Optimizing network characteristics for sustainable network effects in multi-sided platforms

Large network size has been seen as the main reason behind networks’ success in the past in terms of value creation and making different types of interactions possible. This paradigm has been challenged, however, by some of the recent studies as some sizeable networked platforms, e.g. MySpace and Orkut, have seen their end even after being the market leader in terms of the network size. This paper questions the network size as the sole determinant of networks’ success. It explores several important characteristics of a network in addition to its size, e.g., structure, roles, groups and conduct, which advance users’ possibilities for value capturing. The comprehensive literature review in studies on strategic management, management science, information systems science, sociology and economics done in this thesis proposes that considering aforementioned characteristics in platform design helps in laying a solid foundation for the healthy growth of networks. Supporting, e.g., interactivity, connectedness and the creation of ties helps users derive value from network more efficiently, making the network more attractive to new adopters, which in turn can result in a phenomenon called network effect. In addition, this paper gives practical suggestions on how network effects could be better sustained in multi-sided platforms. In conclusion, platform developers can keep the platform relevant in the long term by, for example, promoting openness and allowing third-party developers to contribute to the platform development, investing in and developing technologies that are relevant to the platform’s core function and subsidizing the weaker side of the platform in order to maintain a balanced user base