ABSTRACT
This chapter discusses how the expansion of digital platforms has disrupted traditional market models by enabling ever more efficient and tailored matching between sides of the market Abstaining from conceptual debates, we focus on those definitions and typologies that allow us to present platforms’ multiple functions in the digital economy and discuss two essential economic mechanisms underpinning their market advantages: datafication and network effects. The former means drawing value from data through efficient analytics, mainly via the use of artificial intelligence algorithms. The latter includes direct network effects (when the growth of the number of actors on the same side of the market increases the value or utility of the service) and indirect network effects (when the growth of the number of entities on the other side of the market increases the value or utility of the service). The ability to reinforce direct network effects with indirect network effects due to the efficient use of data differentiates platform from similar business models called hubs. By indicating the strengths of platforms’ business and operating models, we show two modes of platformisation: by way of innovative disruption brought to traditional sectors by platforms themselves and when traditional firms emulate the platform example and engage in digital transformation.
