Why Some Platforms Thrive and Others Don’t

What Alibaba, Tencent, and Uber teach us about networks that flourish. The five characteristics that make the difference.

by

Feng Zhu

and

Marco Iansiti

by

Feng Zhu

and

Marco Iansiti

From the Magazine (January–February 2019) · Long read

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Summary.

In the digital economy, scale is no guarantee of continued success. After all, the same factors that help an online platform expand quickly—such as the low cost of adding new customers—work for challengers too. What, then, allows platforms to fight off rivals and grow profits? Their ability to manage five aspects of the networks they’re embedded in:

network effects, in which users attract more users
clustering, or fragmentation into many local markets
the risk of disintermediation, wherein users bypass a hub and connect directly
vulnerability to multi-homing, which happens when users form ties with two or more competing platforms
network bridging, which allows platforms to leverage users and data from one network in another network

When entrepreneurs are evaluating a digital platform business, they should look at these dynamics—and the feasibility of improving them—to get a more realistic picture of its long-term prospects.

Idea in Brief

The Challenge

It’s easier for digital platforms to achieve scale than to maintain it.

The Reason

Five basic network properties shape their scalability, profitability, and ultimately their sustainability.

The Insight

Analysis of these properties will help entrepreneurs and investors understand platforms’ prospects for long-term success.

In 2016, Didi became the world’s largest ride-sharing company, reaching 25 million trips a day in China and surpassing the combined daily trips of all other ride-sharing companies across the globe. It had arrived at this milestone by merging in 2015 with its domestic rival, Kuaidi, and pushing Uber out of the Chinese market after a fierce, expensive battle. With its competition gutted, Didi gradually began to improve its margins by reducing subsidies to drivers and passengers.

A version of this article appeared in the January–February 2019 issue (pp.118–125) of Harvard Business Review.

Feng Zhu is the Piramal Associate Professor of Business Administration at Harvard Business School. He studies competitive strategy and innovation in high-technology industries, with an emphasis on platform-based markets.
Marco Iansiti is the David Sarnoff Professor of Business Administration at Harvard Business School, where he heads the Technology and Operations Management Unit and the Digital Initiative. He has advised many companies in the technology sector, including Microsoft, Facebook, and Amazon. He is a coauthor (with Karim Lakhani) of the book Competing in the Age of AI (Harvard Business Review Press, 2020).

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Why Some Platforms Thrive and Others Don’t

Idea in Brief

The Challenge

The Reason

The Insight

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