The Postal Platform and Network Effects

The International Postal Corporation (IPC) and the USPS’ Office of Inspector General (OIG) have both recently shown interest in the concept of digital platforms and their applicability to the postal world. Professor Marshall Van Alstyne, Associate Professor of information economics at Boston University/MIT, provided both organizations with overviews of his research in this area. Typical examples of digital platforms include desktop operating systems such as UNIX, Mac and Windows; PDAs such as Palm, Psion or Newton; game consoles; payment systems; and mobile devices such as iPhone, Android, Symbian or Blackberry. The success of these platforms has relied on the presence of networks of users and providers, and common components that create sustainable eco-systems. The diagram to the right shows the four key stakeholders of a platform and its supporting eco-system.

• Users, the demand side. These are the target consumers of the platform solutions and services.
• Solution developers, the supply side. They provide services that attract users to the platform.
• Providers. The Microsoft Windows operating system was mainly provided to users by PC manufacturers when they acquired their computers, not directly by Microsoft.  Providers are typically the contact point for the developers and the users.
• Sponsors. Sponsors are usually responsible for providing the overall organizing structure for a platform, its rules and governance.  This may include the original design of the platform and control of its underlying technology and the overall intellectual property rights. A sponsor’s objective is to make other participants see how they are better off by being part of the system rather than outside of it.

What renders a platform successful is the network effect. Users are attracted to the platform because of the innovative solutions it makes available to them. Entrepreneurs and solution developers are attracted to the platform because of the potentially lucrative number of users looking for solutions and value. These desirable network effects do not happen by chance. They are the result of well engineered, well designed rules upon which these platforms are built, and which encourage solution developers to bring their innovative ideas and energy to a platform. These rules basically open the platform to outside private investors by sharing revenue and intellectual property, and by providing the right amount of central development and strategic guidance.

Research shows that the level of openness in governance rules plays an important role in the success of the platform. For instance, the MySpace social network was a closed platform where management required all development to be performed within the company. Facebook, on the other hand, made the decision to open itself to outside applications
and developers. A comparison between the two platforms shows that Facebook’s number of users shot up considerably compared to MySpace once they decided to do this.