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The Platform Delusion: Who Wins and Who Loses in the Age of Tech Titans
An investment banker and professor explains what really drives success in the tech economy
Many think that they understand the secrets to the success of the biggest tech Facebook, Amazon, Apple, Netflix, and Google. It's the platform economy, or network effects, or some other magical power that makes their ultimate world domination inevitable. Investment banker and professor Jonathan Knee argues that the truth is much more complicated--but entrepreneurs and investors can understand what makes the giants work, and learn the keys to lasting success in the digital economy.
Knee explains what really makes the biggest tech companies a surprisingly disparate portfolio of structural advantages buttressed by shrewd acquisitions, strong management, lax regulation, and often, encouraging the myth that they are invincible to discourage competitors. By offering fresh insights into the true sources of strength and very real vulnerabilities of these companies, The Platform Delusion shows how investors, existing businesses, and startups might value them, compete with them, and imitate them.
The Platform Delusion demystifies the success of the biggest digital companies in sectors from retail to media to software to hardware, offering readers what those companies don't want everyone else to know. Knee's insights are invaluable for entrepreneurs and investors in digital businesses seeking to understand what drives resilience and profitability for the long term.
Many think that they understand the secrets to the success of the biggest tech Facebook, Amazon, Apple, Netflix, and Google. It's the platform economy, or network effects, or some other magical power that makes their ultimate world domination inevitable. Investment banker and professor Jonathan Knee argues that the truth is much more complicated--but entrepreneurs and investors can understand what makes the giants work, and learn the keys to lasting success in the digital economy.
Knee explains what really makes the biggest tech companies a surprisingly disparate portfolio of structural advantages buttressed by shrewd acquisitions, strong management, lax regulation, and often, encouraging the myth that they are invincible to discourage competitors. By offering fresh insights into the true sources of strength and very real vulnerabilities of these companies, The Platform Delusion shows how investors, existing businesses, and startups might value them, compete with them, and imitate them.
The Platform Delusion demystifies the success of the biggest digital companies in sectors from retail to media to software to hardware, offering readers what those companies don't want everyone else to know. Knee's insights are invaluable for entrepreneurs and investors in digital businesses seeking to understand what drives resilience and profitability for the long term.
384 pages, Hardcover
Published September 7, 2021
About the author
Jonathan A. Knee
6 books13 followersJonathan A. Knee is a Professor of Professional Practice and Co-Director of the Media and Technology Program at Columbia Business School and also a Senior Advisor at Evercore Partners. His writing has appeared in the Wall Street Journal, New York Times, Washington Post, Los Angeles Times and The Atlantic. He writes the Book Entry column for the New York Times DealBook. Professor Knee is the author of The Accidental Investment Banker: Inside the Decade that Transformed Wall Street (Oxford: 2006), The Curse of The Mogul: What's Wrong With the World's Leading Media Companies? (Portfolio: 2009) (with Greenwald and Seave) and Class Clowns: How the Smartest Investors Lost Billions in Education (Columbia: 2016). His next book, The Platform Delusion: Who Wins and Who Loses in the Age of Tech Titans, will be released by Portfolio in September 2021.
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Displaying 1 - 22 of 22 reviews
October 8, 2021
This is an outstanding book by a Columbia Professor on strategies for big tech firms, especially the so-called FAANG firms (Facebook, Apple, Amazon, Nelflix, and Google/Alphabet). The book is focused on the common representation of the rationale/business model behind tech firms that views platform strategies as the wave of the future and a killing attack on their competitors. The trouble is that most accounts of the FAANG firms greatly oversimplify the “platform” model and that the evidence on these firms does not support a general argument about a “platform” strategy. Professor Knee’s argument in a nutshell is: 1) that Internet and “new economy” firms have to compete like anyone else does; 2) there are lots of failures in the sector; and 3) that the FAANG firms have succeeded as much because of good old fashioned favorable market structure, competitive advantage and good management as because of platform strategy secrets.
What follows are chapters that dig deep into each of the big five tech firms to show how much their strategies reflect the platform hype and to suggest what the sources of their success have turned out to be. These are indeed fine firms but a clear message is that Internet/platform hype is not the same as a strategy. These firms have succeeded because they have strategies that fit their business conditions and that are strongly executed. Good time and first mover advantages sure help too.
