Machine, Platform, Crowd: Harnessing Our Digital Future by Andrew McAfee and Erik Brynjolfsson is the sequel of their bestseller – The Second Machine Age. In this book, they continue to talk about what has happened in the second machine age, but with a focus on three well-summarized topics: minds and machines, products and platforms, and the core and the crowd.
1. Mind and Machines
The first trend that is reshaping the business world is the “rapidly increasing and expanding capabilities” of machines (14). The authors use the example of AlphaGo beating Lee Sedol, the best human Go player on Earth, to show how unbelievably intelligent that the machines have gotten. In the first part of the book, the authors show how artificial intelligence has reached the current level of autonomy by discussing disciplines such as neuroscience and mathematics, but they remind the readers of the remaining importance of humanity in the business world and the reasons behind it.
2. Products and Platforms
The second part of the book talks about the balance between products and platforms. It uses the example of the success of Facebook and Airbnb to show how platforms have disrupted their industries by owning few products. Facebook itself generates little information, with most of the posts, videos, and ads coming from its users and other companies. Airbnb doesn’t own any lodgings either. Instead, all of its listings come from the owners of the places themselves. This style of operation enables these companies to be some of the most competitive ones in their industries.
3. The Core and the Crowd
The last part of the book is about the emergence of the crowd, and how companies have incorporated the strength of collective intelligence into the core of the companies, namely professional knowledge, processes, expertise, and capabilities that “companies have built up internally and across their supply chains” (15). Through topics such as cryptocurrency (mainly Bitcoin), blockchain, and DAO (decentralized autonomous organization), the authors demonstrate the possibilities that the crowd (or decentralization) can bring to the table while acknowledging the crucial role that companies play in the business world.
The intention of this book is to help the readers, especially the decision makers of companies, to get a better sense of what the second machine age has to offer and how it is reshaping the business world. By uncovering “status quo biases” such as HiPPO (highest-paid person’s opinion), which summarizes “the dominant decision-making style at most companies” that is often based on intuition and judgments instead of objective data, the authors warn those decision makers that they need to find an effective balance between minds and machines, products and platforms, and the core and the crowd in order to keep their companies on track in the ever-changing world of technology.
In-depth: Paying Complements, and Other Smart Strategies
This chapter is in the “product and platform” part of the book. Using Apple as the main example, the authors effectively prove that good digital platforms are “powerful aggregators of both supply and demand” (174) and they are the primary force in operating a successful company. It is a very interesting chapter in that the authors explain the success of Apple using some of the most fundamental principles of economics. The authors start the chapter recalling the fact that in the very early stage of iPhone development, Steve Jobs first rejected the idea of having outside developers to contribute apps for the App Store. Instead, he insisted on letting Apple’s developers write every single app for the smartphone to keep the integrity of the iOS system (free of viruses, phishing etc.) However, he eventually agreed to open the App Store to outside developers with the condition of strict evaluation by the company, which was proven to be revolutionary to the cell phone industry.
To explain this great success, the authors use the idea of consumer surplus and the relationship between a good and the demand curve of its complement good. When the price of a good goes down, the demand of its complement good goes up even though its price doesn’t change. Therefore, when outside developers came out with free iOS apps, the price of those apps practically went down which caused iPhone to have a higher demand. Also, since the apps are free, there is a great deal of consumer surplus to be generated, which makes downloading the apps a bargain for everyone regardless of their willingness to pay.
The benefits of opening up the App Store became clear soon after the decision: having any kind of app you want in your phone is way more attractive than just having a few apps that Apple’s developers can think of. Moreover, each new app adds to the consumer surplus making people want to purchase the product for its growing potential value, and it also contributes to the outward-shifting trend of the demand curve (meaning more people want to buy an iPhone at such a high price). With that, Apple is also generating a greater network effect on both the supply and the demand sides of the platform. On the demand side, more customers are willing to buy the iPhone because more apps are available and more people around them are using it. On the supply side, more developers are willing to contribute to your platform because the user base of it is constantly growing.
Overall, I think this book is informative if you are looking for a introductory book on the current situation of the “second machine age.” The language that McAfee and Brynjolfsson use is straightforward and examples they provide are intuitive. They bring in a little bit from every discipline: engineering, computer science, psychology, sociology, history, management science etc. It is not a book that requires a lot of management or economic knowledge, and the authors do a great job at keeping the observations and principles interesting by introducing multiple real-world examples that prove their points. If you have taken an introductory economics class before, you would find their reasonings really intriguing because they are real-life applications of the seemingly abstract ideas that you have learned in class and thought that you would never use. Even if you have never taken an economics class, the arguments are still quite intuitive as the authors explain the principles step by step with specific examples and sometimes with graphs.
The book covers everything from AI to O2O platforms, which gives the readers a fairly complete sense of what is currently relevant to almost every industry with a sneak peak into possibilities in the future (because it is not just the technology industry that has been greatly influenced by the second machine age). At the end of each chapter, there are a few summary points to recap the most important ideas with a couple of questions for the decision-making readers to reflect on their companies. Therefore, I would recommend this book to anyone who would like to get a idea of what is really happening with the “digital revolution” or just don’t want to fall behind in this fast-changing business world.