2017 04 12 parker slides mit ict conference

GeoffreyParkerProfessor, Thayer School Engineering, Dartmouth CollegeDirector, Master of Engineering Management ProgramResearch Fellow, MIT Initiative on the Digital [email protected]@mit.edu

PlatformRevolutionMITInformationandCommunicationsTechnologiesConference12April2017

GeoffreyParkerDartmouthCollege

@g2parker

MarshallVanAlstyneBostonUniversity

@InfoEcon

PlatformRevolution:MakingNetworkedMarketsWorkforYou

Questrom School of Business

2016 Parker & Van Alstyne with Choudary –licensed under Creative Commons Attribution-ShareAlike 4.0 Int’l (CC BY-SA 4.0).

SangeetChoudaryPlatformation Labs

@sanguit

@InfoEcon

SomethinghasChangedFIRM YEAR EMPLOYEES MKTCAP

BMW 1916 116,000 $53B

UBER 2009 7,000 $60B

MARRIOT 1927 200,000 $17B

AIRBNB 2008 5,000 $21B

WALTDISNEY 1923 185,000 $165B

FACEBOOK 2004 12,691 $315B

KODAK 1888 145,000 $30B(heyday)

INSTAGRAM 2010 13 $1B(acquisition)

2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

4

Source:P.Evans,“Networks,DataandPlatforms,”inGrowingGlobal:LessonsfortheNewEnterprise,CenterforGlobalEnterprise,2015.

TrendslikelytocontinueandintensifyForcesofChange

Surgeindataandtoolsthatcanmanageand

analyzedataNetworksconnectphysical,digital,andsocial

AgeofNetworks AgeofDataFIRM

AgeofPlatformsNewbusinessmodelsthatthat

leveragenetworksandintelligence


Source: International Monetary Fund

NorthAmerica Europe Africa,LatinAmerica,ROW

Asia

2015NominalGDPUS$Total:73.1T

GlobalEconomyisRelativelyBalanced

10.7T23.5T19.5T 19.5T


Source: P. Evans, CGE; CB Insights, Capital IQ, CrunchBase, 2015

NorthAmerica Europe Africa&LatinAmerica

Asia

NorthAmericahasthemost$1B+platformfirms,asmeasuredbymarketcap.China,withalargehomogeneousmarket,isgrowingfast.Europe,withamorefragmentedmarket,haslessthan¼thevalueofNorthAmerica

Private

Public

ThePlatformEconomyisUnbalanced


7Source:CGEPlatformDatabasewithQuidvisualization,2015

Over$3trillioninfirmmarketcap

TheNewMultinationals

ExplosionofPlatformCompanies

SelectedPlatformCompanies Emergingplatformclusters


PlatformMarketCapDisplacedEnergyandFinance

8Source:Visualcapitalist.com,Bloomberg


TRADITIONALLINEARVALUECHAIN

Stage1 Stage2 Stage3

$ $ $Valueaccumulatesfromstagetostage

MinimalNetworkEffects2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

LinearPipevs.TriangularPlatform

ElementsofvalueexchangeSourceContent Edit/Curate CreateBundles Multiplechannels

RAWMAT’LS PRODUCTION ASSEMBLY DISTRIBUTION

DemandSideProductionSide

PLATFORM2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

APLATFORM:• Isanexusofrulesandarchitecture

• Isopen,allowingregulatedparticipation

• Activelypromotes(positive)interactionsamongdifferentpartnersinamulti-sidedmarket

• Scalesmuchfasterthanapipelinebusinessbecauseitdoesnotnecessarilybearthecostsofexternalproduction.

PLATFORM

DemandSide

ProductionSide

Source:PlatformRevolution

Elementsofvalueexchange


*IncludesHQ,otherrooftops,retailoutlets,manufacturingplants,serviceshops,etc.

EXAMPLECOMPANIES

PLATFORMECOSYSTEM

HIERARCHALORGANIZATION+PHYSICALASSETS*

ASSETHEAVYDaimler

JohnsonControlsGE

Siemens

ASSETLIGHTGoogleUberAirbnb

STRUCTURE PLATFORM

MIXEDAppleAmazon

HPSamsungEn

terprisetype

Source:P.Evans,CGE;CBInsights,CapitalIQ,2015

PlatformsExistonTopofAssetHeavyCompanies

GooglePlayUber appAirbnb app

AppstoreAppstore

SDNAppStoreSamsungApps

MoovelPanopixPredix

MindSphere

2016 Parker & Van Alstyne with Choudary –licensed under Creative Commons Attribution-ShareAlike 4.0 Int’l (CC BY-SA 4.0).

CriticalityoftheDatalayer

13

Newlocusofvaluecreation andcapture

Agriculture

PhysicalLayer

Energy

PhysicalLayer

Healthcare

PhysicalLayer

Banking

PhysicalLayer

DATALayer DATALayer DATALayer DATALayer

Source:P.Evans,CGE,2015

Justatractor?

