Smura 2011 Mobile Platforms Lecture 2


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Lecture slides for the Aalto University course S-38.3042 Seminar on Networking Business, Fall 2011. Topic: Mobile platforms. Lecture 2 of 2.

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Smura 2011 Mobile Platforms Lecture 2

  1. 1. S-38.3042 Seminar on NetworkingBusiness PSecond lecture, 2011-11-10Timo Smura
  2. 2. Outline• Your task (once again)• Literature review – General terminology • Value networks, ecosystems, industry architectures • Network effects • Standards wars – Platforms • Platform typology • Industry platforms: definition, examples, competition and innovation • Platform strategies and success factors• Useful concepts and frameworks for analysis• Other information sources• Structure of paper and presentation
  3. 3. Task• Your task is to study a given company in terms of its mobile platform strategy• The goal is to understand the role of mobile business in relation to the overall business of the company, and how does this affect the mobile platform strategy• Logical structure of the analysis: 1. Company overview 2. Company’s mobile business 3. Mobile platform strategy 4. Future outlook and recommendations
  4. 4. Definition• By ”Mobile Platforms”, we refer to industry platforms upon which software applications can be built for mobile devices (phones, tablets, etc.) – These platforms enable independent software developers to build, market, and sell applications running on mobile devices• We are not that interested in internal platforms or supply chain platforms (see typology in later slides)
  5. 5. Literature review
  6. 6. Value networks and industry architectures Source: Smura 2012
  7. 7. Value Chain and Value SystemSingle-Industry Firm: Supplier Firm Channel Buyer Value Chains Value Chain Value Chains Value ChainsDiversified Firm: Firm Value Chain Business Unit Value Chain Supplier Business Unit Channel Buyer Value Chains Value Chain Value Chains Value Chains Business Unit Value Chain Source: Porter (1985)
  8. 8. Value networkChristensen & Rosenbloom (1995)• A nested network of producers and markets through which the components are made and sold to integrators at the next higher level in the system• Example: Value network of portable personal computing Source: Christensen & Rosenbloom (1995)
  9. 9. Value netBrandenburger & Nalebuff: Co-opetition (1996) CustomersSubstitutors Company Complementors Suppliers Source: Brandenburger & Nalebuff (1995, 1996)
  10. 10. Network effects• Network effects (or ’network externalities’) are present in products and services, for which the benefit that the consumer derives depends upon the number of other consumers purchasing compatible items, i.e. who are in the same ”network”• Examples from 1985: – Direct effects: Utility that a consumer derives from purchasing a telephone depends on other users that have joined the telephone network – Indirect effects: A consumer purchasing a PC is concerned with the number of other consumers purchasing similar hardware, because the amount and variety of software that will be supplied depends on the number of hardware units sold• Examples from 2011: – Direct effects: Replace ’purchasing a telephone’ with e.g. ’joining Facebook’ – Indirect effects: Replace ’PC’ with e.g. ’Android smartphone’ Source: Katz & Shapiro (1985, 1986)
  11. 11. Standards wars• Battles for market dominance between incompatible technologies• Take place when two or more technologies are close substitutes and targeted at the same markets• Outcomes of these battles determine also the faith of complementary goods and services offered around each of the competing alternatives• Especially crucial in markets with strong network effects• Success factors in standards wars: – Control over an installed base of users – Intellectual property rights – Ability to innovate – First-mover advantages – Manufacturing capabilities – Strengths in complements – Brand name and reputation Sources: Shapiro & Varian (1999), Suarez (2004)
  12. 12. Platforms – typology (1/2)Type of Internal platforms Supply chain Industry platforms Multi-sided markets orplatform platforms platformsContext Within the firm Within a supply chain Industry ecosystems IndustriesNumber of One firm Several firms within a Several firms who don’t Several firms (or groupsparticipants supply chain necessarily buy or sell from of firms) who transact each other, but whose with each other, through products/services must the intermediary of a function together as part of double-sided (or multi- a technological system sided) marketPlatform • To increase the • To increase For the platform owner: • To facilitate theobjectives productive efficiency productive efficiency • To stimulate and capture transactions between of the firm along the supply value from external, different sides of the • To produce variety chain complementary platform or market at lower costs • To produce variety at innovation • To achieve mass lower costs For complementors: customization • To achieve mass • To benefit from the • To enhance flexibility customization installed base of the in the design of new • To enhance flexibility platform, and from direct products in the design of new and indirect network products effects Source: Gawer (2009)