The remainder of the book takes a deeper look at what the other guys are doing. If the FAANG stocks have done so well and are entrenched, who else is making money in tech related businesses and how do they do it? Some e-commerce firms succeed, as do some travel and vacation firms. There is also advertising and various other advisory services. These chapters are also quite good, but there is also continuing flux so I suspect they are subject to change.
This is a wonderful book that applies hard nosed and well established principles for understanding industry structures and competitive advantages within tech industries. Strategies are seldom revealed in press releases and marketing blurbs - they have to be gleaned by analyzing what firms actually do and why it works or does not work. This is a far superior book to most trade books that talk high tech and the Internet, but do precious little analysis. It is well work reading.
What follows are chapters that dig deep into each of the big five tech firms to show how much their strategies reflect the platform hype and to suggest what the sources of their success have turned out to be. These are indeed fine firms but a clear message is that Internet/platform hype is not the same as a strategy. These firms have succeeded because they have strategies that fit their business conditions and that are strongly executed. Good time and first mover advantages sure help too.
The remainder of the book takes a deeper look at what the other guys are doing. If the FAANG stocks have done so well and are entrenched, who else is making money in tech related businesses and how do they do it? Some e-commerce firms succeed, as do some travel and vacation firms. There is also advertising and various other advisory services. These chapters are also quite good, but there is also continuing flux so I suspect they are subject to change.
This is a wonderful book that applies hard nosed and well established principles for understanding industry structures and competitive advantages within tech industries. Strategies are seldom revealed in press releases and marketing blurbs - they have to be gleaned by analyzing what firms actually do and why it works or does not work. This is a far superior book to most trade books that talk high tech and the Internet, but do precious little analysis. It is well work reading.
December 26, 2021
This booked presented a bear-case for most platform based companies, along with a framework for how to think about platforms and digital competitive advantage. I do not agree with a lot of the author's contentions, but would recommend reading this nonetheless as they are excellent food for thought
My main takeaways were:
1. Investors and entrepreneurs often treat achieving platform status with strong network effects as a gold standard, but they are not always the source of a firm’s competitive advantage or its moat
2. “Traditional” platforms like malls and newspapers had two major benefits: their vendors were committed to long-term leases and their users’ next best option was difficult to find. On the internet, the platform’s relationships with both buyer and seller typically exhibit none of this durability
3. A company can expect to deliver exceptional results in two ways. It can be a better operator or it can benefit from structural attributes that impede effective competitive attack. The fundamental difference between value creation deriving from operational and from structural sources is their respective durability
4. Some structural advantages manifest on the supply side (scale). Others are demand-side phenomena (customer habits, alternative-search costs, switching costs). And yet others are about process (learning curve, proprietary tech, data). These may or may not involve platforms and/or network effects
5. The relative predominance of fixed costs drives the most important advantages associated with scale. Where costs are mostly variable, being the biggest simply doesn’t provide nearly as much of a leg up, and it can sometimes prove a hindrance as communication, management, and coordination become more complex.
6. Viable industries without meaningful fixed-cost requirements often allow competitors to operate at very low break-even market shares. And even industries where costs are predominantly fixed, but extremely low relative to the overall addressable market opportunity, can support many competitors
7. Even if you're a natural monopoly whose only advantage is on the supply side, you can be vulnerable to a deep-pocketed competitor. True fortification comes from a combination of scale and customer "lock-in" advantages. The most typical forms of customer captivity are switching costs and search costs.
In addition to these meta points, there was an interesting discussion on the structural advantages (and weaknesses) of each of the FAANG companies
Would recommend reading if you're an investor or an entrepreneur that has been thinking about how to evaluate network effects. May not be super useful otherwise
My main takeaways were:
1. Investors and entrepreneurs often treat achieving platform status with strong network effects as a gold standard, but they are not always the source of a firm’s competitive advantage or its moat
2. “Traditional” platforms like malls and newspapers had two major benefits: their vendors were committed to long-term leases and their users’ next best option was difficult to find. On the internet, the platform’s relationships with both buyer and seller typically exhibit none of this durability
3. A company can expect to deliver exceptional results in two ways. It can be a better operator or it can benefit from structural attributes that impede effective competitive attack. The fundamental difference between value creation deriving from operational and from structural sources is their respective durability
4. Some structural advantages manifest on the supply side (scale). Others are demand-side phenomena (customer habits, alternative-search costs, switching costs). And yet others are about process (learning curve, proprietary tech, data). These may or may not involve platforms and/or network effects
5. The relative predominance of fixed costs drives the most important advantages associated with scale. Where costs are mostly variable, being the biggest simply doesn’t provide nearly as much of a leg up, and it can sometimes prove a hindrance as communication, management, and coordination become more complex.
