Communications of the ACM
Data Platforms and Network Effects
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Industry platforms are foundations that bring people and organizations together for a common purpose, which usually includes making money. They function at the level of a market or ecosystem, rather than only within a specific firm. They often start with products such as operating systems and microprocessors, services such as social media and messaging systems, or marketplaces for e-commerce and financial transactions. They can link thousands, millions, or even billions of users and other market actors. But another type of industry platform has recently received attention from consultants such as The Boston Consulting Group as well as investors, entrepreneurs, and policymakers. These platforms center around data. Some have become extremely valuable. How can data inspire industry platforms and what is their potential as businesses?
A distinctive feature of industry platforms, and fundamental to their definition, is the ability to generate positive feedback loops with increasing returns for users and other market participants.4 We call these feedback loops "network effects." They occur on the same-side of the market when a platform connects users directly to other users, such as with the telephone, a social media or messaging app, or any peer-to-peer exchange system. Then cross-side network effects can occur when an industry platform connects demand (for example, buyers) with supply (for example, sellers). Network effects imply the value of the platform increases, at least potentially and sometimes geometrically or exponentially, with each additional user or "complement," such as apps for a smartphone or drivers for a ride-sharing service. But, when it comes to data, who are the users and what are the demand and supply sides? And where are the network effects, if any?
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