Network Effects

From bazaars to smartphones

What do businesses like Ticketmaster, Airbnb, Fiverr, and Instagram (Meta) all have in common? You guessed it—they are all platform businesses.

An ancient business model

The platform business model has existed throughout all human existence and has its roots in the early bazaars and marketplaces of Iran, circa 3000 BC. A platform creates value by facilitating exchanges between two or more independent groups, for example—a marketplace connecting consumers with producers.

Supply and demand

The platform's strength is defined by supply and demand at its core, meaning it gets stronger as participants on both sides grow - also known as The Network Effect. Although supply and demand do not have to be buyers and sellers in the traditional sense, as in the case of eBay, but can also be content creators and consumers in the case of YouTube (Alphabet).

Strong competition

The ancient bazaars were somewhat protected from competition thanks to its strategic physical locations. In today’s smartphone world, platforms from all over the world are now located right in our pockets—competing hard for our attention and wallets in pursuit of network effects.