The platform delusion

How the term 'platform' might actually be a trap

- ANAND TANDON

Over the past two decades, Facebook, Apple, Amazon, Netflix and Google have taken over the world, increasing in value at a rate three times faster than the growth of the entire S&P 500. This ascendancy is ascribed to their having become “platforms”. The appeal of building a platform is clear - platforms create connections and connections form a network – with its appeal of self-reinforcing business growth and profits. But Jonathan Knee disagrees! Knee argues that the word “platform” has lost almost all meaning and is a “succubus enterprise” that is sucking value, returns and growth out of companies that actually do things. Not all networks are equal – unlike what investors think. Dr Knee is a former lead media analyst at Morgan Stanley and currently, a professor of digital investing at Columbia Business School and his book (‘The Platform Delusion: Who Wins and Who Loses in The Age of Tech Titans’) offers an interesting insight into what creates value for companies.

Unequal networks

Take the case of Uber. The objective of Uber is best served when there are sufficient drivers on the platform that can respond to a request by a user within, say, five minutes. Adding a new vehicle to its service after reaching this threshold does not add value to the network. Having too many drivers may reduce the number of rides per driver making them leave the network. Similarly, for a user, having a driver arrive within a minute may not leave sufficient time to reach the curb and lead to penalty payments.