  13. 13. Platforms – typology (2/2)Type of Internal platforms Supply chain Industry platforms Multi-sided markets orplatform platforms platformsContext Within the firm Within a supply chain Industry ecosystems IndustriesDesign rules • Re-use of modular • Re-use of modular • Interfaces around the • Not usually addressed components components platform allow plugging-in in the economics • Stability of system • Stability of system of, and innovation on, literature* architecture architecture complementsEnd-use of the • Is known in • End-use is defined • Variety of end-uses • Not usually a variablefinal product, advance and by the • End-uses may not be of interest in theservice, or defined by the firm assembler/integrator known in advance economics literaturetechnology of the supply chain • End-use is known in advanceKey questions • How to reconcile • How to reconcile low • How can a platform owner • How to price theasked in the low cost and cost and variety stimulate complementary access to the double-literature variety within a within a supply innovation while taking sided (or multi-sided) firm? chain? advantage of it? market to the distinct • How can incentives to groups of users, to create complementary ensure their adoption innovation be embedded in of the market as an the design of the platform? intermediary? Source: Gawer (2009)
  14. 14. Industry platforms - Definition• Industry platforms are products, services or technologies, that serve as foundations upon which other firms can build complementary products, services or technologies• Firms developing the complements – don’t necessarily buy or sell from each other – are not part of the same supply chain – do not they share patterns of cross-ownership. Source: Gawer (2009)
  15. 15. Industry platforms - Examples• Windows, Linux, Mac operating systems• Mobile operating systems• Intel microprocessors• Internet• Facebook• Game consoles
  16. 16. Industry platforms – Competition andInnovation• Emergence of platforms often alters the power balance in the industry – ’Keystone firms’ (Iansiti & Levien 2004) or ’platform leaders’ drive change towards a system of separately developed components – Power of assemblers wrt. component makers change – Industry leaders change• Platforms tend to facilitate and innovation on complementary products and services – The more innovation there is on complements, the more value it creates for the platform and its users – Complements and network effects increase barriers to entry• Social welfare questions arise: Tradeoffs between system- level competition and platform-specific innovation Source: Gawer (2009)
  17. 17. Platform strategies: Coring and TippingStrategic option Technology/design actions to Business actions to consider considerCoring • Solve an essential ’system’ problem • Solve an essential business problem forHow to create a • Facilitate external companies’ many industry playersnew platform provision of ’add-ons’ • Create and preserve complementors’when none • Keep intellectual property closed on business incentives to contribute andexisted before the innards of your technology innovate • Maintain strong interdependencies • Protect your main source of revenue between platform and complements and profit • Maintain high switching costs to competing platformsTipping • Try to develop unique, compelling • Provide more incentives forHow to win features that are hard to imitate and complementors than your competitorsplatform wars by that attract users dobuilding market • Tip across markets: absorb and • Rally competitors to form a coalitionmomentum bundle technical features from an • Consider pricing or subsidy adjacent market mechanisms that attract users to the platform Source: Gawer (2009), Gawer and Cusumano (2008)
  18. 18. Platform success factors1. Pricing strategies to generate momentum behind a platform – e.g. subsidizing one ’side’ of the platform2. Having a large set of complementary products that increase the value of the platform3. The strength of network effects – Tilt the balance in favor of platforms that can build their installed base faster4. Technological or design advantages – Possibility that one platform may achieve a high level of differentiation over competitors Source: Suarez & Cusumano (2009)
  19. 19. Useful concepts and frameworks foranalysis
  20. 20. Focus of analysis• Put less focus on reporting the macro-environment – Important to understand, but mostly shared between the different company cases >> We don’t want repetition in all the papers – >> Avoid e.g. reporting extensive PESTEL analysis• Industry analysis and definition is important – The companies, although all somehow involved in mobile platforms, come from different industries • E.g. Google vs. Amazon vs. Nokia vs. HP • Reasons for entering the mobile platform business differ – E.g. Porter’s Five Forces framework – Brandenburger & Nalebuff: Value Net framework, complementors – Value network / ecosystem literature and illustrations in general• Business and corporate level strategy concepts are important – Competitive advantage – Strategic capabilities, resources, competences • Resource-based view, dynamic capabilities • SWOT analysis (relative to competitors) – Price / differentiation / focus strategies: Porter, The Strategy Clock • Target segments (regions, price points) – Diversification: In which other markets (products) the company is active • Complements to mobile platform business, synergies?
