Platform Shift: How New Business Models Are Changing the Shape of Industry
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Platform Shift: How New Business Models Are Changing the Shape of Industry

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Platform Shift: How New Business Models Are Changing the Shape of Industry Platform Shift: How New Business Models Are Changing the Shape of Industry Presentation Transcript

  • Barcelona, Spain • October 29-31, 2013 © 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Marshall Van Alstyne Boston University & MIT marshall@mit.edu InfoEcon@twitter.com Platform Shift: How New Biz Models Are Changing the Shape of Industry MIT Industrial Liaison Program April 24, 2014
  • 2© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com InterBrand: 2013 Best Global Brands
  • 3© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com These Grew Fastest View slide
  • 4© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com These are Platforms View slide
  • 5© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Platform Firms Becoming More Important in Economy 3 of top 5 firms in 2013 by market cap. FIRM MARKET CAP Apple 474 Exxon Mobile 433 Google 361 Microsoft 332 Berkshire Hathaway 314
  • 6© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: 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 (2001-2013) 35% 30% 25% 20% 15% 10% 5% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 MKTCAPWeightedPlatform Firms
  • 7© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com The Product Business Model is Broken © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 8© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com The Product Business Model is Broken In 2009, BlackBerry had nearly 50% market share in U.S. operating systems, according to IDC. Now: 2.1% 2008 2009 2010 2011 2012 2013 50% 40% 30% 20% 10% 0%
  • 9© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com 1980-2000 Microsoft Platform Beats Apple Product Apple launched the PC revolution but Microsoft licensed widely, built a huge developer ecosystem, 6X larger.
  • 10© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Apple Feb 5, 1996 Michael Dell - ”Shut it down and give the money back to the shareholders.”
  • 11© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Interbrand: 2013 Best Global Brands
  • 12© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Nike Builds a Biz Platform
  • 13
  • 14 1. Enumerate embeddable features: salty, citrus, sour, toasted, … 2. Get consumer preferences 3. Match to best recipes 4. Mix new combinations, help users create & upload, allow ratings, build a community How would you create a platform around spice? © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 15 Create a whole geometry of flavor combinations
  • 16© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com To Be a Platform The system must provide a useful function or service and allow 3rd party access. Examples: iTunes: get music onto iPod SAP: execute ERP systems Facebook: connect family, friends & acquaintances Cisco Smart Grids: capture AC/DC sources, route power Nike Fuel: motion capture and social benchmarking Products have features, Platforms have communities
  • 17© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com How are these Related? Each Side Attracts More of the Other eBay Buyers Expedia Travelers Xbox Gamers Amex CardHolders Aga Khan Patients YouTube Viewers AirBnb Renters Electric Car Drivers Mechanical Turk Jobs LinkedIn Employees Android Users eBay Sellers Expedia Airlines/Hotels Xbox Developers American Express Merchants Aga Khan Doctors YouTube Videographers AirBnb Rooms Electric Car Charge Stations Mechanical Turk Laborers LinkedIn Employers Android Developers
  • More Amex Users … get more Amex Merchants… More Amex Merchants … get more Amex Users… © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • More Android Users … get more Android Developers… More Android Developers … get more Android Users… © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • Why Platforms Beat Products Every Time © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 21© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: 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 Producer ListenerApple iPod Retailer $ $ $
  • 22© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Apple iPod Combined with iTunes Music Producer ListenerApple iPod Retailer $ $ $
  • 23© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: 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 $$ User Content Apple
  • 24© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: 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 Usr Dvp r PSP Usr Ga m MP3 User Music Video TV Games Dvpr Web HTM L eBook s Publi Calls User Zune Usr Mus MicrosoftSonyNokia Apple has vastly stronger network effects.
  • 25© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Zune Usr Mus Microsoft How Apple is Killing Standalone Platforms Lumia Usr Dvp r PSP Usr Ga m MP3 User Music Video TV Games Dvpr Web HTM L eBook s Publi Calls User SonyNokia So what happened? 2007 Today 2007 Today
  • 26© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Message for you: A great standalone product is not sufficient. Polycom Speakerphone R1P1 U1 R1P1 U1 Cisco Flip Camera R1P1 U1 HP Calculator How Apple is Killing Standalone Platforms MP3 User Music Video TV Games Dvpr Web HTM L eBook s Publi Calls User
  • 27© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com MP3 User Music Video TV Games Dvpr Web HTM L eBook s Publi Calls User Photo Usr Upld Flickr Blkbry Usr Dvpr RIM GPS Usr Upld TomTom How Apple is Killing Standalone Platforms Message for you: A great standalone product is not sufficient.
