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Marketplaces are the quintessential type of business that can profit from network effects: The greater the number of buyers who join one, the more attractive it becomes to sellers, and vice versa. Indeed, marketplaces such as Amazon, Booking.com, and Apple’s App Store have achieved some of the strongest competitive positions imaginable. That’s why entrepreneurs are seeking to build, and venture capitalists are seeking to invest in, the next Airbnb, Uber, or Twitch. But not all marketplaces have the potential to realize strong network effects—the kind that make a marketplace defensible against wannabe competitors. Differentiation among sellers, fragmentation of the seller and buyer bases, the value added by discovery and transaction services, and the importance of seller ratings are all decisive in determining whether a marketplace can flourish. That’s why it is extremely important, both for new and established companies trying to build marketplaces and for their potential investors, to dig deeper into those factors. Drawing on their more than two decades’ worth of research and their own experience as angel investors in some 40 marketplace start-ups, the authors offer a comprehensive list of questions that anyone thinking of launching a marketplace should explore. [ABSTRACT FROM AUTHOR]

Many executives assume that customer data can give you an unbeatable edge. The more customers you have, the more data you can gather, and that data, when analyzed, allows you to offer a better product that attracts more customers. You can then collect even more data, repeating the cycle until you eventually marginalize your competitors. But this thinking is usually wrong. Though the virtuous cycles of data-enabled learning may look similar to those of network effects—wherein an offering increases in value to users as more people adopt it and ultimately garners a critical mass of users that shuts out competitors—they are not as powerful or as enduring. Nevertheless, under the right conditions, customer data can help build competitive defenses. It all depends on whether the data offers high and lasting value, is proprietary, leads to improvements that can’t be easily imitated, or generates insights that can be quickly incorporated. Those characteristics do give firms an advantage. And when learning from one customer rapidly improves an offering for others (think Google Maps), people will care about how many other people are adopting it, and it will enjoy those sought-after network effects. [ABSTRACT FROM AUTHOR]

Many executives assume that customer data can give you an unbeatable edge. The more customers you have, the more data you can gather, and that data, when analyzed, allows you to offer a better product that attracts more customers. You can then collect even more data, repeating the cycle until you eventually marginalize your competitors. But this thinking is usually wrong. Though the virtuous cycles of data-enabled learning may look similar to those of network effects—wherein an offering increases in value to users as more people adopt it and ultimately garners a critical mass of users that shuts out competitors—they are not as powerful or as enduring. Nevertheless, under the right conditions, customer data can help build competitive defenses. It all depends on whether the data offers high and lasting value, is proprietary, leads to improvements that can’t be easily imitated, or generates insights that can be quickly incorporated. Those characteristics do give firms an advantage. And when learning from one customer rapidly improves an offering for others (think Google Maps), people will care about how many other people are adopting it, and it will enjoy those sought-after network effects. [ABSTRACT FROM AUTHOR]

Five of the 10 most valuable companies in the world today—Apple, Alphabet, Amazon, Facebook, and Microsoft—derive much of their worth from their multisided platforms, which facilitate interactions or transactions between parties. Many MSPs are more valuable than companies in the same industries that provide only products or services: For instance, Airbnb is now worth more than Marriott, the world’s largest hotel chain. However, companies that weren’t born as platform businesses rarely realize that they can—at least partially—turn their offerings into one, say the authors. And even if they do realize it, they often wander in the dark searching for a strategy to achieve this transformation. In this article, Hagiu and Altman provide a framework for doing so. They lay out four specific ways in which products and services can be turned into platforms and examine the strategic advantages and pitfalls of each: (1) opening the door to third parties; (2) connecting customers; (3) connecting products to connect customers; and (4) becoming a supplier to a multisided platform. These ideas can be used by physical as well as online businesses. [ABSTRACT FROM AUTHOR]