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Buzzwords: platform effect

Monday, 23 May, 2016

As an occasional contribution to the language of the Fourth Industrial Revolution, this emerging Buzzwords lexicon is intended to explain the jargon of the, er, paradigm shift, that’s now underway in our sunlit digital mills. We’re starting with the so-called platform effect, by which intelligent enterprises create networks that link buyers and sellers of products and services and thereby make truckloads of money. Economists call this “enjoying returns to scale.”

“Facebook development tools encourage the creation of new features, services, and apps, which facilitate content distribution and stimulate innovation and new jobs.

It is estimated that the platform effect of Facebook in 2014 enabled $29bn of economic impact and 660,000 jobs globally.”

Source: Facebook’s global economic impact by United Ventures, a Milan-based venture capital firm.

The problem with the platform effect is that a handful of companies end up dominating their markets. For the powerful few, the rewards are obvious. For consumers, there are benefits as well in the form of greater convenience and lower costs, but the concentration of so much influence and wealth in so few hands is risky societally, financially and technologically. The solution? Convince or coerce or the platforms to allow collaborative innovation.


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