According to Brynjolfsson and McAfee, “Platforms are online environments that take advantage of the economics of free, perfect, and instant.” To be more precise, a platform can be defined “as a digital environment characterized by near-zero marginal cost of access, reproduction, and distribution” (Brynjolfsson and McAfee 2017. Machine Platform Crowd - Harnessing Our Digital Future, 137).
A digital platform aggregates supply and demand, usually by connecting users who may be using the same product or complementary products. Platforms build value for each type of user as well as for the platform host.
Companies can derive benefits from platforms either by building a platform themselves or by participating in an existing platform. Either way, platforms cannot be ignored. This is because of their ability to disrupt traditional product-based businesses, as well as the new business models and pricing strategies they enable.
The three types of platforms,
- One-sided platforms: These have a single category of participant who benefits from the growth in the number of participants on the platform (for example, WhatsApp and Dropbox).
- Two-sided platforms: These have two categories of users, each benefitting from members of the other category using a complementary product. For example, ride-hailing services such as Lyft and Uber connect riders and drivers. Riders benefit from network effects of drivers while drivers benefit from network effects of riders.
- n-sided platforms: These platforms have three or more categories of users who each benefit from members of the other complementary categories. For example, the Android system has Android phone buyers, Android app developers, and Android device (hardware) makers – three sides that mutually benefit from the numbers of participants in the other categories