I picked up this book on a friend’s recommendation after checking out the blog, Plaformed Thinking.
You can Get the Book Here (click on the Hello Bar at the top and opt-in). More of an ebook/PDF than book book FYI.
Read: November 28, 2014
Rating: 3/5 (Good)
In the future, all business will be tech businesses. Platform thinking is about redefining the rules and playing a different game than traditional “pipe” business. All successful business are going to be based on platform thinking as opposed to pipe thinking (eg. AirBnB vs Hilton). How do you think about platform business? How can you integrate platform elements into an existing pipe business?
Stop thinking about building a “pipe” and start thinking about how to incorporate platform elements into existing businesses. The next step of Optimize–>Outsource –> Automate is “Platform” – getting users to do it for you. Seth Godin is right about everything – ie. network/connections are getting more valuable.
Section 1: Platform Business Models
Platform business models enable creation and exchange of value between users, with the firm (startup) acting as an infrastructure enabling users to interact. This effectively decouples effort from output.
Ex. Apple and Android beat out Nokia and Blackberry not because of superior tech but because they built platforms for others to develop on.
Cloud, Social and Mobile mean anyone can build and connect to platforms anytime, anywhere.
3 Key Factors in Platform
- Connection – Toolbox enables connection eg. Apple OS and code libraries,Wikipedia provides hosting, etc.
- Gravity – Magnet pulls people in eg. Facebook has your pics and relationship status
- Flow – Matchmaker fosters flow, eg. Google matches advertisers with consumers
Pipes vs Platforms Biz produces value then pushes it downstream – TV and Radio are pipes to consumers, manufacturing builds then is a pipe. TV (Pipe) vs Youtube (Platform) School (Pipe) vs Udemy (Platform)
Platforms have 2 key problems
1. Chicken and Egg – no value w/o both producers and consumers
2. Ensuring producers create value Building a pipe, you only think about making users happy. Building a platform you have to think about users and producers.
Monetizing pipes is straightforward, you calculate your Customer acquisition cost and make sure your LTV is higher considering taxes, margins, etc.
Platforms are less legible. Wasn’t clear how to monetize FB, Google, Twitter at first. All internet businesses have some platform aspects – blogs have comments, eComm stores have customer reviews, etc.
All business are becoming tech businesses.
3 Broad Patterns for How businesses solve customer problems
Stuff Approach – How do we create more stuff? Industrial age approach, create more stuff, build factories, build out production capacity then higher marketers to sell excess. We developed these because of a lack of information transparency, most problems can be solved by better distribution.
Optimization Approach – How can we better distribute stuff? In order to solve stuff problem, we developed algorithms to aggregate all the stuff then algorithms to match the right stuff with the right people. See Google.
Platform Approach – How can we redefine stuff? Build on Optimization Approach by enabling creation of more inventory w/o creating more stuff. Stuff creates supply, platform uncovers new sources of supply. Ex. Twitter makes everyone a journalist. You don’t need more journalists to create more news sources.
Problem: I’m traveling to city X and I need to end myself some accommodation.
The ‘stuff’ approach (Sheraton): Create more stuff. Build more hotels, set up more BnBs. If there are fewer rooms than tourists, buy some land, put up a hotel and create more rooms.
The ‘optimization’ approach (Kayak): There are a lot of hotels out there but travelers do not necessarily have all the information to make the choice they want to. Let’s aggregate this inventory and create a reliable search engine. Let’s build review sites to help make the right decision.
The ‘platform’ approach (AirBnB): How can we redefine travelers’ accommodation? How about enabling anyone with a spare room and mattress to run their own BnB?
Challenges of the platform approach
Inventory – because you’re redefining inventory, you have to solve the chicken/egg problem
External Forces – eg. Government regulation
Design Frameworks for Platform Businesses
Building the Engine
Get Employees to do the Work – Yahoo Editors
Get Algorithms to do the Work – Google News
Get Users to do the Work – Twitter
Ecosystems are more defensible than algorithms – Google has to fiercely protect it’s algorithm since it’s a competitive advantage, Youtube doesn’t care, they own the ecosystem.
