Meta-Platform Theory:
Cooperative Network of Networks Effects Scaling Laws for Trans-contextual Value Transfer Why decentralized platforms will eat centralized platforms
Samuel M. Smith Ph.D. 11IW 2019/04/30 Session 5. sam@samuelsmith.org https://github.com/SmithSamuelM/Papers
https://medium.com/selfrule/meta-platforms-and- cooperative-network-of-networks-effects-6e61eb15¢586 GitHub SmithSamuelM Papers
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Poarson T, “Markots Aro Eating Tho World” AlbbonFarm, 2019/02/18 hitps:/hww.ibbonfarm.com/2019/02/28/markets-aro-oating-tho-worid
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Smith S. M, “Open Reputation Framework,” vol. Version 1.2, 2015/05/13 hitps:/github.com/SmithSamuelPapersiblobimasteriwhtepapersiopen- reputation-low-lovel-whitopaperpcf
Smith S. M, “Decentalized Autoriomic Deta (DAD) andithe three s of Key Management,” Spring 2018 hitpsi/github. comWebOfTrusilfolrebooting-the- ‘wieb-oftrust.spring2018/blobimasterffinal-documents/DeceniralzedAutanomicDala.pdf
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Xie. 1, and Sitbu, M, “Price competition and compatiiity in he prescac of postive demand exteralitics,” Managenien sience, vol 41, n0. 5, pp. 909-926, 1995 Zhung X.Z..J.J, Liv nd Z.-W. Xo, “Tenceat an dFacebook Data Validte Metcalf’s Law,” Journal of Computer Sience and Technology, vol 30, 10. 2, pp. 246 251, March 2015
Promise of Decentralization Decentralized control has the potential to cause a leveling effect that more fairly distributes value to users, limits exploitation, removes barriers to entry, and increases opportunities for disruptive innovation and value creation. A concern comes from the fact that other leveling technologies, such as communication networks, first started as decentralized but then become more centralized over time with the associated value capture eventually becoming concentrated into a few very large business entities with higher rates of value extraction. One can argue that the internet which started as a great leveler due to decentralized networking has now resulted in most of its value being concentrated in a handful of companies. Once centralization occurs innovation and value creation decrease and value extraction increases to the detriment of the average user.
Platform Business Models Multi-Sided Platform (MSB), Two-sided Networks, N-sided Networks, Network Markets. Think Airbnb or Uber The primary role of the platform is to foster value transfer by connecting (finding, filtering and matching) participants from both sides of the network and then facilitating transactions between them.
Platform Business Model Participant Participant = =3 _ Core Interaction = Participant/Value unit + Filter Platform = Pull + Match + Facilitate Two-sided network effects Demand economies of scale (network effect multipliers of value) that eventually drive Supply economies of scale (production efficiency)
Positive Feedback Loop i ,
/ \
( \
7
\ / more consumers drive demand which attracts more producers more producers drive supply which attracts more consumers
both demand and supply side driven
Cross-Side Negative Feedback Loops + T / e AN 5 o+ Platfor O " / More supply choice increases friction e.g. customer confusion in producer selection thereby decreasing demand More demand choice increases friction e.g. producer failure in customer satisfaction thereby decreasing supply
Feedback and Adoption Growth Rate Sigmoidal Adoption Curve 2 negative feedback E] ‘s k3 £ 2 positive feedback time
Transaction Costs
Triangulation:
Connecting = Find, Filter, Match Transfer:
Facilitation = Transport, Deliver, Pay Trust:
Competency, Reliability, Honesty, Privacy, Alignment of Interests Platforms sell reductions in transaction costs To a consumer, all costs look like transaction costs Reducing total transaction costs (triangulation, transfer, and trust) is the vital activity of any platform.
Distributed and Decentralized Computing Systems distributed = computation happens at multiple sites non-distributed = computation happens at one site
distributed distributed centralized = computation controlled by a single entity centralized decentralized decentralized = computation controlled by more than one entity computing system may be some combination of centralized g8 (decentralized) and distributed (non-distributed). 52 E5
decentralization may occur to a degree. g3
system decentralization may lie on a spectrum of strongly = non-distributed non-distributed
decentralized to weakly decentralized. centralized decentralized
Number of Controlling Entities Decentralization
Decentralization Advantage
Although decentralization can reduce triangulation and transfer costs, its primary potential advantage is in reducing trust costs! Online interactions make trust harder = increased trust costs Hidden trust costs are still costs Conventional ways to reduce trust costs:
Branding & Reputation
Certification
Bonding
Regulation
Algorithmic Decentralized Governance autonomic system: self-regulating, self-governing, self-managing, self-certifying, self-protecting Distributed decentralized computing systems may provide trustworthy algorithmic market behavioral incentivization and regulation carrot and stick
Enablement Distributed network computation enables platforms Distributed consensus enables more secure platforms Platform lock-in induces exploitation via information asymmetry Decentralized distributed consensus enables more trustworthy platforms Distributed Al enables scalable super-efficient user controlled re-intermediation Platform governance matters
Meta-Platform A platform that enables and fosters participant controlled value transfer across and among other platforms. | \ \ et Pt | 7 i p\/\/ )Z\ _/ =) Enables network of network effects Enabled by contextual transitivity = trans-contextual value creation and capture Enables long-tail network network of networks effects
Value Portability
Contextual Transitivity & The Long Tail long-tail = value capture of contextual value = unique value from extreme customization meta-platform technology enables transfer of value between platforms meta-platforms may aggregate contextual value from multiple long-tails enables long-tail network-of-networks effects . wl | participant’s amplify their value across multiple platforms at | minimal transaction costs jol ‘w‘ maximum platform pull = fastest spin-up of network effects \ meta-platforms eat non-meta-platforms i
Meta-Platform Technology Curation Match + Filter = Curation Reduces negative cross-side network effects / _ + T+
Enhances positive cross-side network effects Ve AN
{ Essential enablir bility lat)
ssential enabling capability for any platform Platform m
Curation is applied reputation T
Reputation Based Curation + 4+ e Verifiable Credentials are a form of reputation. Its all about reducing trust transaction costs!
Networks Effects Network scaling law describes how some property of the network changes as a function of the size of the network. Platform networks: the relevant property is network value and the size is the number of participants.
¢ IR, N
w AT avaN
o— Lk A AT Praraty s
i Nz
Network Value o R c\ > , i fi fi ' < > Syt vi=b vi=a-N b=3/N a=3a/N v=b v=aN V=bN V=ahe Sarnoff’s Law Metcalfe’s Law
Properties that Scale with Size Reach, Affinity, Optionality 2,=0.001 - 0.02 - $50.00 = $0.0001 =$ 10* per day. v;=a:N=$10* " Nper day. v,=$ 10" - 10° = $100 per day. V=aN-N=$100* 10°= $10° = $100 million per day 0.001 - $100 million per day = $100,000 per day
Critical Network Size aN=c N=cla
) as Metcalfe’s Law Empirical? Briscoe B, A. Odlyzko and B. Tily, Metcalfe's aw is wrong-communications networks increase in value as they add members-but by how much,” IEEE Spectrum, vol. 43, no. 7, pp. 34-39, 2008 v=a-logN V=a N-logh BOT’s Law V=a2" Reed’s Law V=a N KK’s Law