This is age of platforms. Major companies have won over by having Platforms instead of products.There is a difference between Alibaba, Facebook and AirBnb vs Uber, Didi and Meitvan.
Interplay between Platform and Network it orchestrates is critical.
Long term success of a Product or Service depends heavily on health, defensibility and dominance of ecosystem in which it operates.
Five fundamental properties of Networks:
Strength of Network Effects: Same side of Network ( direct relationship) / Cross Side ( indirect relationship)
Design features that strengthen Network effects. For eg Amazon has following: Review System, 3rd Party Sellers with Buyers, Powerful Recommendation System which gets stronger with usage.
Networks Clustering: Local vs Global Clusters. Global Clusters are more Stronger and Resilient. Eg, Uber and Lyft have local clusters and they face intense competition. Airbnb has global cluster and it is very difficult to compete with it.
Risk of Disintermediation: Disintermediation happens when the seller side and buyer side find a perfect match and do transactions off the platform. They don’t need the platform anymore.
- Platform has to deter disintermediation but in a streamlined manner with least hassles for the users of platform.
- Taobao for example counters disintermediation by keeping its usage fee low and free, but earn elsewhere by smart advertising and Storefront software for merchants.
- Enhance value of Conducting business on the platform
- Provide complementary services rather than charging transaction fee
Vulnerability to multihoming: Example a driver operating on both Ola and Uber or Uber and Lyft. And consumers using both the apps to find min price.
- Amazon prime reduces Multihoming by Services spread
- Console games reduce multihoming by cost and contract barriers
Network Bridging: Once Platform business starts getting success, which means getting high number of users, the data can be amassed on their transactions to expand into other areas. Network bridging is connecting different Networks to one another.
Diversify the assets to move in multiple industry verticals and improve economics. Build synergies
Alibaba is a great example of this: Its Taobao/ Tmall use Alipay which feeds into Ant Financials ( Credit Ratings and Loans ). Ant Financials provides loans to Consumers and Merchants who use them on Taobao. Its a virtuous self sustaining cycle for Alibaba
Alibaba has gone from Commerce to financial services and Amazon has gone from Retail to Entertainment and consumer electronics with this.
Networks are tying together different industries and the Platforms have become important hubs in the global economy.
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