platforms: strategy, leadership and organization · coalition strategy • a coalition strategy can...

Dr. Annabelle Gawer

EuroMOT 2011, Tampere, FinlandKeynote Speech, 20 Sept 2011

Platforms: Strategy, Leadership and Organization

An overview

Agenda• Introduction to Platforms

• Platforms and Innovation• Modularity and complements• Open innovation• Driving ecosystems of innovation

• The Organization of Platforms and Ecosystems• Virtuous cycles • Organizational challenges : trust and legitimacy• Divided identities

• Platform Strategies and Platform Leadership• The Four Levers • Coring and Tipping

• Q&A

© Annabelle Gawer, September 2011 – Please do not copy without permission

Some of my publications on digital platforms

Books1.Gawer, A. and M.A. Cusumano (2002), Platform Leadership: How Intel, Microsoft, and Cisco Drive Industry Innovation, Harvard Business School Press. (Number of citations : 393. Number of copies sold: 9500). A Japanese translation was published in 2005.2.Gawer, A. (2009), Platforms, Markets and Innovation, A. Gawer (ed.), Cheltenham, UK, and Northampton, US: Edward Elgar.

Articles1. Gawer, A. (2011), What Managers Need to Know About Platforms, The European Business Review,40-43.2. Gawer, A. (2010), The Organization of Technological Platforms, Research in the Sociology of Organizations 29, 287–296. 3.Tee, R. and A. Gawer (2009), Industry Architecture as a Determinant of Successful Platform Strategies: A Case Study of the I-Mode Mobile Internet Service” European Management Review 6(4), 217-232.4.Gawer, A. and M.A. Cusumano (2008), How Firms Become Platform Leaders, MIT Sloan Management Review 49 (2), 28-35. Cited by 24.5.Gawer, A. and R. Henderson (2007), Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel” Journal of Economics and Management Strategy 16(1), 1-34 (lead article). Cited by 76.6.Gawer, A. and M.A. Cusumano (2004), What Does it Take to Be a Platform Leader: Some Recent Lessons from Palm and NTT DoCoMo, Hitotsubashi Business Review 52(1), 6-20 (lead article).7.Cusumano M.A. and A. Gawer (2002), The Elements of Platform Leadership, MIT Sloan Management Review 43(3), 51-58. (A Chinese translation of this article was published in the Peking University Business Review in 2009, Vol. 2, 20-29). Cited by 74.

Book chapters1.Gawer, A. (2009), Platforms, Markets and Innovation: An Introduction, in Platforms, Markets and Innovation, A. Gawer (ed.), Cheltenham, UK, and Northampton, US: Edward Elgar, pp. 1-16.2.Gawer, A. (2009), Platform Dynamics and Strategies: From Products to Services, in Platforms, Markets and Innovation, A. Gawer (ed.), Cheltenham, UK, and Northampton, US: Edward Elgar, pp. 45-76.

A Gawer’s contribution to the study of platforms

What is an Industry Platform?

An industry platform is a technological building blocks (that can be technology, product, or a service) that acts as a foundation on top of which an array of firms, organized in a set of interdependent firms (sometimes called an industry ‘‘ecosystem’’), develop a set of inter-related products, technologies and services (Gawer, 2009)


© Annabelle Gawer, September 2011 – Please do not copy without permission© Annabelle Gawer, September 2011 – Please do not copy without permission

Platforms Examples

Platforms: a lot of digital, … but not only

• Platform dynamics have appeared in many industries• Computers (Wintel platform for computing, Java); The Internet;

Telecommunications (iPhone, mobile OS); Electronic payment; Media; Consumer electronics (video games)

• Transportation (airlines, package delivery, fuel cell-powered cars)• Retailing (shopping malls, barcodes• Energy: electric power grid, smart metering• Biology: genomics, biotech

• These industries / contexts share common features• Complex technological systems• Fast evolution of technology• Importance of interoperability and integration• Require collaboration among several firms


Platforms: pervasive, yet not well-understood

• Platforms have appeared in many industries …

• … and when they emerge, they alter industry competitive and innovation dynamics


