The following is a modified excerpt from a book I co-authored with Nicholas L. Johnson, Modern Monopolies (St. Martin's Press, May 31, 2016).

Linus Benedict Torvalds is the Finnish-American software engineer who created Linux, a major software language for some of our favorite technology products. Torvalds had a problem. He wanted to open up Linux to the world's developers so they could help him evolve and improve the language. However, email wasn't the best way to manage such a process because the scaling potential of that process isn't great. To fix his problem, he created open-source software called Git that made developers able to submit code in an easy manner. It created a more decentralized version-control system that significantly streamlined the process of creating and submitting code changes to Linux.

Using Git, you could download and tinker with your own version of Linux or any other project available, and then submit those changes to the project's owner or anyone else with the push of a button. Git made it simple for project managers to oversee any new contributions or changes to a repository without having to worry about overwriting that project. The software also facilitated communication and collaboration between developers who were working on projects together over long distances.

However, Git did have one problem: It was a pain in the ass to use. Git was a command-line tool (think MS-DOS) that required you to know a series of complex commands in order to operate it.

Enter GitHub. It's been called the Facebook for nerds, Wikipedia for programmers, or Twitter for code, depending on whom you ask. In reality, it's a little bit of all three: It's a combination of a social-networking platform for programmers and a wiki-like content platform that lets you edit files and track who makes certain changes. Anyone can comment on your code or add to and improve it.

Today, you can find projects on GitHub written in almost every programming language out there. There are also a handful of non-software items on the site, including books, that use GitHub to manage collaborative projects. For example, one book called ProGit (which aptly enough is about Git) has been translated into a number of different languages on GitHub. There's also a repository that has the entire French legal code dating back to Napoleon. If French law changes, you can track the alterations on GitHub.

In 2012, GitHub raised $100 million in funding from venture capital firm Andreessen Horowitz. This investment was the largest in the firm's history. Three years later, GitHub raised an additional $250 million at a valuation of $2 billion. Today, GitHub has about 9 million registered users and is visited each month by about 20 million unregistered users.

So what is it that makes GitHub so valuable and attractive to its users? First, the platform makes it easy for developers to manage software projects like building a mobile app. And if you're looking for other projects, GitHub makes it easy to find them. In economic terms, GitHub significantly reduces transaction costs for people collaborating on software projects. Transaction costs fall broadly into three main categories.


First are search and information costs, which include the cost of finding a particular good. On GitHub, this would be the time and effort it takes to find a particular project. The second category of transaction costs is bargaining costs. These are the costs associated with making an agreement with another party. For example, when you push an update to a code repository on GitHub, the manager has to decide whether or not to accept your changes. GitHub standardized this process and significantly reduced the time and effort it took to manage code changes. Finally, the last category is enforcement costs, which are costs associated with making sure everyone involved in an exchange of value acts appropriately. Like most platforms, GitHub monitors its community to weed out bad actors and to encourage good behavior. GitHub significantly reduces all of these costs, which is viewed as a major value by its users.

As the company itself puts it, GitHub removes the "pain in the ass" cost of Git hosting. All platform business models can reduce these pain in the ass costs in some aspect. For example, Google reduces the pain in the ass cost of finding a website. Uber reduces the pain in the ass cost of hailing a cab. Airbnb reduces the pain in the ass cost of finding and booking a short-term rental. Facebook reduces the pain in the ass cost of staying up-to-date and interacting with friends. PayPal reduces the pain in the ass costs of sending digital payments. And so on.

In fact, if you're building a platform and trying to figure out what your core value proposition is, here's a good formula. Figure out what the main activity you're trying to change is and then put it into this sentence: "X, no longer a pain the ass." You should probably tweak the messaging a bit (after all, GitHub didn't keep its original slogan for long), but this will get you started.

For more stories and commentary like this, please add me on Snapchat.

Published on: May 31, 2016