Multi-sided platforms

CaliforniaStateUniversity, Los Angeles

Abstract. Multi-sided platforms are levels of abstraction that enable interaction. This paper examines how powerful the notion of a multi-sided platform is and how broadly the concept applies.

  1. Introduction

In computer science, a level of abstraction encapsulates and embodies a specialized ontology, i.e., a conceptual model. As such, a level of abstraction is a collection of interrelated (data) types—i.e., categories in philosophical terms orclasses in software terminology—along with operations defined on objects of those types.

Although level-of-abstraction can be defined formally, it is a relatively well understood intuitive concept, familiar to anyone who has used a computer. Every software application that offers a user interface defines a level of abstraction. Similarly, every computer program that offers an application program interface (i.e., an API) also defines a level of abstraction. Intuitively, a level of abstraction consists of the understanding one has of the sorts of things the computer program is able to manipulate along with the sorts of operations it is able to perform on those things. Microsoft Word, for example, defines a level of abstraction that includes files (called documents), pages, footnotes,headers, footers, styles, paragraphs[1], (review) comments, (review) edits, words (which are strings of characters between white spacesegments and which are subject to spelling correction), and a number of others. (For a more complete discussion of computation as externalized thought see [1].)

When a computer program that defines a level of abstraction is used as a basis on which to build additional computer programs, the underlying computer program is often called aplatform. One often hears, for example, that a software system was built on the Java platform, or the .net platform, or the Windows or Macintosh platform. The Java platform consists of a programming language and a runtime system. The .net platform consists of a suite of programming languages and a common runtime system. The Windows and Macintosh platforms consist of runtime systems. In all of these cases, one uses the level of abstraction defined by an existing platform to create additional levels of abstractions.

In the preceding discussion, theimplicit focus has been on the relationship between a platform and an individual user—the user applies the platform capabilities to accomplish a task such as creating a document or developing a program for other users.The implication is that the relationship of interest is between a platform and a user. This is misleading. Consider someone who is writing a document. In most cases, the document’s author will send a .doc file to other users, who will then use Microsoft Word to read the document. It is less often that a document will be printed and the printed form sent to intended readers. In the more common case, Microsoft Word not only enables the original author to create the document, it also enables the reader to read it. The recipient then has the ability to insert comments or to make other editing changes and to send it back to the original author. In this sense Microsoft Word enables communication between two people. The form in which that communication occurs is defined by the level of abstraction implemented by Microsoft Word.

Saying that Microsoft word enables communication is not very different from saying that the (traditional voice) telephone system enables communication. Telephone communication occurs through the exchange of electronically encoded audio rather than the exchange of .doc files. But the effect is quite similar. The level of abstraction defined by the telephone systems is one that translates audio into electronic signals and then back into audio.

Of course there are other differences as well. The telephone system has a built-in communication network—one that connects users in real time—whereas Microsoft Word users must employ other means (such as email) to exchange .doc files. Furthermore, telephone users don’t normally think of what they are doing when speaking into a telephone as making use of the telephone’s ability to translate audio signals to electrical signals.Microsoft Word users are generally more aware of their explicit use of Microsoft Word’s level of abstraction when they create a document. All-in-all, though, an important feature of both the telephone system and Microsoft Word is that they enable users to interact through the level of abstractiondefined by the system.

Microsoft Word was presumably not created originally as a communication medium. The original intent was to create documents to be printed. Other computer applications were intended to enable users to interact with each other. A very familiar example is Wikipedia, the online open source encyclopedia. Users write and edit Wikipedia pages with the expectation that other users will read what they have written. Thus Wikipedia is explicitly a level of abstraction intended to facilitate communication and interaction. Like Microsoft Word, Wikipedia also defines a level of abstraction. The types are words, pages, links, and other elements supported by Wikipedia notation.

Wikipedia itself is a computer program which is built in part on the platform of HTML the language in which World Wide Web pages are written. HTML in turn is implemented by web browsers such as Internet Explorer and Firefox.

As the preceding has illustrated there are two types of platforms: those intended to serve as a foundation for constructions to be built on top of them and those intended for communication and interaction among users. These categories are not mutually disjoint. Microsoft Word belongs to both.

My focus in this note is on platforms that enable communication and interaction. These are coming to be known as multi-sided platforms. My goal is twofold: to clarify the meaning of the term and to show how general and widely applicable the concept of a multi-sided platform is.

