Platforms, where the digital economy stands up. A bit of platform thinking for students of the European Institute of Technology, Master of Data Science

1. Platforms
Where the digital economy stands up
EIT Digital Master School
Data Science Master Degree
Creation and deployment of digital services
June 2-3 2016
Francisco Jariego
@fjjariego

2. Platforms are the future—but not for everyone
http://www.economist.com/news/business/21699103-platforms-are-futurebut-not-everyone-emporium-strikes-back
Platforms have allowed American
companies to build global digital
emporiums that have come to
dominate the technology industry.
— The Economist, May 2016

3. Where Uber and Amazon
rule: welcome to the world of
the platform
https://www.theguardian.com/technology/2015/jun/07/facebook-uber-amazon-platform-economy
Some prominent critics even speak of
“platform capitalism” – a broader
transformation of how goods and
services are produced, shared and
delivered (…) the emergence of a new,
seemingly flatter and more
participatory model, whereby
customers engage directly with each
other. With a smartphone in their
pocket, individuals can suddenly do
things that previously required an
array of institutions.
— The Guardian, June 2015

4. Platform Thinking
Platforms like YouTube and Twitter have different roles, rules, strategies,
and business models than typical companies. They create completely new
markets, are highly disruptive to existing ways of operating, and are, by
their very nature, suitable for scaling. Understanding platform thinking is a
must for entrepreneurs and businesses, especially for social entrepreneurs
who want to scale their impact without making large investments.
— Sangeet Choudary
http://www.thnk.org/insights/crash-course-platform-thinking/

5. Data as a platform
Mary Meeker, Internet Trends 2016

6. Are unicorns all platforms?
Unicorns are private startup companies that have achieved a valuation of (more than)
$1billion before IPO
A review of the 115 companies listed as Unicorns by CB Insights in June 2015 found
that 80 of these companies —70%— are platform companies.
http://graphics.wsj.com/billion-dollar-club/
Uber
$62.5B
Xiaomi
$46.0B
AirBnB
$25.5B
Spotify
$8.5B

7. Peter C. Evans and Annabelle Gawer, “The Rise of the Platform Enterprise: A Global Survey”, January 2016
Platform companies by region

8. Peter C. Evans and Annabelle Gawer, “The Rise of the Platform Enterprise: A Global Survey”, January 2016
Top 10 cities by platform headquarters

9. Peter C. Evans and Annabelle Gawer, “The Rise of the Platform Enterprise: A Global Survey”, January 2016
Top 10 sector rank
Number of Companies
Market Capitalization

10.  Increasing productivity through efficient matching
 Improving asset utilization, the sharing economy
 Accelerating innovation
 Attracting investment from VC’s
 Making deep inroads into other industries…
 from TV to transportation, and more coming…
 Raising regulatory controversy:
 Market dominance
 Tax avoidance
 Relation to labour markets: workers vs. contractors
Platform have a real tangible economic impact today
Peter C. Evans and Annabelle Gawer, “The Rise of the Platform Enterprise: A Global Survey”, January 2016

11. The “product” business model is broken

12. • A product is good, idea, method, information,
object or service that serves a need or satisfies
a want.
• After buying it, you have some exclusive
ownership or access.
• iPhones and GoPros, Microsoft Office and
Adobe Photoshop, Candy Crush and The New
York Times mobile app are products.
• You might pay a flat price, a SaaS fee, trade your
attention for ads, get some amount of free
usage or partake in in-app purchases, but the
concept is the same. You buy or sign up for
something and use it.
• The distinguishing aspect of a platform is the ability
for others to build products and ultimately
generate revenue on top of it, often in ways the
platform creator never imagined.
• Platforms generate revenue by taking a cut of
proceeds, and costs tend to scale in proportion to
their use.
• Amazon Web Services, iOS and Android, American
Express, Sony PlayStation, eBay, Facebook, Skype,
Vogue magazine, Yellow Pages, YouTube, Uber,
AirBnB are platforms
• Traditional cable TV companies, department stores,
movie theatres, satellite radio companies, aren’t
Product versus Platform
http://techcrunch.com/2015/11/28/the-platform-paradox

13. Platforms are not new…

14. I don’t want to belong
to any club that will
accept people like me
as a member
— Groucho Marx
Clubs

15. Newspapers

16. Credit Cards

17. Uber

18. Cities

19. Industry Platform Side 1 Side 2
Media
Newspapers & Magazines Reader Advertiser
TV Network Viewer Advertiser
Web Portal Web "Surfer" Advertiser
Software
Operating System App. User Developer
Video Game Console Game User Developer
Payments Credit Card Cardholder Merchant
Transport Ride-Hailing Passenger Driver
Retail Amazon, Ebay, Alibaba Buyer Merchant
Why does a platform exist?