6. Viable industries without meaningful fixed-cost requirements often allow competitors to operate at very low break-even market shares. And even industries where costs are predominantly fixed, but extremely low relative to the overall addressable market opportunity, can support many competitors
7. Even if you're a natural monopoly whose only advantage is on the supply side, you can be vulnerable to a deep-pocketed competitor. True fortification comes from a combination of scale and customer "lock-in" advantages. The most typical forms of customer captivity are switching costs and search costs.
In addition to these meta points, there was an interesting discussion on the structural advantages (and weaknesses) of each of the FAANG companies
Would recommend reading if you're an investor or an entrepreneur that has been thinking about how to evaluate network effects. May not be super useful otherwise
September 14, 2021
The Platform Delusion does a great job taking the shine off the companies everyone loves, at least in their investment portfolios. The messages here are unlikely to help anyone make or save money in any near term in the stock market. The messages are unlikely to wash well with the industry pundits and practitioners that endlessly sing the peans of network effect, AI, big data, and similar other jargons to project how tech companies will soar forever. And the same messages are not going to be appreciated by the industry opponents who too believe in the giants' extraordinary powers that they want curtailed.
The book is an excellent read for precisely these reasons: it says things as they are and are likely to be, rather than driven by any pre-determined investment, business, or policy goals. With the focus solely on highlighting where the consensus could be wrong in our extremely tech-optimistic world, the book could read overly critical.
When one looks back at the current period, the book's messages will appear extremely obvious. The world cannot have so many companies clamoring disruption and network effects all succeeding at the winner-takes-all prize that their valuations imply.
And, the book is not about the market ebullience. It is about the platform companies' proponents who do not get the nuances of genuine network effects. A business-worthy, exponential network effect is quite rare; examples in the book show how most of the time when a new company establishes new connections between interested parties, the advantages they bring to the table are either too small or easily replicable or imminently disruptible by someone else improving further. As the author shows, the same is true about the data: most of the new data generated is noise rather than a treasure trove waiting for exploitation by some AI, whatever it means.
For an already skeptic, the messages here may be heartening without anything radically new. And the rare believer or bull who happens to read the book, the messages could be needlessly frightening. The book may not convert anyone, but it provides good reminders in the world where almost all the other articles discuss the opposite.
The book is an excellent read for precisely these reasons: it says things as they are and are likely to be, rather than driven by any pre-determined investment, business, or policy goals. With the focus solely on highlighting where the consensus could be wrong in our extremely tech-optimistic world, the book could read overly critical.
When one looks back at the current period, the book's messages will appear extremely obvious. The world cannot have so many companies clamoring disruption and network effects all succeeding at the winner-takes-all prize that their valuations imply.
And, the book is not about the market ebullience. It is about the platform companies' proponents who do not get the nuances of genuine network effects. A business-worthy, exponential network effect is quite rare; examples in the book show how most of the time when a new company establishes new connections between interested parties, the advantages they bring to the table are either too small or easily replicable or imminently disruptible by someone else improving further. As the author shows, the same is true about the data: most of the new data generated is noise rather than a treasure trove waiting for exploitation by some AI, whatever it means.
For an already skeptic, the messages here may be heartening without anything radically new. And the rare believer or bull who happens to read the book, the messages could be needlessly frightening. The book may not convert anyone, but it provides good reminders in the world where almost all the other articles discuss the opposite.
December 5, 2023
Very smart writing on big tech strategy, using the framework of Porter's Five Forces model. Great analysis of the Netflix, Amazon, Apple, online travel, online advertising, and other businesses. Overall quite excellent.
The Core Tenets of the Platform Delusion (all of them false, per the book):
1. Platforms Are a Revolutionary New Business Model.
2. Digital Platforms Are Structurally Superior to Analog Platforms.
3. All Platforms Exhibit Powerful Network Effects.
4. Network Effects Lead Inexorably to Winner-Take-All Markets.
I found the arguments logical, persuasive, well-researched, and overall surprisingly insightful.
