Invisible Engines: How Software Platforms Drive Innovation and Transform Industries

In contrast, economic analyses of multisided platforms, along with the industry case studies discussed in the following chapters, show that successful multisided platform businesses must pay careful attention to all relevant groups, and typically must worry more about balance among them than about building share with one of them.

when consumers value product differentiation and platforms can offer innovative and unique features, multiple platforms can coexist despite indirect network effects that make bigger better.

Most successful software platforms have exploited positive feedbacks (or network effects) between applications and users: more applications attract more users, and more users attract more applications. Nurturing both sides of the market helped Microsoft garner thousands of applications and hundreds of millions of users for its Windows platform.

Per-copy charges also helped Microsoft capitalize on its investment in programming languages in the face of great uncertainty as to which computer makers would succeed. A flat fee would have earned less from the top sellers and would have discouraged other makers from even trying. Microsoft retained this basic pricing model when it went into the op

Bundling drives innovation and creates industries.

Technically, this is a two-part tariff, consisting of an access fee (the price of the razor) plus a usage fee (the price of the blade). Here the blade can be thought of as having two related roles. It meters the use of the durable good, and it sorts customers into those who are willing to pay more and those who are willing to pay less. These meteri

The modular approach has numerous advantages. If a new program (or other complex system) can be specified as N modules, N teams can work in parallel. Moreover, individual modules can subsequently be improved without touching other parts of the overall program, and they can be used in other programs.

When balance matters in a mature two-sided business, the pricing problem is much more complex than in a single-sided business. Marginal cost and price responsiveness on both sides matter for both prices, and so does the pattern of indirect network effects. In general, if side A cares more about side B than B cares about A, then, all else equal, A w

What is the cure? From A’s point of view, one cure is to have many competing producers of good b. Competition will then hold the price of b close to cost (including a reasonable return on capital) regardless of A’s pricing, so that A both effectively determines the system price (via the price of a) and captures all the economic profit. Generally, i