The emergence of platforms transforms industries

• Example: Evolution of the computer industry

Platform emergence can affect industry dynamics

1. Positions of industry leadership get challenged2. The structure of the industry changes

• From tightly controlled supply chains to loose coalitions of complementors (business ecosystems)

3. The nature of competition itself may change• Away from system-based competition towards component-based

competition• Competition between coalitions of firms

4. The nature of industry innovation changes also• Focuses innovation trajectories on complements

5. New strategic opportunities arise • Platform leadership, to exploit the benefits of open innovation

(tapping into innovative capabilities of external firms/individuals)

© Annabelle Gawer, September 2011. Please do not copy without permission


Platforms as double-sided markets

• Platforms create value by helping two kinds of customers who need each other get together. It takes two to tango in these businesses. When the right customers get together they can benefit each other.

eBay PaypaleHarmonyDiners Club

M-PesaDiscoverYouTubeeBilllme

Microsoft XboxMobiTVShopping MallGoogle

What are network effects?

• Recall example of who bought the first fax machine? Had to be sold in pairs! Value or utility increases as more people have these devices. Same with telephone, and other platform products & services• Indirect – as more people join, more of their friends join, which

attracts more people; as more applications become available, this attracts more users. More users, more advertisers. More ads will also provide more useful ads to users.

• Direct – applications only work on Facebook; user content also tied to the Facebook platform – unless the user uses Facebook Connect to enter another social networking site.


With thanks to Rebecca Henderson (MIT and HBS)


Platform business models: Two-sided markets

© Imperial College Business School


Pricing in multi-sided markets

Parker, Marshall, Van Alstyne

Platform managers must choose the right price to charge each group in a two-sided network and ignoring network effects can lead to mistakes. Pricing without taking network effects into account means finding prices that maximize the areas of the two blue rectangles. Adobe initially used this approach when it launched PDF and charged for both reader and writer software.

Traditional pricing logic seeks the biggest revenue rectangle (price × quantity) under each demand curve.


Pricing in multi-sided markets: subsidize the ‘money side’

Parker, Marshall, Van Alstyne

In two-sided networks, such pricing logic can be misguided. If firms account for the fact that adoption on one side of the network drives adoption on the other side, they can do better. Demand curves are not fixed: with positive cross-side network effects, demand curves shift outward in response to growth in the user base on the network's other side.

Platforms and Innovation

• Modularity

• Complements

• Open / closed interfaces … and connectors, and APIs, etc.

• It takes more than paying somebody to do it …

• Platforms tend to encourage innovation on complementary products, technologies, and services

• Platforms tend to encourage market creation on complements

• Positive effect on social welfare

Effect on innovation: Virtuous cycle, Good for innovation



In general, what we see is: I want everyone else to be open

From a firm’s perspective, competition amongst complementors gives it the best of both worlds:

- Innovative supply of inputs or complements- Rivalry between complementors (like suppliers) suppliers keep the prices

down- This can work like a charm ... as long as the firm’s main market is

‘protected’ from competition.- Interoperability, a way to open up the interfaces, achieves this.- It focuses other firms’ attention on competing on complements that

connect to the interface- It facilitates market creation in complements.

19 © Annabelle Gawer 2011– Do not reproduce without permission

Platform dynamics: Bad for competition? Bad for innovation?

• Problems arise: Do platform become too powerful, and prevent healthy competition from happening?

• But, at the same time, by sheer virtue of the increasing supply of platform-compatible complements, market platform dynamics start erecting barriers to entry in the market of the platform

• Video: Google ‘Don’t be evil’


The Organization of Technological Platforms

• Organization of the platform ecosystem:• The platform leader at the core of the network, interacting with • a large number of complementors that occupy peripheral positions.

• Internal Organization: • A pattern of separation between groups with opposite objectives

• with one part of the organization aiming to collaborate with complementors• while the other part competes with complementors.

