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HOW PLATFORMS CHANGE STRATEGYMarshall Van AlstyneProfessor Boston University, Digital Fellow MIT@InfoEcon05.19.2016

3© 2015 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

Only 7 Firms Controlled 99% of Handset Profits in 2007

Source: Asymco

55%

10%

10%

8%

7%

5%

5%

1%

NokiaSamsungSony EricssonMotorolaLGRIMHTCOther

Famous Brands

Regulatory Protection

Economies of Scale

World Class Logistics

Global Sales Channels

≥ $40B twenty yr R&D by Nokia alone

4© 2015 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

In 6 years, all but one had ≤ 0 profit while 1 newcomer had 92%

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

5© 2016 Parker, Van Alstyne Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com

@InfoEconFirm Year Empl. Mkt Cap

BMW 1916 116,000 $53BUber 2009 5,000 $60B

Marriott 1927 200,000 $17BAirbnb 2008 3,000 $21B

Walt Disney 1923 185,000 $165BFacebook 2004 12,691 $315B

Kodak 1888 145,000 $30B (heyday)Instagram 2010 13 $1B (acquisition)

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

Porter’s Five Forces & Resource Based View

© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

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Platform Strategy Differs

© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

1. Goal is interactions that yield NW effects - partner to partner value. NW effects provide sustainability

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Platform Strategy Differs

© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

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

© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

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

@InfoEcon

Platform Strategy Differs

© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

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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Platform Strategy Differs

© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

Owned / inimitable

resources

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 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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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)

Platform Firms need Less M&A than Product Firms

© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

Can still enter markets the way Google did with Android for tech or Facebook did with Instagram for community.

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13© 2015 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

Why are the old competitors not the new competitors?

Isn’t afraid of …

publishing

broadcast

electronics

cars

watches

delivery

+

but should fear …

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Firms use product feature overlap to find and benchmark competition

(differentiate).

ProductFeatures

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.

Eisenmann, Parker, Van Alstyne, “Platform Envelopment.” Strategic Management Journal, 2011.

T A T A

NetworkUsers

PlatformProviders T A

High Overlap Low Overlap Asymmetric Overlap

Platform Strategy Differs

© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

Distinct: Buyers, Suppliers, Substitutes, Entrants, Rivals Market Forces

Focus

Scale Economies

Assets

Goal / Metric

Access

Overlap: Consumers ~ producers, competitors ~ complementors

Core Competencies Core Interactions

Supply Side Demand Side

Own Inimitable Resources Community as Asset

Cost Leadership / Product Differentiation

Engagement, Positive Spillovers, Just Governance

Barriers to Entry, Boulevards for Exit Permissionless Entry, Open Around Key Control Points

−

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−

−

−

−

−

−

−

−

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InnovationBy Firm By Firm and Ecosystem−−

Product Platform

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17© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com

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

Platform Revolution:@InfoEcon