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Governance is all about creating good rules. A platform is composed of a community of users. Like all healthy communities, there need to be rules protecting the members of the community. The wrong kind of rules, however, can alienate users.
To avoid this, platforms should observe three fundamental laws of good governance.
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Deciding where to begin in platform design is difficult. Copying other companies doesn’t always work because platform businesses tend to be different from each other. Instead of trying to imitate another platform, the focus should be on the interaction. Platform design should always start with th...
Matching quality measures how well the search algorithms match users to make transactions. People want to find what they’re looking for. Search results shouldn’t bring up a bunch of noise that users must sift through. A good metric to measure this is the sales conversion rate — t...
Charge a transaction fee. This way, people aren’t discouraged from joining the site to begin with.
Charge for access. For example, on employment websites recruiters usually pay to list jobs.
Charge for enhanced access. LinkedIn is fre...
Viral growth is a pull process. Create an environment where users tell new people about the platform. Viral growth depends on the user to be the sender. The sender shares a value unit. Allow the value unit to spread to existing networks. Then there has to be an actual recipient to receive the val...
Liquidity means that there are some producers and consumers, and there is a high percentage of interactions. You can track liquidity by measuring the percentage of listings that lead to interactions. It’s also important to look at illiquidity, which happens when transactions aren’t possible....
Platforms are businesses that match users to each other in order to make financial or social transactions that create value. Value arises from the community the platform serves.
Platforms multiply profit because they benefit from network effects, which can help the value of a network to gro...
Frictionless entry makes it possible for users to quickly and easily join a platform.
Side-switching platforms allow users to switch roles.
Beware of negative network effects. If there are lots of users, it can overwhelm the system.
Platforms enable new forms of consumer behavior. People will gladly jump into a stranger’s car when they use Uber. It wasn’t too long ago that such behavior would have been considered crazy dangerous. Platforms enable this because they have built-in mechanisms to engender trust between users....
A platform is a business that connects people through technology, making an ecosystem that allows value to be created and exchanged.
Platforms can host several different kinds of users, like how Amazon has both sellers and buyers, or they can have one primary type of user, like Facebook’s ...
Regulations should be reevaluated everywhere because the whole game has been changed by platform businesses. Often enough, new economy businesses have just ignored existing regulations. This has brought a host of ethical problems.
Dominant platforms might resist change and innovation- after...
To be open means to have no restrictions on development, commercialization or use. In another definition, it can mean that any restrictions — like rules and fees — are reasonable and nondiscriminatory.
Getting the right amount of openness is difficult, but important. Openness encourages inn...
Platforms are places where buyers and sellers can come together and transact business. It isn’t a business model. Platforms have been around for ages. Platforms include traditional marketplaces where goods, like produce, are sold.
Platforms eat pipelines.
The way to understand what’s going on with a system is through metrics. By measuring the right things, needs, performance and other aspects of the system can be assessed.
Platforms are a new business model that require new ways to keep track of what’s going on.
Platforms must track an...
The internet provides infrastructure and coordinates communication. Platforms make use of these features for transactions all over the planet.
There are several reasons for this.
The more peripheral a feature is to the core mission, the more peripheral it should be on a platform. If only some users need it, then it shouldn’t be junking things up in a central location. This will make the system run more efficiently.
Always leave room for organic and spontaneous chang...
Platforms typically enjoy two-sided network effects. The two sides required for interaction attract each other; for example, on a site with buyers and sellers, the presence of buyers attracts sellers, and the presence of sellers attracts buyers.
Network effects can come from and affect bot...
Because platforms don’t own the resources that create value, they can grow much faster than pipeline businesses. Platforms also scale better. Growth isn’t tied to resources, so it can occur faster. Platforms bring new supplies to market because users are always coming up with new things.
When users go to a number of different sites to do similar kinds of transactions, it’s known as multi-homing. It’s better for the platform if it can keep all those tasty transactions at home on the platform. One way to accomplish this is to limit platform access. Platforms should try to get exclu...
Tools for governance include laws, or platform rules, and norms, the desirable behavior within a community.
Architecture, or programming code, can be used to reinforce desired behavior and make unwanted behavior difficult to perform.
And finally, marke...
In manager and sponsor participation, the sponsors control the platform architecture, the manager controls interactions. Often these two roles are played by the same entity.
Developer participation has two different kinds of users. Core developers ...
Separating assets from value. Ownership of assets like equipment should be separated from value. For example, pooling the use of a MRI machine means everyone can use it without having to buy their own.
Re-intermediation. There are new kinds of middlemen. Fo...
Three of the most important functions of a platform are pull, facilitate and match.
Pull attracts users to the platform.
To facilitate transactions the platform provides tools and rules; this is the scaffolding of interact...
There are many industries that will probably convert to platform industries in the coming years, these include information intensive industries, industries with non-scalable gatekeepers, highly fragmented industries and industries characterized by extreme information asymmetries.
by Geoffrey G. Parker, Marshall W. Van Alstyne, Sangeet Paul Choudary
Publishing rights manager
Uber. Airbnb. Amazon. Apple. PayPal. All of these companies disrupted their markets when they launched. Today they are industry leaders. What’s the secret to their success? These cutting-edge businesses are built on platforms: two-sided markets that are revolutionizing the way we do business.
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