Lesson 7 of 7 · 13 min
Business model innovation, network effects and platforms
New business models, often launched by new entrants using new technology, become tomorrow's conventions; digital technology made location matter less, outsourcing and targeted marketing easier and network effects far more powerful, giving rise to one-sided and multi-sided platforms.
In short
- Business model innovation is often, but not necessarily, combined with technological innovation and is usually pioneered by new entrants rather than incumbents. Innovation becomes convention over time.
- Digital technology cut the cost of communicating, sharing information and transacting: location matters less, outsourcing is easier, digital marketing reaches narrow groups cheaply and network effects are more accessible.
- Network effects: a network becomes more valuable to its users as more users join; the key metrics are the number of users and its growth rate.
- One-sided networks have one type of user (phone networks, peer-to-peer payments); two-sided / multi-sided networks connect different groups (card networks, marketplaces, food delivery).
- Network effects create strong barriers to entry; platforms can disintermediate traditional intermediaries.
- Crowdsourcing: users contribute the content (reviews, posts, open-source code, wikis) with light moderation by the operator.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.