The inner workings of Digital Disruption

The Inner Workings Of
How a combination of forces is eating every industry…
and why yours could be next?
DIGITAL
DISRUPTION
Sangeet Paul Choudary | Geoffrey Parker | Marshall Van Alstyne
platformrevolution.com

Based on the book
Platform Revolution

TODAY: Welcome to the platform revolution
NETWORK EFFECTS: The power of the platform
ARCHITECTURE: Designing a platform
DISRUPTION: How platforms conquer industries
LAUNCH: Launching a successful platform
MONETIZATION: Capturing the value
OPENNESS: Deﬁning user and partner rights
GOVERNANCE: Policies to manage value creation
METRICS: Measuring what really matters
STRATEGY: How platforms change competition
POLICY: Regulating platforms
TOMORROW: The future of the platform revolution
A comprehensive and practical guide to the new platform economy
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Disruption
has a shape

Can we trace a set of
common patterns across…

What drove the failure of
Borders and Blockbuster?

How did Airbnb move from
hipster mattress sharing site
to a global accommodation
provider challenging big
hotel chains?

Why is GE becoming a
software company from
a heavy industry giant?

Is the news business
no longer profitable?

Why are banks
concerned about
LendingClub and
BitCoin?

How is a simple messaging
service like WeChat eating
everything in China?

Could Starbucks be a threat
to Visa or Mastercard?

Why is McCormick Foods
hiring data scientists?

We cannot solve our problems with
the same thinking we used when
we created them.

Let’s dig into working
out these patterns

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A CAPSULE HISTORY OF
DIGITAL DISRUPTION

We often think of
digital disrupting
the physical

The offline
trumping the online

But there’s a much larger shift
in business models afoot

A deeper
transformation of the
way business and
markets are organized.

HERE’S A STORY OF
INTERNET-ENABLED
DISRUPTION

PIPE THINKING

Pipes: Firms would assemble
and deliver products and
services to a market of
consumers

Value created upstream, 
delivered downstream
Production Assembly Distribution

Our factories work like
pipes, running supply
chains to assemble
products and send them
out via distribution
channels

Traditional media has
worked like a pipe
spewing content to an
audience

PLATFORM THINKING

Business leaders, today, are
building platforms that enable
diverse participants to connect
and interact with each other

USERSDEVELOPERS

HOSTS TRAVELLERS

VIDEO CREATORS VIDEO VIEWERS
Videos

TWEET CREATORS TWEET READERS

PRODUCERS CONSUMERS
PLATFORM
VALUE

A host of technologies ranging from cheaper
publishing tools and mobile connectivity to wearables
and 3D printers are democratizing access to the tools
of production. Anyone can be a producer.

Networked platforms aid
the creation of large
open ecosystems, by
connecting producers to
consumers and enabling
them to interact

The platform
creates pull to
attract producers
and consumers

It provides a plug-and-play
infrastructure that enables
them to connect and
interact with each other

Finally, it leverages data to
connect the most relevant
producers and their
products or services with
consumers

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Three stages of
internet enabled
disruption3 platformrevolution.com

Disruption 1.0:  
Efficient pipes ate inefficient pipes

Most Internet applications during the 1990s involved
the creation of highly efficient pipes - online systems
for distributing goods and services that outcompeted
incumbent industries
Disruption 1.0:  

Benefiting from near-zero
marginal costs of distribution
Disruption 1.0:  

News and print media were
the first to feel the heat
Disruption 1.0:  

Amazon’s initial rise as an e-commerce store
eventually led to Borders’ fall, as the latter
failed to compete with the better distribution
economics of Amazon
Disruption 1.0:  

Netflix followed a similar
playbook to beat Blockbuster
Disruption 1.0:  

Amazon and Netflix still followed
the pipe model but won through
superior distribution economics
Disruption 1.0:  

Disruption 2.0:  
Platforms eating Pipes

platformrevolution.complatformrevolution.com

This has been the dominant shape
of disruption over the last decade
Disruption 2.0:  

Networked platforms scale rapidly in their
ability to create value and coalesce an
open ecosystem
Disruption 2.0:  

The marginal cost of scaling both
supply and demand is minimal
▪ Efficient Pipe: Marginal costs of scaling
demand was near-zero
▪ Platform: Marginal cost of scaling both supply
and demand is near-zero
Disruption 2.0:  

Network effects powered by positive
feedback lead to rapid scale
Disruption 2.0:  

Disruption 2.0:  
A virtuous feedback
loop sets in

Apple and Android leveraged an
ecosystem of developers to disrupt
Nokia and Blackberry
Disruption 2.0:  

Nokia and Blackberry used the pipe
model, sourcing and vetting the apps
that were pre-loaded into handsets
Disruption 2.0:  

Apple created an extendable
handset using the app store’s
ecosystem of developers
Disruption 2.0:  

Android created the infrastructure
for anyone to build a phone
Disruption 2.0:  

Airbnb has built an alternate global market for
travelers accommodation without investing in
building or leasing a single room
Disruption 2.0:  

Traditional hotels have higher marginal
costs of expansion and servicing and
much smaller network effects
Disruption 2.0:  

Amazon’s marketplace scales with
the warehouse distributed across its
partner merchants
Disruption 2.0:  

Traditional incumbents like Target
and WalMart find it difficult to
compete against this
Disruption 2.0:  

Carpooling and ridesharing platforms,
like Blablacar, allow consumers to share
rides with each other for a small fee
Disruption 2.0:  

These platforms are posing significant
threats to public transportation
Disruption 2.0:  

And to the very idea
of car ownership
Disruption 2.0:  

Disruption 3.0:  
Pipes start behaving like Platforms

A third wave of disruption
Disruption 3.0:  

Traditional pipe incumbents are
leveraging the same principles
to scale like platform startups
Disruption 3.0:  

Pipes have traditionally
scaled in one of two ways
Disruption 3.0:  

Vertical integration:  
Own more of the flow through the pipe
Disruption 3.0:  

Vertical integration:
Media and manufacturing firms
regularly rely on vertical integration
Disruption 3.0:  

Horizontal integration:  
Widen the pipe to push more value through it
Disruption 3.0:  

Horizontal integration:
Consumer brands often
pursue horizontal integration
Disruption 3.0:  

Apple rewrote the
playbook on integration
Disruption 3.0:  

Apple’s products and services
are integrated to each other
over the cloud, using data
Disruption 3.0:  

Ownership of multiple Apple products
is more useful, because of their ability
to interact with each other
Disruption 3.0:  

Nike’s FuelBand, connected shoes and
mobile apps follow the same playbook
Disruption 3.0:  

Nike is pursuing ecosystem
integration, like Apple
Disruption 3.0:  

GE is integrating its machines
- The Industrial Internet
Disruption 3.0:  

Pipes are increasingly
behaving like platforms
Disruption 3.0:  

GE’s machines interact with each other,
learn from each other and provide better
and more reliable service
Disruption 3.0:  

Disruption is just
getting started

The information-intensive
portions of any industry are
open to disruption

Banking is
information-intensive

With the rise of
electronic health
records, healthcare is
information-intensive

Sensors and the internet of
things have the potential to
convert any industry based
on physical assets into an
information-intensive industry

The adoption of
platform-based business
models across industry
is just getting started

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