“Welcome to the revolution.”
With an opening sentence such as this, I expected big things from Platform Revolution. It did not disappoint. Co-written by Geoffrey G. Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary in 2016, these authors have made significant contributions the world of economics, business, and education, and all of these men continue to teach at the most esteemed universities in United States. As a result of these multiple perspectives and collaborative efforts, Platform Revolution is concise yet thorough. Understandable yet technical. An analysis of the history of business yet a focus on the future. This unique, multifaceted book acts as more than just strategy for development of a platform-driven company. It is truly a manual of how to successfully operate business for the entrepreneur in the 21st century. Therefore, I strongly recommend anyone in or entering the tech industry to read Platform Revolution.
Starting with title itself, this book takes a strong approach to the growing influence–and even dominance–of platform businesses in the market today. But what is a platform? And what is the structure of business it is moving away from? A platform is defined as a type of business in which it’s primary purpose is to facilitate interactions between external producers and consumers, thus creating value for both participants. These exchanges range from social currency to physical goods to services while also encouraging users to flexibly experience both sides of these interactions. Simply put, a producer can easily become a consumer, and vice versa. Successful examples of platform businesses include Uber, Facebook, Amazon, Spotify, Ebay, Doordash–and the list goes on. Just look at the apps on your phone to find more!
While this type of business has found tremendous success in recent years, it is only revolutionary when compared to the history of business, which has mainly consisted of “pipeline” businesses. These follow a linear value chain, with the producers on one end and the consumers on the opposite end. In other words, this is when a company structures itself first according to the design of a product and thereafter manufactures the good to then be purchased in person, in a store before any value-creating transaction has ever occurred. Examples include any traditional ‘brick and mortar store,’ still obviously incredibly valuable and present today.
With these strikingly different worlds of business clearly defined, it is clear to see the threat of platforms entering your market. As a consumer, why go to the grocery store when Amazon Fresh delivers groceries to your front door? Why stay in a standard hotel when Airbnb offers unique, intimate apartments in virtually any location you could ask for? As an entrepreneur, why guess what consumers might want when participants and data can answer that precisely for you? Amazon does not buy and ship an item from a producer unless a consumer has since purchased it. Why pay spend millions in overhead when participants can provide that for you? Lyft owns none of its vehicles, yet it is a leading company in the taxi industry. Airbnb owns none of its rentals, yet it leads in the hotel industry. Authors Parker, Van Alstyne, and Choudary attribute such success to a platform’s quick ability to scale, new and cheaper sources of value creation, and “inverting the firm,” which focuses on external activities instead of internal. Thus, these questions and, more importantly, the results that have followed make platforms truly revolutionary in nature.
The book is structured clearly through its chapters, in which each describes a different phase or consideration of a platform’s business model, starting with network effects and ending with policy. While each chapter offered incredible insights, I found three in particular to be the most helpful and unexpected.
(1) Architecture. When designing a successful platform, these authors have come with up a valuable and simple equation to keep in mind:
Participants + Value Unit + Filter → Core Interaction
While this equation seemed basic and essential enough, it is what comes after the Core Interaction that often has led to trouble for platforms. Parker explains that additional layers on top of the core interaction can take away from the platform’s purpose and simplicity–something users value so highly. These extra, complicated features are described as “bloatware.” While prior to this reading I understood the importance of a simple, accessible application, I did not realize just how essential it is to the company’s success. After reading this chapter, I took a second look at some of the apps that I have. I then realized that the ones I liked to use the most, such as Venmo and Instagram, were the most simple with an extremely focused core interaction and limited additional, distracting features.
(2) Monetization. Of course, any time one starts a company, he or she is hoping to make money. However, this is a less simple task for the platform business than I expected. The biggest monetization question a platform should be asking is whom should it charge? There are a variety of successful answers, such as Amazon’s transaction fee on goods sold or Spotify’s subscription to enhanced, ad-free music. However, interestly enough, enhanced access has its consequences, as seen in the Parker’s Yelp example. While Yelp profits off of companies paying to have their listings ranked higher on the platform, Yelp inevitably runs the risk of appearing deceptive or that user access is being restricted. As a result, I now notice myself less trusting and less likely to visit the places that pay for this service–something I never would have considered had I not read this chapter.
(3) Governance. Finally, Parker explains that governance, particularly self-governance, can ultimately define a platform’s success. Internal transparency is vital to promote consistency, accessibility, and evolution within the company. Parker references the Yegge Rant, a summary of Amazon’s CEO Jeff Bezos by executive Steve Yegge that required internal transparency to the fullest extent.
While these rules appear stringent, this is an exceptional representation of just how significant this aspect of a business–platform or pipeline–ought to be. Of course, I expected that openness within a company should exist, yet not to this dramatic extent. That being said, I both respected and liked Bezos’s mandate, and I believe it would be something I require of my own company one day. This can only promote a more collaborative, communicative, and more accessible staff, ranging from the top executives to the lower level employees. Not only would the company better off but the staff becomes one step closer to a community.
Overall, Platform Revolution truly acted as a textbook with insight after insight into what an entrepreneur today should prepare for. That includes the good, the bad, and the ugly. I cannot speak highly enough about this book, with the power to inspire anyone who reads it.