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HOW PLATFORMS CHANGE STRATEGYMarshall Van AlstyneProfessor Boston University, Digital Fellow [email protected]
3© 2015 Parker & Van AlstyneTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Only 7 Firms Controlled 99% of Handset Profits in 2007
Source: Asymco
55%
10%
10%
8%
7%
5%
5%
1%
NokiaSamsungSony EricssonMotorolaLGRIMHTCOther
Famous Brands
Regulatory Protection
Economies of Scale
World Class Logistics
Global Sales Channels
≥ $40B twenty yr R&D by Nokia alone
4© 2015 Parker & Van AlstyneTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
In 6 years, all but one had ≤ 0 profit while 1 newcomer had 92%
Is it likely all 7 incumbents had failed strategies, run by clueless management, lacking execution capabilities?
Or was something more fundamental happening?
92% 8%
Source: Business Insider Insight: Henry Tirri, former CTO Nokia
5© 2016 Parker, Van Alstyne Twitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
@InfoEconFirm Year Empl. Mkt Cap
BMW 1916 116,000 $53BUber 2009 5,000 $60B
Marriott 1927 200,000 $17BAirbnb 2008 3,000 $21B
Walt Disney 1923 185,000 $165BFacebook 2004 12,691 $315B
Kodak 1888 145,000 $30B (heyday)Instagram 2010 13 $1B (acquisition)
1. Goal is a protected market niche, emphasizing industry barriers
2. Categories are sharp
3. Weapon is cost leadership or product differentiation
4. Inimitable resources you own provide sustained advantage
5. Core competence: focus what you do best
Porter’s Five Forces & Resource Based View
© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
@InfoEcon
Platform Strategy Differs
© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
1. Goal is interactions that yield NW effects - partner to partner value. NW effects provide sustainability
@InfoEcon
Platform Strategy Differs
© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
1. Goal is interactions that yield NW effects - partner to partner value. NW effects provide sustainability
2. Boundaries can be altered as consumers can be producers
@InfoEcon
Platform Strategy Differs
© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
1. Goal is interactions that yield NW effects - partner to partner value. NW effects provide sustainability
2. Boundaries can be altered as competitors can be complementors
@InfoEcon
Platform Strategy Differs
© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
1. Goal is interactions that yield NW effects - partner to partner value. NW effects provide sustainability
2. Boundaries can be altered
3. Competition is multi-layered, more like 3D chess.
@InfoEcon
Platform Strategy Differs
© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Owned / inimitable
resources
Profits increase when others add to
platform’s Long Tail
You don’t need to
own this
1. Goal is interactions that yield NW effects - partner to partner value. NW effects provide sustainability
2. Boundaries can be altered
3. Competition is multi-layered, more like 3D chess.
4. Don’t need to own inimitable resources. Have them join you!
@InfoEcon
1. Not acquiring preserves innovation incentives
2. Compartmentalizes business risk if better value proposition arises
3. Compartmentalizes technology stack
4. Test Drive – See sales data more effectively than auditing books (resolve value info asymmetry)
Platform Firms need Less M&A than Product Firms
© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Can still enter markets the way Google did with Android for tech or Facebook did with Instagram for community.
@InfoEcon
13© 2015 Parker & Van AlstyneTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Why are the old competitors not the new competitors?
Isn’t afraid of …
publishing
broadcast
electronics
cars
watches
delivery
+
but should fear …
@InfoEcon
Firms use product feature overlap to find and benchmark competition
(differentiate).
ProductFeatures
Zune / iPod Zune / Sony PSP Zune / iPhone
Eisenmann, Parker, Van Alstyne, “Platform Envelopment.” Strategic Management Journal, 2011.
A platform’s user overlap predicts competitors. Size (usually but not always)
predicts victor.
Eisenmann, Parker, Van Alstyne, “Platform Envelopment.” Strategic Management Journal, 2011.
T A T A
NetworkUsers
PlatformProviders T A
High Overlap Low Overlap Asymmetric Overlap
Platform Strategy Differs
© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Distinct: Buyers, Suppliers, Substitutes, Entrants, Rivals Market Forces
Focus
Scale Economies
Assets
Goal / Metric
Access
Overlap: Consumers ~ producers, competitors ~ complementors
Core Competencies Core Interactions
Supply Side Demand Side
Own Inimitable Resources Community as Asset
Cost Leadership / Product Differentiation
Engagement, Positive Spillovers, Just Governance
Barriers to Entry, Boulevards for Exit Permissionless Entry, Open Around Key Control Points
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InnovationBy Firm By Firm and Ecosystem−−
Product Platform
@InfoEcon
17© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
1. Introduction: Welcome to Platform World
2. Network Effects: The Power of the Platform
3. Architecture: Basic Principles for Designing Successful Platforms
4. Disruption: How Platforms Conquer &Transform Traditi’l Industries
5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms
6. Monetization: Capturing the Value Created by Network Effects
7. Openness: Defining What Platform Users/Partners Can &Cannot Do
8. Governance: Policies That Increase Value and Enhance Growth
9. Metrics: How Platform Managers Can Measure What Really Matters
10. Strategy: How Platforms Change Competition
11. Policy: How Platforms Should (and Should Not) Be Regulated
12. Future: Industries Facing Imminent Change
Platform Revolution:@InfoEcon