Vorlesung 6: Digital Platform Governance Flashcards
Establishing successful multisided platforms
Critical issues that multi-sided platforms must address:
▪ Getting the pricing structure right: critical for the establishment and for long-term profitability
▪ Recognizing the opportunity: when frictions keep market participants from dealing with each other easily and directly transaction costs can be reduced
▪ Securing critical mass: solve the chicken-egg problem
▪ Governance: how participants interact with each other in physical or virtual places
▪ Managing the broader ecosystem: other firms, governments, regulation, and other institutions
Platform emergence
▪ Platform has to balance need for architecture with randomness and luck of the emergence of their own accord
▪ Users should be provided guidelines but be allowed to take the platform in new directions
▪ Emergence: a small set of micro-level rules gives rise to macro-level movements on emergent systems
▪ Tools-Rules-Interaction-Experience (TRIE) Framework
- Tools and Rules: build out the technology (tools) and
structure the constraints and algorithms that facilitate behavior (rules) by setting boundaries, e.g., video uploading, 280-character limit on Twitter X
- Interaction: structure of value creation, i.e., of the actions that users perform
- Experience: determined by the core value unit on the platform, different use cases
Drivers of interactions on platforms
Two core principles of platform scale:
Build incentives and behaviors to encourage an ecosystem of producers and
consumers to interact often
▪ Connection: must pre-exist between participants, e.g., Facebook, LinkedIn
▪ Content: no prior relationship necessary for creation and consumption of content, e.g.,
YouTube, eBay
▪ Clout: certain participants have greater influence, e.g., Twitter X (<1% of users have >
10,000 followers)
▪ Coordination: interactions arise from a set of instructed actions, e.g., Wikipedia
▪ Competition: dominated by competitive moves, e.g., 99Designs
▪ Culture and code: centered around shared culture and code, e.g., Reddit
Increase repeatability and efficiency of interactions over time by removing
barriers
▪ Skill barrier, e.g., provision of tools
▪ Time or effort barrier, e.g., efficient aggregation
▪ Investment barrier
▪ Resource barrier, e.g., Amazon Web Services
▪ Access barrier, e.g., Kickstarter
Balancing quality and quantity of interactions
▪ Platforms must be designed in a manner that optimally balances the quality and quantity of interactions by balancing traction and friction
▪ Design considerations for
friction:
▪ Source of quality
▪ Source of superior signaling
▪ Barrier
Interaction ownership
▪ Encouraging repeatable interactions isn’t useful unless the platform can own the interaction and prevent off-platform collusion
▪ Connecting buyers and sellers directly before charging the transaction cut weakens the platform’s ability to capture value
▪ A monetization model that involves extracting a cut from the buyer-seller transaction requires a mechanism for owning the end-to-end interaction
▪ Solving the interaction ownership:
- Exchange tracking tools
- Workflow management tools: help to capture repeat interaction, involve a learning curve
and increase multihoming costs
- Reputation as a source of value
Suggestions for matchmaking
Making markets thick
Screening participants
▪ Account for heterogeneity among participants on both sides, and for changing
participants’ interests and desires
▪ Screen participants by offering something only the desired participants want, or by
signaling (e.g., FarmersOnly.com)
▪ Reasons to limit: limit competition, subsidize marquee users, congestion/ physical
limits
Searching and matching
▪ Make sure interactions happen between participants
▪ Facilitate interactions by organizing participants around a standard that they all agree
to use, e.g., software development kits, 280-character limit of Tweets
▪ Highly complex computerized algorithms for matching, e.g., Google Search
▪ Search buttons
Balancing externalities
▪ Compensate customers, e.g., media businesses create content that they use to
compensate people for receiving advertising messages
▪ Engage in search diversion or recommendations
Matchmaking on online-to-offline platforms
▪ Online-to-offline (O2O) platforms: offers are not digital (e.g., software, music), but in form of products and services (e.g., cars, apartments)
▪ Increase efficiency and utilization of assets
▪ Handle huge volumes of information:
▪ Personal data, choices and activities, availability and pricing of goods and services,
payments, problems→machine learning
▪ All relevant and useful information can be everywhere on the platforms, all the time
▪ Central task: matching supply and demand over time is difficult because of constraints in real-world, i.e., finite capacity, inventory must be managed
▪ Revenue management improves the more data is available
Filters to find matches
▪ Platforms solve the abundance problem by creating and managing consumption filters
▪ Units are produced and served to customers based on how well they pass through certain filters, so the results are most relevant to customers
▪ Key factors for passing through filters:
▪ Overlap between what provider provides and customer needs
▪ Data: value units carry data and are matched against the data in a consumer’s filter
▪ Configuration of filters:
▪ Pull versus push, e.g., search queries versus newsfeed
▪ Point-in-time versus cumulative, e.g., based on search history
▪ Active intent versus passive context, e.g., search queries versus newsfeed ▪ Static versus dynamic context, e.g., canned filters
▪ Standalone versus collaborative, e.g., recommendation based on
reviews of similar customers
▪ The network itself is a filter
Governance
Complementor dedication
▪ Key goal of platform governance: complementor dedication
▪ Necessity to balance satisfying global ecosystem needs and local partnership
needs
Global Ecosystem Local Partnership Needs Needs
▪ Adequate rules (as perceived by complementors) increase dedication with
three functions:
- Protection of complementor’s interest vis-à-vis the platform owner
- Prevention of inappropriate behavior on the part of the platform owner
- Assurance of receipt of promised partnership benefits from the platform owner
Digital platforms’ boundaries
Scope of the platform firm
▪ what assets are owned
▪ what labor is employed
▪ what activities are performed by the firm
Configuration and composition of the platform’s sides
▪ which distinct groups of customers have access to the platform
Digital interfaces
▪ that specify the 2-way exchange of data between the platform firm and each of its
sides
Digital platforms’ boundaries
Illustration
Motivation for platform owner entry
Should platform owners still offer complementary products by themselves after the platform has taken off?
Example: Intel versus Amazon
▪ Intel does not want to upset their complementors because they made Intel-specific
investments
▪ Amazon competes on its own platform, retailers did not make Amazon-specific
investments
Motivations for platform owner entries: ▪ Capture value
▪ Spur complementors’ innovations by introducing competition
▪ Exercise better quality control, minimize counterfeiting
Entry decision is related to whether a firm wants to become more like a vertically integrated firm or a multisided platform
Impact of platform owner entry
Creating cumulative value on platforms (ecosystem)
▪ Multihoming costs are decreasing due to social graph (SSO), mobile-based access→erodes lock-in effect of networks
▪ Platforms today need to create cumulative value additionally to network effects to secure customer loyalty
▪ Means:
▪ Reputation
▪ Influence, e.g., followers, access to new rights
▪ Collections
▪ Learning filters, e.g., feeds become more relevant as more information
about user are collected