Inputs: Preciselocation,temperature,humidity,soilsamples,seedinformationOutputs: Cropyields

JobOperators

Retailers

Farmers

ServiceTechnicians

Tractors AgricultureBusiness

Seeds,FertilizerPestcontrol

CommoditiesSelling

YieldManagement

SoftwareIntegration

SoilAnalysis DataAnalysis

PrecisionAgricultureMapping

Insurance

DigitalFarmingPlatform

APIsenableplatformdatacapabilities

Revenues

Reach

Engagement

Innovation

Integration

Application Programming Interface (APIs)

Definition: Standardized machine-readable digital communication interface for a system, which can be designed to have open or restricted access and be exposed both internally and externally of an organization’s network

Exchange and value creation

©Parker&VanAlstyne2016

AreAmazonandWalmart intheSameBusiness?

17

Socialmedia/webJobsearch/workE-commerceTools/cloud/bigdata

Payments

API Clusters

Messagingservices

Source: Rahul Basole and Peter Evans, with data from ProgrammableWeb, Center for Global Enterprise, 2015

Enterprise/storage

APIEconomyVisualized:

Walmart

Amazon SNSAlexa Web Inform

Amazon Marketplac

eAmazon

SimpleDBAmazon Product

Advertising

Amazon CloudWatc

h

Amazon Flexible

Amazon Redshift

Amazon SC2Amazon

S3 Amazon Mechanical

TurkAmazon

RDSAmazon DynamoDB

Amazon Queue Service

Socialmedia/webJobsearch/workE-commerceTools/cloud/bigdata

Payments

API Clusters

Messagingservices

WalmartAmazon

Companies

Enterprise/storage

Source: Rahul Basole and Peter Evans, with data from ProgrammableWeb, Center for Global Enterprise, 2015

APIEconomyVisualized:AmazonvsWalmart

WhoisGettingMore3rdPartyValueAdd?


Amazon growth over 10 years 2491% vs. Walmart (48%), Target (23%), Macy’s (-12%), Best Buy (-31%)

Logistics&supplychainsqueezinghavelimits.Externalvalueaddismuchlesslimited.

BezosPlatformManifesto• All teams will henceforth expose their data and functionality through

service interfaces. • Teams must communicate with each other through these interfaces.• There will be no other form of inter-process communication allowed.• It doesn't matter what technology they use.• All service interfaces, without exception, must be designed from the

ground up to be externalizable.• Anyone who doesn't do this will be fired.


6ReasonsPlatformsFail

1. Failuretooptimize“openness”– Apple1980s/Google2010s2. Failuretoengagedevelopers– JohnsonControlsPanoptix3. Failuretosharethesurplus– Covisint4. Failuretolaunchtherightside- GoogleHealth(consumer)5. Failuretoputcriticalmassaheadofmoney– BillPoint vs.PayPal6. Failureofimagination– HP,Sony,Garmin,Cisco,…

24

1connection

2phones

10connections

5phones

66connections

12phonesMoreusers=morevalue=moreusers…

PlatformsLeverageNetworkEffects

Source:Wikipedia.org2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

RiseofIntangiblesS&P500(US)MarketValue

Source:OceanTomo,LLC2015

Inanymarketwithnetworkeffects,thefocusofattentionmustshiftfrominsidetooutsidethefirm.

Source:PlatformRevolution

PLATFORMIMPLICATION

Reason:Youcan’tscalenetworkeffectsinsideaseasilyasoutside.


Tohaveanexternalfocus,youmust havea

communitystrategy.

...thisimplies...


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

market exchanges.

HowStrategyChanges

© 2015 Parker, Van Alstyne & Choudary

• Finance– Recordsoutsidefirm(e.g.,blockchain),– ShareholderValueà StakeholderValue,Incorporatenetworkeffects

• HumanResources– InternalEmployeesà Externalcommunities

• R&D– Experts&SpecializeddepartmentsàCrowdsourcing&OpenInnovation

• Marketing– Pushà Pull,Outboundà Inbound

• Strategy– EntryBarriers&InimitableResourcesà Ecosystemhusbandry&LongTail

• IT– BackOffice(ERP)à FrontOffice(CRM)

à Out-of-Office(Social&BigData).Communicationamong users.

• Operations&Logistics– Uber:notaxis,Airbnb:norealestate,

Facebook:createsnocontent,Alibaba:noinventory.

– Shedfixedandvariablecosts

PlatformsInverttheFirm…

© 2016 Parker, Van Alstyne & Choudary

• Adddatalayertoimproveexistingoperations• Createecosystemstoaddvalue• Investingovernancetoattractpartnersandtheirinvestments

FromProductsandServicestoPlatformsPrimaryTasks


• Createarchitecturestofacilitateaccesstodatathatcanbeusedtocreatenewbusinessandrevenuestreams

• Developsharedunderstandingandrulestofairlydividevaluetoprovideincentivesforassetownerstoparticipate


FromProductsandServicestoPlatformsSecondarydatauses

“you’llknowyou’reaplatformwhenyourusersdosomethingyoudidn’texpect.”

PeterCoffee,Salesforce.com,MITPlatformSummit2013

• PlatformsinFinanceandTelecoms• B2BversusB2CPlatforms• GovernanceandRegulationinPlatforms• DataValueandMarkets

CurrentPlatformIDEResearchProjects


Q&A


GeoffreyParkerProfessor,DartmouthCollege

ResearchFellow,MITInitiativeontheDigitalEconomyCoauthor,PlatformRevolution

[email protected]@g2parker

2017 04 12 parker slides mit ict conference

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