users of the platform

The platform helps the producers cater to their existing set of consumers, and over time, the producers benefit from the data-driven cross-pollination as other consumers on the network become interested in their products and services

Question 17

7/8 strategies: The Big Bang adaption theory

Answer 17

Use one or more traditional push marketing strategies to attract a high volume of interest and attention to your platform. This triggers a simultaneous on-boarding effect, creating an almost fully developed network virtually instantaneously

There is not always an opportunity to use such push methods, but when it exists – as it did for Tinder, the smart platform manager will grab it (marketed it during a frat party, where people were already looking for hook-ups)

Question 18

8/8 strategies: The micromarket strategy

Answer 18

Start by targeting a tiny market that comprises members who are already engaging in interactions. This enables the platform to provide the effective matchmaking characteristic of a large market even in the earliest stages of growth

e.g. Facebook

Question 19

Viral growth: The user-to-user launch mechanism. The four key elements:

Answer 19

Complements all of the above strategies. Pull-based - encourages users to spread the word.

1. The sender: In general, users spread self-created value units to get social feedback, which in turn may bring them fun, fame, fulfilment, or fortune
2. The value unit: A spreadable value unit may be one that helps to start an interaction on an external network, the way Instagram photos create conversations on Fakebook among users intrigued by the images they have seen
3. The external network: Growing on other platforms, like Instagram grew on Facebook. External networks often introduce restrictions when more and more applications use them for growth
4. The recipient: Then the user of a platform sends a value unit to a friend or acquaintance, the recipient will respond if he or she finds the value unit relevant . When the value units are intriguing enough, the recipients spread them further, sometimes giving rise to new interactions on another network