The simplification business model has been dissected

Attention, a major book. There are countless articles illustrating the irresistible rise of Uber, Airbnb and BlaBlaCar, against the backdrop of the digital revolution and disruption of value chains. With more or less merit. But the work of David Evans and Richard Schmalensee is of a different character, as these two high-ranking economists, who were among the first to take an interest in so-called “multi-sided” markets (of which platforms are a part), manage to reconcile the requirements of academic research and pedagogy by multiplying Concrete examples to illustrate their thesis.

Not only do they explain why the platform business model is so different from that of a traditional company (that really pays for what…), which makes it really useful, but they also dissect the bugs that have decimated some of the keys to the success of others. And don’t forget to point out that in these markets, the winner can be everything…but not necessarily for long.

[Extraits]

Core Network Effects

“An ordinary business must ensure that its customers get what they pay for: that is, they get more than they pay for. It must also ensure that it is profitable, that is, what you earn covers its costs and provides enough return for the company and its investors, and it has to share the cake with its customers so that everyone is happy. .

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The multifaceted platform faces a more difficult problem. It must both ensure that members of each customer group receive enough value to want to participate, that there are enough of them to participate, and that members of each other customer group also have the willingness to participate: this is what will produce the network effects or positive feedback that the system needs absolutely essential for growth and survival. Sometimes this requires giving a group such a large share of the total value that the platform does not make money from it. (…)

At first, everyone thought that Friendster would have no competitor in the “online social network” category. Launched in March 2002, the platform experienced rapid growth and in November 2003 had over 3 million users. At that time, most social media sites were dating sites. Friendster chooses another method.

How Friendster and Myspace fell

The idea was for people to connect with their friends and friends. Unfortunately, the new social network did not imagine that people would create fake profiles and the site was full of scammers. A ruthless fight ensued between the site and them.

During this difficult period, a new social network, Myspace, appeared in August 2003. Its creators believed that Friendster had made a mistake by preventing users from obtaining false identities. The new website has opened its doors to scammers. But Myspace has earned a reputation as a “vortex of evil” at the cost of its ad revenue.

Facebook, launched in February 2004, takes a completely different approach. The platform has adopted strict rules to avoid bad behavior. The site initially limited access to people with valid university email, and later expanded to specific groups including companies with recognizable email addresses. […] Addressing negative behavioral externalities played a large role in the collapse of Friendster and Myspace.

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precious brokerWritten by David Evans and Richard Schmalense. Odile Jacob, 341 p., 24.90 euros.

Emmanuel Lecheber

Odell Jacob

Emmanuel Lecheber


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