Chapter 10 Strategy: How Platforms Change Competition

2016 Parker & Van Alstyne with Choudary –licensed under Creative Commons Attribution-ShareAlike 4.0 Int’l (CC BY-SA 4.0).

Questrom School of Business

Chapter 10

Strategy: How Platforms Change CompetitionPlatform Revolution: Policies That Increase Value and Enhance Growth

with Sangeet ChoudaryPlatform Thinking Labs

@sanguit

Geoffrey ParkerDartmouth College

@g2parker

Marshall Van AlstyneBoston University

@InfoEcon


Platform Revolution: Chapter 10 – Strategy

1. Introduction: Welcome to Platform World2. Network Effects: The Power of the Platform3. Architecture: Basic Principles for Designing Successful Platforms4. Disruption: How Platforms Conquer &Transform Traditional Industries5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms6. Monetization: Capturing the Value Created by Network Effects7. Openness: Defining What Platform Users/Partners Can &Cannot Do8. Governance: Policies That Increase Value and Enhance Growth9. Metrics: How Platform Managers Can Measure What Really Matters10. Strategy: How Platforms Change Competition11. Policy: How Platforms Should (and Should Not) Be Regulated12. Future: Industries Facing Imminent Change

(click to order on Amazon)2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

http://www.amazon.com/Platform-Revolution-Networked-Markets-Transforming/dp/0393249131/ref=sr_1_1?s=books&ie=UTF8&qid=1440510668&sr=1-1&keywords=platform+revolution


Source: Asymco

55%

10%

10%

8%

7%

5%5%

1%

Nokia

Samsung

Sony Ericsson

Motorola

LG

RIM

HTC

Famous Brands

Regulatory Protection

Economies of Scale

World Class Logistics

Global Sales Channels

≥ $40B twenty yrR&D by Nokia alone

ONLY 7 FIRMS CONTROLLED 99% OF HANDSET PROFITS IN 2007


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


Goal shifts from control, entry barriers, and differentiation to more valuable market exchanges.

What Changes :: Strategy


in an age of “hypercompetition,” sustainable advantage is illusory. Technological advances drive shorter and shorter cycle times on everything from

“microchips to corn chips, software to soft drinks, and packaged goods to package delivery services.

To compete with Union Pacific Railroad in 1915, a firm would have needed investments in locomotives, booking agnts, tracks, and

legal right-of-way. By contrast, to compete with any of the Global 500 firms in 2015, a startup can buy production resources from Alibaba, cloud and computer services from Amazon, and labor

from Upwork all near marginal cost.

Succeed not by battling competitors in bloody red oceans but in uncontested blue oceans. Innovate in

value in order to create new product or service markets.

HYPERCOMPETITION & BLUE OCEAN STRATEGY


Kim & Mauborgne

Succeed not by battling competitors in bloody red oceans but in uncontested blue oceans. Innovate in value in order to create new product or service markets.

Michael Porter

Succeed via cost leadership (no frills), differentiation (uniquely desirable products & services), and focus (clear niche). Mitigate threats from five forces.

COMPETITIVE STRATEGY


1. Goal is a protected market niche, emphasizing industry barriers

2. Categories are sharp3. Weapon is cost leadership or product differentiation4. Inimitable resources you own provide sustained

advantage5. Core competence: focus what you do best

PORTER’S FIVE FORCES & RESOURCE BASED VIEW


1. Goal is interactions that yield NW effects - partner to partner value. NW effects provide sustainability

PLATFORM STRATEGY DIFFERS



2. Boundaries can be altered as consumers can be producers




2. Boundaries can be altered as competitors can be complementors




2. Boundaries can be altered3. Competition is multi-layered, more

like 3D chess.



Owned / inimitableresources

Profits increase when others add to platform’s Long Tail

You don’t need to own this


2. Boundaries can be altered3. Competition is multi-layered, more

like 3D chess.

4. Don’t need to own inimitable resources. Have them join you!



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)

Can still enter markets the way Google did with Android for tech or Facebook did with Instagram for community.

