platform shift: how new business models are changing the shape of industry

Barcelona, Spain • October 29-31, 2013

Marshall Van AlstyneBoston University & MITmarshall@mit.eduInfoEcon@twitter.com

Platform Shift: How New Biz Models Are Changing the Shape of Industry

MIT Industrial Liaison Program April 24, 2014

InterBrand: 2013 Best Global Brands

These Grew Fastest

These are Platforms

Platform Firms Becoming More Important in Economy

3 of top 5 firms in 2013 by market cap.

FIRM MARKET CAPApple 474

Exxon Mobile 433

Google 361

Microsoft 332

Berkshire Hathaway 314

Platform Firms Becoming More Important in Economy

% of top 20 firms by market cap since 2001

Percentage of Platform Firms weighted by MKT CAP (2001-2013)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

The Product Business Model is Broken

In 2009, BlackBerry had nearly 50% market share in U.S. operating systems, according to

IDC. Now: 2.1%

2008 2009 2010 2011 2012 2013

1980-2000 Microsoft Platform Beats Apple Product

Apple launched the PC revolution but Microsoft licensed widely, built a huge developer ecosystem, 6X

larger.

Apple Feb 5, 1996

Michael Dell - ”Shut it down and give the money back to the shareholders.”

Interbrand: 2013 Best Global Brands

Nike Builds a Biz Platform

1. Enumerate embeddable features: salty, citrus, sour, toasted, …

2. Get consumer preferences3. Match to best recipes4. Mix new combinations, help users

create & upload, allow ratings, build a community

How would you create a platform around spice?

Create a whole geometry of flavor combinations

To Be a Platform

The system must provide a useful function or service and

allow 3rd party access.

Examples:iTunes: get music onto iPod

SAP: execute ERP systems

Facebook: connect family, friends & acquaintances

Cisco Smart Grids: capture AC/DC sources, route power

Nike Fuel: motion capture and social benchmarking

Products have features, Platforms have communities

How are these Related?

Each Side Attracts More of the Other

eBay BuyersExpedia TravelersXbox GamersAmex CardHoldersAga Khan PatientsYouTube ViewersAirBnb RentersElectric Car DriversMechanical Turk JobsLinkedIn EmployeesAndroid Users

eBay SellersExpedia Airlines/Hotels

Xbox DevelopersAmerican Express

MerchantsAga Khan Doctors

YouTube VideographersAirBnb Rooms

Electric Car Charge Stations

Mechanical Turk Laborers

LinkedIn EmployersAndroid Developers

More Amex Users… get more Amex Merchants…

More Amex Merchants… get more Amex Users…

More Android Users… get more Android Developers…

More Android Developers… get more Android Users…

Why Platforms Beat Products Every Time

Apple iPod pre-Platform

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

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

Music Produce

rListen

erApple iPod Retailer

Apple iPod Combined with iTunes

Music Produce

rListen

erApple iPod Retailer

Apple iPod post-Platform

(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 Conte

Sony could have done this. It has many great standalone products.Google is not making this mistake with Android

How Apple is Killing Standalone Platforms

Usr Dvpr

Usr Gam

eBooks

Usr Mus

MicrosoftSonyNokia

Apple has vastly stronger network effects.

Usr Mus

Microsoft

Usr Dvpr

Usr Gam

eBooks

SonyNokia

So what happened?

$30/share

$8/share

$53/share

$19/share

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

PolycomSpeakerphone

R1P1 U1 R1P1 U1

CiscoFlip Camera

R1P1 U1

HPCalculator

eBooks

Usr Upld

FlickrBlkbry

Usr Dvpr

RIMGPS

Usr Upld

TomTom

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

Why Apple isn’t Killing Kindle: Amazon Ecosystem

You can’t make calls …

Why Apple isn’t killing Kindle

User Music

eBooks

unless you load Skype.

Monetizing Platforms Means Free Pricing is Profitable

What changes? Prices

To Price a Platform with Network Effects, Who Gets the Subsidy?

If markets are independent, collect profits in both.

Quantity

Market One

Quantity

Market Two

But if markets are coupled, discounting one builds demand in the other.

