The Platform Delusion by Jonathan A Knee

1) While common belief is that platform businesses?represent the 20th century digital businesses, some of prominent companies with platform business model predate the internet era, such as credit card business- say Visa and Master card. Network effects like those of platforms existed in analog world.

2) The chicken and egg dynamic inherent in platform business has not fundamentally changed with the internet.

3) Myth- digital platforms are structurally superior to analog platforms. Success of google and fb has led to a broader assumption that digital platforms are consistently better businesses than the analog ones. However that may not necessarily be true.

4) Instead traditional analog businesses had much more entry barriers which have since been eliminated thanks to the digital models of such businesses. Consider the traditional malls which had 2 major benefits- their vendors were committed to long term leases and their shoppers' next best option was many miles away. So a new mall developer will secure few anchor tenants etc. to make sure no competing mall can come up nearby. Compare this with digital platform businesses- on internet, the alternatives are only a click away. There are barely any fixed cost entry barrier. The less significant the fixed costs, the easier it is for new competitor (serious/non-serious) to enter in the first place.

5) Having said this, for any e-commerce business including those with network effects, the estimates of failure rates are as high as 97%, negligible entry barriers being the major reason.

6) Offline business models have surprising relative resilience. Even today the struggling online retailers increasingly look to solve their structural woes by opening up physical outlets.

7) It is a mistake to conclude all platforms are powered by strong network effects. Many businesses actually base their success on?an ancillary business- example amazon, ad-supported media business, movie theatres. Without any meaningful costs of switching in terms of the value provided, the value of any network effects is limited.

8) Businesses like uber, Airbnb are the real network effects business with heavy fixed cost barrier.

9) When from the outside every new business is sold as a platform business, this delusion results in massive value destruction.

10) Only the discipline, customer captivity and relative scale- have proven to be the most ephemeral characteristics of digital business models.

11) Even after that, being a platform or having n/w effects does nothing to mitigate the existential risks of such companies that the alternatives are just one click away.?

With the no. of cases covered by the author, the book is a good read for anyone to go one level deep into platform business models.