Platform Effects – Second Best is Good Enough

In my last post I summarized the platform strategies of Amazon.com, Facebook, Google and Apple.  Platforms are the most innovative business model of the 21st century.  Platforms yield extremely high valuations for the companies that operate them.  But valuations are not the only benefits to be gained from a platform strategy.  Introducing new products becomes easier as well.

Once you gain critical mass on your platform you no longer need to have the most-feature rich application on the market.  You simply have to be competitive.  For example, Facebook has become one of the most popular sites for sharing videos and photos.  But does Facebook offer a better video sharing experience than YouTube.  Does Facebook offer a better photo sharing experience than Flickr?  Most people would say “No,” but it doesn’t really matter which site’s features are better.  Facebook is the platform that people’s friends and family visit most frequently.  And that is why most people choose to share their photos and videos on the top ranked social networking site rather than on best-of-breed services.

Similar examples could be demonstrated from other platforms.  Does Amazon really offer the best pricing or selection of consumer electronics?   Probably not.  Yet millions search first on Amazon, because they offer free two-day shipping with their Prime offering and make the checkout process extraordinarily simple.  Does Google really offer the best e-mail service?  Not really.  Yet millions use Gmail, because they already have a Google login to use other applications and enjoy the integrated experience.  Does Apple really offer the best selection of movies and TV programming?  Definitely not.  Yet millions of people buy from the iTunes store because they are hooked on Apple’s iPhone or iPad platform. 

These are all examples of platform effects.

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