  21. 21. Porter’s Five Forces frameworkThe Five Competitive Forces that Determine Industry Profitability Potential Entrants Threat of New Entrants Industry Bargaining Power competitors Bargaining of Suppliers Power of Buyers Suppliers Buyers Rivalry Among Existing Firms Threat of Substitute Products or Services Substitutes Source: Porter 1985
  22. 22. Porter’s Five Forces frameworkElements of Industry Structure, defining strength of the Five Forces Entry Barriers Rivalry Determinants Economies of scale Industry growth Proprietary product differences Fixed (or storage) costs / value added Brand identity Intermittent overcapacity Switching costs Product differences Capital requirements Brand identity Potential Access to distribution Switching costs Entrants Absolute cost advantages Concentration and balance Proprietary learning curve Informational complexity Access to necessary inputs Threat of Diversity of competitors New Entrants Proprietary low-cost product design Corporate stakes Government policy Exit barriers Expected retaliation Industry Bargaining Power competitors Bargaining of Suppliers Power of Buyers Suppliers Buyers Rivalry Among Existing Firms Determinants of Supplier Power Determinants of Buyer Power Threat of Substitute Products or Services Bargaining Leverage Price Sensitivity Differentiation of inputs Switching costs of suppliers and firms in the Buyer concentration versus industry Price / total purchases Substitutes firm concentration Product differences Presence of substitute inputs Buyer volume Brand identity Supplier concentration Buyer switching costs relative Impact on quality / Importance of volume to supplier to firm switching costs performance Cost relative to total purchases in industry Determinants of Substitution Threat Buyer information Buyer profits Impact of inputs on cost or differentiation Ability to backward integrate Decision makers’ incentives Threat of forward integration relative to threat of Relative price performance of substitutes Substitute products backward integration by firms in the industry Switching costs Pull-through Buyer propensity to substitute Source: Porter 1985
  23. 23. Brandenburger & Nalebuff: Value Net CustomersSubstitutors Company Complementors Suppliers Source: Brandenburger & Nalebuff (1995, 1996)
  24. 24. SWOT analysis Strengths Weaknesses Internal Opportunities Threats External
  25. 25. Generic strategies Competitive advantage Lower cost Differentiation Competitive scope Broad 1. Cost Leadership 2. Differentiation target Narrow 3B. Differentiation 3A. Cost Focus target Focus Source: Porter 1985
  26. 26. Information sources
  27. 27. Information sources• Companies’ own web sites – Press, Investor relations• Industry analysts – Canalys, Forrester Research, Frost & Sullivan, Gartner, IDC, Informa Telecoms & Media, Ovum Ltd, Strategy Analytics, Yankee Group, ... – VisionMobile (e.g. ”Mobile Platforms: The Clash of Ecosystems”) – Press releases, free reports• Market research companies – Nielsen, ComScore, GfK – Netbiscuits (e.g. ”Mobile Web Metrics Report 2011”) –• Google, Twitter, blogs, ...