• Note: The way platform leaders organize internally influences their ability to exert an influence on the ecosystem they aim to lead



Platform Competition and Strategy


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Ongoing platform battlegrounds

• Web Search Google vs. Bing/Yahoo, foreign engines• Smart Phone OS Apple vs. RIM, Nokia/Symbian, Android,

Microsoft, Palm, Linux, ARM, Intel Atom)• Digital Media Apple (iPod, iPad & iTunes) vs. Microsoft

(Media Player, Zune) vs. Real?• Social Media Facebook, Twitter, LinkedIn, etc.• Video Games Sony, Nintendo, Microsoft • Enterprise s/w SAP vs. Oracle/Sun, Microsoft, IBM• Micropayments Sony Felica vs. PayPal, credit cards• Displays E-Ink vs. LCD vs. Plasma (Sharp, Sony, Samsung)• Power systems Toyota hybrid vs. traditional vs. hydrogen FC

And many more platforms, or platforms within platforms, in smaller or emerging markets

The Framework of Platform Leadership

• What is it? • How can it be achieved? • What are the challenges?



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Platform Leadership“It is a vision that says the whole of the ecosystem can be greater

than the sum of its parts, if firms work together and follow a leader.”

Annabelle Gawer and Michael A. Cusumano, Platform Leadership (HBS Press, 2002)

Platform Leadership =

To lead the industry ecosystem in a technological direction while claiming a large share of profit


Fundamental trade-off between competition and cooperation

• On the one hand, you need other firms to play their part:• Gains from cooperation can increase the size of the pie

• Yet you want to be free to compete, evolve, and innovate:• Gains from competition can increase the share of the pie


The Four Levers of Platform Leadership

1. Scope2. Product Technology3. Relationships with External

Complementors4. Internal Organization


Before 2003 = Product-First Thinking Now = Product + Platform + Services!

• Apple through 2009 still ½ the sales and ¼ the profits of Microsoft, but catching up fast. • Surpassed Microsoft in market value on May 27, 2010• PC sales FLAT but not so in consumer electronics, digital media,

internet services, cell phones• What Apple did: Moved beyond its traditional boundaries to link PCs to

consumer electronics & smart phones, & these to digital services, content, accessories, apps, etc. Common platform for iPod, iPhone, iPad, Mac, iTunes, App Store, eBooks store, et al.

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Apple

Platform strategies: Coring and Tipping Gawer and Cusumano 2008

Excerpt from Gawer, A. and Cusumano, M. (2008), How Firms Become Platform Leaders, MIT Sloan Management Review, Vol. 49, No. 2, pp. 28-35. Please cite if reproduced or distributed.

Coalition Strategy• A COALITION STRATEGY CAN BE EVERY EFFECTIVE TO CHALLEGE A

PLATFORM LEADER • Linux/Java community and its challenge to Microsoft• Nokia/Symbian or Google Android coalitions as challenges to Microsoft and Apple• The open data storage standards group challenge to EMC • The GSM coalition challenge to Qualcomm. Etc.

• These coalition partners not really “friends,” but more “the enemy of my enemy is my friend”

© Annabelle Gawer, September 2011 – Please do not copy without permissionAdapted from Google presentation on Google Wallet, NFC Mobile Payment Conference, O. Bedier, Aug 2011


A real danger (from the firm’s perspective) : the ‘Trojan horse’ problemA product that starts as a complement can, over time, become a

substitute – and dislodge the original platform• Frequent in software• Firms are quite savvy about this possibility

Examples: • Netscape• Java• Google• Facebook

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Different kinds of platforms

• It is helpful to distinguish different kinds of platforms• Internal• Supply Chain• Industry


Platforms matter, and point to the limits of our existing theories• Economists : emphasis on action and transactions

• Significant progress, and large recognition• understand the power of incentives, and network effects, complementarity of demand,

etc.• but tend to take markets for granted (assume the market(s) already exist), and therefore

offer few insights on market creation dynamics and platform emergence, and innovation• disagree on the effect of platforms on innovation• Aren’t used to pay attention to some key variables such as architecture

• Design theorists : key insights, but temptation of control• understand the structuring importance of tech architecture on the structure of

transactions and evolution of tech problem solving (tech innov trajectories)• but tend to emphasize the « power of modularity » and of deliberate architecture

decisions, while minimizing the importance of serendipity and larger market and social forces

• Organization scholars : perhaps less used, but high potential• Know the importance of institutional context• Micro-OB tend to under-study the interaction between internal organizational dynamics

and industry dynamics


A few further thoughts

• Platforms are a rich setting to understand: • Which industry arrangements stimulate most innovation• How private incentives and collective good can be reconciled• Process of market creation• How technological artifacts can embed economic incentives

• Methodology: pushing the frontier• Interdependence between between internal firm dynamics and external

dynamics. The current academic division of labor is being challenged.

