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

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

3. 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

4. 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

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

6. 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

7. 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

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