THE REAL POWER OF THE

DIGITALPLATFORM
LÂM THIẾU QUÂN
DEFINITION

• Not … physical product platform (factory or helipad) nor Netflix

movie
• Not computer technology (Windows or Mac OS) nor political
promises
• Not hardware (Intel, Apple), not database (SQL or NOSQL) nor
supply chain platform
• It is about how digital ecosystem platform (Google, Facebook,
Apple…) operates and makes profit…
• And why venture funds pump a lot of capital in platforms of two-
sided market even though they are losing money (Uber, Airbnb…)
THE ECONOMICS OF FREE, PERFECT AND INSTANT

• Goods are made of atom: cars, airplane, oil, computer, phone, TV,
watch …
• Goods are made of bits: digital songs, movies, news, pictures, books,
video …
• Free: almost no cost to make a copy – $0.005 / GB (2020) vs $11 (2000)
• Perfect: Digital copy is exactly identical to the original, regardless
one or billion copies
• Instant: Distribution of information goods from one to many places,
immediately, almost free, even access from halfway around the world.
• Internet and related technologies disrupted diverse industries.
AS PLATFORMS COMBINE, INCUMBENTS SHRINK
• Platform is digital environment characterized by near-zero marginal cost of access,
reproduction and distribution.
• Internet is platform of platform. WWW is platform built on top of Internet.
• Revenues fell as customers gain more option and new comers flourished.
• Revenue of newspapers and magazines decline due to:
• Content platform: Vnexpress, Bloggers, Webtretho, CafeF: free of contributors
• Platforms target advertisement: Google news, Yahoo News, DoubleClick, AppNexus developed fast and
automated process of matching advertisers with content providers
• 2007: Group of Belgium, German and Spanish newspapers won courts case against Google to share the
revenue or to be shut down.
• Google shut down its news product =>Traffic to newspaper website decreased substantially
• Newspapers asked for the court decision to be reversed => Restore the flow of traffic
• 2013 US newspaper ad revenue declined 70% over 2000 => almost no printed newspapers in 2020
THE IRRESTIBLE EFFECT OF THE NETWORKS

• Cost effect: WhatsApp (released 2009) … Viber, Zalo … cheaper than SMS,
and free if connected to WIFI networks => attract many customers
• Networks effect: Other customers had to change in order to communicate =>
the goods become more valuable to each user when more people using them
=> demand-side economies of scale.
• 2014: Facebook paid $22 billion to acquire WhatsApp (600M users with 70
employees).
• WhatsApp is not interoperable with SMS => Create their own network effect
PLATFORMS PROLIFERATE
• Amazon:
• Develop platform to connect database of customers to an application to track the
inventories and shipments status => standard interfaces and shortcut eliminated.
• Realized that it possessed powerful resources: storage space, database and processing
power; accessible through high-speed internet connections.
• Launch Amazon Web Services in 2006 => contributes 10% revenue, 50% income in 2016
(even though IT companies are not happy)
• Music industries: Listening more and payless
• Napster – 1999 peer-to-peer sharing – shut down in 2001 due to copyright laws suites.
• iTunes – 2003 unbundle resources : customer can buy single song instead of whole CD albums - CHEAPER
• Spotify – 2008 bundle resources: customer can listen to unlimited playlists streaming with monthly
subscription – 2018 streaming music accounts for 50% of total US music revenue. The more subscription –
the lower cost.
• Platforms success because they reduce the information asymmetries.
DEMAND-SUPPLY AND COMPLEMENTARY
• Complementary goods: is related to the use of an associated (beer and peanuts) or
paired good (printer and ink cartridges) to increase the demand of the others
• I phone story:
• 2007 – multi-touch screen, safari, GPS, accelerometer
• 6M handsets for first year – 500USD with all apps designed by Apple Angry
• 2009 – independent apps can be download on App Store – Angry Birds Bird

• Complements shift the curves:

