Chapter 1
The Genius of the Ancient City Square
Everything needs to happen somewhere. That is why every civilization has had specialized spaces that facilitate commerce, speech, and other activities. In ancient Greece, the town square, or “agora,” served not just for buying and selling stuff but also for religious festivals, entertainment, and government.1 The bazaar was invented in the Middle East and much of commerce in ancient China centered on the market-town, or 市. These are the ancestors of today’s tech platforms, and we need to understand what gave them their economic significance.
It might help to better define what we mean by a “platform.” (The English word comes from the French platte fourme or “flat form.”) It can be described as any space or structure that in one way or another brings together two or more groups to transact or interact while reducing the costs of doing so. They can be buyers and sellers, but also readers and publishers, listeners and speakers. And as the French word suggests, a platform usually implied a certain evenhandedness.
This definition of a platform covers a lot of ground. It covers the most ancient form of transactional platform just described: the city marketplace. The term encompasses more, including stock exchanges, suburban shopping malls, and the Tokyo fish market, all of which bring together buyers and sellers. And as we shall see later, it also includes so-called enabling platforms that allow their buyers and sellers to do things they otherwise could not.
A Catalytic Space
In chemistry, a catalyst is anything that initiates or accelerates a chemical reaction without being affected itself. The operation of many complex natural systems—like most of the biochemistry that keeps us alive—is largely a story of catalysis.
The same is true in the economy: it is the catalysts that matter most. Selling does not simply “happen” if the price is right. The conditions must be right. It is this power—a catalytic power—that platforms harness.
Stated more formally, the most basic function of the platform is to enable mutually beneficial transactions—and thereby generate wealth or the satisfaction of human wants and needs. Platforms do so by solving not just one but several barriers that otherwise prevent transactions from occurring. Consider four major challenges that a successful platform addresses.
First Problem: Matching
I used to have a fig tree in my backyard, and when the time came, it bore a lot of fruit. A good fig tree will actually produce far more output than any one family can eat. In economic terms, a fig tree creates a surplus. In fact, most agricultural holdings create a surplus relative to family consumption.
The existence of a surplus creates the potential for trade—here, selling excess produce to buyers. In a basic economics class, it is common to assume that the matching of buyers and sellers happens automatically, if the buyer values it more than the seller. If so, the transaction happens, as if by magic.
In real life, as it isn’t always easy to match buyers and sellers, extra produce is often just left to rot. It is the facilitation of such transactions—the existence of marketplaces—that makes all the difference. The successful matching of buyers and sellers is required to make transactions happen. That is why platforms and marketplaces are so key to successful economies.
In this matchmaking function lies much of the value in a platform. In the language of platform economics popularized by French economist Jean Tirole, the platform exists to bring two “sides” of a market together.2 The more buyers and sellers a platform can muster, the more valuable it is. More buyers and more sellers attract more of each, in a version of what is sometimes called “network effects.” As economist David Evans writes in Matchmakers, platform businesses have as “raw materials [. . .] the different groups of customers that they help bring together.”
Think how often advertising for a business conference relies on who will be there. Social media start-ups that fail to reach a critical mass don’t make it; this is one of the reasons that a site like Facebook, despite the many scandals, whistleblowers, and privacy violations, keeps chugging along, as it still has everyone on it.
Sometimes a platform may have trouble attracting enough members of one side of a transactional pair. Often it is buyers who are scarce: when I worked in industry, I recall going to trade shows that were all sellers of equipment and no buyers and were therefore considered a bust. In the old days, a party with too many guys was called a “sausage fest.” Sophisticated platform operators often try to subsidize the missing side, or even pay one group to show up. Hence the practice of paying celebrities to appear at parties, or the old practice—banned in some cities—of offering a gender-based discount (“ladies’ night”) to attract more women to a bar.
Jumping ahead a little, it is clear that in our times matching remains a core function of tech platforms. Every tech platform is at some level in the business of connecting people and businesses. It can be worth losing money on one side or—even for a time—both sides of the transaction. For years, Uber gave everyone rides that were effectively below cost so as to build up the network. And now you can understand one reason that there’s so much “free” stuff on platforms like Google and Facebook: it is the free drink that draws in users so they might meet . . . advertisers.
Second Problem: Information and Trust
Ever consider buying a Persian rug only to be put off by the difficulty of ascertaining what, exactly, you might be getting? Or want to purchase something but have no idea how to get started? Information gaps also prevent transactions from happening in more than one way. To buy something, you need to know, at a minimum, that the product exists and what its price is. For more significant purchases, a buyer also needs to know that the product is of acceptable quality. In a farmers market, the appearance of the product, red tomatoes or green lettuce, conveys a lot. But observing quality can be a subtle thing. Does that used car have an engine that is about to quit? Is that Persian carpet actually from Persia? Is that company selling stock about to go bankrupt?
