Tik Tok Chicken or Egg Dilemma Discussion

Description

Write a 500 words paper about TikTok to answer these questions.The file is about the platform and Chicken-or -egg Dilemma. How has the platform addressed the chicken-or-egg dilemma that is characteristic of
platforms? Has the platform achieved positive network effects? If so, how did it manage to
accomplish them, and has it been able to capture value from those effects? If not, what would you
recommend it to do?

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What is this?
Is it a platform? Why?
Pieter Aertsen, 1500s
Platforms: Introduction
Side 1: Sellers/Merchants
Market
Side 2: Buyers
Platforms are not new (e.g. markets, malls, etc). They’ve long been a part of the economy…
…but due to widespread digitization, smartphone ownership and other technological advancements,
digital platforms have experienced significant growth in adoption, prominence, diversity and innovation.
Our Focus: Digital Platforms
Platforms: Definition
Platforms are entities that create value by enabling matches between different
market sides and facilitating the exchange of goods and services.
How do platforms create value?
They perform two basic economic functions that create value:
1. Reduce search costs, incurred by sides before transacting (e.g. finding each other, gathering info)
2. Reduce transaction costs, incurred by sides while transacting (e.g. communication, service fees)
Platforms: Definition
When is a platform an appropriate business model?
1. When there are opportunities to innovate through agents outside a firm to create value.
2. When it’s more economical to enable transactions rather than to own assets or deliver products.
à The platform business model represents a shift from owning assets, investing in internal capabilities,
and contracting with suppliers, to building vibrant communities and facilitating exchanges between them.
Examples of platforms that don’t own most valuable assets, but instead build communities?
•
Uber, Lyft, Airbnb, eBay don’t own cars, homes, inventory; generate value by facilitating exchanges
Features that distinguish platforms from traditional firms
(1) All market sides are platform customers in a meaningful way.
(2) Platform enables direct interaction between sides that would otherwise not easily connect.
(3) Cost and revenue are on each side of the market.
– In traditional value chains, value moves from top to bottom.
?
On the top is the cost (producers). On the bottom is the revenue (consumers).
Product Firm
Resellers:
Violate (2). No direct
interaction between sides.
Product firms:
Violate (1). Ultimate customer
is not the firm’s customer.
Supermarkets buy products
from suppliers and sell to
customers, but do not enable
any direct interaction.
E-INK à Kindle à Readers
Source: Hagiu 2013
Platforms: Economic Importance
? Technological advances have enhanced the adoption and operation of platforms.
? These days, the fastest-growing global companies are platforms.
? The five most valuable firms in the world: Apple, Google Microsoft, Amazon and Facebook.
– Together, these companies at their peak had close to $5 trillion in market value.
? Out of 200 startups with valuations of $1 billion or more, 60-70% are platforms.
Lecture 1: Introduction
Part 1. About me
Part 2. What is a platform?
Part 3. Platform examples
Part 4. Platform challenges
Part 5. “Platform thinking”
Part 6. The course and syllabus
WHAT KINDS OF MARKET SIDES DO PLATFORMS CONNECT?
Platform Sides: Social Media
Side 2: Advertisers
Side 1: Users
Facebook
Side 4: Content providers
(e.g. online newspapers,
magazines)
Side 3: App developers
(e.g. game developers)
Over the course of several years since founding in 2004, Facebook grew from one side to four sides.
Platform Sides: Labor Markets
Side 1: Professionals
Side 3: Advertisers
LinkedIn
Side 2: Recruiters
Platform Sides: e-commerce
Side 1: Buyers
e-commerce:
Alibaba, eBay
Side 2: Sellers
Platform Sides: Lodging and Transportation
Side 1: Dwelling owners (hosts)
Airbnb
Side 2: Renters
Side 1: Drivers
Uber, Lyft, BlaBlaCar
Side 2: Passengers
Platform Sides: Food Delivery
Side 1: Local restaurants
Side 2: Customers
Food delivery services
Side 3: Delivery people
Platform Sides: Gaming Consoles
Side 1: Game developers
PlayStation, Xbox
Side 2: Users
Platform Sides: Smartphone OS
Side 1: App developers
Side 1: App developers
Apple’s iOS
Side 2: Users
Side 3: Handset
manufacturers
(Samsung, LG, etc.)
Google’s Android
Side 2: Users
Lecture 1: Introduction
Part 1. About me
Part 2. What is a platform?
Part 3. Platform examples
Part 4. Platform challenges
Part 5. “Platform thinking”
Part 6. The course and syllabus
Platforms face several key strategic challenges
1. Choose number of sides to bring on board
2. Solve the “chicken-or-egg dilemma”
3. Generate positive network effects
4. Decide pricing structure
5. Choose platform design
6. Establish platform governance rules
Challenge 1: Choose number of sides to bring on board
? Sometimes the answer is obvious, given by the choice of industry
? Other times not … then, trade-offs in choosing to attract more or fewer sides:
+ More sides lead to larger scale and diversified revenue sources.
— More sides can carry risk of creating too much complexity; conflicts of interest among
sides; quality uncertainty; difficulty to innovate while trying to satisfy all sides.
vs.
Choosing which sides to engage is the first challenge.
What comes next?
Deciding which side to bring on board first.
Challenge 2: Solve the chicken-or-egg dilemma
Chicken-or-egg dilemma (critical decision):
One side usually needs to come on board first and provide some value in order to attract other side(s).
Successful: Uber: Drivers or ride-sharing passengers? Airbnb: Hosts with spare rooms or guests?
Unsuccessful: RIM (BlackBerry 10 OS): App developers or BlackBerry users?
Dilemma: BlackBerry had small user base compared to Android or iOS à Developers had no incentives
to make apps (top developers went to Android, iOS). Launching with few/poor apps à small user base.
Attempt: RIM offered free tablets and guaranteed every developer min $10,000. What happened?
Continued to attract bad developers, as good ones wanted opportunity to make more on Android, iOS.
Challenge 3: Generate positive network effects
