Abstract

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 Internet. 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.