Platform Revolution: How Networked Markets are Transforming the Economy – and How to Make Them Work For You
by Geoffery G. Parker, Marshall W. Van Alstyne and Sangeet Paul Choudary
Reviewed by David HC Correll
Platform Revolution by Geoffrey Parker, Marshall Van Alstyne, and Sangeet Choudary is a guided look under the hood of a new engine technology. A new engine tech that is quietly, and reliably, powering many aspects of our daily lives – internet platform companies. One could be forgiven for not knowing the term ‘platform company;’ or for not immediately realizing the influence that platforms have on all of us. But, when we hold our daily buying, selling, and social interactions up to the light, we find the fingerprints of platform companies everywhere: Uber, Amazon, AirBnB, Facebook, Instagram, etc… Platform Revolution is a thoughtful treatise on what makes those companies function, and sometimes malfunction.
The authors define their subject like this:
“A platform is a business based on enabling value-creating interaction between external producers and consumers. The platform provides an open, participative infrastructure for these interactions and sets governance conditions for them. The platform’s overarching purpose; to consummate matches among users and facilitate the exchange of goods, services or social currency, thereby enabling value creation for all participants.” (p. 5)
It’s a broad definition. But, one that captures the important difference between a website like Walmart.com, where I can go to buy things, and Amazon.com, where I can go to buy and sell things; or between my high school yearbook, where I can go to see old pictures of my old friends, and Facebook or Instagram, where I can go to see recently self-published pictures of my old friends, and also to upload my own pictures and commentary. What’s critical is that the platform company runs a two-sided online marketplace that brings ‘external producers and consumers’ together to exchange value. A fundamental premise of the authors’ argument is that because the platform company necessarily sits in the middle of these two groups, conventional management wisdom does not necessarily apply. You can’t squeeze the upstream supplier to deliver greater value to your downstream end-customer, when, in the case of a platform company, both sides of the deal are effectively your clients.
Why did Facebook grow to almost 3bn active users, but MySpace dithered? How has Uber become an essential part of modern life; but the app, “MonkeyParking”, which enabled San Francisco drivers looking for parking (‘consumers’) to competitively bid for access to occupied parking spots (‘producers) get shut down by municipal authorities? Based on their own extensive academic and consulting work, the authors thoroughly and cogently structure their lessons into chapters based on questions like: industry selection (where do platforms make sense?); launch strategy (how will we attract producers and consumers to the platform?); monetization strategy (who do we charge, the producers, the consumers, neither or both?); platform rules and governance (what kind of content and transactions are OK/not OK?); and performance metrics (what’s more important, the daily unique user count, or the daily unique transaction count?). In the end, the reader of Platform Revolution is advanced beyond believing that internet platforms are always good ideas – that we need an Uber of everything(!) – and towards a new more mature appreciation that the execution of even obviously good platform ideas is very tricky, especially at scale.
Platform Revolution is especially relevant to the MIT FreightLab community because the bruising battles that have been recently fought for platform supremacy in other industries seem to be coming for freight transportation too (Uber vs Lyft, AirBNB vs VRBO). Matching loads to trucks is, of course, nothing new. And digital players in this space have been around in some sense since at least 1978, when Dial-A-Truck electronic load board screens first went into American truck stops. But the water nevertheless feels hot right now. Most legacy brokers have sophisticated API-enabled freight matching programs, or are building them. Legacy platform companies have moved seriously from consumer transportation into freight. Specialist niche startups are emerging, attempting to carve out corners of the ~$8bn freight transportation market for themselves. The problem of finding a truck seems to many entrepreneurs and investors prime to be Uber-ized. The authors of Platform Revolution would agree. They give 4 criteria for the types of businesses that are likely to ‘join the platform revolution’: (1) information intensive; (2) employing “non-scalable gate keepers”; (3) have highly fragmented supply and/or customer bases; and (4) show extreme information asymmetry between buyer and seller. (p. 262)
So which freight load matching platform will win the day? A few lessons from the text: Firstly, the authors tell us what a platform must achieve in order to succeed: (1) pull producers and consumers into their platform; (2) facilitate the best possible interactions by artfully designing user tools and useful website rules that facilitate easy matches; and (3) offer exactly the right information over the fence between producers and consumers in order to spark deals (p.45). Second, after achieving those three missions, the authors would suggest as a first condition for declaring victory that the winning platform has reached something called, “demand economies of scale”. The authors borrow this term from Hal Varian at Google and UC Berkeley’s Carl Shapiro, who coined that term to describe the phenomenon of the reinforcing feedback loop that fuels any platform’s dominance. Put simply, ‘demand economies of scale’ refers to the phenomenon whereby platforms with larger networks are more valuable to users, because more of their friends, or potential partners, or potential customers are already all on them – so by virtue of that larger network, they attract even more users. This virtuous circle of platform size makes it very difficult for new entrant platform companies to compete with established ones.
It is beyond the scope of this book review, – and my humble purview – to evaluate any competing freight matching platform company’s performance herein. However, I would use my dwindling time left on this page to address two easily overlooked angles.
First, in over-the-road freight transportation, the producers are the truck drivers. And they are a highly fragmented and information-rich supply base – prime to ‘join the Platform Revolution’ in the authors’ framing. A lesson from this book is that the platform has to keep both sides coming back for more; and that this user affinity is achieved by offering order-winning value to both buyers and sellers in the two-sided marketplace. American truck drivers have data-rich problems that platform companies could address in order to add value (i.e. excessive detention times, disrespect at pickup and delivery, trouble finding the right loads, trouble finding truck parking..). It is my belief that taking the needs of drivers seriously, and offering innovative platform solutions to these vexing problems will be the ‘killer app’ which secures a loyal producer base, triggers demand economies of scale, and thereby sustains a winning freight matching platform.
Second, what if you are a more casual reader – someone who is not planning to compete in the platform war? You’re just like the rest of us, caught unaware on this battlefield, waiting for your Uber, or your Lyft, indifferent between the two. What does reading Platform Revolution do for you? Consider the modern adage that ‘data is the new oil’ (p. 217), and that to the broader economy, all of us are really just hydrocarbons and data trails – dinosaurs, breaking down over time into something more useful. It’s OK to let this disintegration happen. It’s OK to realize that most of us, to one degree or another, are always being puppeteered by the masters of data, and marketing, and by the architects of the successful platform companies that serve us. Fitting into the modern world in this tiny way doesn’t have to be scary or belittling. It is, in its own way, a new kind of natural. Seen from this perspective – as a plain and ordinary consumer in the modern digital economy – reading Platform Revolution offers its readers an intriguing chance to follow our own consumer-data marionette strings – maybe even all the way up.