July 1st 2020

A platform company generates value by enabling interactions, transactions or relationships. A platform company leverages network effects (direct/same side or indirect). Platform companies are also known as platform business models, given their intrinsic way to create value for users.

Linear business models create value by selling products down the supply chain. Platform business models create value by enabling exchanges among consumers.

A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining.

Read next:

Platform Business Models In A Nutshell
Network Effects In A Nutshell
What Are Diseconomies Of Scale And Why They Matter

Other resources for your business:

Types of Business Models You Need to Know
Business Strategy: Definition, Examples, And Case Studies
What Is Market Segmentation? the Ultimate Guide to Market Segmentation
Marketing Strategy: Definition, Types, And Examples
Marketing vs. Sales: How to Use Sales Processes to Grow Your Business
How To Write A Mission Statement
What is Growth Hacking?

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