The Core Tenets of the Platform Delusion (all of them false, per the book):
1. Platforms Are a Revolutionary New Business Model.
2. Digital Platforms Are Structurally Superior to Analog Platforms.
3. All Platforms Exhibit Powerful Network Effects.
4. Network Effects Lead Inexorably to Winner-Take-All Markets.
I found the arguments logical, persuasive, well-researched, and overall surprisingly insightful.
June 12, 2024
This is a great framework to analyze and assess any business or project aiming at disrupting the digital economy. Though focused on the large and successful FAANG the authors first set and explain in great details all the parameters to evaluate them. It could sound a bit academic at first, the information is so dense and structured that when you have absorb the first 40 pages , you are set to enjoy the illustrative examples for the rest of the book like a newly graduated and enriched student.
My core learnings on what is essential to assess the potential of such projects, even at early stage:
Competitive advantage (meaningful barrier of entry) is stronger than differentiation .
Differentiation in turn is stronger than network effect (demand advantage)
The meaning of network effect (demand advantage, how users connect with developers for instance) is often confused with user based growth but is in fact extremely rare.
Scaling, as well often confusing with fast growth, should be remembered as a fixed cost advantage
customer captivity (demand advantage) should also be considered.
Finally on the product side, the importance of brand as well as some kind of ratio of creativity/flexibility.
If I had to focus on a key example, the possible success of a market place: 1. Specialization (scalable with customer captivity) 2. Complexity (with network effect at scale) . Both factors protecting the project from incumbents …. And you know what, it is extremely rare !
My core learnings on what is essential to assess the potential of such projects, even at early stage:
Competitive advantage (meaningful barrier of entry) is stronger than differentiation .
Differentiation in turn is stronger than network effect (demand advantage)
The meaning of network effect (demand advantage, how users connect with developers for instance) is often confused with user based growth but is in fact extremely rare.
Scaling, as well often confusing with fast growth, should be remembered as a fixed cost advantage
customer captivity (demand advantage) should also be considered.
Finally on the product side, the importance of brand as well as some kind of ratio of creativity/flexibility.
If I had to focus on a key example, the possible success of a market place: 1. Specialization (scalable with customer captivity) 2. Complexity (with network effect at scale) . Both factors protecting the project from incumbents …. And you know what, it is extremely rare !
February 17, 2024
This book breaks many myths -
The author puts up a strong case against - Network effects, AI, Big Data, or startups in general and in their ability to make any substantial impact on the economy.
Almost none of the platforms have network effects, only a few companies actually have network effects. The majority of the FAANG companies or companies that have grown into monopolies have done so on the back to reinforcing competitive advantages of supply side scale and customer captivity also known as retention.
This was an extremely hard read, the book took me months to complete, because of the huge size and also due to the enormous amount of knowledge density per page. I had to read the same chapter twice or thrice to make sure that I understood everything.
The Author dismantles the four myths collectively known as the PLATFORM DELUSION
THE CORE TENETS OF THE PLATFORM DELUSION
1. Platforms Are a Revolutionary New Business Model.
2. Digital Platforms Are Structurally Superior to Analog Platforms.
3. All Platforms Exhibit Powerful Network Effects.
4. Network Effects Lead Inexorably to Winner-Take-All Markets.
I have read almost 5 - 10 different books related to platform in the last few months, back to back
Some of the best books are
1. The Cold Start Problem
2. The Lean Marketplace
3. The Platform Scale
4. Matchmakers
5. Platform Delusion
The Platform delusion actually breaks the myths in many of these books. In fact the author of the book explicitly calls out other authors of these books while pinpointing their mistakes, which is extremely bold.
The author has also developed a knack for breaking myths, his previous books also break the myths of other big claims.
I like the series of books that the author has written over the years.
The Curse of the Mogul: What's Wrong with the World's Leading Media Companies
Class Clowns: How the Smartest Investors Lost Billions in Education [I firmly believe that EDTECH got it wrong.]
Everyone is hell bent on talking about one or two big companies that have won all the while forgetting about the billions of investor capital that was burnt at the alter under the guise of this success or chasing the mirages of this one success. Like fireflies fatal attraction to the fire, investors in their mad case for SAAS companies, for AI/ML Companies, deep tech companies, blockchain companies, NFT companies, often completely ignore the basis and that is precisely where the author strikers over and over again.
