Staying Power
Six Enduring Principles for Managing
Strategy & Innovation in an Uncertain World
(Lessons from Microsoft, Intel, Apple, Google, Toyota & More)
____________
June 2013
Michael A. Cusumano
MIT Sloan School of Management
& School of Engineering
© 2013
[email protected]
1985
1991
1995
1998
1998
2002
2002
2004
2010
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Big Picture
• Now in an age of innovation & commoditization, in both
products & services, multiple industries
• Long history, recently accelerated
–
–
–
–
Hardware: Mainframes to PCs, cell phones and other devices
Software: Mainframes to PCs, to free
Manufacturing: China’s prices becoming the world’s prices
Services: India’s prices becoming the world’s prices
– Value shift, from products to platforms and services
– Little room for error in strategy or operations!
3
Six “Enduring” Principles
Not original to me, but underlie my work and that of the
strategy and innovation fields over 25+ years
1. Platforms, Not Just Products
2.
3.
4.
5.
6.
Services, Not Just Products (or Platforms)
Capabilities, Not Just Strategy
Pull, Don’t Just Push
Scope, Not Just Scale
Flexibility, Not Just Efficiency
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PRINCIPLE 1
PLATFORMS, NOT JUST
PRODUCTS
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Platforms Examples
Types of Platforms
• Product platform (internal): a foundation or set of common
components or services around which an organization can create a
family of related products & services
– Retail distribution platform: network of sales & marketing channels,
including physical outlets or web sites, through which an organization can
bring together different buyers & sellers, and distribute a variety of products
& services
– Supply-chain platform: network of relationships that brings together
different firms who provide components (or “content”) that enables the
platform owner to create new products or services
• Industry platform (external): Product platform opened to
outside users & firms to use the foundation or common
components to create complementary products & services that
make the platform more valuable (ecosystem)
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Industry Platform Definition
1. A foundation technology or set of components (could
also be services) used beyond a single firm,
2. That brings together multiple users or parties (“market
sides”) to use this foundation for a common purpose or
to solve a common often systemic problem, and
3. Where value of the platform increases exponentially
with (a) more users, and (b) more complementary
products & services – ad infinitum (maybe).
– Various names: network or bandwagon effect, positive
feedback loop, network externality
– Historical Examples: railroad, telegraph, telephone, electric
power, radio, TV, VCRs, computers, browsers, etc.
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Platform Ecosystem: Platform +
Complements + Network Effects
number of users
network
effect
Platform
network
effect
(E.g., VHS player,
Windows-Intel PC,
Apple iPhone,
Barbie doll)
complementary
product
complementary
service
positive
feedback
loop
number of advertisers, content
providers, channel partners, etc.
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Source: M. Cusumano, Staying Power (2010)
Ongoing Platform Battlegrounds
•
•
•
•
•
•
•
•
•
Web Portals
Smart PhoneOS
Digital Content
Social Media
Video Games
Enterprise s/w
Micropayments
Displays
Power systems
Yahoo, Google, MSN, AOL, etc.
Google, Apple, RIM, Microsoft/Nokia
Apple, Amazon, Google, Microsoft, etc.
Facebook, Google, Twitter, LinkedIn, etc.
Sony, Nintendo, Microsoft
SAP, Oracle, Microsoft, IBM, Linux
Sony Felica, PayPal, Google, credit cards, etc.
E-Ink, LCDs, Plasma
ICE vs. Hybrid, EV, Hydrogen FC
And many more platforms, or platforms within
platforms, in smaller or emerging markets
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Networked
Market
Side 1
Side 2
Platform Providers
Rivals – Proprietary
* = subsidized
PC OS
Sides
3+ ?
Consumers
App developers*
Windows, Macintosh
Online recruiting Job seekers*
Employers
Monster, LinkedIn
Yellow Pages
Consumers*
Advertisers
AT&T
Web search
Searchers*
Advertisers
Google, Yahoo, Microsoft
HMOs
Patients*
Doctors
Kaiser, WellPoint
Video games
Players*
Developers
Sony, Nintendo, Microsoft
Shopping malls
Shoppers*
Retailers
Mall of America, Simon
Rivals – Shared
Linux Server
Enterprises
App developers
IBM, HP, Dell
Wi-Fi equipment Laptop users
Access points
Linksys/Cisco, Dell
Realtors Assoc.
Home buyers*
Home sellers
Real estate brokers
Gas engines
Auto owners
Gas stations
Car makers
UPC
Product makers
Retailers
IBM, NCR, Symbol Tech.
Source: adapted from Eisenmann, Parker & van Alstyne, HBR 2006
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Individual Users
Platform Partners
Login with Facebook
Platform
Advertisers/Corporate Pages
Apps
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The Argument
• Winners in a platform market generally have the
“best” platform, not the “best” product!
– Best product? Hard to define & while good, usually
not enough to win or dominate in a platform market
– Best platform? = (1) Open access & interfaces (but
not too open). (2) Modular architecture (easy to build
on, extend, evolve). (3) Compelling complements
(usually result of most vibrant ecosystem).
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The Platform Strategy “Toolkit”
Product, Platform, or Complement? – Key decisions, and
how to think about them
WTAoM – Framework to analyze the dynamics of platform
markets & complements, estimate how much share is possible to
win, and design initiatives to influence outcomes
The 4 Levers – Broad categories for implementing a platform
leadership strategy: Firm Scope (make vs. partner); Technology
(modularity, IP open vs. closed): External (ecosystem initiatives;
Internal (dealing with conflicts of interest)
Coring & Tipping – How become essential or “core” to a new
evolving platform? How encourage an existing market to adopt
your platform when multiple platforms compete?
