The Shape of The Network in Platform Competition

Network Effects, Network Clustering, Disintermediation, Multi-Homing, and Network Bridging

In Why Some Platforms Thrive and Others Don’t, researchers Feng Zhu and Marco Iansiti try to extract some general lessons from the specific challenges that Metuan — ‘a giant player in online-to-offline services food delivery, movie ticketing, and travel booking’ — caused for the then-market-leader in ride hailing across China, Didi:

Why hadn’t Didi’s immense scale shut down its competition for ride services in China? Why wasn’t this a winner-take-all market, as many analysts had predicted? Moreover, why do some platform businesses — such as Alibaba, Facebook, and Airbnb — flourish, while Uber, Didi, and Meituan, among others, hemorrhage cash? What enables digital platforms to fight off competition and grow profits?

To answer those questions, you need to understand the networks a platform is embedded in. The factors affecting the growth and sustainability of platform firms (and digital operating models generally) differ from those of traditional firms. Let’s start with the fact that on many digital networks the cost of serving an additional user is negligible, which…