Adjacent platforms. Platforms that serve similar or overlapping user bases.
Application programming interface (API). A standardized set of routines, protocols, and tools for building software applications that makes it easy for an outside programmer to write code that will connect seamlessly with the platform infrastructure.
Brand effects. The power of a highly positive brand image to attract consumers and lead to rapid growth of a business. Not to be confused with network effects.
Convex growth. See Metcalfe’s law.
Core developers. Programmers and designers who create the core platform functions that provide value to platform participants. These developers are generally employed by the platform managers—the brand names that are familiar to users, such as Apple, Samsung, Airbnb, Uber, and many others. Their main job is to get the platform into user hands and to deliver value through tools and rules that make the core interaction easy and mutually satisfying.
Core interaction. The single most important form of activity that takes place on a platform—the exchange of value that attracts most users to the platform in the first place. Therefore, platform design generally starts with the design of the core interaction. The core interaction involves three key components: the participants, the value unit, and the filter. All three must be clearly identified and carefully designed to make the core interaction as easy, attractive, and valuable to users as possible.
Cross-side effects. In a two-sided market, network effects created by the impact of user from one side of the market on users from the other side of the market—for example, the effects that consumers have on producers and the effects that producers have on consumers. Cross-side effects can be positive or negative, depending on the design of the system and the rules put in place.
Curation. The process by which a platform filters, controls, and limits the access of users to the platform, the activities they participate in, and the connections they form with other users. When the quality of a platform is effectively curated, users find it easy to make matches that produce significant value for them; when curation is nonexistent or poorly handled, users find it difficult to identify potentially valuable matches amid a flood of worthless matches.
Curation of participants. See Trust.
Data aggregators. Outside developers that enhance the matching function of the platform by adding data from multiple sources. Under license from the platform management, they “vacuum up” data about platform users and the interactions they engage in, which they generally resell to other companies for purposes such as advertising placement. The platform that is the source of the data shares a portion of the profits generated.
Enhanced access. The provision of tools that enable a producer to stand out above the crowd and be noticed on a two-sided platform, despite an abundance of rival producers and the resulting intense competition to attract consumer attention. Platforms that charge producers fees for better-targeted messages, more attractive presentations, or interactions with particularly valuable users are using enhanced access as a monetization technique.
Envelopment. The process by which one platform effectively absorbs the functions—and often the user base—of an adjacent platform.
Excess inertia. The power of network effects to slow or prevent the adoption of new, perhaps better, technologies. When one or a few platforms are able to dominate a particular market because of the power of network effects, they may choose to resist beneficial innovations in order to protect themselves from the costs of change and other disruptive effects.
Feedback loop. In platforms, any pattern of interactions that serves to create a constant stream of self-reinforcing activity. In the typical feedback loop, a flow of value units is delivered to the participant which generates a response from him or her. If the units are relevant and interesting, the user will be drawn to the platform repeatedly, generating a further flow of value units and prompting more interactions. Effective feedback loops help to swell the network, increase value creation, and enhance network effects.
Filter. An algorithmic, software-based tool used by the platform to enable the exchange of appropriate units of information between users. A well-designed filter ensures that platform users receive only units of information that are relevant and valuable to them; a poorly-designed filter (or no filter at all) means users may be flooded with units of information they find irrelevant and valueless, driving them to abandon the platform.
Frictionless entry. The ability of users to quickly and easily join a platform and begin participating in the value creation that the platform facilitates. Frictionless entry is a key factor in enabling a platform to grow rapidly.
Linear value chain. See Pipeline.
Liquidity. A state in which there are a minimum number of producers and consumers in a platform marketplace and a high level of interactions taking place. When liquidity is achieved, interaction failure is minimized, and the intent of users to interact is consistently satisfied within a reasonable period of time. Achieving liquidity is the first and most important milestone in the life cycle of a platform.
Market aggregation. The process whereby platforms provide centralized markets to serve widely dispersed individuals and organizations. Market aggregation provides information and power to platform users who formerly engaged in interactions in a haphazard fashion, often without access to reliable or up-to-date market data.
Matching quality. The accuracy of the search algorithm and the intuitiveness of the navigation tools offered to users as they seek other users with whom they can engage in value-creating interactions. Matching quality is critical to delivering value and stimulating the long-term growth and success of a platform. It is achieved through excellence in product or service curation.