• Each customer prefers deferent apps.
• The more outside apps available => The more customer surplus and more
Apple’s profit
• Many people and companies are willing to make their apps available for free, and for variety reasons.
FREE APPS PROLIFERATE
• Compliments are Free, Perfect and Instant in digital platform
• In July 2008, Apple allowed 800 external developed apps –
10 M download in 3 days.
• How free apps developers survive if not for fun
• Freemium: Free for basic services and charged for extra (capacity or function)
• Free goods can be compliment for more expensive version: increase demand – iCloud/Dropbox
• Advertisement: Free apps can get revenue from Ad – Facebook
• Customer services: Bank, Entertaimnet, Hotel, Restaurant
• Public services (government, non-profits, museum, health)
• Pairing with products: Apps to control and upgrade firmware of
the products
THE ART OF PLATFORM WARS
• The importance of being open
• Open bring to the platform owner a greater volume of contribution, motivation and ideas
• It brings more customer surplus and push the demand side for complimentary products
• The platform owner gets the data (customer behaviors, preferences) to carry better marketing and product develoments
• The platform owners gets the shared revenues (Apple keeps 30% - $6B in 2015).
• Counters the Corruptors
• Outsiders should comply with strict standards, tested and approved by owner.
• Owner influences the contents, services, membership, traffic, payment of the apps
• Be different and be early
• 2005 Google bought Android 2005 – for $50M – free open-source software – power 88% of all smartphone sold in
2016.
• Microsoft – Windows phone + Nokia investment – Fail ; Blackberry – disappear.
• Experience as the strategy: focus on user interface and user experiences: Fast, Simple, Easy to access
CASUALTIES OF PLATFORM WAR

• 2007 Apple’s iphone, iOS the Google’s Android introduced.

• Products without platform fails gradually: Nokia, Siemens,
Blackberry, Sony …
• Chinese phone manufacturers are facing stiff competition =>
trying to build the brand and sell other devices.
• Profits have gone to the platform providers: 2015 Apple made 91% and 3Q/2016 103.9% total
operating profit across all mobile devices, Samsung made 0.9%, others lost money.
• Platform owners control the user experiences and interface for their members:
• They can reduce the barriers that have kept people frim transacting with each other: Parties rate each others –
dual reputation system – overcome personal biases.
• They can influence the flow of transaction that more benefits to the platform owners.
ONLINE-TO-OFFLINE PLATFORM PROLIFERATE
• O2O platform: to cover the atom goods that is not {free, perfect and instant} and with capacity limit
• Monthly flat fee for food delivery, cloths rental; Airbnb for house rental
• Lyft, Uber, Grab for car sharing; Transfix for truck booking; BlaBlacar for bus and coach
• Flexe is platform warehouse sharing; Cvent for booking venue for business conferences
• Elance is platform to connect Freelancer to Client; Upwork for project management
• Edaixi for laundry; Guangua Xiche for car wash; Hao Chushi for house cooking
• Power of compliment, freemium and network effects pushing out demand curves
• These platforms handle huge amount of information: choices, activities, prices etc
• Revenue management with AI features helps to optimize all logistics, payment, supply chain issues
and provide the potential approaches to maximize revenues.
• Enabling technologies: Smartphone, AI, Cloud, 3G/4G => easy to startup, scale up, expand
• Increase the utilization of many resources in atom world => change business, society and the world.
 FROM SINGLE-SIDED TO TWO-SIDED NETWORKS
• Single-sided network: Google Search, Whatsapp
• Two-sided network: Uber
• Ubercab – 2008 – focus on limousine service
• 2010 – expand the two-sided network with new platform – economy of
scale, minimize the overall cost, for instance, by avoiding duplication, or
by minimizing transaction costs:
• More riders use the platform => reduce costs => meant more cars joined
• More cars on the platform => more riders due to lower fare, shorten time
• 2020 value $60B – one of fast growing companies => taxi companies
suffer huge loss.
• Free (even subsidize) for one side – charge the other side of the
network with elastic demand
• Continuously improve the user interface and algorithm behind to make
the platform grows.
 FROM TWO-SIDED TO N-SIDED NETWORKS
• Two-sided network:
• Credit card: VISA cash-back to encourage more consumers to get more
merchant fees (2-4%) and market shares
• Merchants prefer VISA card because more consumers using.
• When the free annual fee not available, switching cost is high and customers are “Locked-in”.
• The larger network is easier in providing attractive discount => winner-takes-all advantages.
• N-sided:
• Uber/Grab: lower price for one side of the network increase the demand for both sides of the
network, create an extra benefit for each price cut.
• N-side network: Grab Taxi, Grab car, Grab bike, Grab express, Grab Tech?, Grab Carwash?
• Uber/Grab investors are making the BET in attracting more drivers and users on the platform, and
when achieves its scale, its marginal cost will be extra low, immunity to the new competition and
capture much, most or even all of market revenue => Wait and See
QUESTION
- PLATFORMS ALWAYS WIN?