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Platform part6 (Open vs. Closed (three kinds of openness decisions…
Platform part6
Open vs. Closed
The choice between open and closed isn’t a choice between black and white; there is a spectrum between the two extremes. Calibrating the right level of openness is undoubtedly one of the most complex as well as one of the most critical decisions that a platform business must make.
The decision affects usage, developer participation, monetization, and regulation. It’s a challenge that Steve Jobs struggled with throughout his career.
We should have picked 5 to 10 key features that we totally focused on and let other people innovate on everything else. - Myspace
It might seem impossible for a platform to be both too closed and too open simultaneously, but Myspace managed the feat.
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Other platform businesses have reaped similar benefits from their APIs. Cloud computing and computer services platform Salesforce generates 50 percent of its revenues through APIs, while for travel platform Expedia, the figure is 90 percent.
“Gangnam Style” generate significant value for YouTube consumers. But that value is ephemeral (this year’s favorite video is quickly displaced by next year’s) and represents just a tiny fraction of the total value of YouTube’s video content.
Maturing platforms often evolve in the direction of greater openness. This demands continually reevaluating and adjusting curation processes to ensure consistently high quality of platform content and service value.
Monetization
What’s more, the best strategy may be one the founders didn’t even consider. Why not charge ad agencies for a service that helps them do a postmortem to discover why they lost a deal?
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charging for production reduces value creation, making the platform less attractive to consumers
charging for consumption reduces consumption, making the platform less attractive to producers.
As this example illustrates, platform businesses that intend to use free pricing as part of their strategy need to ensure that the value they create and hope to ultimately monetize is fully controlled by the platform.
Excess value
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4 For both consumers and producers: Access to curation mechanisms that enhance the quality of interactions.
These four forms of value wouldn’t exist without the platform, and so they may be described as sources of excess value that the platform generates.
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Ways to monetize
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- Charge for enhanced access
(Yelp, for example, offers restaurants enhanced visibility and better branding on its platform by charging for a premium listing in search results. Premium listings on Yelp and ads associated with Google’s search results look different from organic results, creating a sense of transparency that enhances user trust.)
- Charge for enhanced curation
(When this happens, consumers may be willing to pay for access to guaranteed quality—in other words, for enhanced curation.)
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Quality of interaction
They decided to start charging meetup organizers, despite the potential for drastically diminishing the scale of the platform and weakening its network effects. They reasoned that charging organizers would help them solve their monetization problem while weeding out organizers who weren’t serious about their goals.
But despite the backlash, the strategy worked. The number of meetups promoted on the site fell drastically, but their quality, and therefore the quality of the interactions generated, improved significantly.
How can we generate revenues without reducing our positive network effects? Can we devise a pricing strategy that strengthens our positive network effects while reducing our negative network effects? Can we create a strategy that encourages desirable interactions and discourages undesirable ones?