If platforms successfully solve the chicken-or-egg dilemma, they start generating network effects as
they connect different sides of the market. What does this mean?
The value of the platform goes up with number of users, so the more users a platform has, the more
attractive it becomes for others to join as well.
Two types:
(i)
Cross-side: one side of the market attracts another side
(ii) Same-side: one side of the market attracts same side users
Challenge 4: Decide pricing structures
Pricing decisions are crucial in addressing chicken-or-egg dilemma and generating network effects.
How do platforms decide how much to charge each side?
? Typically, platforms have a subsidy side (i.e. users who, when attracted in volume, are very
valuable to other side) and a money side.
– A large subsidy side is crucial for network effects, so platform sets prices below level it would
charge if it was an independent market. Money side is charged more for user access.
? Some pricing structure guidelines:
– Subsidize the side that is more price-sensitive.
– Charge more from the side that derives more value from the presence of the other side(s).
Challenge 4: Decide pricing structures
Not always obvious which side to charge. May seem counterintuitive.
? Video game industry: Charge side that supplies quality, not the one that demands it. Why?
– To deliver high quality, game developers (suppliers) incur enormous fixed costs.
– To offset these costs, they must be assured that the platform has a large user base.
– Therefore, platform needs to subsidize users (video gamers).
– Platforms make sure game developers meet high quality standards by imposing strict
licensing terms and charging a high royalty. But, this cost is not passed on to the users.
Challenge 5: Choose platform design
Platforms have many options of features. How do they choose what to include?
? For most, cost-benefit analysis: include if development/implementation cost < value for sides ? But…some features put interests of different sides at odds with each other or the platform, creating strategic trade-offs as they generate positive value for some sides, and negative for others. – Assess trade-offs and solve in favor of side that is most important to platform’s long-run success. Example: Users vs. Advertisers ? In Internet Explorer 8, Microsoft suppressed do-not-track feature due to advertiser pressure. Was reversed in Internet Explorer 9: easier for users to protect privacy, hard for advertisers to reach them. Challenge 6: Establish platform governance rules How do platforms regulate the actions of their sides? Two types of governance rules: ? Rules regarding access to the platform: Who can join? ? Rules regarding interactions on the platform: What are users allowed to do? Why are such rules needed? To prevent possible market failures, such as: 1. 2. 3. Low-quality suppliers driving out high-quality ones. Too much competition on the same side, reducing incentives to innovate. Unbalanced numbers of users on different sides, preventing good quality matches from occurring. Strictness of governance rules reflects trade-off between quantity and quality. Higher quality incurs costs of tighter rules (e.g. technological, operational, network effects). – iOS has stricter rules than Android regarding third-party developers. Android developers can use many third-party tools to develop apps, quick approval process. – Apple restricts developers to use fixed set of Apple-supplied tools, long approval. Lecture 1: Introduction Part 1. About me Part 2. What is a platform? Part 3. Platform examples Part 4. Platform challenges Part 5. “Platform thinking” Part 6. The course and syllabus Famous Example of “Platform Thinking” Microsoft – IBM Deal in the 1980s: Background ? July 1980: Executives from IBM approached Bill Gates, cofounder and CEO of 5-year-old Microsoft. IBM planned to introduce a PC for business, and wanted a Microsoft OS. ? Microsoft already had a reputation as the best source of programming languages for the new PC market. ? Microsoft accepted and developed MS-DOS. Structure of the Deal ? Gates charged IBM a development fee of $200,000, but… …allowed IBM to use MS-DOS for free if Microsoft alone would be allowed to license it to other manufacturers. What was Gates thinking? ? If the IBM PC became popular, a new mass market would likely emerge for the PC with complementary apps and devices (printers, cameras, etc.) ? If Microsoft alone could license OS to companies building such compatible tools, Microsoft would be at center of this new industry. Difference between IBM and Microsoft: ? IBM was thinking “product”: Wanted to control PC market using MS-DOS. ? Microsoft was thinking “platforms”: Gates’ goal was not to maximize profits from sale of MS-DOS to IBM as a stand-alone product. Instead, to make the OS into an industry-wide platform, on which other companies built compatible hardware and software tools that would in turn make OS more valuable. What happened? ? Gates was right. The industry attracted numerous software and hardware companies that produced millions of complementary software apps and devices (printers, cameras, and game controllers). Why? ? The PC (like social media, online marketplaces etc.) turned out to be a platform business, not a product business. ? Success does not depend simply on MS-DOS as stand-alone product, but on complementary innovations that determined what users could do with the product, which added value. ? In the new industry, Microsoft’s chicken-or-egg dilemma: – How to encourage other companies to build tools to stimulate PC demand. Offered broad and cheap licensing of OS, which facilitated production of hardware. Rising number of PC users using same tech created demand for developers to design more compatible software. ? Ultimate success depended on ability to engage multiple side and generate network effects. Gates’ decision to give software free to IBM (main customer), in return for right to license to others is now a famous example of platform thinking, as Gates realized there would be more than one side to this market. Platform Thinking Pirates of Silicon Valley, 1999 Thank you and see you next time! Purchase answer to see full attachment Explanation & Answer: 500 words Tags: strategy Economic Chicken or Egg Dilemma User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.