20. Why does a platform exist?
The fundamental goal of a platform is to enable interactions between producer and consumer,
allowing them to share or exchange things without direct intervention by the platform owner
Producers can ‘plug-in’ and create on top of a platform.
The consumer is often also a producer!

21. EU Commission: Online platform refers to an undertaking operating in two (or multi)-sided
markets, which uses the internet to enable interactions between two or more distinct but
interdependent groups of users so as to generate value for at least one of the groups. Certain
platforms also qualify as intermediary service providers.
Annabelle Gawer: technological building blocks (which can be technologies, products, or services)
that act as a foundation on top of which an array of firms, organized in a set of interdependent
firms (‘‘ecosystems”) develop a set of inter-related products, technologies and services
Sangeet Choudary: A platform is a plug & play business model that allows multiple participants
(producers and consumers) to connect to it, interact with each other and create and exchange
value
Michael Cusumano: A platform or complement strategy differs from a product strategy in that it
requires an external ecosystem to generate complementary product or service innovations and
build positive feedback between the complements and the platform. The effect is much greater
potential for innovation and growth than a single product-oriented firm can generate alone.
What is a Platform?

22. What is a Platform?
A Multi-sided platform (MSP) is an organization that
creates value primarily by enabling direct interactions
between two (or more) distinct types of affiliated
customers
— Hagiou & Wright 2011

23. Re-SellerSide A Side B
MSP
Side A Side B
From Pipes to Platforms
Sale of goods
or services
Sale of goods
or services
Affiliation Affiliation
Direct Interaction

24. “A product is useless
without a platform, or
more precisely and
accurately, a platform-less
product will always be
replaced by an equivalent
platform-ised product”
— Jeff Bezos

25. “A platform is a system
that can be adapted to
countless needs and
niches that the platform’s
original developers could
not possibly have
contemplated…”
— Marc Andreessen

26. Platforms: market or technology?
The economic perspective: Platforms create value
by acting as conduits between two or more groups
of consumers who would not have been able to
connect or transact without the platform. Platforms
are two-sided or multi-sided markets
The engineering view: Platforms have a modular
type of technological architecture, with interfaces
(API) being fundamental for modularity to facilitate
innovation. Platforms are purposefully designed
technological architectures that facilitate
innovation

27. The Platform Stack
Network / Ecosystem
Technology Infrastructure
Data
https://medium.com/art-marketing/the-platform-stack-c83f9c96e6#.a6dsfuz9x

28. 2-sided markets
1. .Two or more different groups of customers who need each other in some way
2. Crossed network externalities between these groups (a group being attracted
to the platform because of the other group's participation)
3. An intermediary (platform) facilitates the coordination more efficiently than
bi-lateral relationships, minimizing transactions costs, and (partially)
internalizing the externalities between groups
The interesting question is often not whether a market can be defined as
two-sided—virtually all markets might be two-sided to some extent—but
how important two-sided issues are in determining outcomes of interest!

29. Positive network effects are present when the value of a product or service
increases with the increasing number of other users
 Direct positive network effects apply to the same group of users (e.g. more
users joining a telephone network, or a social network like Facebook). For users
of those platforms, the value of using the platform grows as other participants
with whom they can interact start joining.
 Indirect positive network effects exist when users of one group benefit from an
increased presence of users from a different group (e.g. sellers on an online
marketplace benefit from a higher number of buyers).
Network effects and externalities: Bigger is Better

30. A customer on one side of the market will be
willing to affiliate with a platform only if he or
she expects enough participation from the
other side.
Today’s expectations regarding the growth of
a network will be an important determinant
of their adoption decision
Failure to achieve “critical mass” quickly
results in the implosion of the platform. Most
platforms fail to take off.
Expectations: The Chicken & Egg Conundrum
The aura of inevitability is a
powerful weapon when
demand-side economies of
scale are strong
Time
Users
Launch
Take-off
Saturation
Positive feed-back
Critical Mass

31. Example: Network Effects, Uber

32. Rochet & Tirole, “Platform competition in two-sided markets”
A firm can rationally invest in a product it
intends to give away into perpetuity even
in the absence of competitors.
Increased demand in a complementary
premium goods market may cover the
cost of investment in the free-goods
market.
This strategy also takes advantage of
information’s near zero marginal cost
property as it allows a firm to subsidize an
arbitrarily large market at a modest fixed
cost.
If you are not paying for it, you are the product!

