Let us talk about a book that would be usually featured in the “Business” section of your nearest bookstore. As such, it might have been overlooked by those inspecting the shelves of the “Computer” section. This book delves deeply into the economic fabric of the software industry and, for that reason, becomes a much-needed read by all software workers.
As Graham memorably said in a previous article,
A good programmer’s library (I will let you decide whether that is a good library owned by a programmer, or a library belonging to a good programmer) includes essays, scholarly articles, videos, magazines, blog posts, podcast episodes, and more.
Yes, software professionals should read more business books; in this author’s experience, technologists and geeks tend to grossly misunderstand how the economic machine works, similar to how business-minded folks grossly misunderstand how computers and software work. The impossible dialogue is pervasive and must be fought back at all costs.
“Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You,” written by Geoffrey G. Parker, Marshall W. Van Alstyne, & Sangeet Paul Choudary and published in 2016, successfully bridges the two worlds. The central thesis of this short volume argues that the key to understanding the dramatic, exponential rise in popularity of some software ideas in our world (and the riches thereby generated) is embedded in the word “Platform.” A word that is pervasive in our industry.
Software developers use, create, endorse, promote, bash, suffer, glorify, and belittle platforms day in, and day out. The technologies we use to develop applications are often referred to as “Platforms,” including, but not limited to, programming languages and application frameworks. Mobile developers publish apps on a de facto duopoly of “Platforms”, the so-called “App Stores” dictating the life and death of programmers’ work without supervision or regulation. DevOps engineers nowadays choose Kubernetes over Docker Swarm because of its “ecosystem,” another fancy word closely related to “Platform.”
So those are examples of platforms, but what is a “Platform” after all? How does it work? And why did they become so economically significant nowadays?
The core thesis of this book is that “Platform” is a new paradigm for economic analysis; not just a fancy word to describe a successful business model or a set of technologies, but rather a much larger idea: the definitive economic architecture of our era.
Let us apply the historical perspective; by 2016, we already had many examples of successful software-powered platforms. To name a few: Airbnb, Lyft, Uber, Twitter, Android Play Store, YouTube, iOS App Store, Facebook, WordPress, Hacker News, Amazon Web Services, PayPal, Craigslist, Java, GitHub, WhatsApp, eBay, Salesforce, IBM PC & “Wintel,” Microsoft Office, Instagram, Linux, IBM’s System/360, and so many more. Some new ones have emerged since the publication of this book; come to mind TikTok and Kubernetes while we are closely watching the much-hyped Metaverse to see how it unfolds.
These platforms have, in turn, generated waves of insanely wealthy
psychopaths moguls: Adam Neumann, Mark Zuckerberg, Bill Gates, Jeff Bezos, Elon Musk, Mitch Kapor, Marc Andreessen, Steve Jobs, Larry Ellison, Jack Ma, Paul Graham, Satya Nadella, Tim Cook, Satoshi Nakamoto, and so many more men and just a tiny number of women, because such are the ways of the human world in the twenty-first century.
The basic building blocks of platforms are elementary to understand: the more people use and extend specific combinations of hardware and/or software, the faster the demand for said combination grows, which in turn feeds a virtuous circle that ultimately generates a nonlinear, “convex” growth in both size and intrinsic value.
The keyword here is nonlinear. Keep it in mind.
Nonlinear patterns were first formally analyzed by Jay W. Forrester and then explained in detail by his disciple John D. Sterman, both from the MIT Sloan School of Business. (Sterman’s groundbreaking masterpiece “Business Dynamics” deserves an article of its own in this magazine.)
Put in Sterman’s and Forrester’s framework, a system measurable in some quantity (a “stock”) with a feedback arrow pointing back to itself (a “flow”) naturally displays exponential growth; the canonical example of such behavior being that of compound interest.
Another way to explain platform patterns is Metcalfe’s classic network effects. Robert Metcalfe, before calling “Luddites” to members of the burgeoning “open sores” community and before suggesting that Internet technologies “are not so much a threat” to personal privacy, gave his name to an often-mentioned law, used as an easy algorithm to explain the exponential growth of network effects. Simply put, as per Metcalfe’s law, two phones are connected by one line; three by three; four by six; five by ten; et cætera. The rule is that the number of connections is always N squared minus N, all divided by two, N being the number of participants.
But apply these patterns of feedback and growth to economic markets, and you start to understand what platforms are, and what they may (and have) become. In essence, “Platform Revolution” explains such systems’ technicalities, architectures, monetization, strategies, economics, and governance policies. The secret to the riches of the biggest moguls of our era, explained in a concise tome, ready for you to learn.
Even more important, the book addresses platform regulation, a topic dear to this magazine:
In general, the historical record doesn’t support the arguments of people who favor no regulation of business. In fact, it’s difficult to identify any developed marketplace that has been completely free of intervention by government authorities.
(Chapter 11, page 237, emphasis by the authors.)
Yes, regulation is a needed and even desirable property of platforms. As this article hits the press, the Uber must recognize its drivers as employees. It effectively limits the platform’s growth, much to the chagrin of free-market pundits, but controls its “externalities” in our society. Because, as Sterman said:Supreme Court of Switzerland dictated that
We frequently talk about side effects as if they were a feature of reality. Not so. In reality, there are no side effects, there are just effects. When we take action, there are various effects. The effects we thought of in advance, or were beneficial, we call the main, or intended effects. The effects we didn’t anticipate, the effects – which fed back to undercut our policy, the effects which harmed the system – these are the ones we claim to be side effects. Side effects are not a feature of reality but a sign that our understanding of the system is narrow and flawed. Unanticipated side effects arise because we too often act as if cause and effect were always closely linked in time and space. But in complex systems such as an urban center or a hamster (or a business, society, or ecosystem) cause and effect are often distant in time and space.
(“Business Dynamics,” John D. Sterman, 2000.)
As more and more developers dream of “starting their own company” (usually by clumsily thinking that yet another app in a crowded App Store might be a reasonable breakout,) or while others argue about their favorite and hated platform on Reddit or Hacker News, it would be unwise to do neither without first reading “Platform Revolution.” Human minds are, by design, tragically limited in their comprehension of exponential growth patterns. We cannot intuitively analyze such evolutions, and we will invariably underestimate their impact. We are wired to naturally understand phenomena evolving in a linear fashion; no wonder why linear algebra is taught in high school, while other kinds of algebræ are taught in college.
The fact is that our world is, by all standards, behaving exponentially in many critical vectors we observe: global temperatures are growing exponentially faster; wars are exponentially more deadly; pandemics expand exponentially quicker; and software platforms become exponentially popular in shorter amounts of time, sometimes even threatening privacy, democracy, and the livelihoods of millions of people around the world. We humans are not prepared for such patterns, and books like this are crucial to going beyond our shortcomings.
We must humbly prepare for a future that will, painfully and immediately, outgrow any capacity we may have left for surprise or reckoning. Paraphrasing Sterman, our understanding of the world is getting narrower and more flawed every day.
Cover picture by the author.