Recent battles for platform market share have shown that some technology platforms are better than others. More specifically, some platforms seem both more durable and more lucrative than others due to important characteristics of the platform and its users. Social media and online auction platforms demonstrate the “winner-takes-all” narrative, with one dominant platform — and its sponsoring company — capturing the majority of users from the competition. However, in other platform-mediated markets, many competing platforms seem to persist.
In other cases, platforms like Amazon have risen to dominance in their markets because of conventional scale and scope advantages, not because they relied on direct user interactions. These cases suggest that successful platform strategy is not just about the size or structure of the platform, but also the specific nature of interactions among users.
Traditionally, when we think of “network effects,” we’re focusing on the value we get from other users on a given platform. For instance, I get more value from Facebook or Skype when others use the same platform, because I want to be able to interact with family members, friends, and colleagues. These dynamics form the basis of a winner-takes-all narrative.
Yet while network effects exist across a wide spectrum of markets, they play out differently across different contexts and use cases. For example, for users of online auction sites, a consumer will almost certainly be drawn to the platform with the largest current user base, as the brunt of value comes from the ability to sell to or buy from a large network of users. Similarly, in deciding which video game console platform to join, a person may evaluate which platform currently seems most popular in the marketplace, as part of the fun is the opportunity to interact with other users. However, the same person might also give equal weight to criteria outside of the user base, such as the availability of a particular game title or the quality of graphics on the console.
These seemingly subtle differences in the strength or intensity of network effects have important implications for optimal platform strategies.