The Exchanges

Q Chen Yi, could you tell us maybe two things? One, from your perspective for this work that you all have done and are still in the process of doing, how do you define platforms? And then also, why is this group particularly interesting to y'all?

A Yeah. I'll address the second question first, which is why platforms are so interesting. I guess it's pretty obvious to us all that platforms are creating tremendous value. There's stats out there that says majority of the most valuable companies today would operate on some form of platform in this model. So for us is, you know, both important and, you know, it's just intellectually so intriguing to go into them. And I guess the way we define platform, we think of it very broadly in high level. We think of it as an intermediary for transactions. And that's it. I know sometimes we see people sort of think of platforms as being bounded to digital technologies. People equate the term platform as digital platforms. For us, that's actually limiting the scope of the topic, because platforms really is more than that. It's a model with very ancient roots. You know, there's a book that Hamilton and I both really enjoyed reading and learned a lot from. It's called The Matchmakers from Evans and Schmollensy. So both are economists who've thought really deeply about platforms, and they took their title from Or in reference to the Chinese ancient village matchmakers who would keep a knowledge base of single men and women in the village and pair them up for dates. I love that example because these are people who existed 3000 years ago. They have no access to modern technology, but they opera…

AI assessment note: “We think of it as an intermediary for transactions. And that's it.”

Q Yeah. Well, actually maybe first, can we finish Uber and talk about that third question for Uber? Cause that sort of feels like for Uber at least and Lyft, that's where the rubber hits the road on how valuable are they?

A Yeah, I think a very challenging characteristic of platforms overall is you don't own your customers. Your customers choose to patronize your platform, and they can choose to do the same with another platform. So this is a scenario that we call multi-homing, and essentially what we're saying is a lot of the differential value a platform can generate is a result of differential scale they have with their participants, and multi-homing is what arbitrage out all of that. Differential value if this platform don't make profits out of their operations. The result of that is you're creating so much value, but all of those gets arbitraged and the customers get it, but not the owner of the platform itself. So in the case of, you know, right sharing business, particularly the things you really want to ask yourself is what is preventing my customers from also accessing the other platform that's competing with me and your customers referring to both your riders and your drivers. So It doesn't matter if my platform is right now larger if technically both groups of my customers can frictionlessly multi-home on the other platform. So if you always open two apps and look for whichever one that happens to have that ride that's closest to you, and you always have open two apps to see whichever one gives me the closest rider that I can get matched with, then relative scale does not matter because…

AI assessment note: “multi-homing is what arbitrage out all of that. Differential value”

Q I love it. Ok, so can you walk us through how you've developed a framework for analyzing power of a platform?

A It's a very complex problem, and the reason for that is each platform we've tried to do a case study on, the industry economics is different. There are so many idiosyncratic characteristics that impact the equilibrium state. So for us, you know, instead of trying to give you a very abstract high-level framework that's not gonna, you know, relate to the actual situation, it's probably easier to raise a few questions that we think every operator, when they think through, will find some value in it. So I'll throw out the three questions, and we can go through them one by one. So Number one, how is economic value created on your platform, and how does that value change as your platform becomes larger, or has more participants attending it? The second question is, how does each group of your customer perceive their economic value from your platform, and how does that change as your platform gets larger? And the third question is, what is preventing your competitors from getting to equivalence in that value proposition? So that to us is sort of a comprehensive list of questions that you have to think very carefully about, and then after that you may be able to get some good insights about whether your platform may have power or not.

AI assessment note: “I'll throw out the three questions, and we can go through them one by one.”

Q the seven powers framework. But today, if I'm operating a platform business, as many, many tech businesses are, especially the most valuable ones, as you pointed out, I kind of have to perform a seven powers analysis on each of the Transactors on my platform, whether they're the supply side or the demand side, I need to understand what gives my business power given that specific segment. Is that right?

A I actually echo with Ben's observation. Interestingly, we've been trying to mathematize all we talked about today for a long time. And every two weeks we come across one of those edge cases be like, Ouch. That one is not included in this framework. And the exact reason of that is, Ben, what you said, the participants in this transaction is going to have a different economic structure. They have a different industry structure that alternates how they behave and what they optimize for. So this is exactly what makes platforms so complex, but so interesting. It is, you have to look very carefully at those, and every platform is going to come out a little bit different. You know, it's working progress for us. We hope we'll one day have a, Very abstracted and generalized framework that can describe all of those, but for every operator you have to focus on, the one that you own and, and how that's different from others.

AI assessment note: “I actually echo with Ben's observation. Interestingly, we've been trying to mathematize all we talked about”

Q Chen Yi, can you walk us through your work on how to assess platform power?

A I guess even before that we're not trying to understate. I think we just said, you know, platform is not tied to a particular form technology, but there's an important thing to notice that technology is really important. And there's a particular form that gets reflected in the platform, which is technology lowers transaction costs and it lowers it so radically that what you see is entirely new markets get created. That was not the system before. So Our way of framing the relationship between platform technology is that platform is not bounded to a form of technology, but technology is the driver for new platforms to emerge. And that's something I guess all the entrepreneurs and inventors out there would have a very clear sense of what is the technology trend they're writing and creating new markets with their platforms.

AI assessment note: “I guess even before that we're not trying to understate.”