Platform Revolution: Understanding The New Economics of the Interweb

I greatly enjoyed this 2017 book by Geoffrey G. Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary. It’s not perfect and it misses a lot of really important points from a social standpoint, but from a business standpoint, it’s a valuable read.

What’s a platform?

A platform business is a company whose business model revolves around a managed marketplace for goods, services, or other exchange, called– you guessed it- a platform. The idea is to match users on one side with users on the other side. This comes in different formats for different types of businesses. Perhaps it is matching buyers and sellers (Amazon) or drivers and riders (Uber and Lyft).  Most companies operating in the XaaS space (whatever-as-a-service) function in some major way as platforms, so, ya know, several trillion dollars of the tech economy. (Amazon is a bit more complicated because AWS is really more of a platform, while Amazon-the-retail, which accounts for most of the company’s revenues but virtually none of its profits, is a hybrid of a platform and a traditional eCommerce company, since it sells both its own products and products from third parties).

Let’s compare a platform company to a farmer’s market. Most farmer’s markets involve some sort of licensing or rental fee that is paid to the manager. The manager maintains the space to be used for the market, and then the standholders sell their goods. In this case, the market manager is probably not doing much in the way of matching customers to the sellers. There is a minimal curation process involved on the manager’s part. And the access to market stands is sort of a what-you-see-is-what-you-get kind of presentation.

Matching: The Value Is You!

Parker, Alstyne, and Choudary differentiate platform economies from the linear value chains, or pipelines, of the businesses of yesteryear. Linear value chains can be likened to an assembly line. The product gets produced. Then, it gets shipped. After it gets received by the retailer, it gets sold to a consumer. The consumer drives the value by buying the widget, or whatever.

In contrast, the major value most platforms deliver is their ability to effectively match users on either side in way that delivers mutual benefit. If you need a ride, you order an Uber. The driver comes and takes you home. The driver gets paid and you get to your destination. The platform takes a cut of this for providing the matching service. This relationship wouldn’t be possible without the platform. Or, it’d be possible, but it wouldn’t look the same. If you’ve ever lived in a city without taxis– or without hailable taxis- you’ll know what I mean. 

There’s a lot of jargon that isn’t terribly valuable unless you’re up to your neck in this stuff– cross-side effects or what have you. But what’s valuable is to understand the idea of positive network effects, in which, effectively, 2+2=7.

How is this relevant to my research on infrastructure?

I’m glad you asked. What can we learn from software platforms for infrastructure development? Parker, Alstyne, and Choudary mention the idea of the end-to-end principle. This should be differentiated from the notion of “end-to-end” meaning “start-to-finish.” End-to-end specifically refers to a notion developed in the 1980’s around computer networks. The idea was that core functionality of the system should reside in the “ends,” a.k.a., the core of the system. (They’re called “ends” because they face a user who can input data, as opposed to, say, a modem, which communicates with another modem). This means that the peripheral functions of the system aren’t as easily disrupted when changes are made.

“…activities that are not central to the workings of the network but valuable only to particular users should be located at the edges of the network rather than at its heart. In this way, secondary functions don’t interfere with or draw resources away from the core activities of the network, nor do they complicate the task of maintaining or updating the network as a whole.”

See where I’m going? What if we could think about transit infrastructure the same way? We have our core functionality. The buses come on time, the electrical infrastructure is in place, the pipes are there. What changes is the way we access or interact with it. The train station is the “end.” What’s inside and around the bus station is the peripheral. Think parking spaces with electric vehicle chargers. Or Bird scooters. Perhaps solar panels on the roof. In an age of #data being so important, the “end” here can be valuable for gathering information. That information can then, in turn, be used to help govern the development of peripheral functionality, and so on.

Criticisms

Overall? Good read. Misses the mark on some points. The authors are very excited about disruption, for example. But they aren’t convinced that there are many problems with platforms. If the platform works to match users on either side, it’s working! Right?! Sales! Okay, I get it, your job is to be a cheerleader for this model. There are also a lot of major issues with the preoccupation with algorithmic solutions to improve outcomes. These have implications for everything ranging from worker rights to energy usage to democracy itself. There are also beaucoup problems with the valuation models used for platform companies. The asset-lite nature of these businesses makes it easier to get into these stratospheric valuations, even for companies that don’t really make any money (like Uber or Lyft). But if those are the only major faults of the book, I guess I can find my critiques on The Handbuilt City.  (⭑⭑⭑⭑)

Find The Platform Revolution: How Networked Markets Are Transforming The Economy And How To Make Them Work For You on Bezos Brain Dot Com. Please buy used or buy local.

Nat M. Zorach

Nat M. Zorach, AICP, MBA, is a city planner and energy professional based in Detroit, where he writes about infrastructure, sustainability, tech, and more. A native of Lancaster, Pennsylvania, he attended Grinnell College in Iowa, the Kogod School of Business at American University, the POCACITO transatlantic program, the SISE program at the University of Illinois Chicago, and he is also a StartingBloc Social Innovation Fellow. He enjoys long walks through historic, disinvested Rust Belt neighborhoods at sunset. (Nat's views and opinions are his own and do not represent those of his employer).

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