Except Facebook and Google, no other company in the BIG 5 or BIG 10 have network effects.
It is also extremely impossible to defend these network effects where local players and niche players start eating into the pies of these big players with ease.
The author has kept up the traditions of exposing these fake competitive advantages and this time his focus is on platform business models, and he has done an extremely great job at it.
I actually loved the EPILOGUE about the MBA class going after startups and not investment banking or consulting as the hot favourites, and how the author believes that it is actually the bigger companies that add more value than the smaller startup. A typical startup is more inefficient than a franchise.
HERE ARE THE BOOKS THAT THE AUTHOR HAS DISCUSSED IN THIS BOOK
The Content Trap, by Professor Bharat Anand
The Square and the Tower: Networks and Power from the Freemasons to Facebook
No Rules Rules: Netflix and the Culture of Reinvention - Hastings’s 2020 book with Professor Erin Meyer on the company’s culture and management philosophy
Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You - Geoffrey Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary,
The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and
Power
The Everything Store: Jeff Bezos and the Age of Amazon
Colin Bryar and Bill Carr, Working Backwards: Insights, Stories, and Secrets from Inside Amazon
Iansiti and Lakhani, Competing in the Age of AI
by the time you have finished the book you will have
adopted the following counterintuitive propositions:
[1] Network effects have been touted as the dominant source of competitive advantage in the digital age. This phenomenon makes a product inherently better with the addition of every new user. But
most businesses that exhibit network effects, either because of the structure of the particular industry or the absence of any reinforcing advantages, do not deliver exceptional results. What’s more, strong
network effects are not, as commonly supposed, exhibited in all platform businesses. Of the group of digital goliaths that have come to be referred to as FAANG, only Facebook is a predominantly
network effects driven franchise.
[2] Many of the new growth vectors spurring the unprecedented valuations of the FAANG companies receive limited support from the competitive advantages upon which their core franchises rely.
Notably, in the case of Apple’s entertainment initiatives in music and television and Amazon’s accelerating investments in international markets and grocery, it can be argued both that the
firms operate at a competitive disadvantage in these areas and that the sectors in any case are inherently unattractive.Netflix does not enjoy meaningful network effects and its decision to enter the original content arena is not justified or supported by the imagined ability of artificial intelligence to systematically deliver “hits.” The abandonment of the previously articulated strategy of avoiding creative risk, while justified by the dramatically increased competition in the sector, has made Netflix a worse, not a better, business.
[3] The acquisition sprees by many FAANG companies reveal vulnerabilities in their armor and the limits of their advantages. The ability of independent e-commerce players to establish durableleads over Amazon in diapers, footwear, fabric, pet supplies, and furniture and the ability of Instagram, WhatsApp, and TikTok to establish global online communities independent of Facebook reflect these structural constraints. Most of the specific companies noted have been acquired, but the regulatory environment will restrict future acquisitions (or even undo previous ones) and intensify future competitive challenges to FAANG.
[4] The power of network effects in the context of any given sector is significantly influenced by the complexity of the product or service being provided and the break-even economics for a given market.
This explains why Airbnb will always be a far better business than Uber and why Booking and Expedia make most of their money from selling hotel rooms and almost nothing from flights. Many of
the most resilient network effects driven platforms, in sectors like travel and payments, predate the internet by decades.
[5] Artificial intelligence has been promoted almost as vigorously as network effects as driving the unassailability and inevitable global domination of digital platforms. The proliferation of new vertically focused multibillion-dollar software companies undermines the predictions that AI will lead to “the gradual demise of traditional specialization” and an increasingly winner-take-all world.
The author puts up a strong case against - Network effects, AI, Big Data, or startups in general and in their ability to make any substantial impact on the economy.
Almost none of the platforms have network effects, only a few companies actually have network effects. The majority of the FAANG companies or companies that have grown into monopolies have done so on the back to reinforcing competitive advantages of supply side scale and customer captivity also known as retention.
This was an extremely hard read, the book took me months to complete, because of the huge size and also due to the enormous amount of knowledge density per page. I had to read the same chapter twice or thrice to make sure that I understood everything.
