Zulanshiti paper
Need to understand the networks a platform is embedded in. The factors affecting the growth and
sustainability of platform firms (and digital operating models generally) differ from those of
traditional firms.
1. In digital networks the cost of adding an additional user is negligible so economies of scale
are easier to get.
2. Network firm’s operations are basically outsourced to the service provider on the platform
or handled by software so value creation and growth doesn’t depend on humans or
organizational factors.
3. So employees don’t deliver product or service—they just design and oversee automated,
algorithm-driven operations.
4. CA depends on the interaction between platform and the network it orchestrates and less
on internal, firm-level factors. It depends on the ecosystem that has been created for long
term CA.
The reason that some platforms thrive while others struggle really lies in their ability to manage five
fundamental properties of networks:
1. network effects:
Same side effect (direct)- : The more Facebook friends you have in your network, the more
likely you are to attract additional friends through your friends’ connections.
Cross-side (“indirect”) network effects: two different groups of participants—users and app
developers—attract each other.uber – more driver more riders.
Strength of network effects can vary dramatically and can shape both value creation and
capture.
• When network effects are strong, the value provided by a platform continues to rise
sharply with the number of participants.
• In case of windows, many developers were writing apps for it so as a platform it
became very popular. But when the technology of apps changed to internet based,
network effects became weak so barriers to enter fell and other operating system
came over.
This turn of events illustrates that when an incumbent’s network effects weaken, so
does its market position.
• It is possible for firms to design features that strengthen network effects,
2. Clustering: the structure of a network influences a platform business’s ability to sustain its
scale. The more a network is fragmented into local clusters—and the more isolated those
clusters are from one another—the more vulnerable a business is to challenges.
• It’s possible to strengthen a network by building global clusters on top of local
clusters.
3. Risk of disintermediation: Disintermediation, wherein network members bypass a hub and
connect directly, can be a big problem for any platform that captures value directly from
matching or by facilitating transactions.
• Platforms have used various mechanisms to deter disintermediation, such as
creating terms of service that prohibit users from conducting transactions off the
platform, and blocking users from exchanging contact information.
• Anything that makes a platform more cumbersome to use can make it vulnerable to
a competitor offering a streamlined experience.
• Some platforms try to avoid disintermediation by enhancing the value of conducting
business on them. They may facilitate transactions by providing insurance, payment
escrow, or communication tools; resolve disputes; or monitor activities. But those
Need to understand the networks a platform is embedded in. The factors affecting the growth and
sustainability of platform firms (and digital operating models generally) differ from those of
traditional firms.
1. In digital networks the cost of adding an additional user is negligible so economies of scale
are easier to get.
2. Network firm’s operations are basically outsourced to the service provider on the platform
or handled by software so value creation and growth doesn’t depend on humans or
organizational factors.
3. So employees don’t deliver product or service—they just design and oversee automated,
algorithm-driven operations.
4. CA depends on the interaction between platform and the network it orchestrates and less
on internal, firm-level factors. It depends on the ecosystem that has been created for long
term CA.
The reason that some platforms thrive while others struggle really lies in their ability to manage five
fundamental properties of networks:
1. network effects:
Same side effect (direct)- : The more Facebook friends you have in your network, the more
likely you are to attract additional friends through your friends’ connections.
Cross-side (“indirect”) network effects: two different groups of participants—users and app
developers—attract each other.uber – more driver more riders.
Strength of network effects can vary dramatically and can shape both value creation and
capture.
• When network effects are strong, the value provided by a platform continues to rise
sharply with the number of participants.
• In case of windows, many developers were writing apps for it so as a platform it
became very popular. But when the technology of apps changed to internet based,
network effects became weak so barriers to enter fell and other operating system
came over.
This turn of events illustrates that when an incumbent’s network effects weaken, so
does its market position.
• It is possible for firms to design features that strengthen network effects,
2. Clustering: the structure of a network influences a platform business’s ability to sustain its
scale. The more a network is fragmented into local clusters—and the more isolated those
clusters are from one another—the more vulnerable a business is to challenges.
• It’s possible to strengthen a network by building global clusters on top of local
clusters.
3. Risk of disintermediation: Disintermediation, wherein network members bypass a hub and
connect directly, can be a big problem for any platform that captures value directly from
matching or by facilitating transactions.
• Platforms have used various mechanisms to deter disintermediation, such as
creating terms of service that prohibit users from conducting transactions off the
platform, and blocking users from exchanging contact information.
• Anything that makes a platform more cumbersome to use can make it vulnerable to
a competitor offering a streamlined experience.
• Some platforms try to avoid disintermediation by enhancing the value of conducting
business on them. They may facilitate transactions by providing insurance, payment
escrow, or communication tools; resolve disputes; or monitor activities. But those
