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Platforms beat pipelines because platforms scale more efficiently by eliminating gatekeepers. Until recently, most businesses were built around products, which were designed and made at one end of the pipeline and delivered to consumers at the other end. Today, plenty of pipeline-based businesses still exist—but when platform-based businesses enter the same marketplace, the platforms virtually always win.
One reason is that pipelines rely on inefficient gatekeepers to manage the flow of value from the producer to the consumer. In the traditional publishing industry, editors select a few books and authors from among the thousands offered to them and hope the ones they choose will prove to be popular. It’s a time-consuming, labor-intensive process based mainly on instinct and guesswork. By contrast, Amazon’s Kindle platform allows anyone to publish a book, relying on real-time consumer feedback to determine which books will succeed and which will fail. The platform system can grow to scale more rapidly and efficiently because the traditional gatekeepers—editors—are replaced by market signals provided automatically by the entire community of readers.
The elimination of gatekeepers also allows consumers greater freedom to select products that suit their needs. The traditional model of higher education forces students and their parents to purchase one-size-fits-all bundles that include administration, teaching, facilities, research, and much more. In their role as gatekeepers, universities can require families to buy the entire package because it is the only way they can get the valuable certification that a degree offers. However, given the choice, many students would likely be selective in the services they consume. Once there is an alternate certification that employers are willing to accept, universities will find it increasingly challenging to maintain the bundle. Unsurprisingly, developing such an alternate certification is among the primary goals of platform education firms such as Coursera.
this is total BS. the platform becomes the fuckin gatekeper. also i think evgeny morozov has a good take on the flaws of the kindle self-publishing model somewhere
also the bit about higher education makes me absolutely nauseous
for diss: the fact that these people (following the mainstream view) dont realise how much platforms that putatively "eliminate" gatekeepers instead become new gatekeepers, even more power than power, process mediated via tech
Price effects and brand effects have their place in a startup’s growth strategy. But only network effects create the virtuous cycle we described above, which leads to the building of a longlasting network of users—a phenomenon we called lock-in.
In some cases, the growth of a platform can be facilitated by an effect we call side switching. This occurs when users of one side of the platform join the opposite side—for example, when those who consume goods or services begin to produce goods and services for others to consume. On some platforms, users engage in side switching easily and repeatedly.
Uber, for example, recruits new drivers from among its rider pool, just as Airbnb recruits new hosts from among its guest pool. A scalable business model, frictionless entry, and side switching all serve to lubricate network effects.
interesting that they say people do it easily. i would love to see stats on how often people who drive for uber also use it ... there are definite class aspects
Even more remarkably, the changes that Uber has already brought are probably just the opening salvo in a barrage of further disruptions that may ultimately transform the entire transportation sector. Combining the platform model with another technology that is rapidly moving from the drawing board to the showroom—the self-driving car—will improve Uber’s already stellar economic model and could lead to a series of cascading impacts that extend beyond the taxi industry. One futurist foresees a time when millions of people will eschew car ownership altogether, instead relying on an instantly deployable fleet of driverless Uber vehicles to take them wherever they want to go at a cost of around fifty cents per mile. Uber cofounder and CEO Travis Kalanick comments, “We want to get to the point that using Uber is cheaper than owning a car.” The ultimate promise: “Transportation that’s as reliable as running water.”
The implications are startling. The major automakers would be devastated by the shrinkage of their market. So would ancillary businesses such as auto insurance, car finance, and parking. On the other hand, the sudden decrease in demand for parking places (since driverless cars can be in virtually continual use) will free up tens of millions of square feet of real estate for development, liberate lanes on practically every city street, and drastically reduce the pollution and congestion caused by drivers cruising the streets in search of a parking spot. If this vision for the next phase of Uber’s growth comes true, the landscape of America may well be rendered unrecognizable.
interesting how Uber is presented as if it's the only way to get the ideal second outcome ... eschewing the possibility of municipal, collectively-owned solutions
[...] Unlike traditional offline pipelines, online pipelines benefited from low marginal costs of distribution—sometimes as low as zero. This allowed them to target and serve large markets with much smaller investment.