  1. Economic multi-sided platforms

A business is a multi-sided platform when its primary function is to facilitate some interaction among its customers. Prototypical examples of multi-sided business platform are trading exchanges. These include stock exchanges, listing services (such as a classified ad businesses or eBay), and real estate brokers. In all these cases, the purpose of the business is to facilitate a particular kind of interaction among those who use the services offered by the business. Hagui[2] characterizes such multi-sided business platforms as one in which the platform provider must

get two or more distinct groups of customers who value each other's participation on board the … platform in order to generate any economic value. … Examples are pervasive in today's economy and range from dating clubs ([the two sides are] men and women), financial exchanges [such as a stock market], real estate listings, online intermediaries like eBay (buyers and sellers), ad-supported media (ad sponsors and readers/viewers), computer operating systems (application developers and users), videogame consoles (game developers and geeks), shopping malls (retailers and consumers), digital media platforms (content providers and users), and many others.

The fact that the value of a platform depends on the number of users has led to what has been referred to as a network effect, namely that the value of a network increases more than linearly with an increase in the size of the network.[3] Thus platform size becomes very important to commercial organizations, who will fight to establish the dominance of their platforms.

A multi-sided platform typically results from the factoring out of an aspect of an interaction, especially an aspect that would be somewhat difficult for the parties to the interaction to provide for themselves. In manymulti-sided business platforms what’s factored out is (a)the process of finding the other party and (b)the formalism of making contact. As Hagiu indicated, men and women in a dating club are able to interact because they belong to the same club. The same is true of merchants and shoppers in a mall and buyers and sellers on eBay. Also factored out is often either some sort of screening of the other party or a guarantee that the intended transaction will be fulfilled if entered into. Credit card companies illustrate this feature of multi-sided platforms. One of the earliest papers in the field [4] discusses credit card organizations as multi-sided platforms. Credit card companies guarantee payment to the businesses accepting the cards. They also provide a service of convenience and delayed payment to customers who use the card. In this way credit card issuers add value to transactions between customers and merchants. By factoring out what might otherwise be a difficult aspect of an interaction and by adding value to the transaction the credit card issuer can facilitate an interaction that might have been more difficult otherwise.

The telephone system is a marvelous example of a platform thatfacilitates interactions that would have been much more difficult otherwise. The telephone system makes communication across distance much easier that it would be otherwise. It’s certainly possible to communicate across distances without the telephone system. Prior to the telephone people communicated by surface mail and telegram. The telephone factored out the difficult part of moving audio signals from one physical location to another. In that way it facilitated communication and enabled communication that may not have been worth the effortotherwise.

The three communication systems just mentioned (telephone, telegraph, and mail each factor out a different aspect of communication across distances. The telephone enables audio communication, the telegraph enables short written communication, the postal service enables long written communication as well as certain forms of package communication. Each of these services defines a level of abstraction that characterizes the sort of service it offers.

  1. Web 2.0 platforms

Many businesses that attempt to make money from what has been called Web 2.0 do so through a 3-sided platform. Web 2.0 systems are those that allow users to put their own content on web sites. As mentioned above, Wikipedia, which is non-commercial, is one example. MySpace is an example of a commercial Web 2.0 web site. Like Wikipedia it enables its primary customers (users) to interact with each other by reading and writing web pages. In addition, it has a third class of users: advertisers. MySpace allows advertisers to buy space on web pages that users will view. It thus enables a form of advertiser-user interaction.

MySpace follows the same model as advertising on radio and television. Both of these earlier media enabled interaction between content (i.e., program) developers and content consumers. Once such a platform has been created the platform owner can then sell access to the content consumers to advertisers. Thus radio, television, and MySpace (and other Web 2.0 web sites) are all 3-sided platforms. The three sides are the content developers, content consumers, and advertisers. In the case of Web 2.0 web sites the content developers and content consumers often overlap. But that isn’t required. People can view MySpace pages without having one, and some of the people who create MySpace pages may not bother to look at other MySpace pages.

MySpace and other networking sites like FaceBook and LinkedIn illustrate how platforms can transform kinds of interaction that occurred on a relatively small scale into ones that occur one a much more massive scale. Prior to these sites people had personal networks of acquaintances. Some were even diligent about keeping Rolodex files. But with the creation of web-based networking sites, networking has been transformed from an informal activity into one that many people now engage in. In other words, networking sites have done for networking what the telephone system did for person-to-person communication.