  • © 2012 Zimedia Why Apple isn’t Killing Kindle: Amazon Ecosystem © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 29© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com You can’t make calls … Why Apple isn’t killing Kindle MP3 User Music Video TV Games Dvpr Web HTML eBooks Publi Calls User unless you load Skype.
  • Monetizing Platforms Means Free Pricing is Profitable What changes? Prices © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 31© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com To Price a Platform with Network Effects, Who Gets the Subsidy?
  • 32© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com If markets are independent, collect profits in both. Price Quantity Market One q1 p1 Price Quantity Market Two q2 p2
  • 33© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com But if markets are coupled, discounting one builds demand in the other. Price Market One Quantity q1 p1 p1 q1 Price Market Two Quantity q2 p2 p2 q2
  • © 2014 Van Alstyne All rights reserved. 34 Two Sided Network Effects are Very Robust © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Additive Additive Recursive Multiplicative Multiplicative Recursive Shifted Multiplicative Elasticity and spillover properties hold for any of these functional forms: See Parker & Van Alstyne “Two Sided Networks: A Theory of Information Product Design” Management Science 2005
  • 35© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: 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 2 Group 1
  • Platforms Unlock New Value from Spare Resources and User Generated Content What Changes :: Supply Chains © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • AirBnb sells users’ spare rooms, competing with hotels that must own them RelayRides sells users’ spare cars, competing with rental firms that must own them © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • Instagram sold for $1B not because of contributions from 13 employees but from 30 million users © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 39© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com 2005 2013© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • Employees Must See Across the Platform, which Must Support a Shared Data Layer What Changes :: Internal Organization © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • Sony was a virtual Galapagos of holding companies © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 43© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: 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 © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • Platforms Open Themselves to Third Party Contributions What Changes :: Innovation © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • A platform is a system that can be… adapted to countless needs and niches that the platform’s original developers could not possibly have contemplated…” Mark Andreeson: Venture Capitalist, Netscape Founder, Board HP, eBay© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 47© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com It’s Working when Users do Something You Didn’t Expect Hay Carrier RacecarFlour Mill Ford Model T
  • 48© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com It’s Working when Users do Something You Didn’t Expect Snowmobile Goat Carrier Sawmill Mobile Church
  • 49© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com − Open to .com” Open to developers − The Rise & Ignominius Fall of MySpace – Business Week 2011 Does Openness Work?
  • 50© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com The Rise & Ignominius Fall of MySpace – Business Week 2011 ‘‘We tried to create every feature in the world and said, ‘O.K., we can do it, why should we let a third party do it?’ ‘’ says (MySpace cofounder) DeWolfe. ‘’We should have picked 5 to 10 key features that we totally focused on and let other people innovate on everything else.’’ Does Openness Work?
  • 51© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: 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
  • 52© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: 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 will overtake the product leader  Shed costs, keep 30% gains! Why Platforms Beat Products Time ValueAdded
  • Platforms will Displace Gatekeepers with Meritocratic Crowds What Changes :: Industry Bottlenecks © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 54© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • Advice from Travelers Replaces that of Travel Agents Video Production and Curation Moves to Viewers from TV Station Staff © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • Bypass editors. Twitter lets everyone be a reporter and RT tells what’s important. Forget product buyers. Threadless uses crowd votes to predict / guarantee sales. © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • Goal shifts from control, entry barriers, and differentiation to more valuable market exchanges. What Changes :: Strategy © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: 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 © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • Platform Strategy Differs © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com 1. Goal is transactions volume & creating customer value. Network effects provide sustainability.
  • Platform Strategy Differs © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com 1. Goal is transactions volume & creating customer value. Network effects provide sustainability. 2. Boundaries can be altered
  • Platform Strategy Differs © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com 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 to join you! Platform Strategy Differs © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Owned / inimitable resources Profits increase when others add to platform’s Long Tail You don’t need to own this
  • What’s Next? © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • 64© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com City as Platform
  • 65© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Energy/Smart Grid as Platform
  • 66© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Education as Platform
  • 67© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com Healthcare as Platform
  • 68© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com If you believe in the power of people connecting, embrace the platform. If you convert your product/service to platform, what would it do? © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
  • THANK YOU QUESTIONS & DISCUSSION © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com marshall@mit.edu Twitter: @InfoEcon Find research HERE. Find blog posts HERE.