Platform Strategy & Open Business Models Geoffrey Parker
Marshall Van Alstyne
Tulane University & MIT
Boston University & MIT
[email protected]
[email protected],
[email protected]
In building a business ecosystem, how do you set strategy? How do old line business models transition to platforms? What can be a platform (Windows, PayPal, Facebook … Bauxite, Coca Cola)? What does an open business model look like? Can you predict unexpected competition?
© 2013 Parker & Van Alstyne
Platform Ecosystem Rules • Platforms beat products every time. • Remake the supply chain to “consummate the match.” • Open the top or the bottom of your platform to unexpected innovation, but don’t open both. • Look to your overlapping users to see where tough competitors will attack 3
To be a platform The system must provide a useful function or service and should provide 3rd party access + governance. Examples: iTunes: get musing onto iPod SAP: execute ERP systems Facebook: connect family, friends & acquaintances Smart Grids: capture AC/DC sources, route power Nike Fuel: motion capture and social benchmarking Pearson: match people to content, deliver content, certify learning Your biz: match … ?
How do traditional linear business models transition to platforms given network effects?
Traditional Supply Chain
Supply
Manufacture
$
Assemble
$
Retail
$
(1) Value accumulates from stage to stage (2) Standard linear value chain (3) Logistics optimize stuff (usu. not incentives) (4) No network effects 6
Traditional Supply Chain
Biz
Biz
Biz
$ $ $ Potential B2B Platform Potential B2C Platform
7
Cust
Potential B2C Platform 1. Make your business a platform by facilitating transactions across your systems.
Biz Biz
Biz
Cust Cust
Potential B2C Platform Biz
8
Creating a B2C Platform 1. Make your business a platform by facilitating transactions across your systems. 2. Expand the biz partners who can reach your customers. 3. Expand the customers who can reach your suppliers.
Biz Biz Biz
CustCustCust
Biz
9
This is a really, really different business model due to network effects…
10
How are these related? eBay Sellers
eBay Buyers
Airlines/Hotels
Travelers
Xbox Developers
Xbox Gamers
Visa Merchants
Visa CardHolders
Doctors
Patients
YouTube Videographers
YouTube Viewers
AirBnb Rooms
AirBnb Renters
Electric Car Charge Stations
Electric Car Drivers
Mechanical Turk Laborers
Mechanical Turk Jobs
Monster Employers
Monster Employees
Android Developers
Android Users
Each Side Attracts More of the Other
Creating a B2C Platform Market Two
Price
Price
Market One
Biz Biz Biz p1
p2 q1
q2
Quantity
Platform
12
CustCustCust
Quantity
Creating a B2C Platform Market Two
Price
Price
Market One
p2 p1 p1
p2 q1
q2
q1 Quantity
Platform
13
q2 Quantity
If your supply chain has network effects then…
Biz
Biz
$
Cust
$
… you can price wrong … manage the supply chain wrong … get internal organization wrong, and … mismeasure LTV of “free customers” whenever you use linear product model practices. 14
Why do platforms beat products?
Apple iPod pre-Platform
Apple iPod
Listener
$
Music Producer
Retailer
$
$
(1) Product First Thinking (2) Standard linear value chain (3) User bought music retail (or P2P) (4) Minimal network effects 16
Apple iPod combined with iTunes
Apple iPod
Listener
$
17
Music Producer
Retailer
$
$
Apple iPod post-Platform
User
Content $$ Apple
(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 18
How Apple is killing standalone platforms 2007
Usr
Today
$30/share
User
Dvpr
$4/share
2007
Today
Usr
Gam
$53/share
Usr
$23/share
Mus
Lumia
PSP
Zune
Nokia
Sony
Microsoft
User Calls
Music
MP3
Video
TV
Games
Dvpr
Web
HTML
eBooks
Apple has vastly stronger network effects. Sony could have – hasthis many greatwith standalone Google done is not this making mistake Androidproducts. Message for you: A great standalone product might not be sufficient.
Publi
How Apple is killing standalone platforms Usr P1
R1
Upld U1
Polycom eRdr Speakerphone Sony
User
R1
Usr P1
Upld U1
Cisco Photo
Music
MP3
Video
TV
Games
R1
Dvpr U1
HP Blkbry Calculator RIM
Flip Camera Flickr
User Calls
Usr P1
Dvpr
Web
HTML
eBooks
Message for you: A great standalone product might not be sufficient.
Publi
Why Apple isn’t killing Kindle We asked ourselves: “Is there some way we can bring all of these things together [web service, Prime, Kindle, instant video and the app store] into a remarkable offering customers would love?” Yes, the answer is Amazon Kindle Fire. November 14, 2011: Amazon introduces the Kindle Fire
Kindle Fire Offering • 18 million movies, TV shows, songs, magazines • Amazon Appstore - thousands of apps and games • Cloud-accelerated web browsing Amazon Silk • Free cloud storage for Amazon content • Color touchscreen with extra-wide viewing angle • Priced at $199 for 7-inch Wi-Fi Version • Fast, powerful dual-core processor • Amazon Prime members get unlimited, instant streaming of 10,000 popular movies and TV shows
Why Apple isn’t killing Kindle
User
User Calls
Music
MP3
Video
TV
Games
Dvpr
Web
HTML
Publi
eBooks
You can’t make calls … unless you load Skype. Amazon is also being much more sophisticated about giving free data storage service, which allows them to better “consummate the match.” © 2012 Parker & Van Alstyne
Firms generally consider product feature overlap (differentiation?) to find and benchmark competition.
