Open Innovation 2.0 by Martin Curley & Bror Salmelin

Author:Martin Curley & Bror Salmelin
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

7.7 Multi-Sided Platforms

A core, if not the core property of a platform is that it connects two types of players together, in a way which has much lower connection and transactions costs than there would be if the different parties had to connect, find each other, and transact with each other. Typically, a multi-sided software platform brings end-users and app developers together but platforms have existed before the emergence of global software platforms as iOS and Android. For example, the credit card companies connect cardholders, merchants, and banks together. In this case and in many other cases, the credit card platform creates value by mediating interactions between different sides of a market. Of course, Global Distribution Systems such as Amadeus have long existed as platforms connecting travellers and airlines.

A winning platform exhibits network effects whereby the additions of more users create incremental value to existing users and of course to the platform. Once a platform hits a critical mass participation, growth of the platform and service can be autocatalytic as new apps or users are added to a platform, the platform becomes more value adding and attractive to more app developers and users. As with the case of autocatalytic chemical reactions, the output of a platform, which demonstrates a network effect, is fundamentally non-linear. In platforms, one can observe power laws where one quantity such as the number of users varies as a power of another, such as the number of apps.

Once a network effect is triggered, the platform and associated participants enter a self-reinforcing cycle, adding significantly more value but also creating a high barrier to entry or would be disruptors. Platforms can exhibit both same side and cross-side network effects. When one more user joins, a telephone network or a system such as Skype value is increased to all users. Cross-side network effects occur when an increase in either side of the platform creates value for both sides. For example, the more people that buy iPhones, the more that app developers are encouraged to write apps.

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