A similar phenomenon applies to interest groups. Prior to the web, people gathered together to share common interests. But there are now two generic sorts of services that facilitate the creation of interest groups: group mailing list services such as Yahoo Groups and massively multi-player games such as SecondLife. Again, the creation of these sites has transformed interest groups from a relatively informal and small scale activity to one that’s much more widespread and more broadly based.

What is important for this noteabout these examples is not that Web 2.0 phenomena have transformed the way people interact but that each of these is a multi-sided platform and that each one defines a level of abstraction. On each of these platforms there is a well-defined ontology of things that can exist within that platform along with a well defined collection of operations that can be performed on those things.

As anyone who has used any of these platforms knows, there is an inevitable introductory period in which new users learn the ontology and the platform’s manipulative capabilities. The challenge for platform developers is to balance the steepness of the initial learning curve against the range of capabilities offered by the platform. If learning how to get started using a platform is too difficult, many people will be too discouraged to bother. But if the capabilities offered by the platform are inadequate to the interaction the platform is intended to facilitate, sophisticated users will abandon it.

  1. Platform governance, societal infrastructure, open standards, and open source software

Once a commercial platform becomes established, it may become so central to how users operate that conflicts may arise when the interests of the platform owner differ from those of the platform users. Widely used multi-sided platforms often become community standards, either explicit or de facto. Commercial organizations that own or control such platforms are often able to profit from them,. Familiar examples are the various Microsoft office file formats along with Microsoft Windows itself.

Pressure may develop among platform users tode-commercialize or regulate the platform, to move itsgovernance at least partly out of the commercial realm, and to bring it under the control of the users. The 1998 suit by the Justice Department along with twenty state attorneys general attempting to break up or otherwise regulate Microsoft illustrates this impulse.[4]Our regulated utilities—such as power and telephone services—illustrate a successful combination of community governance and private ownership. Other platforms, e.g., our road and highway systems, are owned and operated directly by the government. We find these platforms so essential that we want to ensure that the interest of the platform users take precedence over the interest of the platform providers.

Essential platforms such as these, along with the rest of our community-wide platforms (such as theair transportationsystem, the package deliverysystem, and the email system), define what we refer to generically as a community’s infrastructure.

Besides government regulation there are at least two other countervailing forces to commercial control of essential platforms. The first is the adoption of neutral standards, i.e., standards that are neither controlled by nor tailored to the interests of any particular vendor. When a vendor-neutral standard is defined for a platform, the platform ontology and functionality is defined independently of any specific implementation. This is to the benefit of platform users because vendors must then compete to provide better implementations of a platform with a well-defined specification.Thus the most ephemeral of multi-sided platforms is the standard. Users of systems that adhere to a standard are able to interact with each other because they both users have systems that conform to the standard. A nice illustration of this is the fact that Wikipedia users may access Wikipedia while using either Microsoft’s Internet Explorer or Firefox. Both browsers are able to access Wikipedia—and other web sites—because the World Wide Web (for the most part) adheres to neutral standards such as HTML.

What’s important for the purposes of this note is that a standard is explicitly a definition of a level of abstraction. Thus one doesn’t need an actual implementation of a level of abstraction for it to be useful in defining a platform. It’s simple existence as a standard is sufficient. Of course that only works if the standard is widely enough accepted.Commercial organizations often encourage the use of proprietary extensions to standards. Microsoft, for example, includes capabilities in its Internet Explorer that are not standard. If a site that relies on those capabilities is accessed by a user using a web browser other than Internet Explorer the user will experience degraded performance. This is an attempt by Microsoft to take control of the World Wide Web platform. So far it has been unsuccessful.

The second force that mitigates commercial control of platforms is the open source software movement. Many commercial software products depend on platforms for their operation. The most widespread case is the dependence of software application program developers on operating systems. Consider the position of the developer of such a software product. She is essentially at the mercy of theowner of the platform (operating system) on which her software runs. Should the platform owner decide to enter the same market, that owner has an enormous advantage. The most widely known case is the way in which Microsoft destroyed the Netscape browser. No company wants to be that vulnerable.