Product Features
Zune / iPod
Zune / Sony PSP
Zune / iPhone
Eisenmann, Parker, Van Alstyne, “Platform Envelopment.” Strategic Management Journal, 2011.
User overlap between Platforms predicts competitors. Size (usually but not always) predicts victor.
Network Users
Platform Providers
T
A
High Overlap
T
A
Low Overlap
T
A
Asymmetric Overlap
Eisenmann, Parker, Van Alstyne, “Platform Envelopment.” Strategic Management Journal, 2011.
Open (fragmented) versus Closed (integrated)
?
© 2011 Eisenmann, Parker & Van Alstyne
Openness vs. Control Maximum protection ≠ Maximum Value
Your Share
Proprietary
Open
Industry Value Add Your reward = (Value added to industry) x (Your share) 27 on: Shapiro & Varian ‘99 © Based 2011 Eisenmann, Parker & Van Alstyne
Does Openness Work? While Facebook focused on creating a robust platform that allowed outside developers to build new applications, Myspace did everything itself. ``We tried to create every feature in the world and said, `O.K., we can do it, why should we let a third party do it?' '' says (MySpace cofounder) DeWolfe. ``We should have picked 5 to 10 key features that we totally focused on and let other people innovate on everything else.'' Open to developers −
Open gift store −
− Open to “.com”
The Rise & Ignominius Fall of MySpace – Business Week 2011 28
Historical Open Innovation
Ford Model T Mobile Church
Flour Mill Sawmill
Goat Hay Carrier Carrier
Racecar Snowmobile
Platforms get enormous value from 3rd party developers Most firms can only concentrate on most valuable apps
Profits increase when others add to platform’s “Long Tail” You don’t need to own this
Consider an operating system like MS Windows, Apple Mac, or Google Android
What does controlling openness mean? Split IP rights from point of customer contact.
Side 1
Side Side 22
Platform Provider
Platform
Platform Sponsor
1) Open Access 2) Extend Platform 3) Touch Customers 4) Change Platform
31
Models for Organizing Platforms One Provider Users
One Sponsor
Dvprs
Users
Dvprs
Provider
Providers
Sponsor
Sponsor
1) Proprietary: e.g. Mac
2) Licensing: e.g. Google Android
Users
Users
Dvprs
Provider Many Sponsors
Many Providers
Sponsors 3) Joint Venture: e.g. Orbitz
D ell …
Dvprs Ac er Re d Ha t
H P De bi an
… U bu nt u
4) Shared: e.g. Linux
Apple tried to control too much of the original Mac
Users
Claris Apple Mac Mac OS
• Remember MacWrite, MacPaint? • Charged ~$10,000 for SDKs. • Controlled OS & HW and dominant Apps. • Vertical integration choked network effects.
33
Microsoft opened much more of its ecosystem
Users Del l
Dvprs IBM
…
• Microsoft had 6-10X developers • Open APIs / Cheap SDKs • Controlled OS, licensed. • Strong network effects.
HP
MS Windows
34
For real profits, control full layer
Users D ell …
Dvprs Ac er Re d Ha t
H P De bi an
… U bu nt u
Linux: No one driving the bus. Limited scope of control.
Users
Flights
Users
Dvprs
Provider Sponsors
Providers
Joint Venture: e.g. Orbitz airline collaboration
Licensing: e.g. Google Android
Sponsor
35
Danger! AT&T fear of Apple Microsoft fear of Netscape SAP fear of ADP
Users
Dvprs
Providers Sponsor
Facebook fear of Instagram Apple fear of Google Maps
Watch for new control points closer to customer.
36
Should Apple have opened the iPod? Most firms can only concentrate on most valuable apps
Profits increase when others add to platform’s “Long Tail”
No! It does 1 thing only, so make it “insanely great” and own it. 37
Should Apple have opened the iPhone? Most firms can only concentrate on most valuable apps
Profits increase when others add to platform’s “Long Tail”
Of Course! It has video, wifi, camera (scanner), accelerometer, mobile, MP3, web browsing, etc. Platforms benefit from broad contributions. But control the top several complements.
Which applications to absorb? Apps offered by Platform Sponsor
Apps offered by Developers
Rule 1: Absorb the highest value applications from the ecosystem. This adds value for users and mitigates threat of disintermediation. Example: Apple iPad absorbed e-books Example: Microsoft Windows absorbed web browsing Example: Google added Gdrive to absorb functions of DropBox
Anything else to absorb? Apps offered by Platform Sponsor
Apps offered by Developers
Anything else to absorb?
Rule 2: Absorb features that emerge in multiple places in the ecosystem. This increases compatibility, ensures efficient implementation, and benefits other apps. Examples: Operating systems support for (i) spell check (ii) cut & paste (iii) PDF.
Value Added
Why Platforms Beat Products
Time
• Based on owned resources, innovation occurs at a given rate. • Harnessing 3rd party resources, innovation can occur at a higher combined rate. • Even if a platform starts behind or has higher variability, its value can overtake the product leader.
Platform Ecosystem Rules • Platforms beat products every time. • Remake the supply chain to “consummate the match.” • Open the top or the bottom of your platform to unexpected innovation, but don’t open both. • Look to your overlapping users to see where tough competitors will attack 43
Thank You! Questions & Discussion
[email protected],
[email protected] Twitter: InfoEcon © 2011 Eisenmann, Parker & Van Alstyne
