chapter 10 strategy: how platforms change competition
TRANSCRIPT
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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
2016 Parker & Van Alstyne with Choudary –licensed under Creative Commons Attribution-ShareAlike 4.0 Int’l (CC BY-SA 4.0).
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
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2016 Parker & Van Alstyne with Choudary –licensed under Creative Commons Attribution-ShareAlike 4.0 Int’l (CC BY-SA 4.0).
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
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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
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Goal shifts from control, entry barriers, and differentiation to more valuable market exchanges.
What Changes :: Strategy
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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
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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
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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
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1. Goal is interactions that yield NW effects - partner to partner value. NW effects provide sustainability
PLATFORM STRATEGY DIFFERS
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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
PLATFORM STRATEGY DIFFERS
2016 Parker & Van Alstyne with Choudary –licensed under Creative Commons Attribution-ShareAlike 4.0 Int’l (CC BY-SA 4.0).
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
PLATFORM STRATEGY DIFFERS
2016 Parker & Van Alstyne with Choudary –licensed under Creative Commons Attribution-ShareAlike 4.0 Int’l (CC BY-SA 4.0).
1. Goal is interactions that yield NW effects - partner to partner value. NW effects provide sustainability
2. Boundaries can be altered3. Competition is multi-layered, more
like 3D chess.
PLATFORM STRATEGY DIFFERS
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Owned / inimitableresources
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 altered3. Competition is multi-layered, more
like 3D chess.
4. Don’t need to own inimitable resources. Have them join you!
PLATFORM STRATEGY DIFFERS
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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
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WHY PLATFORMS BEAT PRODUCTS EVERY TIME
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(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
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Apple Platform
Music ProducerListener Retailer
$ $ $
Apple iPod
APPLE iPOD COMBINED WITH ITUNES
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(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
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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
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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
HOW APPLE IS KILLING STANDALONE PLATFORMS
So what happened?
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Message for you: A great standalone product is not sufficient.
Polycom Speakerphone
R1P1 U1 R1P1 U1
Cisco Flip Camera
R1P1 U1
HP Calculator
HOW APPLE IS KILLING STANDALONE PLATFORMS
MP3
User Music
Video
TV
Games
Dvpr
Web
HTML
eBooks
Publi
Calls
User
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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
HOW APPLE IS KILLING STANDALONE PLATFORMS
Photo
UsrUpld
Flickr
Blkbry
DvprUsr
RIM
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It is far easier to add a product to a platform than to add a platform to a product.
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© 2012 Zimedia
WHY APPLE ISN’T KILLING KINDLE: AMAZON ECOSYSTEM
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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
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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.
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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