Traditional media companies were the first to feel the pinch. Newspapers were upended by the Internet’s ability to distribute news to a global audience without the traditional distribution costs (printing, shipping, retailing, delivery). An efficient pipeline had eaten an inefficient one. The unbundling of classifieds and other forms of advertising from editorial content then stripped the newspaper model of a crucial monetization mechanism, as the more efficient online method for delivering targeted advertising outcompeted the traditional ink-on-paper method. Again, an efficient pipeline ate an inefficient one.
remarkable how these different pipelines are compared without thought to what other externalities there are or even where the money goes ... the conclusion drawn is the most superficial one you could possibly expect ("efficiency > inefficiency", essentially)
[...] How do you convert a product to a platform in the business-to-business (B2B) arena? Many corporations own massive fixed assets like power generation plants, magnetic resonance imaging (MRI) machines, or tracts of farmland. How do you build platforms around those?
The answer: you de-link ownership of the physical asset from the value it creates. This allows the use of the asset to be independently traded and applied to its best use—that is, the use that creates the greatest economic value—rather than being restricted to uses specific to the owner. As a result, efficiency and value rise dramatically.
this is literally just like the worst thing about financialisation. kinda equivalent in stupidity to making derivatives (skimming off the top without bearing any of the risk ... startup founder's wet dream)
In the complexity of the governance issues they face, today’s biggest platform businesses resemble nation-states. With more than 1.5 billion users, Facebook oversees a “population” larger than China’s. Google handles 64 percent of the online searches in the U.S. and 90 percent of those in Europe, while Alibaba handles more than 1 trillion yuan ($162 billion) worth of transactions a year and accounts for 70 percent of all commercial shipments in China. Platform businesses at this scale control economic systems that are bigger than all but the biggest national economies. No wonder Brad Burnham, one of the lead investors at Union Square Ventures, responded to the introduction of Facebook Credits—a short-lived system of virtual currency for use in playing online games—by wondering what the move said about Facebook’s monetary policy. In a similar vein, we might ask: In choosing to apply unilateral software standards as opposed to multilateral standards (as we saw in chapter 7), what kind of foreign policy is Apple pursuing? Is Twitter following an industrial policy based on investment in “state-owned” services or one relying on decentralized development by others? What does Google’s approach to censorship in China tell us about the company’s human rights policy?
for diss: even mainstream proponents of SV recognise the degree to which they've become very powerful and even more powerful than nation-states in some key areas (but dont ask the obvious question: where is the democratic control)
Thus, when a firm can erect barriers to entry, it can keep competitors out, and entrants with substitute products cannot storm the castle. When a firm can subjugate suppliers, competition among them weakens their bargaining power so the firm can keep its costs low. When a firm can subjugate buyers by keeping them relatively small, disunited, and powerless, the firm can keep its prices high.
In this model, the firm maximizes profits by avoiding ruinous competition for itself but encouraging it for everyone else in the value chain. Advantage is found in industry structures that create a protective moat—one that enables the firm to segment markets, differentiate products, control resources, avoid price wars, and defend its profit margins.
think about how this applies to global value chains of commodity production re: digital advertising companies
Over the last two generations, as Andrei Shleifer has noted, most economists and political theorists have shifted from viewing government intervention in a positive light to preferring privatization. Today, there’s a trend toward regulation that was once provided by governments now being provided by private entities acting in their own self-interest—for example, the gradual shift from nationally mandated accounting standards like the Generally Accepted Accounting Principles used in the United States toward the International Financial Reporting Standards promulgated by the International Accounting Standards Board, a private organization based in London. We believe this trend will continue and that governments must rethink what they choose to regulate and what kinds of regulation private entities can provide more efficiently. [...]
yeah no shit
[...] We are skeptical about the specific charge against Amazon—namely, that book prices will rise significantly once the company’s dominance is complete—but we are somewhat more sympathetic to the idea that Amazon might act as too powerful a gatekeeper for an important cultural industry, perhaps establishing its own proprietary format for digital content, as it has tried to do with Amazon Word (AZW), the format used on the Kindle reader. Free pricing of book chapters given away in the AZW format, for example, could be used as a Trojan horse, attracting readers as part of a long-term strategy leading to increased platform control and a shift from an open to a closed proprietary standard.
an example of how a company with a monopoly as a gateway in one sector can use its power to dominate adjacent sectors (combined with cross-subsidisation)