The Author dismantles the four myths collectively known as the PLATFORM DELUSION
THE CORE TENETS OF THE PLATFORM DELUSION
1. Platforms Are a Revolutionary New Business Model.
2. Digital Platforms Are Structurally Superior to Analog Platforms.
3. All Platforms Exhibit Powerful Network Effects.
4. Network Effects Lead Inexorably to Winner-Take-All Markets.
I have read almost 5 - 10 different books related to platform in the last few months, back to back
Some of the best books are
1. The Cold Start Problem
2. The Lean Marketplace
3. The Platform Scale
4. Matchmakers
5. Platform Delusion
The Platform delusion actually breaks the myths in many of these books. In fact the author of the book explicitly calls out other authors of these books while pinpointing their mistakes, which is extremely bold.
The author has also developed a knack for breaking myths, his previous books also break the myths of other big claims.
I like the series of books that the author has written over the years.
The Curse of the Mogul: What's Wrong with the World's Leading Media Companies
Class Clowns: How the Smartest Investors Lost Billions in Education [I firmly believe that EDTECH got it wrong.]
Everyone is hell bent on talking about one or two big companies that have won all the while forgetting about the billions of investor capital that was burnt at the alter under the guise of this success or chasing the mirages of this one success. Like fireflies fatal attraction to the fire, investors in their mad case for SAAS companies, for AI/ML Companies, deep tech companies, blockchain companies, NFT companies, often completely ignore the basis and that is precisely where the author strikers over and over again.
Except Facebook and Google, no other company in the BIG 5 or BIG 10 have network effects.
It is also extremely impossible to defend these network effects where local players and niche players start eating into the pies of these big players with ease.
The author has kept up the traditions of exposing these fake competitive advantages and this time his focus is on platform business models, and he has done an extremely great job at it.
I actually loved the EPILOGUE about the MBA class going after startups and not investment banking or consulting as the hot favourites, and how the author believes that it is actually the bigger companies that add more value than the smaller startup. A typical startup is more inefficient than a franchise.
HERE ARE THE BOOKS THAT THE AUTHOR HAS DISCUSSED IN THIS BOOK
The Content Trap, by Professor Bharat Anand
The Square and the Tower: Networks and Power from the Freemasons to Facebook
No Rules Rules: Netflix and the Culture of Reinvention - Hastings’s 2020 book with Professor Erin Meyer on the company’s culture and management philosophy
Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You - Geoffrey Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary,
The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and
Power
The Everything Store: Jeff Bezos and the Age of Amazon
Colin Bryar and Bill Carr, Working Backwards: Insights, Stories, and Secrets from Inside Amazon
Iansiti and Lakhani, Competing in the Age of AI
by the time you have finished the book you will have
adopted the following counterintuitive propositions:
[1] Network effects have been touted as the dominant source of competitive advantage in the digital age. This phenomenon makes a product inherently better with the addition of every new user. But
most businesses that exhibit network effects, either because of the structure of the particular industry or the absence of any reinforcing advantages, do not deliver exceptional results. What’s more, strong
network effects are not, as commonly supposed, exhibited in all platform businesses. Of the group of digital goliaths that have come to be referred to as FAANG, only Facebook is a predominantly
network effects driven franchise.
[2] Many of the new growth vectors spurring the unprecedented valuations of the FAANG companies receive limited support from the competitive advantages upon which their core franchises rely.
Notably, in the case of Apple’s entertainment initiatives in music and television and Amazon’s accelerating investments in international markets and grocery, it can be argued both that the
firms operate at a competitive disadvantage in these areas and that the sectors in any case are inherently unattractive.Netflix does not enjoy meaningful network effects and its decision to enter the original content arena is not justified or supported by the imagined ability of artificial intelligence to systematically deliver “hits.” The abandonment of the previously articulated strategy of avoiding creative risk, while justified by the dramatically increased competition in the sector, has made Netflix a worse, not a better, business.
[3] The acquisition sprees by many FAANG companies reveal vulnerabilities in their armor and the limits of their advantages. The ability of independent e-commerce players to establish durableleads over Amazon in diapers, footwear, fabric, pet supplies, and furniture and the ability of Instagram, WhatsApp, and TikTok to establish global online communities independent of Facebook reflect these structural constraints. Most of the specific companies noted have been acquired, but the regulatory environment will restrict future acquisitions (or even undo previous ones) and intensify future competitive challenges to FAANG.
[4] The power of network effects in the context of any given sector is significantly influenced by the complexity of the product or service being provided and the break-even economics for a given market.
