Book review: The Business of Platforms

As I teach my ECONS101 class, a platform market occurs when a firm acts as an intermediary and brings together two (or more) groups, who otherwise would not connect or easily interact (platform markets are also known as two-sided markets, because the intermediary brings together two sides of the market). We think of platforms as mostly an invention of the digital age, because most of the examples that come to mind (TradeMe or eBay, Facebook, the Android operating system) are digital platforms. But in truth, platforms are everywhere. Credit card companies are platform firms - they bring together merchants and cardholders. Malls are platform firm - they bring together stores and customers. And so on. Once you know what to look for, you recognise just how endemic platforms have become in the modern economy.

I was interested to learn more about the business of platforms, so a few years ago I bought the 2019 book The Business of Platforms by Michael Cusumano, Annabelle Gawer, and David Yoffie. I finally got around to reading it last month. It was not a moment too soon either. I was inspired by the book to greatly expand on the platform market content in my ECONS101 class, specifically in the topic we covered last week. I'm sure they won't thank me for adding to the quantity of ideas that they may be assessed on, but the material from the book added a lot of depth to what was previously a fairly cursory description of two-sided markets.

The importance of understanding platforms is exemplified by their growing importance in the (global) economy. Cusumano et al. write that:

In short, managers and entrepreneurs in the digital age must learn to live in two worlds: the conventional economy and the platform economy.

To that, I would add that consumers and policy makers also need to understand the fundamentals of platform markets. It is there that this book excels. Cusumano et al. provide a clear description of what platform markets are, the 'winner-take-all (or most)' nature of those markets, and the different types of platform markets. They use a wide array of examples to illustrate the concepts, from Android to YouTube, and everything in-between. I'm sure that they could have easily turned the exercise into a textbook treatment. However, the numerous examples they use give more depth and provide more interesting perspective than you would get from a textbook.

After outlining the basics over the first few chapters, the book turns to common mistakes that platform firms make. Many of their examples will be familiar as exemplars of business failure, such as how Microsoft first captured the browser market with Internet Explorer, before subsequently losing their dominance to Firefox and ultimately to Google's Chrome browser. Next, the book looks at how firms can develop a platform, again carefully illustrating the pitfalls of the different options available to firms with real-world examples.

Finally, the last section looks to the future of platforms, but also takes a more normative view, advocating that platform firms should "harness platform power, but don't abuse it". Cusumano et al. have written their book with managers and entrepreneurs in mind, and this last section is an appeal to those future leaders of platform firms. In particular, they focus on antitrust issues, privacy concerns, fairness towards the workforce ("not everyone should be a contractor", and in particular that firms should self-regulate. While this section does paint a picture of how platform firms can easily become bad actors, it seems unlikely to move the needle on platform firms' worst abuses.

Overall, I really enjoyed this book. It is rare these days that a single book adds significant new content to one of the papers I teach, and I really appreciated the clarity that Cusumano et al. bring to this topic, and the way they structured their ideas in a way that was easy to follow. If you are looking to understand platform markets, this book seems essential to me, and I highly recommend it.