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Communications of the ACM

Technology strategy and management

'Platformizing' a Bad Business Does Not Make It a Good Business


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Uber and Lyft, as well as Airbnb, WeWork (We Co.), and other sharing-economy startups, offer valuable services, albeit with different levels of financial success (see "The Sharing Economy Meets Reality, Communications, January 2018). What most of these ventures have in common is they function as transaction platforms. That is, they bring together two or more market sides to exchange information, goods, or services, including advertisements. The businesses can grow rapidly through the power of network effects whereby one market actor (for example, sellers) attracts another side (for example, buyers) in a self-reinforcing positive feedback loop. The more populated one side becomes, the more value and participation we see on the other side. Transaction platforms contrast with innovation platforms, such as Microsoft Windows, Apple iOS, Google Android, or the Facebook and WeChat APIs. These foundational products or technologies generate network effects by linking users with third-party providers of applications and services.5

All platforms connect multiple market participants and can get big fast if they generate strong network effects and do not have a lot of digital or conventional competition. But there are significant differences in business models. Microsoft and Apple mostly sell products. Google gives away software and digital services but then sells advertisements. Airbnb matches people with rooms for rent to possible renters and charges a fee when a match occurs. WeWork is really a "onesided company platform" in that it leases office space and then resells it on short-term arrangements.


 

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