Metcalfe’s law. A principle formulated by Robert Metcalfe which states that the value of a network grows nonlinearly as the number of users of the network increases, making more connections among users possible (a type of growth also known as convex growth). Specifically, Metcalfe’s law posits that the value of a network with n connected users is proportional to the square of the number of users (n2).
Multihoming. The phenomenon of users engaging in similar types of interaction on more than one platform. A freelance professional who presents his credentials on two or more service marketing platforms, a music fan who downloads, stores, and shares tunes on more than one music site, and a driver who solicits rides through both Uber and Lyft all illustrate the phenomenon of multihoming. Platform businesses seek to discourage multihoming, since it facilitates switching—the abandonment by users of one platform in favor of another.
Network effects. The impact that the number of users of a platform has on the value created for each user. “Positive network effects” refers to the ability of a large, well-managed platform community to produce significant value for each user of the platform. “Negative network effects” refers to the possibility that the growth in numbers of a poorly managed platform community can reduce the value produced for each user.
Pipeline. The structure of a traditional (non-platform) business, in which a firm first designs a product or service, then manufactures the product and offers it for sale or puts in place a system to deliver the service. Finally, a customer shows up and purchases the product or service. This step-by-step arrangement for creating and transferring value can be viewed as a kind of pipeline, with producers at one end and consumers at the other. Also known as a linear value chain.
Platform. A business based on enabling value-creating interactions 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.
Platform envelopment. The process whereby one platform effectively absorbs the functions—and the user base—of an adjacent platform.
Price effects. The power of extremely low prices for goods or services to (temporarily) attract consumers and lead to rapid growth of a business. Not to be confused with network effects.
Product or service curation. See Matching quality.
Re-intermediation. The process whereby platforms introduce new kinds of middlemen into markets. Typically, re-intermediation involves replacing non-scalable and inefficient agent intermediaries with online, often automated tools and systems that offer valuable new goods and services to participants on both sides of the platform.
Same-side effects. In a two-sided market, network effects created by the impact of users from one side of the market on other users from the same side of the market—for example, the effects that consumers have on other consumers and the effects that producers have on other producers. Same-side effects can be positive or negative, depending on the design of the system and the rules put in place.
Sharing economy. The growing sector of the economy in which products, services, and resources are shared among people and organizations rather than having their availability limited to one proprietor. Often facilitated by platform businesses, sharing economy systems have the potential to unlock hidden or untapped sources of value and to reduce waste.
Side switching. The phenomenon of platform users from one side of the platform joining the opposite side—for example, when those who consume goods or services produced on the platform begin to produce goods and services for others to consume. On some platforms, users engage in side switching easily and repeatedly.
Spreadable value unit. See Value unit.
Supply economies of scale. Economic advantages driven by production efficiencies, which reduce the unit cost of creating a product or service as the quantities produced increase. These supply economies of scale can give the largest company in an industrial economy a cost advantage that is extremely difficult for competitors to overcome.
Switching. The abandonment by users of one platform in favor of another.
Switching costs. The costs incurred by users when they abandon one platform in favor of another. These may be financial costs (for example, cancellation fees) or costs in terms of time, effort, and inconvenience (for example, the need to move information files from one platform to another).
Trust. The degree to which users of a platform feel comfortable with the level of risk associated with engaging in interactions on the platform. Trust is achieved through excellent curation of participants in the platform.
Value unit. The most basic item of value that may be exchanged by users on a platform—for example, a photo on Instagram, a video on YouTube, a craft product on Etsy, or a freelance project on Upwork. When a value unit is spreadable, it can be easily distributed by users both on and off the platform, thereby helping to fuel viral growth.
Viral growth. A pull-based process that encourages users to spread the word about the platform to other potential users. When users themselves encourage others to join the network, the network becomes the driver of its own growth.
Virality. The tendency of an idea or brand to be circulated rapidly and widely from one Internet user to another. Virality can attract people to a network, but network effects keep them there. Virality is about stimulating growth among people off-platform, while network effects are about increasing value among people on-platform.
Winner-take-all market. A market in which specific forces conspire to encourage users to gravitate toward one platform and to abandon others. The four forces that most often characterize winner-take-all markets are supply economies of scale, strong network effects, high multihoming or switching costs, and lack of niche specialization.