One way to infuse platform thinking is to think about how to get users to solve a problem that is being solved manually or algorithmically – e.g. Facebook crowd sourced translation instead of outsourcing
3 Question Framework
1. What are the repeated chunks of work in my business? 2. Who is doing the work today? 3. How can we get someone else to do it?
Section 2: Networks Effects and Virality
Network Effects means a product gets more valuable as more users use it
A Viral product means a higher rate of adoption increases the rate of adoption
Traditionally, startups have solved chicken and egg problem by connecting users with pipes (Twitter, LinkedIn, FB)
Now some are going content first (Instagram, Pinterest)
As more and more startups try the connection model (ie. invite all your friends as after you join) people develop fatigue to these offers.
Instead Instagram started out as a photo taking tool and built the social aspects later.
The future then is building networks which function initially as user/creator based products (a la Instagram).
New Rules of Network Effect
Traditionally all networks were built like Bell Telephone – first you build the infrastructure (telephone lines) then sell access (phones) then race to grow the user base before competitors – winner takes all
Switching costs are decreasing now because you don’t need to buy hardware, you just need the internet. The database is also less valuable. You can’t move your contacts form Yahoo messenger to AIM, but everything syncs with Facebook now, so your database stays with you.
(This isn’t always true though, see Marketo and Hubspot, they own your data.)
Instead lock-in is achieved through stored value built up by users over time in the form of creative content (Instagram, Pinterest), Reputation (AirBnB, StackOverflow), Usage Data (Dropbox, Quora), Influence (Twitter Followers, Youtube subscriptions)
Section 3: Reverse Network Effects
Scale and Value are correlated in networks, more scale=more value
Sources of value are Connection (discover/connect with other users e.g. Skype, WhatsApp), Content (users consume content from other users), Clout (Twitter followers, foursquare leaderboards).
Reverse Network Effects are when the network getting larger makes it worse
Connection – Creepy dudes on ChatRoulette
Content – Spam on twitter Curation –
Quora in the last year
“The poor signal-to-noise ratio in the news feed, not the size of the overall network, is Facebook’s weakest link as the network scales.”
(Yes! If you block the News Freed Using Newsfeed Eradicator Plugin for Chome, then FB is super valuable)
Clout – bias towards older users, ie. Twitter recommends older, power users to new users so their followers compound
Examples of Networks losing Value at Scale
Less Sophisticated Participants – See Quora
Increase in Abuse wits Scale – Wikipedia
Becoming Echo Chambers – Youtube shows you videos based on what you’ve watched so you only see things you agree with, not what you need.
Hive Mind – Reddit has been criticized for getting too insular
Long Tail Abuse – Even Wikipedia only controls quality on top 20% of articles
(A lot/all of these are solved with curation which is hard to scale)
Users vs Customers Users are broken down into producer and consumer roles.
One person can be both though eg. Tweeter and reader of tweets
Customers can be producers (Vimeo users pay for premium features), consumers (NYT reader pay for access) or 3rd Party (FB/Google advertisers).
Section 4: Building User Contribution Systems
How are you making the creative process easier than existing options?
Instagram won because it made it easy to take beautiful photos.
There are more Twitter users than bloggers because it’s easier.
How are you curating?
1. Algorithmic curation
2. Social Curation (Eg. Digg) – most popular
3. Editorial curation – expensive but best, especially pre-scale
(How could you build a book platform that was valuable to a single user? Let people manage book recommendations like GoodReads is the obvious answer, but I don’t use GoodReads…)
Is there a clear, democratic way to succeed as a producer? Eg. Google doesn’t reveal algorithm but gives guidelines on what do to rank high.
Is there value beyond self-expression?
Organic Incentives for User-Producers
Help Users Create Something Cool – Instagram made a shitty camera create cool photos
Help users create while curating – People tweet to be seen as associated with certain types of news
When Users Market Themselves Your Product Gets Free Marketing – Kickstarter, Medium
We’re innately driver by self-expression so design for it – enable creative actions, provide easy distribution
Removing Barriers to Usage – A product should actually be visualized as an answer to a pain point.
Users don’t use products because they need certain features.
Users use products because they have been trying to do something but were facing a barrier while doing it so far and the product helps lower the barrier.
