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

Uber's autonomous car causes the first known pedestrian fatality from a driverless vehicle.

Daphne Basel

2018-03-19 10:37:00 Monday ET

Uber's autonomous car causes the first known pedestrian fatality from a driverless vehicle.

Uber's autonomous car causes the first known pedestrian fatality from a driverless vehicle and thus sets off the alarm bell for artificial intelligence.

+See More

President Trump considers imposing retaliatory economic sanctions on Chinese products.

Peter Prince

2018-01-10 08:40:00 Wednesday ET

President Trump considers imposing retaliatory economic sanctions on Chinese products.

President Trump considers imposing retaliatory economic sanctions on Chinese products and services in direct response to China's theft and infringement

+See More

The Economist offers a special report that the new normal state of economic affairs shines fresh light on the division of labor between central banks and governments.

Jonah Whanau

2019-11-15 13:34:00 Friday ET

The Economist offers a special report that the new normal state of economic affairs shines fresh light on the division of labor between central banks and governments.

The Economist offers a special report that the new normal state of economic affairs shines fresh light on the division of labor between central banks and go

+See More

Treasury Secretary Steve Mnuchin indicates that the Trump team puts the trade war with China on hold.

Olivia London

2018-05-19 09:29:00 Saturday ET

Treasury Secretary Steve Mnuchin indicates that the Trump team puts the trade war with China on hold.

Treasury Secretary Steve Mnuchin indicates that the Trump team puts the trade war with China on hold. The interim suspension of U.S. tariffs should offer in

+See More

U.S. regulatory agencies may consider broader economic issues in their antitrust probe into Amazon, Apple, Facebook, and Google.

Joseph Corr

2019-07-03 11:35:00 Wednesday ET

U.S. regulatory agencies may consider broader economic issues in their antitrust probe into Amazon, Apple, Facebook, and Google.

U.S. regulatory agencies may consider broader economic issues in their antitrust probe into tech titans such as Amazon, Apple, Facebook, and Google etc. Hou

+See More

Federal Reserve remains patient on future interest rate adjustments due to trade and fiscal budget negotiations.

Becky Berkman

2019-02-04 07:42:00 Monday ET

Federal Reserve remains patient on future interest rate adjustments due to trade and fiscal budget negotiations.

Federal Reserve remains patient on future interest rate adjustments due to global headwinds and impasses over American trade and fiscal budget negotiations.

+See More