Platforms benefit from positive network effects, scale economies, and information cascades.

Rose Prince

2019-07-25 16:42:00 Thu ET

Platforms benefit from positive network effects, scale economies, and information cascades. There are at least 2 major types of highly valuable platforms: innovation platforms empower third-party firms to add complementary products and services to some core technology (cf. Google Android, Apple iPhone operating system, and Amazon Web Services), and transaction platforms facilitate the positive exchange of information, goods, or services (cf. Amazon Marketplace, Airbnb, and Uber). In the empirical analysis of 20-year Forbes Global 2000 data, the top 43 core platform corporations generate about $4.5 billion annual sales with only half the number of employees at their non-platform counterparts. These public platform corporations also yield twice operating profits, market values, and bottom-line growth rates.

There are some generic lessons for modern platform corporations. First, founders and managers need to learn fast from failures for better lean startup optimization. Despite huge upside platform opportunities, the mere pursuit of a platform strategy may not improve the odds of success as a long-term sustainable business. Second, most platforms need to boost exponential user demand with network effects and scale economies, so platform corporations should set prices near their relatively low marginal costs with appropriate buyer-or-seller subsidies. Google, Facebook, Twitter, Amazon, Apple, Alibaba, and Tencent etc start their lean enterprises by subsidizing at least one side of the market before they maintain profitable platforms. In comparison, Netflix, Uber, Lyft, Slack, and Zoom still struggle to fine-tune their business models toward maximum sustainable platforms.

Third, it is important for platform firms to explain why they strive to accomplish a great deal for better customer trust and loyalty. Many platforms cultivate customer rapport to inspire users via positive information cascades. For instance, Alibaba Taobao and Tmall leverage Alipay as the sleek third-party payment mechanism to ease the transactional frictions of e-commerce in China (whereas, eBay fails to attract customer trust and rapport there due to the mere absence of a credible and verifiable third-party payment system).

Fourth, most platforms enjoy and maintain first-mover competitive advantages with formidable barriers to entry. A good example is Microsoft: the software tech titan remains competitive with its Windows operating system, Office software suite, and Edge Internet browser; however, Microsoft gradually loses unique business niches to Apple iOS, Google Android, Chrome, Firefox, Safari, and Opera.

On balance, platform corporations need to deploy these key strategies for better network effects, scale economies, and information cascades.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

San Francisco Fed CEO Mary Daly suggests that trade escalation is not the only risk in the global economy.

Rose Prince

2019-06-19 09:27:00 Wednesday ET

San Francisco Fed CEO Mary Daly suggests that trade escalation is not the only risk in the global economy.

San Francisco Fed CEO Mary Daly suggests that trade escalation is not the only risk in the global economy. Due to the current Sino-U.S. trade tension, the g

+See More

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Uber Technologies (U.S. stock symbol: $UBER).

Daphne Basel

2025-10-10 12:31:00 Friday ET

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Uber Technologies (U.S. stock symbol: $UBER).

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fund

+See More

Central banks learn to weigh the monetary policy trade-offs between output and inflation expectations and macro-financial stress conditions.

Becky Berkman

2026-01-31 10:31:00 Saturday ET

Central banks learn to weigh the monetary policy trade-offs between output and inflation expectations and macro-financial stress conditions.

  In recent years, several central banks conduct, assess, and discuss the core lessons, rules, and challenges from their monetary policy framework r

+See More

President of US-China Business Council Craig Allen states that a trade deal should be within reach if Trump and Xi show courage at G20.

Daisy Harvey

2019-07-15 16:37:00 Monday ET

President of US-China Business Council Craig Allen states that a trade deal should be within reach if Trump and Xi show courage at G20.

President of US-China Business Council Craig Allen states that a trade deal should be within reach if Trump and Xi show courage at G20. A landmark trade agr

+See More

Michael Kors pays $2.3 billion to acquire the Italian elite fashion brand Versace.

Joseph Corr

2018-09-27 11:41:00 Thursday ET

Michael Kors pays $2.3 billion to acquire the Italian elite fashion brand Versace.

Michael Kors pays $2.3 billion to acquire the Italian elite fashion brand Versace. In accordance with Michael Kors's 5-year plan, the joint company grow

+See More

U.S. government shuts down again because House Democrats refuse to spend $5 billion on the border wall.

Amy Hamilton

2019-01-19 12:38:00 Saturday ET

U.S. government shuts down again because House Democrats refuse to spend $5 billion on the border wall.

U.S. government shuts down again because House Democrats refuse to spend $5 billion on the border wall that would give President Trump great victory on his

+See More