• Control vs. loss of control

• Logics of structure and logic of action



Platform Competition and Strategy



37

Ongoing platform battlegrounds

• Web SearchGoogle vs. Bing/Yahoo, foreign engines• Smart Phone OS Apple vs. RIM, Nokia/Symbian, Android,

Microsoft, Palm, Linux, ARM, Intel Atom)• Digital Media Apple (iPod, iPad & iTunes) vs. Microsoft

(Media Player, Zune) vs. Real?• Social Media Facebook, Twitter, LinkedIn, etc.• Video Games Sony, Nintendo, Microsoft • Enterprise s/w SAP vs. Oracle/Sun, Microsoft, IBM• Micropayments Sony Felica vs. PayPal, credit cards• Displays E-Ink vs. LCD vs. Plasma (Sharp, Sony, Samsung)• Batteries Sony vs. Panasonic, Sanyo, A123, others• Power systems Toyota hybrid vs. traditional vs. hydrogen FC

And many more platforms, or platforms within platforms, in smaller or emerging markets

The Framework of Platform Leadership

• What is it? • How can it be achieved? • What are the challenges?



Leadership in a network

• How to ensure leadership in an interdependent network?• Who does ensure platform integrity? Platform

attractiveness? How?• Who takes charge of evolving the overall

platform? How?• Who makes money? How?


Fundamental trade-off between competition and cooperation

• On the one hand, you need other firms to play their part:• Gains from cooperation can increase the size of the pie

• Yet you want to be free to compete, evolve, and innovate:• Gains from competition can increase the share of the pie


41

Platform Leadership

“It is a vision that says the whole of the ecosystem can be greater than the sum of its parts, if firms work together and follow a

leader.”

Annabelle Gawer and Michael A. Cusumano, Platform Leadership (HBS Press, 2002)


The initial question: Can anything become a platform?


• When does a new product or service, especially one that is or may become popular, have broader industry-wide platform potential?1. Needs to become core or an essential part of a

“system” that solves an industry problem & thereby encourages many other firms & users to adopt it

2. Needs to be easy to connect to and build upon so that many other firms (the ecosystem) can adopt the platform and continue innovating, as well as make money in their own parts of the industry

Conditions for platform potential (Gawer and Cusumano, 2008)

• Two pre-conditions for a product, service, or technology to have “platform potential”:

1. Does it perform a function that is essential to a technological system?

2. Does it solve a business problem for many firms in the industry?



The essence of Platform Leadership

Platform Leadership =

To lead the industry ecosystem in a technological direction while claiming a large share of profit

• We found that platform leaders succeed by using the Four Levers

Platform Leadership How-To: The Four Levers


The Four Levers of Platform Leadership

Make a coherent set of decisions across the Four Levers:

1. Scope2. Product Technology3. Relationships with External Complementors4. Internal Organization

(see also Sloan Management Review, “The Elements of Platform Leadership”, Gawer and Cusumano, Spring 2002)


Scope: (Lever 1): Product vs. Platform Strategy?

Lever 2: Platform/Interface Technology

MainlyClosed

Mainly Open

Lever 1: Source of Key Complements

Mainly In-house Mainly Outside

Product-mainly strategy

Cisco router+ IOS?

Red Hat (Linux)?

Betamax, Macintosh

First iPod & iPhone??

Microsoft Windows?

Intel microprocessor?

iMode?

Current iPhone, iPad?

iTunes, AppStore?


AppleBefore 2003 = Product-First Thinking Now = Product + Platform + Services!

• Apple through 2009 still ½ the sales and ¼ the profits of Microsoft, but catching up fast. • Surpassed Microsoft in market value on May 27, 2010• PC sales FLAT but not so in consumer electronics, digital media,

internet services, cell phones• What Apple did: Moved beyond its traditional boundaries to link PCs to

consumer electronics & smart phones, & these to digital services, content, accessories, apps, etc. Common platform for iPod, iPhone, iPad, Mac, iTunes, App Store, eBooks store, et al.