This explains why Airbnb will always be a far better business than Uber and why Booking and Expedia make most of their money from selling hotel rooms and almost nothing from flights. Many of
the most resilient network effects driven platforms, in sectors like travel and payments, predate the internet by decades.
[5] Artificial intelligence has been promoted almost as vigorously as network effects as driving the unassailability and inevitable global domination of digital platforms. The proliferation of new vertically focused multibillion-dollar software companies undermines the predictions that AI will lead to “the gradual demise of traditional specialization” and an increasingly winner-take-all world.
July 21, 2024
Competitive forces still apply to modern tech giants, whose seeming invincibility is not indicative of a new paradigm. Dig below the surface-level thinking of "this time really is different!" and apply rigorous competitive and strategic analysis to those companies that make the world go round. Sure, the largest enablers of our interconnectedness may seem untouchable, but giants are still at risk of crumbling. Let's have a look at a couple of examples.
Destructive price wars engineered by companies used to much lower margins than the dominating incumbent can meaningfully detract from Netflix's competitive advantage, with a half-dozen large scale streaming services bringing the nasty business conditions that led to low margins to the hitherto untested SVoD industry.
Apple's slow but steady shift to services as its main engine for future growth logically depends on an ever-growing (or at the very least not rapidly shrinking) user base that consistently buys new consumer electronics products from the brand. Simply growing services (whose product line-level margins are hidden behind one-line item disclosures) forever as if the company is selling those services to anyone who uses -any- smartphone is a miscalculation, a symptom of the platform delusion.
I'm giving this three stars because it didn't fully satisfy my hunger for deep dives into competitive and industry analysis – the broad overview of each company in the FAANG acronym means you're unlikely to find highly focused, unique insights. This is a more generalist book that will work best for non-finance professionals.
Destructive price wars engineered by companies used to much lower margins than the dominating incumbent can meaningfully detract from Netflix's competitive advantage, with a half-dozen large scale streaming services bringing the nasty business conditions that led to low margins to the hitherto untested SVoD industry.
Apple's slow but steady shift to services as its main engine for future growth logically depends on an ever-growing (or at the very least not rapidly shrinking) user base that consistently buys new consumer electronics products from the brand. Simply growing services (whose product line-level margins are hidden behind one-line item disclosures) forever as if the company is selling those services to anyone who uses -any- smartphone is a miscalculation, a symptom of the platform delusion.
I'm giving this three stars because it didn't fully satisfy my hunger for deep dives into competitive and industry analysis – the broad overview of each company in the FAANG acronym means you're unlikely to find highly focused, unique insights. This is a more generalist book that will work best for non-finance professionals.
February 13, 2022
This was challenging to read in parts, but overall the insights into how tech companies succeed was timely and quite valuable. My background and education is in tech, not business. That probably contributed to my difficulty in following a book like this but nonetheless I think this business-perspective on tech is extremely valuable context for tech leaders to have.
On the negative side, his writing style is a bit academic in the sense that great insights are buried in the lines of esoteric points. And while he does summarize each chapter in a takeaways section, I actually think sometimes his best points are missing. I also thought that his positioning against a “delusion” made sense in marketing but actually created unnecessary contention in the beginning of the book. I read it more skeptically at first, but slowly opened up as I realized his perspective was much more reasonable and productive than it started.
On the positive side, his exploration off the FAANG companies was highly insightful. I’ve read plenty about them yet he still found a way to break them down to highlight what drives their business mode (often positioned against the platform delusions). I most appreciated part III of the book where he took the learnings and applied them to different sectors such as travel, adtech, and E-commerce. But his take on AI and Big Data was most insightful to me.
On the negative side, his writing style is a bit academic in the sense that great insights are buried in the lines of esoteric points. And while he does summarize each chapter in a takeaways section, I actually think sometimes his best points are missing. I also thought that his positioning against a “delusion” made sense in marketing but actually created unnecessary contention in the beginning of the book. I read it more skeptically at first, but slowly opened up as I realized his perspective was much more reasonable and productive than it started.
On the positive side, his exploration off the FAANG companies was highly insightful. I’ve read plenty about them yet he still found a way to break them down to highlight what drives their business mode (often positioned against the platform delusions). I most appreciated part III of the book where he took the learnings and applied them to different sectors such as travel, adtech, and E-commerce. But his take on AI and Big Data was most insightful to me.