Market One

Quantityq1

Market Two

Quantityq2

Two Sided Network Effects are Very Robust

Additive

Additive Recursive

Multiplicative

Multiplicative Recursive

Shifted Multiplicative

Elasticity and spillover properties hold for any of these functional forms:

See Parker & Van Alstyne “Two Sided Networks: A Theory of Information Product Design” Management Science 2005

There are 2 types of Free

1) Cellphones & Minutes, Razors & Blades

2) eBay, Amex, Google, Amazon all use 2-sided platform pricing.

Platform

Group 2Group 1

Platforms Unlock New Value from Spare Resources

and User Generated Content

What Changes :: Supply Chains

AirBnb sells users’ spare rooms, competing with hotels that must own

RelayRides sells users’ spare cars, competing with rental firms that must own them

Instagram sold for $1B not because

of contributions from 13 employees but from 30 million

Employees Must See Across the Platform, which Must Support a Shared Data Layer

What Changes :: Internal Organization

Sony was a virtual Galapagos of

holding companies

43© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com

1. All teams will expose their data…

2. Teams must communicate through interfaces.

3. … no other form of interprocess communication allowed

4. Interfaces, without exception, must be externalizable.

5. Anyone who doesn’t do this will be fired.

Bezos Platform Mandate

Platforms Open Themselves to Third Party Contributions

What Changes :: Innovation

A platform is a system that can be… adapted to countless needs and niches that the platform’s original developers could not possibly have contemplated…”

It’s Working when Users do Something You Didn’t Expect

Hay Carrier

RacecarFlour Mill

Ford Model T

It’s Working when Users do Something You Didn’t Expect

Snowmobile

GoatCarrier

Sawmill

MobileChurch

− Open to .com”

Open to developers −

The Rise & Ignominius Fall of MySpace – Business Week 2011

Does Openness Work?

The Rise & Ignominius Fall of MySpace – Business Week 2011

‘‘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.’’

Does Openness Work?

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

Platforms Get Enormous Value from 3rd Party Developers

Consider product innovation alone

Harnessing 3rd party resources, innovation occurs at a higher combined rate

Even if a platform starts behind, its value will overtake the product leader

Shed costs, keep 30% gains!

Why Platforms Beat Products

Platforms will Displace Gatekeepers with Meritocratic Crowds

What Changes :: Industry Bottlenecks

Advice from Travelers Replaces

that of Travel Agents

Video Production and Curation Moves to

Bypass editors. Twitter lets everyone be a reporter and RT

tells what’s important.

Forget product buyers. Threadless uses crowd

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

exchanges.

What Changes :: 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 advantage

Porter’s Five Forces & Resource Based View

Platform Strategy Differs

1. Goal is transactions volume & creating customer value. Network effects provide sustainability.

2. Boundaries can be altered

2. Boundaries can be altered3. Competition is multi-

layered, more like 3D chess.

2. Boundaries can be altered3. Competition is multi-

layered, more like 3D chess.4. Don’t need to own

inimitable resources. Have them to join you!

Owned / inimitableresources

Profits increase when others add to platform’s

Long Tail

You don’t need to own this

What’s Next?

City as Platform

Energy/Smart Grid as Platform

Education as Platform

If you believe in the power of people connecting, embrace the platform.If you convert your product/service to platform, what would it do?

THANK YOUQUESTIONS & DISCUSSION

marshall@mit.edu Twitter: @InfoEcon

Find research HERE. Find blog posts HERE.

platform shift: how new business models are changing the shape of industry

psp usr ga

transactions

van alstyne

product business

great standalone

platforms

rise amp

market cap

Internet

authors’ accepted manuscript visual methods for the design...

platform shift: how new business models are changing the...

changing the shape of wood construction - case study

changing the shape of future networks

analysis and classification of shape-changing interfaces...

shape-changing polyhedra · 2016. 7. 1. · shape-changing...

shape shift - xp 2009

shape-changing...

the changing shape of buy-side derivatives strategy

phishermen changing targets: impact shift from … ·...

ghost : exploring the subtleties 'of' and 'interaction with'...

platform shift: how new business models are changing the...

2011 shape changing interfaces

kinematic synthesis of planar, shape-changing, rigid body

coded skeleton: shape changing user interface with...

the changing shape of uk manufacturing - joe grice

strategy mind shift: changing leadership mental models and

māori media sector shift€¦ · media organisations...

elasticity and stability of shape changing structures ·...

changing paradigm shift in management