The Complexity of Platforms

Home Agenda Speakers Registration Travel Information

SFI ACtioN Topical Meeting
Co-hosted by Hewlett Packard Enterprise

Venue: Hewlett Packard Enterprise, Auditorium, 1st floor 3000 Hanover St., Palo Alto, CA 94304

August 24th, 2017

---

Summary
Platforms are organizations or infrastructures that enable networks. Over the last decade, social and digital platforms have emerged that have replaced or amplified a variety of institutions, markets, and organizations. As platforms successfully scale up the number of their participants, they are able to reduce the cost of participa­tion, increase the value of participation, or both. The rapid value creation associated with platforms often shifts or creates the centers of power in the systems they moderate.

Due in larger part to disjointed improvements in telecommunications and mobile computing, platforms are increasingly represented among the organizations that impact our lives. Well known commerce-oriented platforms include the digital distribution of consumer goods (Amazon Marketplace), hotels (Airbnb), travel (Orbitz), music (SoundCloud), collectibles (eBay), and transportation (Uber). Such platforms have transformed, and in many cases complete­ly replaced, long standing markets. Less well publicized are institutional platforms, such as the World Economic Forum, the MIT Media Lab, and the Santa Fe Institute. Like commerce-oriented platforms, the utilization of networks enables institutional platforms to impact the world on a scale that is surprising, given their small organizational size. To date, the most impactful platforms may be in the space of information dissemination, where examples include Google, Wikipedia, Slack, Reddit, Stack Overflow, GitHub, Twitter, Facebook, Insta­gram, Tumblr, and Snapchat.

In every case, successful social and digital platforms include some number of key ingredients matched with clear, and often immediate, economies of scale. These include:

1. An essential or core utility

2. Mechanisms of distributed coordination

3. Mechanisms of diffusion

4. Powers of computation

5. Open-ended scaleability

6. Trust in the platform

Taking these in terms in order.

1. An essential or core utility

Platforms begin with a well defined function, and seldom include their initial release or incarnation, all of the institutions and markets that they ultimately influence.

Wikipedia was first and foremost an online encyclopedia. Uber was first and foremost a taxi service, and Ama­zon an alternative to the physical bookstore.

2. Mechanisms of distributed coordination

Platforms all exploit the internet and the web to move the burden of coordination to individuals and away from an unscalable hierarchy. Essential features of platforms make local contributions and consensus formation possi­ble. An analogy is the establishment of universal currencies that overcome the coincidence of needs served by barter.

3. Mechanisms of diffusion

Platforms make any one source of information available to all users of the platform. In this way, a platform behaves much like a circulating currency or information or trust. When coupled with desirable properties of networks, such as the small world property, all individuals can reach others with very few intermediaries and no need for a central server.

4. Powers of computation

Many platforms are founded on computational models, and thereby allow computational simulations to amplify their core functions. This is why Netflix and Amazon can add a recommendation systems to what is otherwise merely a ubiquitous store front, Uber and Google Maps can provide analytics on traffic, route economics, and providers in addition to their core utility, and Google Ventures can mobilize the power of data analytics to guide investment decisions.

5. Open-ended scaleability

Despite the value of their core utility, coordination, and diffusion functions, most platforms would not survive without a model that is scaleable. The lack of scaleability is frequently the cause of platform failure. From the debacle of Maxis online game Spore, and the self-imposed constraints of the search engine Go.com.

6. Trust

For platforms to be adopted at scale, users must trust the services provided by platforms – a transaction will be completed to the satisfaction of all parties, a payment will be made for goods sold, information, privacy, and confidentiality will be maintained. For example, eBay would never have scaled without an accompanying trusted payment service like Paypal.

Despite these new insights and the increasing importance of platforms, they remain poorly understood com­pared to other business models and organization structures. Furthermore, most analyses of platforms are largely disconnected from a rigorous understanding of the network structure and the impact of enablers that lead to scaling.

This meeting will attempt to address this deficiency by taking a complexity approach to explore:

(i) the key ingredients of successful plat­forms,

(ii) the impact of platforms on the systems which they exist within, and

(iii) how platforms compete and either succeed or fail.

Particular attention will be paid to how sponsors can create and support platforms, as well as strategies for helping platforms to scale.