January 19, 2022
Nobody Wins and Everyone Losses
This book is so depressing regarding starting a company that nobody would ever do it. This book will tell you that few businesses have real competitive advantages and its no wonder everyone is failing (except the few mega winners).
The author's books put down businesspeople. I started to ask myself is the writer trying to suggest he is smarter than billionaires?
It is not an accomplishment to say what wont work post-fact. The book does little to tell us what might work other than businesses that meet the writer's criteria which only a handful of businesses have.
This book is so depressing regarding starting a company that nobody would ever do it. This book will tell you that few businesses have real competitive advantages and its no wonder everyone is failing (except the few mega winners).
The author's books put down businesspeople. I started to ask myself is the writer trying to suggest he is smarter than billionaires?
It is not an accomplishment to say what wont work post-fact. The book does little to tell us what might work other than businesses that meet the writer's criteria which only a handful of businesses have.
October 15, 2021
The overall message of this book is "Platform is not a silver bullet, you need sustainable competitive advantage in order to win". This sounds right and provides some healthy dose of skepticism to preachers of AI and Big Data.
At the same time, the book is pretty dense and contains too much detail - the author tries to cover all IT sector with quite uneven coverage. Some gems, but a lot of duplication.
At the same time, the book is pretty dense and contains too much detail - the author tries to cover all IT sector with quite uneven coverage. Some gems, but a lot of duplication.
March 31, 2022
This is by far the most sophisticated book out there about both the nuts and bolts and big picture economics of "platform" businesses -- or those thought to be. The author effectively debunks the myth that all "platform:" companies have network effects (user value goes up as more users join), while explaining the sources of true competitive advantage in both on and offline economies. A must read for founders, investors and academics. A tour de force.
March 20, 2023
The author makes a good case for the collective platform delusion of VCs and Investors alike. He demystifies, deconstructs the falsehood/exaggerations of many myths/hype around “platform”; makes a conceivable bear-case for most platform based companies and argues to a large extent that there is nothin new to the model. Delves deeply into many other business models. While I don't buy the bear argument completely, this was a great read. Highly recommend.
November 28, 2021
This book delves into the reasons why some high-tech companies are platforms that scale and the increased network is a positive in their business top line and bottom line. Many others are do not scale; some of those who do do not build a network that helps in their bottom line. The underlying reasons for this is, at times, evident from the early stages; even then they are valued far too high and fail before or after IPO.
Amazing book.
Amazing book.
April 15, 2022
An excellent book that not only demonstrates the falsehood/exaggerations of many myths/hype around “platform” business but also provides a clear useful framework for assessing business models and markets on a forward-looking basis. The analysis regarding “platforms” is also applicable to AI and the many claims of its advocates.
Definitely worth reading.
Definitely worth reading.
December 22, 2021
An interesting discussion about the large internet media companies, their strengths, weaknesses, and the external perception of their value. The inclusion of many smaller players or organizations that were/are expected to grow, but may be limited was also valuable.
April 23, 2022
A very good analysis of the FAANG. However, towards the latter part of the book, it gets distracted in trying to cover too much. Thus, what could have been a 225 page 4.5 starred book ended up being a 3 ⭐ 300 page one!
February 14, 2023
Clears the Delusion
For those who are interested in startups and are having fears of established players entering the same idea, this book gives clear insights on what and what not to do to be successful
For those who are interested in startups and are having fears of established players entering the same idea, this book gives clear insights on what and what not to do to be successful
March 20, 2022
really good perspective on the limitations of network effects and great analyses of the FAANGs and other companies. must-read if you're into tech strategy
March 28, 2022
okay types with somewhat repetitive
September 17, 2022
Insightful book to help clearly think about value and differentiation of companies without falling in trap of buzzwords.
February 26, 2023
Overall direction is good but explanations are bad maybe need to restructure the whole ideas and information for better understanding
August 21, 2022
As a person coming from finance but having got more involved in the product world, most of the points in the book come across as more purposefully contrarian rather than true insightful (probably due to the lack of the on-the-ground information). That said, it’s still a good read because it allows you to get out of the product people’s group thinking a bit.
The author’s the other book The Curse of the Moguls is actually mor recommended.
The author’s the other book The Curse of the Moguls is actually mor recommended.
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