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Lever 2: Technology Choices: Trade-Off between Disclosure and Secrecy• Disclosure facilitates Cooperation (Creating Value)• Secrecy facilitates Competitive Gains (Capturing Value)

Your Reward

Total Value Added to the IndustryFrom Shapiro and Varian 1999

Open

Proprietary

Optimum

Platform strategies: Coring and Tipping Gawer and Cusumano 2008

Excerpt from Gawer, A. and Cusumano, M. (2008), How Firms Become Platform Leaders, MIT Sloan Management Review, Vol. 49, No. 2, pp. 28-35. Please cite if reproduced or distributed.

Coalition Strategy• A COALITION STRATEGY CAN BE EVERY EFFECTIVE TO CHALLEGE A

PLATFORM LEADER • Linux/Java community and its challenge to Microsoft• Nokia/Symbian or Google Android coalitions as challenges to Microsoft and Apple• The open data storage standards group challenge to EMC • The GSM coalition challenge to Qualcomm. Etc.

• These coalition partners not really “friends,” but more “the enemy of my enemy is my friend”


© Annabelle Gawer, September 2011 – Please do not copy without permission© Annabelle Gawer, September 2011 – Please do not copy without permission

52

A short checklist to establish one’s product/service/technology as platform

(1) Develop a vision

(2) Identify or design an element with platform potential

(3) Add connectors or interfaces

(4) Identify third-party firms

(5) Build a coalition

(6) Keep innovating on the core

(7) Gradually build up one’s reputation as a neutral industry broker


In sum, create a vision that inspires a collective

• Maintain your vision at dual level : What is good for the industry, and what is good for you

• Always work where these two overlap• Articulate a vision for mutually reinforcing business models

Good for Industry Good for You

Platforms: A vibrant, emerging field

• New Book : Platforms, Markets and Innovation• First book examining different facets of the platform

phenomenon, from different academic disciplines, empirics from a variety of industries

• 24 contributors, from 19 universities, 7 countries, 3 continents

CONTENT of the Book

I. Platforms, Markets and Innovation: An Introduction Gawer

Part 1: PLATFORMS: OVERVIEWII. The Architecture of Platforms: A Unified View Baldwin & Woodard III. Platform Dynamics and Strategies GawerIV. The Role of Services in Platform Markets Suarez &.CusumanoV. The Economics of Platform-Based Start-Ups Evans

Content of the book

• Part 2 PLATFORMS: OPEN, CLOSED, AND GOVERNANCE ISSUES

• VI. Opening Platforms: How, When and Why? Eisenmann, Parker, Van Alstyne

• VII. Platforms Rules: Multi-Sided Platforms as Regulators Boudreau, Hagiu

• VIII. Protecting or Diffusing a Technology Platform: Schilling

• IX. Open Platform Development and the Commercial InternetGreenstein

• Part 3 PLATFORMS: MANAGEMENT, DESIGN, AND KNOWLEDGE ISSUES

• X. Outsourcing of Tasks and Outsourcing of Assets: Evidence from Automotive Supplier Parks in Brazil Sako

• XI. Platforms for the Design of Platforms Le Masson , Weil, Hatchuel,

• XII. Design Rules for Platform Leaders Brusoni , Prencipe

• XIII. Detecting Errors Early: Problem-Solving in Product Platform Projects Yakob, Tell

• XIV. The Effect of Technological Platforms on the International Division of Labor Tatsumoto, Ogawa , Fujimoto

Conclusion : There is much more to do …• And lots of as yet unanswered questions in a variety of

domains:• Industrial dynamics• Social welfare, policy• Business strategy and organization• Design and management of platforms

• Which factors contribute to the emergence of platforms?• Issues around innovation and (abuse of) monopoly power

- Phenomenon: Question of market power, as platforms often become “essential facility” and erect barriers to entry as their market share grow

- Theoretical contribution: Does the momentum/network effect necessarily lead to monopoly power? Implications: Should government get involved?

- Theoretical contribution: Trade-off between innovation and competition?- How to evaluate the trade-offs between innovation in systems vs. innovation in

components?

• Governance of innovative business ecosystems• Platform strategies:

• What capabilities are needed? • In which contexts?

• Platforms in services, not just products

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