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monetizable media empires on YouTube, while many freelancers make a better living on Upwork than they ever did or could at a traditional firm. My fascination with platforms emerged from a desire to understand business success and failure in the context of emerging digital business models. Platform Scale is an outcome of this growing fascination to unpack the inner workings of business models in a networked world. The ideas in this book aim to illustrate the importance of these models, the forces that power their rapid

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Curious about what separated the successful companies from those that failed, we examined dozens of cases and found that the failures mostly relied on price or brand effects. By contrast, the successes hit on an idea that really worked—driving traffic from one user group in order to drive profits from another user group. We described our findings in a paper that analyzed the mathematics of two-sided network effects.10 Today, such successful platform businesses as eBay, Uber, Airbnb, Upwork, PayPal, and Google exhibit this model extensively.11

STRUCTURAL CHANGE: NETWORK EFFECTS TURN FIRMS INSIDE OUT As we’ve seen, in the industrial era, giant companies relied on supply-side economies of scale. By contrast, most Internet era giants rely on demand-side economies of scale. Firms such as Airbnb, Uber, Dropbox, Threadless, Upwork, Google, and Facebook are not valuable because of their cost structures: the capital they employ, the machinery they run, or the human resources they command. They are valuable because of the communities that participate in their platforms. The reason Instagram sold for $1 billion is not its thirteen employees; the reason WhatsApp sold for $19 billion wasn’t its fifty employees. The reasons were the same: the network effects both organizations had created. Standard accounting practices might not factor the value of communities into the value of a firm, but stock markets do.

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