the symbiosis between platforms and network effects

4 minutes of reading

the symbiosis between platforms and network effects

4 minutes of reading

we live in an era where platforms are playing a key role in redefining the economy and society. with the availability of scalable computing power and cloud storage, it has become possible to create robust infrastructures that support the operation of large-scale platforms.

these platforms can be found in a variety of industries, from transportation to e-commerce, financial services, and social media. together with their infrastructures and services, they have caused an explosion of new business models and have been agents of transformation in relation to individual and collective behavior. they provide easy access to a variety of services and products, allowing people to experience new ways of interacting and consuming. at the same time, they empower ecosystems in the physical, digital and social dimensions of reality – operating in phygital space.

business models and network effects

one of the main reasons for the success of platforms is the ability to enable innovative business models, based on connectivity and value creation from the interaction between different participants in the platform. acting as facilitators, they create ecosystems where producers and consumers can interact directly and efficiently. this direct interaction and the abundance of information generated during this dynamic allow for the customization and offer of products and services that are more in line with the needs of users.

the more users a platform has, the greater the value perceived by all other users. for example, in a social network, the value of the platform increases as more people join, as there are more opportunities for interaction, content sharing and social connections. this creates a virtuous cycle where user base growth further drives the platform’s value, making it more attractive to new users.

thus, one of the main drivers of platform success is the presence of network effects. these effects have the potential to significantly increase the efficiency of platforms. once a platform reaches a critical mass of users, the value of the product or service offered by the platform can outweigh its price. in other words, the benefit gained by users through the platform is greater than the cost they pay for it. this is due to the positive externalities generated by the interaction between users.

popularizing a platform from the beginning involves significant challenges related to network effects. the “chicken-or-egg” problem refers to the need to attract a minimum number of users to the platform in order to create an ecosystem that makes it evolve. this is a common challenge new platforms face, as without enough users, both vendors and customers may be hesitant to join.

network effects themselves are a key feature that should be encouraged and observed. it is often necessary to reach a critical mass of participants on the platform for network effects to be truly observed. however, at the same time, certain network effects are also required to reach this critical mass. therefore, it is a complex and interconnected challenge.

to solve this problem, specific strategies and approaches are needed. this may involve identifying suitable target groups, adapting the platform’s language and technology to meet the needs of these groups, implementing platform wrap-up strategies (such as offering free services or initial discounts), entering into exclusivity agreements with vendors, or adopting change sides on the platform.

simultaneous attraction of customers and suppliers is an additional challenge, as both are catalysts for each other. you need to create an environment where the growth of one group encourages the growth of the other. this can be achieved through effective marketing strategies, offering incentives for joining the platform or establishing strategic partnerships.

in strateegia, we have some journeys that can help solve these issues:

multisided platform design – a structured journey with all the necessary steps for the development of multilateral platforms that work as a methodological roadmap for the process.

heart framework – a collaborative journey that establishes a series of user-centric metrics that allow you to measure the user experience at scale

value proposition canvas – journey that develops a value proposition for a product or service by mapping the needs, pains, expectations and desires of the customer

it is common for platforms to start out offering information services and then evolve into connections, relationships, interactions and transactions in order to create and facilitate their own network effects. by expanding their adjacent transaction markets, platforms seek to create new network effects, as well as new forms of value and innovation, driving their exponential growth. unlike analog markets, the foundations and functions of platforms are constantly changing, and the barriers to entry are determined by reducing friction, network effects, reducing search and transaction costs, and the need for continuous innovation.

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2022 the digital strategy company – all rights reserved.