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Communications of the ACM

Economic and business dimensions

Three Paradoxes of Building Platforms


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Three Paradoxes of Building Platforms, illustration

Credit: Allies Interactive

Platforms have apparently become the holy grail of business on the Internet. The appeal is plain to see: platforms tend to have high growth rates, high entry barriers, and good margins. Once they reach critical mass, they are self-sustaining. Due to strong network effects, they are difficult to topple. Google and Apple are clear winners in this category.

Taobao.com—China's largest online retailer—has become such a successful platform as well. Taobao merchants require myriad types of services to run their storefronts: apparel models, product photographers, website designers, customer service representatives, affiliate marketers, wholesalers, repair services, to name a few. Each of these vertical services requires differentiated talent and skills, and as the operational needs of sellers change, Taobao too has evolved, giving birth to related platforms in associated industries like logistics and finance. Although it has become habit to throw the word "ecosystem" around without much consideration for its implications, Taobao is in fact a thriving ecosystem that creates an enormous amount of value.


 

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