  28. 28. Structure of paper and presentation
  29. 29. Final report structure• Main content max 6 pages in IEEE format• Recommendation: Follow the IMRAD structure: – Abstract – Introduction • Motivation and content description for the reader • Short introduction to relevant literature and earlier academic work – Method • Concise general description of the method, not about the case • Literature review + desktop research, using publicly available infromation – Results • Company overview This should be at the • Company’s mobile business • Mobile platform strategy focus of your PPT • Future outlook and recommendations presentation! – (And) – Discussion • Most important findings, validity, further research – References
  30. 30. Final report instructions• Read the template carefully• Return MS or PDF formats, no other formats accepted• Specific formatting instructions are in the template, follow them• Remember to use styles properly in Word (now is a good time to learn it, google “word style” or ask a friend for help )• Add captions to figures and tables, refer to them in text also• Use 2nd level subtopics, but avoid 3rd level subtopics• Avoid lists, use tables instead• Avoid direct quotations• Avoid web sources, especially Wikipedia• Use Google Scholar, Nelli, etc. to find relevant academic sources (again, now is a good time to learn it, see or ask a librarian for help)• Plagiarism is strictly forbidden
  31. 31. References• Brandenburger, A.M. & Nalebuff, B.J. (1995) The Right Game: Use Game Theory to Shape Strategy, Harvard Business Review, July-August 1995, pp. 57-71.• Brandenburger, A.M. & Nalebuff, B.J. (1996) Co-opetition. New York: Currency/Doubleday.• Chesbrough, H. and Rosenbloom, R.S. (2002) The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s technology spin-off companies, Industrial and Corporate Change, 11 (3), 529-555.• Christensen & Rosenbloom (1995) Explaining the attacker’s advantage: technological paradigms, organizational dynamics, and the value network, Research Policy, Vol. 24, pp. 233-257.• Gawer, A. (2009) Platform dynamics and strategies: from products to services. In Gawer, A. (2009) (ed.) Platforms, Markets and Innovation. Edward Elgar Publishing Limited, Cheltenham, UK, pp. 44-76.• Gawer, A. & Cusumano, M.A. (2008) How companies become platform leaders, MIT Sloan Management Review, Vol. 49, No. 2, pp. 28-35.• Iansiti, M. and Levien, R. (2004) The Keystone Advantage: What New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and Sustainability, Boston: Harvard Business School Press.• Jacobides, M.G., Knudsen, T. and Augier, M. (2006) Benefiting from innovation: Value creation, value appropriation and the role of industry architectures, Research Policy, 35, 1200-1221.• Katz, M.L. & Shapiro, C. (1985) Network Externalities, Competition, and Compatibility, The American Economic Review, Vol. 75, No. 3, pp. 424-440.• Katz, M.L. & Shapiro, C. (1986) Technology Adoption in the Presence of Network Externalities, Journal of Political Economy, Vol. 94, No. 4, pp. 822- 841.• Normann, R. and Ramírez, R. (1993) From value chain to value constellation: Designing interactive strategy, Harvard Business Review, 71 (4), 65-77.• Porter, M.E. (1985) Competitive Advantage, Free Press, New York, 1985.• Shapiro, C. & Varian, H.R. (1999) The Art of Standards Wars, California Management Review, Vol. 41, No. 2, pp. 8-32.• Stabell, C.B. & Fjeldstad, Ø.D. (1998) Configuring Value for Competitive Advantage: On Chains, Shops, and Networks, Strategic Managament Journal, Vol. 19, No. 5, pp.413-437.• Suarez, F.F. (2004) Battles for technological dominance: an integrative framework, Research Policy, Vol. 33, No. 2, pp. 271-286.• Suarez, F.F. & Cusumano, M.A. (2009) The role of services in platform markets. In Gawer, A. (2009) (ed.) Platforms, Markets and Innovation. Edward Elgar Publishing Limited, Cheltenham, UK, pp. 77-98.