A pain point can often be stated in the following terms: I am a Trying to do X But I’m unable to do so because of Y
Skill Barrier – WYSIWYG made web design easier
Time/Effort – Twitter made publishing faster/easier Money Barrier – less than 10x cheaper doesn’t help, but 10x cheaper or free does as does unbundling (buy 1 song instead of an album)
Resource Barrier – Entrepreneurship is popularizing because of cloud services that reduced barrier to entry
Long Tail Access – CDBaby let artists get to consumers directly
“Competition on the internet is no longer about fighting tooth and nail over price or features as was the case with traditional businesses. In today’s age, competition is about offering a value proposition that is offered by no one else and creating an entirely new market of consumers who had a latent need but no readily available solution to solve that need. Companies that do this effectively win.”
(YES! Can you build a mini-monopoly a la Scott Adams and Dilbert?)
Section 5: Metrics
Scaling Pipes – traditional inputs for a biz are land, capital and labor and so you optimize by creating repeatable process (SOPs).
Two key aspects of scaling are repeatability and cost-effectiveness.
Eg. A manufacturing biz scales by optimizing procurement, production and distribution
Scaling Platform – Because platforms are based on the internet scale is unlimited and inputs are data and talent (read:knowledge/entrepreneurship).
Scale in a network business then is driven by interactions that users on the network have with the product.
So the new counterpart to SOPs in a network biz is UX design. “Designers” (used broadly) are to Platform businesses what MBAs are to pipe businesses
You can build platform on supply and/or demand side.
Zappos is a pipe on supply side and platform on demand side. Amazon’s ability to manage the pipe scale of supply side has been key to their success.
Google was the first to platform on both sides.
Pipe Scale focuses on per-unit efficiency – eg. improving sourcing time for eComm
Platform scale focuses on engagement and repeat usage – eg. improving order frequency/volume for eComm
Section 6: Disruption
Tech startups are disruptive because they solve an unsolved problem in a unique way.
Hotels try to solve accommodation problems by creating a new differentiated hotel, AirBnB build a platform.
They solve a problem that’s already known in a way that doesn’t seem credible.
Three Levers of Competition
New sources of supply – anyone with a spare mattress is a potential AirBnB host
New User Behavior – Get travelers to stay at people’s homes
Strong Curation – Create trust between users and producers (all these can be predicted based on trends? Couch Surfing predicted AirBnB?)
(Platforms always delay competition with major players and avoid regulation by growing too fast for regulators to keep up?)
Startups don’t win because of better technology or features. They win because they use this principle to unlock entirely new markets and create new user behaviors to compete effectively. (YES!)
Key differentiator of successful from unsuccessful platforms is hitting a critical mass of value in the platform as it grows.
Key to hitting critical mass is reliability via (mainly) curation.
3 Key Factors for Platform Adoption
Network Effect – Hit Critical Mass
Content Curation – A way to separate signal from noise
Participant Curation – Platforms need to have a mechanism for determining the reputation of participant
Craigslist Case Study Notes
“Craigslist is a horizontal platform, a one-stop source for listings across categories. Trust and reputation are very contextual. The parameters worth considering when sharing a lawn mower are very different from the parameters considered when hiring a babysitter. Craigslist, arguably, may not have high activity per category outside the top few verticals so a category-specific trust system may work only for a few categories. A horizontal reputation system, on the other hand, while feasible, wouldn’t be very useful because of the contextual nature of trust. Trust and reliability are key factors in online platforms gaining widespread mainstream adoption for high risk verticals.”
“Emerging networks often piggyback on the activity on established networks to gain traction. PayPal grew on top of eBay, YouTube grew on top of Myspace and Flickr gained initial traction on the blogosphere. Airbnb effectively piggybacked Craigslist’s network to build its own.”
Could you monetize forums a different way? Charge people to post? Current monetization feels inelegant but unsure how.
Part of the problem with platforms is people don’t see value in networks yet as consumers. FB creates tremendous value but you can’t charge people for it directly yet?
Curation is HUGE. meta problem right now is developing more effective and efficient curation mechanisms
You can Get the Book Here (click on the Hello Bar at the top and opt-in)
Last Updated on April 18, 2019 by RipplePop