Platform Strategy & Open Business Models

Transcription

1 Platform Strategy & Open Business Models Geoffrey Parker Tulane University & MIT Marshall Van Alstyne Boston University & MIT

2 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

3 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

4 To be a platform The system must provide a useful function or service and should provide 3 rd 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?

5 How do traditional linear business models transition to platforms given network effects?

6 Traditional Supply Chain Supply Manufacture Assemble Retail $ $ $ 6 (1) Value accumulates from stage to stage (2) Standard linear value chain (3) Logistics optimize stuff (usu. not incentives) (4) No network effects

7 Traditional Supply Chain Biz Biz Biz Cust $ $ Potential B2B Platform Potential B2C Platform $ 7

8 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

9 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 Cust Cust Cust Biz 9

10 10 This is a really, really different business model due to network effects

11 How are these related? ebay Sellers Airlines/Hotels Xbox Developers Visa Merchants Doctors YouTube Videographers AirBnb Rooms Electric Car Charge Stations Mechanical Turk Laborers Monster Employers Android Developers ebay Buyers Travelers Xbox Gamers Visa CardHolders Patients YouTube Viewers AirBnb Renters Electric Car Drivers Mechanical Turk Jobs Monster Employees Android Users Each Side Attracts More of the Other

12 Creating a B2C Platform Market One Market Two Price Price Biz Biz Biz Cust Cust Cust p 1 p 2 q 1 q 2 Quantity Quantity Platform 12

13 Creating a B2C Platform Market One Market Two Price Price p 2 p 1 p 2 p 1 q 1 q 2 q 1 q 2 Quantity Quantity Platform 13

14 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

15 Why do platforms beat products?

16 Apple ipod pre-platform Apple ipod Listener Retailer Music Producer $ $ $ 16 (1) Product First Thinking (2) Standard linear value chain (3) User bought music retail (or P2P) (4) Minimal network effects

17 Apple ipod combined with itunes Apple ipod Listener Retailer Music Producer $ $ $ 17

18 Apple ipod post-platform User Content $ $ Apple 18 (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

19 How Apple is killing standalone platforms 2007 Today Usr $30/share Dvpr $4/share 2007 Today Usr $53/share Gam $23/share Usr Mus Lumia Nokia PSP Sony Zune Microsoft User User Music TV Dvpr HTML Publi Calls MP3 Video Games Web ebooks Apple has vastly stronger network effects. Sony could Google have done is not this making has this many mistake great with standalone Android products. Message for you: A great standalone product might not be sufficient.

20 How Apple is killing standalone platforms P1 Usr R1 Upld U1 P1 Usr R1 U1 Upld P1 Usr R1 U1 Dvpr Polycom erdr Speakerphone Sony Photo Cisco Flip Camera Flickr Blkbry HP Calculator RIM User User Music TV Dvpr HTML Publi Calls MP3 Video Games Web ebooks Message for you: A great standalone product might not be sufficient.

21 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

22 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

23 Why Apple isn t killing Kindle User User Music TV Dvpr HTML Publi Calls MP3 Video Games Web 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 Parker & Van Alstyne

24 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.

25 User overlap between Platforms predicts competitors. Size (usually but not always) predicts victor. Network Users Platform Providers T A T A T A High Overlap Low Overlap Asymmetric Overlap Eisenmann, Parker, Van Alstyne, Platform Envelopment. Strategic Management Journal, 2011.

26 Open (fragmented) versus Closed (integrated)? 2011 Eisenmann, Parker & Van Alstyne

27 Openness vs. Control Maximum protection Maximum Value Proprietary Your Share Open Industry Value Add Your reward = (Value added to industry) x (Your share) 27 Based on: Shapiro & Varian Eisenmann, Parker & Van Alstyne

28 Does Openness Work? While Facebook focused on creating a robust platform that allowed outside developers to build new applications, Myspace did everything itself. Open ``We to developers tried to create every feature in the world and said, Open gift store `O.K., we can do it, why should we let a third Open to.com 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.'' The Rise & Ignominius Fall of MySpace Business Week

29 Historical Open Innovation Mobile Ford Model Church T Goat Hay Carrier Flour Sawmill Mill Racecar Snowmobile

30 Platforms get enormous value from 3 rd 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

31 What does controlling openness mean? Side 1 Side 2 Platform Provider Platform Platform Sponsor Split IP rights from point of customer contact. 1) Open Access 2) Extend Platform 3) Touch Customers 4) Change Platform 31

32 Models for Organizing Platforms One Provider Many Providers Users Dvprs Users Dvprs One Sponsor Provider Sponsor 1) Proprietary: e.g. Mac Providers Sponsor 2) Licensing: e.g. Google Android Users Dvprs Users Dvprs Many Sponsors Provider Sponsors 3) Joint Venture: e.g. Orbitz D ell Ac er Re d Ha t De bi an H P U bu nt u 4) Shared: e.g. Linux

33 Apple tried to control too much of the original Mac Users Apple Mac Mac OS Claris Remember MacWrite, MacPaint? Charged ~$10,000 for SDKs. Controlled OS & HW and dominant Apps. Vertical integration choked network effects. 33

34 Microsoft opened much more of its ecosystem Users Del l Dvprs IBM HP Microsoft had 6-10X developers Open APIs / Cheap SDKs Controlled OS, licensed. Strong network effects. MS Windows 34

35 For real profits, control full layer Users Dvprs Users Flights Users Dvprs D ell Ac er Re d Ha t De bi an H P U bu nt u Provider Sponsors Providers Sponsor Linux: No one driving the bus. Limited scope of control. Joint Venture: e.g. Orbitz airline collaboration Licensing: e.g. Google Android 35

36 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

37 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

38 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.

39 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

40 Anything else to absorb? Apps offered by Platform Sponsor Apps offered by Developers

41 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.

42 Why Platforms Beat Products Value Added Time Based on owned resources, innovation occurs at a given rate. Harnessing 3 rd 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.

43 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

44 Thank You! Questions & Discussion Twitter: InfoEcon 2011 Eisenmann, Parker & Van Alstyne