Download - Platform Shift: How New Business Models are Changing the Shape of Industry - Marshall van Alstyne
Barcelona, Spain • October 29-31, 2014
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Marshall Van AlstyneBoston University & [email protected]@twitter.com
Platform Shift: How New Biz Models Are Changing the Shape of Industry
I ♥ APIs September 9, 2014
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
InterBrand: 2014 Best Global Brands
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
These Grew Fastest
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
These are Platforms
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Dominated by Platforms
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Platform Firms Becoming More Important in Economy
3 of top 5 firms in 2014 by market cap.
FIRM MARKET CAP
Apple 598
Exxon Mobile 416
Google 398
Microsoft 385
Berkshire Hathaway 340
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Platform Firms Becoming More Important in Economy
% of top 20 firms by market cap since 2001
Percentage of Platform Firms weighted by MKT CAP (2001-2014)35
%
30%
25%
20%
15%
10%
5%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014
MK
T C
AP
Weig
hte
d P
latf
orm
Fir
ms
Platforms Draw Value from Network Effects
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Network Effects
Value rises as more people use the platform
Metcalfe’s Law
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Network Effects
Value rises as more people use the platform
Source: David Sacks
In any market with network effects, the focus of attention must shift from inside to outside
the firm.
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Reason: You can’t scale network effects inside as easily as outside.
Source: Marshall Van Alstyne
To have an external focus,
you must have an API strategy.
... this implies ...
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
1. All teams will expose their data…
2. Teams must communicate through interfaces.
3. … no other form of interprocess communication allowed
4. Interfaces, without exception, must be externalizable.
5. Anyone who doesn’t do this will be fired.
Bezos Platform Mandate
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Source: Yegge Rant
See ‘’Platform Envelopment’’ (2011) Strategic Management Journal, Eisenmann, Parker & Van Alstyne
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Platforms Beat Products Every Time
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Apple iPod pre-Platform
(1)Product First Thinking(2)Standard linear value
chain
(3) User bought music retail (or P2P)(4) Minimal network effects
Music Produce
r
Listener
Apple iPod
Retailer
$ $ $
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Apple iPod Combined with iTunes
Music Produce
r
Listener
Apple iPod
Retailer
$ $ $
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Apple iPod post-Platform
(1)Remove supply chain inefficiency (2)Triangular platform supply
network(3) Apple owns financial chokepoint
(4) Apple helps users find content
(5) Stronger network effects
$$
UserConte
nt
Apple
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Sony could have done this. It has many great standalone products.Google is not making this mistake with Android
How Apple is Killing Standalone Platforms
Lumia
UsrDvp
r
PSP
UsrGam
MP3
User
Music
Video
TV
Games
Dvpr
Web
HTML
eBooks
Publi
Calls
User
Zune
Usr Mus
MicrosoftSonyNokia
Apple has vastly stronger network effects.
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Zune
Usr Mus
Microsoft
How Apple is Killing Standalone Platforms
Lumia
UsrDvp
r
PSP
UsrGam
MP3
User
Music
Video
TV
Games
Dvpr
Web
HTML
eBooks
Publi
Calls
User
SonyNokia
So what happened?
2007
Today
$30/share $8/share
2007
Today
$53/share $19/share
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Message for you: A great standalone product is not sufficient.
TomTomGPS
R1P1 U1 R1P1 U1
CiscoFlip Camera
R1P1 U1
HPCalculator
How Apple is Killing Standalone Platforms
MP3
User
Music
Video
TV
Games
Dvpr
Web
HTML
eBooks
Publi
Calls
User
Monetizing Platforms Means Free Pricing is Profitable
What changes? Prices
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
See ‘’Strategies for Two Sided Markets” (2006) Harvard Business Review Eisenmann, Parker & Van Alstyne
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
If markets are independent, collect profits in both.
Price
Quantity
Market One
q1
p1
Price
Quantity
Market Two
q2
p2
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
But if markets are coupled, discounting one builds demand in the other.
Price
Market One
Quantityq1
p1
p1
q1
Price
Market Two
Quantityq2
p2
p2
q2
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
There are 2 types of Free
1) Cellphones & Minutes, Razors & Blades
2) eBay, Amex, Google, Amazon all use 2-sided platform pricing.
Platform
Group 2Group
1
Platforms Open Themselves to Third Party Contributions
What Changes :: Innovation
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Most firms can only concentrate on most
valuable apps
Profits increase when others add to platform’s Long Tail
You don’t need to own this
Platforms Get Enormous Value from 3rd Party Developers
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Consider product innovation alone
Harnessing 3rd party resources, innovation occurs at a higher combined rate
Even if a platform starts behind, its value overtakes the product leader
‘’Permissionless Innovation” protects information asymmetry.
Not only does this fill ecosystem space, hard problems get solved by multiple attempts.
Shed costs, keep 30% gains!
Why Platforms Beat Products
Time
Valu
e A
dded
Goal shifts from control, entry barriers, and differentiation to more valuable market
exchanges.
What Changes :: Strategy
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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
Porter’s Five Forces & Resource Based View
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Platform Strategy Differs
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1. Goal is transactions volume & creating customer value. Network effects provide sustainability.
2. Boundaries can be altered
3. Competition is multi-layered, more like 3D chess.
1. Goal is transactions volume & creating customer value. Network 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!
Platform Strategy Differs
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Owned / inimitableresources
Profits increase when others add to platform’s
Long Tail
You don’t need to own this
THANK YOU
QUESTIONS & DISCUSSION
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Twitter: @InfoEcon
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