The seller almost always knows more than the buyer, creating an imbalance (technically, an asymmetry). The owner of an apartment with a train line nearby knows that passing trains will rattle the windows and wake you up, even if you don’t know that. That prospect of unknown (and bad) information can itself deter sales for fearful buyers. I suspect many people don’t buy Persian rugs or used cars precisely because they fear being cheated in one way or another. As economist George Akerlof theorized in a famous 1970 paper, that fear of being cheated or even defrauded can itself function to deter transactions, even if the product is actually fine.3
Since antiquity, platforms have helped solve such informational problems, either by themselves or with the help of the law. In the ancient Athenian agora, the city maintained standard weighing scales and expelled fraudulent sellers. In today’s stock markets, those who wish to sell securities are required to disclose copious amounts of material information intended to ensure that buyers understand the risks of buying stocks. Today’s online marketplaces usually use review systems to try to give buyers a sense of underlying quality.
None of these fixes are perfect. Investors still get cheated, and who hasn’t bought a product that turned out to be a dud, despite glowing reviews? The goal, however, is to mitigate the problem sufficiently so that buyers buy with confidence, and transactions happen—and platforms do a lot to help.
Third Problem: Making Small Business Big—Reducing Minimal Scale
On East 11th Street in the East Village of New York, there is a tiny store named Casey’s that sells nothing but rubber stamps in several hundred patterns. On the Amazon Marketplace, there is a three-man Canadian firm named Bananaphone that only sells a banana-shaped telephone handset.
Successful platforms also make it easier for smaller and highly specialized operations to do business. Put differently, and more technically, a platform can reduce the minimal necessary scale of operation, by reducing what a smaller operation needs to sell its products or services.
Take our owner of the abundant fig tree. Given a local farmers market, all she really needs is a stall. She does not need an advertising budget, a store, or distribution services. Taken a few steps further, a relatively small farmer—like one of my cousins, who operates an entire wheat and soybean farm herself—can use different platforms to sell her produce, and even, using supply chains, ship soybeans to buyers on different continents.
On the “enabling platforms”—usually forms of infrastructure— this effect is most pronounced. Enabling platforms are those that make sellers (and sometimes users) capable of doing things that they cannot do otherwise. A classic example is a transportation platform, like the canal and rail networks of the nineteenth century, which made possible selling at greater distances. Most tech platforms are enabling platforms. The game console, for example, gives software developers the tools to create an entertainment product. Ride-sharing platforms give drivers an awareness of which individuals are looking for rides, and vice versa.
This “reducing-minimum-scale” role played by open platforms is more profound than you may think, because it influences the structure of the economy. It helps make possible both small and independent businesses. Countries like England that saw the rise of an independent farmer class in the seventeenth and eighteenth centuries depended on town marketplaces (records indicate more than eight hundred in England alone) where they could sell agricultural surplus.4 In the software industry, thanks to platformization over the 1970s, it became possible for developers to write “to the platform” as opposed to building their own computers.
Making possible extreme specialization and small producers has ripple effects on economic and class structure. Platforms help determine who can participate in the economy. What we really are speaking of here is the link between open platforms and economic freedom.
Fourth Problem: The Promotion of Innovation
When Netflix began operations in the 1990s, it was entirely dependent on the postal system, a form of public platform, through which it mailed DVDs (in red envelopes) to people’s homes. The postal system wasn’t originally designed to carry video, but its design was flexible enough that it worked anyhow. As this example suggests, another less obvious but profound feature of a successful platform is that it can facilitate the evolution of products or services—otherwise known as innovation. What does that mean? It means that a well-designed and well-functioning platform can support new versions of a given product and service, as opposed to locking the offering in time. This is a complex point, but an important one, and one that is key to understanding the importance of policy principles like net neutrality.
One easily underappreciated feature of a city street or square is its “future-proof” nature. The ancient medieval squares in places like Marrakesh and Siena are still places where stuff is sold every day, even if the stuff itself has changed over the last five hundred years. The city square is a fairly future-proof technology, as is the shopping street, even in an age of online shopping. For example, the same physical store that once sold buggy whips and typewriters might now repair damaged phones and sell bubble tea. The same infrastructure supports evolving uses. Jane Jacobs, the great prophet of the city economy, made much of this fact in her books, including The Death and Life of Great American Cities and The Nature of Economies. As she pointed out, the great advantage of a city architecture is its ability to support change in uses, and Jacobs correctly predicted the persistence of the city itself, unlike those who predicted the rise of the Internet would mean the death of the city.
This point becomes more complex when we speak of technological platforms. In the design of platforms, it takes a good design to avoid obsolescence. There is a significant danger of building a platform that becomes forgotten or itself becomes a barrier to innovation because it is too narrowly designed for the specific uses of a certain time, such as the Japanese mobile phones of the 1990s.
Copyright © 2025 by Tim Wu. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
