Network effects (part II)

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Presentation transcript:

Network effects (part II) Digital Platforms Network effects (part II)

So far… Platform analysis Network effects Sides The promise of increasing returns to scale justifies extremely high valuations

Google as a three-sided platform Identify sides Fill up the network effect matrix Draw the network effect map Derive strategic conclusions Google Platform Users Advertisers Content Providers 1) Consumers: 132 mil /day (end 11/2007) – reveal preferences – consume ads – users of new products 2) Developers: internal and external – generate revenue – sustain excitement 3) Advertisers 4) Content interest, delivery mechanisms for ads, community Also Salesforce as an example

Google as a three-sided platform Network effect matrix Network effect map Users PV Advertisers Content providers PV If # Users goes up… If # advertisers goes up… If # of content providers goes up… Content Providers Users + + - + Google Platform - - - + + - + Advertisers PV = perceived value from the platform

What are the big platform strategy decisions? Pricing money side, subsidy side, same-side Winners-take-all dynamics multihoming costs economies of scale Envelopment

LinkedIn as a two-sided platform Identify sides Fill up the network effect matrix Draw the network effect map Derive strategic conclusions Platform Users Recruiters 1) Consumers: 132 mil /day (end 11/2007) – reveal preferences – consume ads – users of new products 2) Developers: internal and external – generate revenue – sustain excitement 3) Advertisers 4) Content interest, delivery mechanisms for ads, community Also Salesforce as an example

LinkedIn as a two-sided platform Network effect matrix Network effect map Users PV Recruiters If # Users goes up… If # Recruiters goes up… Users Platform Recruiters 1) Consumers: 132 mil /day (end 11/2007) – reveal preferences – consume ads – users of new products 2) Developers: internal and external – generate revenue – sustain excitement 3) Advertisers 4) Content interest, delivery mechanisms for ads, community Also Salesforce as an example PV = perceived value from the platform

What are the big platform strategy decisions? Pricing money side, subsidy side, same-side Winners-take-all dynamics multihoming costs economies of scale Envelopment