Pp. 109-124 (16)
Hans W. Gottinger
A new property of Internet enabled communication and computation opens
up a new business model of ‘plug and play’ that is intrinsically linked to the interactive
social and commercial use of websites through the World Wide Web (WWW), i.e.
two-sided or multi-sided platforms. We analyze a model of platform operations that
involves a sequential decision process very much alike a dynamic programming
algorithm (DPA) for selecting functionalities of the platform. This could serve as a
simple approximation procedure for building the optimal design of a platform. The
platform business in a vertically integrated supply chain as well as toward product
development through platforms rather than pipelines is a good example of facilitating
‘increasing returns mechanisms’ (IRM), as one can follow the evolution of the Amazon
platform in a commercial context but also on the growth of social media like Facebook
and LinkedIn. Such a business growth would not have been facilitated without a
dedicated, universal, easily accessible and low cost network economy provided by the
From an economic and business perspective, the network platform business utilizes
direct or indirect network effects to attract customers and facilitate network economies,
and determine how to switch from a ‘pipeline model’ (product line model)to a
‘platform model’. Some business and social network platforms (eBay, Facebook) have
been able to harness network effects to fuel truly continuous growth. On the other
hand, platform businesses, even without fixed costs or economies of scale, need to
acquire critical mass through intensity and scale after they are launched to survive and
grow. We may observe ‘tipping point’ effects generated through ‘chicken and egg’
problems in platform building processes.
Consumer Utility, Cross-Externalities, Direct/Indirect Network
Effects, Dynamic Programming Algorithm, Increasing Returns Mechanism
(IRM), Java Specifications, Multi-sided Platforms, Multimedia Services, Platform
Business, Platform Economics, Platform Scale, Platform Utility, Social Network
Platform, Software Platforms, Supply Chain, Virtual Reality (VR), Web Services,
World Wide Web.
STRATEC Munich, Germany.