Platform Scaling, Fast and Slow
Conventional wisdom says digital platform businesses should scale quickly, but that’s a mistake in some markets.
Image courtesy of Michael Glenwood Gibbs/theispot.com
Shortly after its 2009 founding in San Francisco, Uber executed a simple strategy that rapidly led to its expansion on a global scale. To achieve network effects by connecting as many drivers and passengers as quickly as possible, the company prioritized launches in new cities. It hired core teams of general managers, operations managers, and community managers in multiple cities at once. In each city, these teams attracted drivers by offering existing black-car services an app — and sometimes a free smartphone — to monetize their idle time. To attract riders, the teams offered subsidized fares to attendees of large conferences and other high-profile events, signing them up and then gaining thousands more riders through word of mouth.1
Rapid scaling, as exemplified by Uber, is a core element of platform strategy, with speed considered the decisive factor in the race to succeed in winner-takes-all and winner-takes-most markets.2 But we’ve found that rapid scaling may not be the best strategy for all platforms. In some cases, a more careful, incremental, and thus slower approach to scaling is more beneficial.
In studying platform businesses, including Airbnb, Amazon, Apple, Expedia, Facebook (particularly its e-payment project, Libra), Google, Grindr, LinkedIn, Netflix, PayPal, and Uber, we found that regulatory complexity and regulatory risk are two significant but often neglected factors in platform scaling decisions. Moreover, they are likely to become increasingly important in the years ahead as efforts to regulate tech companies gain momentum and as more companies in a greater variety of sectors and markets seek to capture the benefits of platforms.
Plotting Regulatory Complexity and Risk
Regulatory complexity describes the current level of legal and regulatory barriers that govern platform entry and operations in a sector.
References (26)
1. Y. Moon, “Uber: Changing the Way the World Moves,” Harvard Business School case no. 316101 (Boston: Harvard Business School Publishing, 2015).
2. See, for example, R.I. Sutton and H. Rao, “Scaling Up Excellence: Getting to More Without Settling for Less,” (New York: Crown Business, 2014); and R. Hoffman and C. Yeh, “Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies” (New York: Currency, 2018).
