Why Some Platforms Thrive and Others Don’t

Summary:
The goal of this study is to define five basic network features that influence why certain
platform firms succeed while others fail. These characteristics include network effects,
clustering, the danger of disintermediation, multi-homing vulnerability, and bridging to
different networks.
Strength of Network Effects:
Network effects include same-side or direct effects (e.g., the more Facebook friends you
have, the more likely you are to attract additional friends), and cross-side or indirect effects
where different groups of participants attract each other (e.g., users and app developers). As
the number of participants increases, the value of a platform increases. Because the power of
network effects varies over time, businesses should develop platforms with characteristics
that enhance the impacts. Amazon's review system, for example, produces same-side effects
when consumers return to read the reviews. Amazon also allows third-party sellers to sell to
its users, resulting in cross-side network effects in which third-party sellers and buyers
attract one another. Learning effects can raise entry barriers.
Network Clustering:
The structure of a network affects a platform's capacity to scale. A network becomes more
vulnerable to attacks when it is split into isolated small clusters. Uber, for example, has
groups of drivers and riders in locations that are geographically separated from comparable
clusters in other cities. Visitors to Airbnb, on the other hand, routinely connect with hosts all
around the world. The network of Airbnb is essentially one enormous worldwide cluster.
This implies that a competitor's effort to access Airbnb's worldwide market would be more
difficult and expensive than a comparable challenge to Uber's fragmented ride-sharing
platform company.
Risk of Disintermediation:
Disintermediation occurs when network members avoid the hub and connect directly. For
example, a user may hire a home cleaning through a platform such as home joy but then
continue to utilize the cleaner without returning to home joy to engage the same cleaner
again. A platform can dissuade disintermediation in a variety of ways, including terms of
service that ban transactions outside the platform and preventing players from disclosing
contact information. Another strategy is to increase the value of platform transactions. For
example, some firms provide insurance, communication tools, and resolve disputes between
participants.
Vulnerability to Multi-Homing:
When consumers or service providers establish connections with many platforms at the
same time, this is referred to as multi-homing. For example, drivers and customers may
utilize both Lyft and Uber, or software developers may produce products for both iOS and
Android systems. Because of multi-homing, it is difficult for a platform firm to become
viable. To reduce multi-homing, Amazon offers fulfilment services to third-party merchants
and charges them extra costs for orders that do not originate from Amazon's marketplace.
Network Bridging:
Network bridging refers to where a platform connects different networks to one another
while diversifying into different lines of business. For example, Alibaba bridged its payment
platform (Alipay) with its e-commerce platforms (Taobao and Tamil) to provide a service to
both buyers and sellers. Amazon moved beyond retail into entertainment and consumer
electronics. These networks reinforce each other's ability to sustain its scale.
Conclusion:
Successful platforms discover ways to enhance scale through strengthening network effects,
building global network architecture to restrict isolated clusters, minimizing multi-homing,
mitigating the danger of disintermediation, and leveraging network bridging. These five
fundamental network properties determine whether a platform will succeed or fail.
According to Van Alstyne, Parker, and Choudhary, size overcomes differentiation (See
Summary). Network properties, according to Zhu and Iansiti, trump platform scale.

BBA 7th eve-B

Mahrukh
Roll No. 9598