A Study of More Than 250 Platforms Reveals Why Most Fail
First, since many things can go wrong in a platform market, managers and entrepreneurs need to make concerted efforts to learn from failures. Despite the huge upside opportunities that platforms offered, pursuing a platform strategy does not necessarily improve the odds of success as a business. Second, since platforms are ultimately driven by network effects, getting the prices right and identifying which sides to subsidize remain the biggest challenges. Uber’s great insight (and Sidecar’s great failure) was recognizing the power of network effects to drive volume by dramatically lowering prices and costs on both sides of the market. While Uber is still struggling to make the economics work (and it may yet fail as a business), Google, Facebook, eBay, Amazon, Alibaba, Tencent, and many other platforms started by aggressively subsidizing at least one side of the market and made the transition to high profits. Third, it is important to put trust front and center. Asking customers or suppliers to take a leap of faith, without history and without prior connections to the other side of a market, is usually asking too much of any platform business. eBay’s failure to establish mechanisms for building trust in China, like Alibaba did with Taobao, is an error that platform managers can and should avoid. Fourth, although it may sound obvious, timing is crucial. Being early is preferable, but no guarantee of success: remember Sidecar. Being late can be deadly. Microsoft’s catastrophic delay in building a competitor to iOS and Android is a case in point. Finally, hubris can lead to disaster. Dismissing the competition, even when you have a formidable lead, is inexcusable. If you cannot stay competitive, no market position is safe. Microsoft’s terrible execution with Internet Explorer is an obvious example.