Although successful digital platforms can deliver remarkable value to users and riches to entrepreneurs and investors, in some sectors it isn’t clear that anyone will turn a profit.
The dramatic influence of the internet on how businesses operate and the emergence of a handful of gigantic, digitally enabled corporations have led to breathless pronouncements regarding the importance of a new class of monopolies built on digital platforms. Such platforms, it is said, can fuel network effects that lead to winner-take-all marketplaces. This perspective is often coupled with infectious optimism and investment euphoria regarding the extraordinary scale and strength of network-effects businesses.
In theory, the key attribute of a network-effects business is its momentum-driven flywheel. Every new participant increases the value of the network to existing participants, attracts more new users, and makes the prospect of a successful competitive attack ever more remote — thereby bolstering the relative attractiveness of the business. The imagined innate indomitability of network effects stems at least in part from the breathtaking strength of notable platform businesses such as Facebook Inc.’s social network or Microsoft Corp.’s Windows operating system.
The problem is that not all platform businesses exhibit network effects that reinforce a market’s winner-take-all tendency. For every Facebook and Microsoft, there are numerous network-effects businesses operating in crowded sectors where it is not always clear that anyone will turn a profit.
Nor are digital platforms necessarily better businesses than the analog versions that they displace. Analog malls had the benefit of their shoppers being miles away from competing malls, as well as the benefit of their retail tenants being committed to long-term leases. On the internet, platform competitors are only a click away, and companies regularly and dynamically optimize their customer reach across competing platforms and directly via their own sites.
Denne historien er fra Winter 2018-utgaven av MIT Sloan Management Review.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent ? Logg på
Denne historien er fra Winter 2018-utgaven av MIT Sloan Management Review.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent? Logg på
Avoiding Harm in Technology Innovation
To capitalize on emerging technologies while mitigating unanticipated consequences, innovation managers need to establish a systematic review process.
Make a Stronger Business Case for Sustainability
When greener products and processes add costs, managers can shift other levers to maintain profitability.
How to Turn Professional Services Into Products
Product-based business models can help services firms achieve greater scale and profitability. But the transformation can be challenging.
Do You Really Need a Chief AI Officer?
The right answer depends on the strategic importance and maturity of AI in your company.
Where To Next? Opportunity on the Edge
Doing business in regions considered less stable or developed can pay off for companies. But they must invest in working with local communities.
Make Smarter Investments in Resilient Supply Chains
Many companies invest in resilience only after a disruption. Applying the concept of real options can help decision makers fortify supply chain capabilities no matter the crisis.
The Three Traps That Stymie Reinvention
Organizational identity, architecture, and collaboration can be either assets or liabilities to pursuing growth in new sectors.
What Makes Companies Do the Right Thing?
Vaccine makers varied widely in their engagement with global public health efforts to broaden access to COVID-19 immunizations. Ethically motivated leadership was a dominant factor.
Build the Right C-Suite Team for Your Strategy
CEOs can foster a more effective leadership team by understanding when to tap senior executives' competitive instincts and when to encourage collaboration.
A Better Way to Unlock Innovation and Drive Change
A strengths-based approach to building teams can win employee commitment to change and foster an inclusive, agile culture.