33. Platforms are competing in “winner takes
all” or “a few winners take all” markets:
 Switching costs and lock-in.
 Tipping & winner takes all markets
(monopoly)
 Components, complements, systems
 Coordination & Standards
 Open strategies
 Technology adoption with multiple
equilibria
 …
Network Economics
Time
Market
share (%)
100
50
0
Battlefield
Supply-side and demand-
side economies of scale
combine to make positive
feedback in the digital
economy especially strong

34. Example: How IOS, Android deliver benefits to all sides
Vision Mobile

35. Example: Smartphones take over
Profit Share Handsets 2007-2013Share of Shipments 2005-2013
Vision Mobile

36. Example: Web Browser Adoption 1996-2015
Wikipedia / Reddit

37. How to build a (digital) platform

38. It’s nearly impossible for a startup to create a platform from
scratch
Most platforms emerge as the byproduct of a successful
product solution
Amazon’s AWS, Facebook and iOS entered the platform
business somewhat unwittingly.
Unless you’re smarter than Steve Jobs, start by solving a
problem for your customer and only become a platform when
you’ve become the standard in solving that Problem
How to build a (digital) platform
http://techcrunch.com/2015/11/28/the-platform-paradox

39. Identify a
Problem
Identify the
Core
Interaction
Rules and
Tools:
Design a way to
facilitate and
automate the
interaction
Scale Up:
build up a
network around
the interaction
Every business has a platform angle
Every business today is faced with the fundamental question that underlies
Platform Thinking: How do I enable others to create value?

40. Entrepreneurs who start multi-sided platforms must secure
enough customers on both sides
Failure to achieve “critical mass” quickly results in the
implosion of the platform.
There are a number of strategies available to entrepreneurs
to reach critical mass.
 For example, the “zigzag” strategy involves successive
accretions of customers on both sides to build up the
value to both.
The relevant strategies depend on the nature of the
platform:
 It requires securing participation by both platform
sides at launch (e.g. dating venues)
 it is possible to acquire one side before approaching
the other side (e.g. search engines)
 it is necessary to make pre-commitments to one side
to induce them to make investments (e.g. video
games)
Evans: How Catalysts Ignite: The Economics of Platform-Based Start-Ups
Getting both sides of the market on board
Why did Linkedin beat Monster?
What’s so special about Medium?
How did AirBnB disrupt Craiglist?
Why do YouTube and Vimeo coexist?
Sangeet Paul Choudary, The Platform Stack

41. 1. All teams will expose their data…
2. Teams must communicate through
interfaces
3. … no other form of inter-process
communication allowed
4. Interfaces, without exception, must be
externalizable
5. Anyone who doesn’t do this will be fired
Eat your own dog-food

42. What comes next?
We want more jobs!

43. What comes next?
Retail &
Social
Networks
Sharing
Economy
Cyber
physical
the transformation of everything else…
Smart Cities
Industry 4.0
…

44. The EU way: Loyauté des plateformes
DIGITAL SINGLE MARKET
INNOVATION & ENTREPRENEURSHIP
Is Europe putting
regulation above
innovation, and being
too protectionist?

45. Platforms
Here be dragons 
Francisco Jariego
@fjjariego

46. Eisenmann, T. R., Parker, G., & Van Alstyne, M. W. (2008). Opening Platforms: How, When and Why? SSRN
Electronic Journal. http://doi.org/10.2139/ssrn.1264012
Evans, David. S. (2011). “Platform economics: Essays on multi-sided businesses.”
Peter C. Evans and Annabelle Gawer (2016)“The Rise of the Platform Enterprise: A Global Survey”
Hagiu, A., & Wright, J. (2015). Multi-sided platforms. International Journal of Industrial Organization, 43,
162–174. http://doi.org/10.1016/j.ijindorg.2015.03.003
Rochet, J.-C., & Tirole, J. (2003). Platform Competition in Two-Sided Markets. IDEI Working Papers.
Rochet, J.-C., & Tirole, J. (2004). Two-sided markets: An overview.
Rochet, J.-C., & Tirole, J. (2005). Two-Sided Markets : A Progress Report. IDEI Working Papers.
Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Regions - Online Platforms and the Digital Single Market
Opportunities and Challenges for Europe (COM(2016)288) May 2016
Commission Staff Working Document on Online Platforms, accompanying the document "Communication on
Online Platforms and the Digital Single Market" (COM(2016) 288) May 2016
Shapiro, Carl, and Hal R. Varian. Information Rules: A Strategic Guide to the Network Economy. Boston, Mass:
Harvard Business Review Press, 1998.
Shy, Oz. The Economics of Network Industries. Cambridge, U.K. New York: Cambridge University Press, 2001.
References