HBR’S 10 MUST READS ON

PLATFORMS AND

ECOSYSTEMS

BY HARVARD BUSINESS REVIEW

Contents

The Players in a Platform Ecosystem 3

Examples of Two-Sided Networks 4

A Framework for Analyzing the Pace of Technology

Substitution

5

How Fast Does New Technology Replace the Old? 6

The Connected-Car Ecosystem 7

Profiting from a Growing Customer Base 8

Which Network Structure is More Defensible? 9

The players in a platform ecosystem

A platform provides the infrastructure and rules for a marketplace that brings together producers and consumers. The players in the ecosystem fi ll four main roles but may shift rapidly from one role to another. Understanding the relationships both within and outside the ecosystem is central to platform strategy.

Platform

Providers

Owner

Producers Consumers

Buyers or usersof the offerings

Creators of theplatform’s offerings(for example, apps

on Android)

Controller ofplatform IP andarbiter of who mayparticipate and inwhat ways (Googleowns Android)

Interfaces forthe platform

(mobile devices areproviders on Android)

Value and dataexchange and feedback

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3

Networked market Side 1 Side 2 Platform providers

Rival providers of proprietary platforms

PC operating systems Consumers Application developers *

Windows, Macintosh

Online recruitment Job seekers * Employers Monster, CareerBuilder

Miami Yellow Pages Consumers * Advertisers BellSouth, Verizon

Web search Searchers * Advertisers Google, Yahoo

HMOs Patients * Doctors Kaiser, WellPoint

Video games Players * Developers PlayStation, Xbox

Minneapolis shopping malls

Shoppers * Retailers Mall of America, Southdale Center

Rival providers of shared platforms

Linux application servers Enterprises Application developers

IBM, Hewlett-Packard, Dell

Wi-Fi equipment Laptop users Access points Linksys, Cisco, Dell

DVD Consumers Studios Sony, Toshiba, Samsung

Phoenix Realtors Association

Home buyers * Home sellers 100+ real estate brokerage fi rms

Gasoline-powered engines

Auto owners Fueling stations GM, Toyota, Exxon, Shell

Universal Product Code Product suppliers

Retailers NCR, Symbol Technologies

* Denotes network’s subsidy side

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4

A framework for analyzing the pace of technology substitution The pace of substitution is determined by how quickly the new technology’s ecosystem challenges are resolved and whether the old technology can exploit ecosystem opportunities for extension.

Ecosystem extension opportunity for old technology

Ecos

yste

m e

mer

genc

e ch

alle

nge

for

new

tec

hnol

ogy

Quadrant 3 Illusion of resilience

Stasis followed by rapid substitution

● GPS navigators vs. paper maps ● High- defi nition TV vs.

standard- defi nition TV● MP3 fi les vs. CDs

Quadrant 1 Creative destruction

Fastest substitution

● 16GB vs. 8GB fl ash drives● Inkjet printers vs. dot matrix

printers

Quadrant 4 Robust resilience

Slowest substitution

● Fully electric cars vs. gasoline- fueled cars

● RFID chips vs. bar codes ● DNA memory vs. semiconduc-

tor memory ● Cloud computing vs. desktop

computing— in the 1990s

Quadrant 2 Robust coexistence

Gradual substitution

● Solid- state vs. magnetic storage (e.g., fl ash memory vs. hard disk drives)

● Hybrid engines vs. internal- combustion engines

● Cloud computing vs. desktop computing— in 2016

Low

High

HighLow

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5

How fast does new technology replace the old? Traditionally the substitution of a new technology for an old one is shown with two S curves (the solid lines). A more holistic view adds two more dynamics. First, if the new technology depends on the emergence of a new ecosystem, it becomes dominant more slowly (dotted line). Second, the old technology’s competitiveness is extended if it can benefi t from performance improvements in its surrounding ecosystem (dashed line).

Perf

orm

ance

Creative destruction

Point A The classic— and fastest— substitution takes place when the new technology’s ecosystem is ready to go and the old technology’s ecosystem can’t be signifi cantly improved.

Robust coexistence

Point B If the new technol-ogy is compatible with the existing ecosystem and the old technology’s ecosystem can be signifi cantly im-proved, substitution takes place later (relative to creative destruction) and at a higher perfor-mance level.

Illusion of resilience

Point C If the new technol-ogy’s ecosystem needs considerable development and the old technol-ogy’s ecosystem has little room for improvement, the changeover occurs after time has passed without per-formance gains.

Robust resilience

Point D If the new technol-ogy’s ecosystem needs considerable development and there are abundant opportunities to improve the old tech-nology’s ecosystem, the substitution oc-curs after the longest period of time and at the highest perfor-mance level.

Time

Note: The exact positions of B and C will depend on the specifi cs of the case, but they will refl ect an inter-mediate pace of substitution (relative to points A and D) and intermediate performance at substitution.

A

B

C

D

Old technology

New technology

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6

The connected-car ecosystem Three software platforms—Android Auto, Apple CarPlay, and, to a lesser extent, OpenCar—dominate the market for integrating smartphone functionality into vehicles. They constitute powerful bottleneck assets because they have scores of supply-chain partners ( left ) and they enable other stakeholders ( right ) to reach consumers. (Note: The companies, apps, and regulators listed are selected examples only.)

AndroidAuto

AppleCarPlay

OpenCar

App platformsSierra Wireless

TeslaVinli

Connectivity playersAT&T

OnStarVerizon

Auto manufacturers

Tier 1 and 2 suppliers

FordMercedes-Benz

Toyota

BoschDelphiMagna

Providers of software systems & services

HarmanMicrosoft

Nvidia

Makers of semiconductors & processing infrastructure

GemaltoIntel

Qualcomm

AppsGarminiTunesNest

Skype

Insurance companiesFarmers

GeicoProgressive

Auto service providersAAA

GoodyearJiffy Lube

RegulatorsEuropean Parliament

Federal CommunicationsCommission

National Highway TrafficSafety Administration

Commercial businessesMcDonald’s

SafewayWalgreens

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7

Profi ting from a growing customer base For traditional product and service businesses, gaining additional customers does not continue adding commensurate value after a certain point. However, many platform businesses (Amazon, Facebook, and the like) become more and more valuable as more people and companies use them, connect with one another, and create network eff ects.

Traditional product orservice business

Digital platform withstrong network effects

Econ

omic

val

ue

Number of users

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8

Which network structure is more defensible? Some digital networks are fragmented into local clusters of users. In Uber’s network, riders and drivers interact with network members outside their home cities only occasionally. But other digital networks are global; on Airbnb, visitors regularly connect with hosts around the world.

Platforms on global networks are much less vulnerable to challenges, because it’s diffi cult for new rivals to enter a market on a global scale.

UberAirbnb

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9