Platform Revolution | Geoffrey G. Parker

Summary of: Platform Revolution: How Networked Markets Are Transforming the Economy–and How to Make Them Work for You
By: Geoffrey G. Parker

Introduction

Welcome to the incredible world of platform revolution, where industries are undergoing transformations with the rise of new business models. In this summary of Platform Revolution by Geoffrey G. Parker, you’ll explore how companies like Airbnb, Uber, Apple, Google, and Microsoft have taken advantage of platform business models, abandoning the traditional ‘pipeline’ model in favor of fostering a community of users and connecting providers with consumers. Discover how these businesses thrive by focusing on demand economies of scale, implementing frictionless entry and effective curation to drive growth, and establishing core interactions that enable the exchange of value.

Platform Business Models Revolutionize Traditional Industries

The spread of platform business models has disrupted and transformed traditional industries such as travel, transportation, media, and communication. Companies like Airbnb and Uber match external producers with consumers, creating value by enabling the exchange of goods, services, or social currency. These platform businesses concentrate on external resources, hiring outside professionals and resources rather than building internally. By inverting the traditional pipeline model, the platforms create value for their communities of users by using resources they don’t own, connecting providers and users. Applied to the Internet of Things, platform economics will dramatically alter the business models associated with countless goods and services. Platforms grow more quickly than traditional businesses by getting rid of inefficient gatekeepers. The Kindle platform is an excellent example. Any author can publish a book on the Kindle platform, and depending on consumer feedback, the book can climb to the top of the bestseller list or flop. The readers ultimately decide through their purchases.

Economies of Scale in Platforms

The growth of traditional pipeline firms was due to supply economies of scale, that is, producing large batches of goods at reduced costs. In contrast, platform businesses focus on demand economies of scale, which grow through the use of demand aggregation, apps, and social networks. Such economies aid achievements of positive network effects by providing on-demand services to consumers. To understand these effects, imagine a time when nobody had a telephone and there was no one to call. As more people installed phones, personal connection networks flourished in a non-linear progression known as “convex growth” (Metcalfe’s law). The platform concept is simple: create a place where producers and consumers can interact and benefit. To facilitate growth, effective curation and frictionless entry are essential in promoting positivity and boosting growth, unlike traditional, leaner businesses that run on just-in-time inventory systems.

Building a Successful Platform Business

Setting up a platform business can be daunting, but focusing on the fundamentals can make it easier. The three essential steps are to define the participants, consider the value unit, and create a filter. Participants refer to the users and producers who will be using the platform. The value unit is the core element that provides value to the users and producers. It can be challenging to control but is the biggest factor in the platform’s success. Lastly, creating a filter enables suitable value units to be exchanged between the participants. Successful platform businesses like Uber, Facebook, Alibaba, and Airbnb have all focused on these three elements to establish themselves as community-based resources. As the platform grows, it might diversify, but keeping these elements in mind can help it stay on track to success.

Pipeline vs. Platform: The Game Has Changed

Pipeline businesses must adjust or perish in the age of platform domination. Successful platforms, fueled by positive network effects, grow faster and threaten traditional companies. This disruption occurs through new sources of supply, new forms of consumer behavior, and community-driven curation. Adaptive pipeline firms take cues from successful incumbents who invest in technology, reinvent themselves as ecosystems, and connect with users to create value. To thrive, companies must favor the greatest sources of new value and move with the market, not against it. The game has changed, adapt or risk being left behind.

Winning Strategies for Platform Businesses

Platform businesses require a different approach to advertising. Instead of push strategies, “pull” or viral growth strategies work better. Implementing one of eight successful strategies to address the chicken-and-egg dilemma can lead to growth. These strategies include demonstration projects, piggybacking, creating value units, appealing to critical user groups, starting with one set of participants, attracting producers, using traditional push marketing, and selecting a tiny but influential target market. Successful platform companies surpass conventional businesses in terms of complexity, and they require a tailored strategy.

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