Platform Scale

The Internet restructures the mechanics by which businesses create and deliver value. We are in the midst of a transformative shift in business design as business models move from pipes to platforms.

Platforms perform two specific roles:

• Provide an open, participative, plug-and-play infrastructure for producers and consumers to plug into and interact with each other
• Curate participants on the platform and govern the social and economic interactions that ensue

Platforms do not create end value, but enable value creation. Constituents produce and consume, sometimes both (prosumer).

Platforms compete on the basis of their ability to enable interactions sustainably. They build sustainable businesses when producers and consumers participate regularly in interactions.

The goal of the platform is to enable interactions between producers and consumers repeatedly and efficiently.

An interaction involves an exchange of value for some form of social or economic currency. The producer creates supply or responds to demand. The consumer generates demand or consumes supply.

Consumers may offer economic currencies (money) or social currencies (attention, reputation, influence, goodwill).

Example: Twitter allows users to build a following and gain influence, transferring social currency from consumers to producers, encouraging producers to participate further.

Design before you optimize.

Most platform implementations fail because of poor design decisions. The blind pursuit of scale often leads to behaviors detrimental to long-term sustainable growth.

Central organizing principle: All design decisions should ensure the repeatability and sustainability of the core interaction.

1. Define the value that is created or consumed: the core value unit
2. Define the core interaction, the set of actions that enable creation and consumption of that value
3. Design features, functionalities and management from the design of the core interaction

The minimum standalone unit of value created on top of the platform. Without this supply, the platform has very little value.

eBay has no value without product listings, Airbnb needs apartments, Instagram needs selfies, Nest needs data inputs.

The core value unit is the scaling variable. More units and higher quality = more valuable platform.

Value proposition:

• For producers: Infrastructure to create/store value + marketplace to find audience
• For consumers: Repository of value units with filters for relevance

The set of actions that producers and consumers engage in repeatedly to derive value from the platform.

Patterns:

• Information + currency — Services flow outside platform (Airbnb, Etsy)
• Information only — Money transfer outside platform (Craigslist, Yelp)
• Information + goods/services + currency — End-to-end (Uber, Kindle Store)
• Alternate currencies — Attention, reputation, influence (Twitter, Quora)

All actions fall into:

• Creation — Creates the core value unit
• Curation — Encourages desirable behaviors, discourages undesirable
• Customization — Improves filtering and matching
• Consumption — Consumes the core value unit

The keys to platform scale lie in simplifying each constituent action.

As abundance increases, search costs increase. The process:

1. Producer creates a core value unit
2. Consumer sets up a filter
3. Value unit that best passes through filter is served

Two success factors:

• Overlap — Significant overlap between what producers produce and what consumers need
• Data — Rich data about value units and filters

Filter types:

• Pull (search queries) vs Push (newsfeeds)
• Point-in-time vs Cumulative
• Active intent vs Passive context
• Static vs Dynamic context

Note: The network itself is a filter. Who you follow determines what you consume.

A platform without producers is a ghost town. Replicating technology is considerably smaller challenge than replicating communities.

Incentive Questions:

• Does it provide tools, access or both? (Access constitutes much of value in networked age)
• Does it simplify production? (More people tweet than blog)
• Does it have robust curation? (Algorithmic, social, editorial)
• Is there a clear, democratic path to the top?
• Does it use inorganic incentives? (Reputation, recognition)
• Does it convert consumers into producers?
• How is feedback communicated from consumers to producers?

Communicating feedback from consumers to producers is the single most important driver of sustainable and repeatable interactions.

Network effect isn't as effective at retaining producers/consumers as before. Platforms need "cumulative value": value that scales as user uses the platform more often.

Examples:

• Reputation (reviews, Uber score)
• Influence (large followings, YouTube subscribers)
• Collections (Spotify playlists, Medium posts)
• Learning filters (music recommendations, Twitter feed)

Friction may serve to encourage high-quality interactions. Consider:

• Does friction affect one side or both?
• Do sources of friction improve quality and signaling?
• Does friction increase repeatability of desirable interactions?
• Is the interaction high-value or high-risk?

Trust drivers:

• Confirmed identity (Uber drivers)
• Centralized moderation (Airbnb)
• Community feedback (reviews, votes, ratings)
• Codified behavior (Airbnb blocks "Western Union" in messages)
• Culture (Reddit community norms)
• Completeness (LinkedIn profile completion)
• Cover (Airbnb insurance)

Characteristics of solutions:

• Breaking the vicious cycle
• Positive feedback loop
• Maximizing overlap between producers and consumers
• Getting the harder side first
• On-boarding of two distinct markets (building two companies)

Five principles:

1. Find a compelling bait to start the loop
2. Ensure no friction in the feedback loop
3. Minimize time to reach critical mass
4. Incentivize the role that is more difficult to attract
5. Stage the creation of two-sided markets

Strategies:

• Standalone mode — Greater standalone value = easier to create network effects
• Growth faking — Seeding/weeding, seeding demand (PayPal), seeding supply (in-house editorial)
• Producer-led traction — Producers bring consumers (compelling incentive + significant off-platform following + efficient interaction)
• Stealing supply — Source supply proxies, provide superior experience, gather activity, invite producers with leads

Startups can never achieve platform scale purely on marketing budgets. They need a growth engine that powers growth from within and accelerates with usage.

Misconceptions:

• Virality ≠ word of mouth (virality is exposure through usage, not recommendation)
• Virality ≠ network effects (many businesses are viral without network effects)
• Virality is not the only growth strategy needed
• Virality ≠ manipulating users (it's a design challenge)

The viral cycle:

1. Sender — User sends out message about platform
2. Core unit — Message is typically the core value unit
3. External network — Units spread on external network
4. Recipient — Recipient interacts and is brought back to platform

Sender incentives:

Must be aligned with core interaction. Producers spread for self-expression/promotion. Most viral platforms have low friction in creating units and high percentage of producers.

Producers never spread the word about the platform, they spread the word about their creations.

Spreadable core value units:

• Triggers an interaction on external network
• Plays on producer-as-sender dynamic
• Helps complete an incomplete interaction (survey needs responses, Kickstarter needs bids)

External network decisions:

• Choice of network (relevant interactions, connections, look and feel)
• Unfair advantage (first to leverage a new network)
• Ease of integration (SSO, widgets)

Recipient conversion:

• Pitch — Unit serves as compelling demo of platform
• Call to action — Targeted and compelling (Hotmail's "P.S I love you. Get your FREE email at Hotmail")

Building Viral Engines:

• Send — Maximize outflow of units from platform
• Spread — Ensure units spread on external networks
• Click — Maximize clicks on external networks
• Convert — Minimize cycle time