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Product vs. Platform Strategy?
Lever 1: Source of Key Complements
Betamax, Macintosh
First iPod & iPhone??
Mainly In-house
Mainly Outside
Product-mainly
strategy
Current iPhone, iPad?
Lever 2:
Platform/
Interface
Technology
Mainly
Closed
Intel microprocessor?
iMode?
Mainly
Open
Microsoft Windows?
iTunes, AppStore?
Cisco router
+ IOS?
Red Hat (Linux)?
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Apple:
Before 2003 = Product-First Thinking
After = Product + Platform + Services!
• Apple still had lower profits compared to Microsoft
through 2011, but caught up in 2012!
– Surpassed Microsoft in market value in 2010
– PC sales FLAT but less in other related industry segments
• What Apple did: Reinvented itself to link personal computers to
consumer electronics & smart phones, & these to digital media &
software distribution. Common platform for multiple products -iPod, iPhone, iPad, Mac, iTunes, App Store, eBooks, iAds, et al.
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Microsoft
Apple
Revenues Operating Market Value
($million) Profits (%) ($m)
2012 $74,000
30.0%
2011
70,000
2010
Revenues
Operating
Profits (%)
Market Value
($m)
$235,000
$157,000 35.0
$413,000
39.0
247,000
108,000 31.0
425,000
2009
62,000
58,437
38.0
34.8
245,000
246,630
65,000 28.0
36,537 21.0
312,000
180,150
2008
60,420
37.2
149,769
32,479 19.3
118,441
2007
51,122
36.2
287,617
24,006 18.4
74,499
2006
44,282
37.2
251,464
19,315 12.7
45,717
2005
39,788
36.6
233,927
13,931 11.8
29,435
2004
36,835
24.5
256,094
8,279
2003
32,187
29.7
252,132
6,207 (loss)
4,480
2002
28,365
29.2
215,553
5,742
4,926
2001
25,296
46.3
258,033
5,363 (loss)
3.9
0.3
8,336
7,92417
“Winner Take All” (or Most) if…
1) Strong network effects between the platform
and complements (direct or indirect)
2) Little differentiation among competing
platforms (few niche opportunities or ways to be
distinctive among competitors!)
3) Multi-homing rare (difficult or costly for users,
app developers, or other players to use more
than one platform as their “home”):
MAKE THEM CHOOSE!
Ref: Eisenmann, Parker, and van Alstyne, Harvard Business Review (2006); Cusumano, Staying Power (2010)
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Multi-Homing vs. Switching Costs
1 SETUP + 1 ONGOING
Mono-homing
2 SETUPS + 1 TERMINATION + 1 ONGOING
Switching
2 SETUPS + 2 ONGOING
Multi-homing
Source: G. Parker
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Why Did VHS Win 100% of
the Consumer VCR Market?
Network effects? Differentiation? Multihoming?
1. Strong network effects? – Yes. VHS and Betamax
incompatible. More open licensing of VHS led to more vendors,
more prerecorded tapes, then more sales to users, ad infinitum
2. Little differentiation? – Yes. Initial difference in
recording time, but soon eliminated. Same prerecorded tapes
available. Quality better with Betamax but not better enough.
3. High cost of multihoming? – Yes. Machines were
expensive in the 1970s and 1980s, so users chose one.
– Sony quickly drops from 100% market share to zero!
– Little first-mover advantage…Why?
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Why Did Windows Win 95%
of the Desktop OS Market?
Network effects? Differentiation? Multihoming?
1. Strong network effects? – Yes. Many more apps for
Windows; incompatibility of the Mac (modified recently with
the switch to Intel chips & virtual s/w)
2. Little differentiation? – Yes, eventually. Growing
similarity with the Mac; rivalry among PC manufacturers & low
entry barriers brought PC prices down. Mac survived in a niche
– desktop publishing & extreme ease of use, e.g. for schools
3. High cost of multihoming? – Yes. The Mac usually
cost 2x a WinTel PC. Both are costly so users choose one.
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Why No Permanent Winner in
Video Game Consoles?
Network effects? Differentiation? Multihoming?
1. Strong network effects? – Yes. With specific games tied
to specific platform (Sony PlayStation, Nintendo Wii, Microsoft
Xbox). Some games on multiple consoles & PCs.
2. Little differentiation? – No. Each vendor different. Also
“hit” games or features vary by generation and vendor. Some
games on multiple consoles & PCs.
3. High cost of multihoming? – No. Consoles relatively
cheap. Often subsidized by makers. Serious game users buy more
than one platform. Some games on multiple consoles & PCs.
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Will There Be One Winner (FB) in
the Social Networking Market?
Network effects? Differentiation? Multihoming?
1. Strong network effects? – Yes. Friends, colleagues,
etc. Specific applications and some services, though weakening
with cross-platform APIs.
2. Little differentiation? – No. Many small niche
platforms or more focused, also many overseas. Yes –Facebook
copying specialized features of others, and Google is pushing
more cross-platform openness & applications.
3. High cost of multihoming? – Yes – individual users,
and application developers for “closed” platforms. No – many
people use multiple platforms, for different purposes.
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Platform Thinking:
Implications for Managers
• Some markets like VCRs, PCs, smartphones, search, social
media, etc. may seem like “natural monopolies” but not so. These
markets do not evolve “by chance.” Companies INFLUENCE
these markets by their strategic actions – and inactions!
• Long-term winners in platform competition generally have the
best platform. Best product not enough – even with a Steve Jobs!
• Many product and service businesses can benefit from platform
thinking as a way to build strategic partnerships!
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