Why Some Platforms Thrive and Others Don't
In the digital economy, scale is no guarantee of continued success. After all, the same factors that help an online platform expand quickly—such as the low cost of adding new customers—work for challengers too. What, then, allows platforms to fight off rivals and grow profits? Their ability to manage five aspects of the networks they’re embedded in:
• network effects, in which users attract more users
• clustering, or fragmentation into many local markets
• the risk of disintermediation, wherein users bypass a hub and connect directly
• vulnerability to multi-homing, which happens when users form ties with two or more competing platforms
• network bridging, which allows platforms to leverage users and data from one network in another network
When entrepreneurs are evaluating a digital platform business, they should look at these dynamics—and the feasibility of improving them—to get a more realistic picture of its long-term prospects.
• network effects, in which users attract more users
• clustering, or fragmentation into many local markets
• the risk of disintermediation, wherein users bypass a hub and connect directly
• vulnerability to multi-homing, which happens when users form ties with two or more competing platforms
• network bridging, which allows platforms to leverage users and data from one network in another network
When entrepreneurs are evaluating a digital platform business, they should look at these dynamics—and the feasibility of improving them—to get a more realistic picture of its long-term prospects.
Citation:
Zhu, Feng, and Marco Iansiti. "Why Some Platforms Thrive and Others Don't." Harvard Business Review 97, no. 1 (January–February 2019): 118–125. View Details