HOW PLATFORMS CHANGE STRATEGY
Marshall Van Alstyne
Professor Boston University, Digital Fellow MIT
@InfoEcon
05.19.2016
1
Only 7 Firms Controlled 99% of Handset Profits in 2007
Economies of Scale
1%
5%
5%
7%
Famous Brands
8%
Regulatory Protection
55%
10%
World Class Logistics
10%
Nokia
Samsung
Sony Ericsson
Motorola
LG
RIM
HTC
Other
Source: Asymco
Global Sales Channels
≥ $40B twenty yr R&D by Nokia alone
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© 2015 Parker & Van Alstyne
3
In 6 years, all but one had ≤ 0 profit while 1 newcomer had 92%
92%
8%
Source: Business Insider
Insight: Henry Tirri, former CTO Nokia
Is it likely all 7 incumbents had failed strategies, run by clueless
management, lacking execution capabilities?
Or was something more fundamental happening?
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4
Firm
Year
BMW
Uber
1916
2009
116,000
5,000
$53B
$60B
Marriott
Airbnb
1927
2008
200,000
3,000
$17B
$21B
Walt Disney 1923
Facebook
2004
185,000
12,691
$165B
$315B
Kodak
Instagram
145,000
13
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1888
2010
Empl. Mkt Cap
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$30B (heyday)
$1B (acquisition)
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5
Porter’s Five Forces & Resource Based View
1. Goal is a protected market niche, emphasizing industry barriers
2. Categories are sharp
3. Weapon is cost leadership or product differentiation
4. Inimitable resources you own provide sustained advantage
5. Core competence: focus what you do best
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Platform Strategy Differs
1. Goal is interactions that yield NW effects - partner
to partner value. NW effects provide sustainability
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Platform Strategy Differs
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
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Platform Strategy Differs
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
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© 2015 Parker, Van Alstyne & Choudary
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Platform Strategy Differs
1. Goal is interactions that yield NW effects - partner
to partner value. NW effects provide sustainability
2. Boundaries can be altered
3. Competition is multi-layered, more like 3D chess.
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© 2015 Parker, Van Alstyne & Choudary
@InfoEcon
Platform Strategy Differs
1. Goal is interactions that yield NW effects - partner
to partner value. NW effects provide sustainability
2. Boundaries can be altered
3. Competition is multi-layered, more like 3D chess.
4. Don’t need to own inimitable resources. Have them
join you!
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© 2015 Parker, Van Alstyne & Choudary
Owned / inimitable
resources
Profits increase when others add to
platform’s Long Tail
You don’t need to
own this
Platform Firms need Less M&A than Product Firms
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.
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Why are the old competitors not the new competitors?
Isn’t afraid of …
but should fear …
publishing
broadcast
electronics
+
delivery
cars
watches
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13
Firms use product feature overlap to find and benchmark competition
(differentiate).
Product
Features
Zune / iPod
Zune / Sony PSP
Zune / iPhone
Eisenmann, Parker, Van Alstyne, “Platform Envelopment.” Strategic Management Journal, 2011.
A platform’s user overlap 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.
@InfoEcon
Platform Strategy Differs
Product
Distinct: Buyers, Suppliers, Substitutes, Entrants, Rivals
Platform
−
Core Competencies
Own Inimitable Resources
−
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−
Core Interactions
−
−
Assets
− Demand Side
Community as Asset
−
Engagement, Positive Spillovers,
Goal / Metric
−
Barriers to Entry, Boulevards for Exit
By Firm
Focus
− complementors
Scale Economies
Supply Side −
Cost Leadership /
Product Differentiation
Overlap: Consumers ~ producers, competitors ~
Market Forces
−
Access
Innovation
© 2015 Parker, Van Alstyne & Choudary
− Just Governance
−
−
Permissionless Entry, Open Around Key Control Points
By Firm and Ecosystem
Platform Revolution:
@InfoEcon
1. Introduction: Welcome to Platform World
2. Network Effects: The Power of the Platform
3. Architecture: Basic Principles for Designing Successful Platforms
4. Disruption: How Platforms Conquer &Transform Traditi’l Industries
5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms
6. Monetization: Capturing the Value Created by Network Effects
7. Openness: Defining What Platform Users/Partners Can &Cannot Do
8. Governance: Policies That Increase Value and Enhance Growth
9. Metrics: How Platform Managers Can Measure What Really Matters
10. Strategy: How Platforms Change Competition
11. Policy: How Platforms Should (and Should Not) Be Regulated
12. Future: Industries Facing Imminent Change
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© 2015 Parker, Van Alstyne & Choudary
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