PLATFORM FIRMS NEED LESS M&A THAN PRODUCT FIRMS


WHY PLATFORMS BEAT PRODUCTS EVERY TIME


(1) Product First Thinking(2) Standard linear value chain

(3) User bought music retail (or P2P)(4) Minimal network effects

Music ProducerListenerApple iPod Retailer

$ $ $

APPLE iPOD PRE-PLATFORM


Apple Platform

Music ProducerListener Retailer

$ $ $

Apple iPod

APPLE iPOD COMBINED WITH ITUNES


(1) Remove supply chain inefficiency (2) Triangular platform supply network(3) Apple owns financial chokepoint

(4) Apple helps users find content(5) Stronger network effects

User Content

Apple

$$$

APPLE iPOD POST-PLATFORM


SONY COULD HAVE DONE THIS. IT HAS MANY GREAT STANDALONE PRODUCTS.GOOGLE IS NOT MAKING THIS MISTAKE WITH ANDROID

Lumia

UsrDvpr

PSP

Gam Usr

MP3

User Music

Video

TV

Games

Dvpr

Web

HTML

eBooks

Publi

Calls

User

Zune

Usr Mus

MicrosoftSonyNokia

APPLE HAS VASTLY STRONGER NETWORK EFFECTS.

HOW APPLE IS KILLING STANDALONE PLATFORMS


MP3

User Music

Video

TV

Games

Dvpr

Web

HTML

eBooks

Publi

Calls

User

Zune

Usr Mus

Microsoft

PSP

Usr Gam

Lumia

Usr Dvpr

SonyNokia

2007 Today

$30/share $8/share

2007 Today

$53/share $22/share


So what happened?


Message for you: A great standalone product is not sufficient.

Polycom Speakerphone

R1P1 U1 R1P1 U1

Cisco Flip Camera

R1P1 U1

HP Calculator


MP3

User Music

Video

TV

Games

Dvpr

Web

HTML

eBooks

Publi

Calls

User


MP3

User Music

Video

TV

Games

Dvpr

Web

HTML

eBooks

Publi

Calls

User

GPS

UsrUpld

TomTom

Message for you: A great standalone product is not sufficient.

Wear

Fitness


Photo

UsrUpld

Flickr

Blkbry

DvprUsr

RIM


It is far easier to add a product to a platform than to add a platform to a product.


© 2012 Zimedia

WHY APPLE ISN’T KILLING KINDLE: AMAZON ECOSYSTEM


PRODUCT PLATFORM

Distinct: Buyers, Suppliers, Substitutes, Entrants, Rivals Market Forces Overlap: Consumers ~ producers,

competitors ~ complementors

Core Competencies Focus Core Interactions

Supply Side Scale Economies

Demand Side

Own Inimitable Resources Assets Community as Asset

Cost Leadership / Product Differentiation Goal / Metric Engagement, Positive Spillovers,

Just Governance

Barriers to Entry, Boulevards for Exit Access Permissionless Entry, Open Around Key Control Points

By Firm Innovation By Firm and Ecosystem

@InfoEcon


TAKEAWAYS FROM CHAPTER TENPlatform competition is like 3D chess, involving competition at 3 levels: platform to platform, platform to partner, and partner to partner.

Strict competition becomes less important than value co-creation. Control over relationships is more important than control over resources. Control over data is essential.

Among methods platforms use to compete: encourage competitors’ partners to multihome but your partners to monohome, build partnerships at least as much as M&A, promote side-switching and user innovation to create stronger network effects on your own platform.

Use platform envelopment to absorb adjacent markets. Note it is easier to add a technology to a community than a community to a technology.

Winner take all markets are characterized by large supply or demand economies of scale, expensive multihoming, and low levels of niche specialization. WTAM competition is especially fierce at the beginning as firms try to subsidize their future win.

Platform strategy flips many of the tenets of traditional strategy, from entry barriers for competitors to frictionless entry for producers/consumers, from core competencies to core interactions, from supply to demand economies of scale, and from owning tangible assets to orchestrating a community.


Platform Revolution: Chapter 11 – Policy

1. Introduction: Welcome to Platform World2. Network Effects: The Power of the Platform3. Architecture: Basic Principles for Designing Successful Platforms4. Disruption: How Platforms Conquer &Transform Traditional Industries5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms6. Monetization: Capturing the Value Created by Network Effects7. Openness: Defining What Platform Users/Partners Can &Cannot Do8. Governance: Policies That Increase Value and Enhance Growth9. Metrics: How Platform Managers Can Measure What Really Matters10. Strategy: How Platforms Change Competition11. Policy: How Platforms Should (and Should Not) Be Regulated12. Future: Industries Facing Imminent Change

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Chapter 10 Strategy: How Platforms Change Competition