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Platform Revolution: Ch 03 -- Architecture & Design

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Content: (1) How the core interaction defines a platform (2) How a traditional (pipeline) value chain differs from a platform value matrix (3) What's inside and what's outside the platform

These slides provide complimentary course materials for the Ch 3 of Platform Revolution - How Network Markets are Transforming the Economy and How to Make Them Work for You. Final slides provide reading supplements and links to other chapters for industry and academia.

Published in: Business
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Platform Revolution: Ch 03 -- Architecture & Design

  1. 1. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Questrom School of Business Chapter 3 Architecture & Design Platform Revolution: Making Networked Markets Work for You with Sangeet Choudary Platform Thinking Labs @sanguit Geoffrey Parker Dartmouth College @g2parker Marshall Van Alstyne Boston University @InfoEcon
  2. 2. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Platform Revolution: Chapter 3 – Architecture & Design 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 Traditional 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 (click to order on Amazon)2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  3. 3. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). PLATFORMS REMAKE THE TRADITIONAL VALUE CHAIN
  4. 4. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). VALUE CREATION INSIDE VERSUS OUTSIDE STEP 1 STEP 2 STEP 3 STEP … STEP N Unit of Value Traditional value chain (pipeline) business PRODUCER CONSUMERS
  5. 5. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Unit of Value 1. Producer owns the pipe 2. Producer adds value, controls the process 3. Value flow is linear PRODUCER CONSUMERS VALUE CREATION INSIDE THE PIPE
  6. 6. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). DEMAND PLATFORM SUPPLY 1. Producer role distinct from platform 2. Platform curates, controls movement 3. Value flow is network matching VALUE CREATION INSIDE VERSUS OUTSIDE
  7. 7. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Dell Coca Cola Apple Samsung Airbnb Uber BUSINESS MODELS CAN OVERLAP Platforms Scale More than Pipes
  8. 8. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Tom Goodwin, Sr. VP of Strategy Havas Media ``In 2015, Uber, the world’s largest taxi company owns no vehicles, Facebook the world’s most popular media owner creates no content, Alibaba the most valuable retailer has no inventory, and Airbnb the world’s largest hotelier owns no real estate.’’
  9. 9. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Identify spare capacity, scale across boundaries Source: http://tomslee.net/airbnb-data, 2015 FOUNDED IN 2008, AIRBNB OPERATES AT GLOBAL SCALE 1M+ listings, 34,000 cities, 180 countries Paris 40,000 listings Berlin 8,105 listings Sydney 5,692 listings
  10. 10. * Includes HQ, other rooftops, retail outlets, manufacturing plants, service shops, etc. EXAMPLE COMPANIES PLATFORM ECOSYSTEM HIERARCHAL ORGANIZATION + PHYSICAL ASSETS* ASSET HEAVY Daimler Johnson Controls GE ASSET LIGHT Google Uber Airbnb STRUCTURE PLATFORM MIXED Apple Amazon HP Samsung Enterprisetype Source: P. Evans, CGE; CB Insights, Capital IQ, 2015 PLATFORMS EXIST ON TOP OF ASSET HEAVY INDUSTRIES Google Play Uber app Airbnb app App store App store SDN App Store Samsung Apps Moovel Panopix Predix 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0).
  11. 11. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). SO HOW DO YOU DESIGN A PLATFORM? LET’S START WITH 3 PRINCIPLES OF PIPE DESIGN…
  12. 12. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). 1. Define the value unit 2. Design the process that adds value and delivers this unit to the customer 3. Design the pipe (value chain) that controls and optimizes this process Unit of Value VALUE CREATION INSIDE THE PIPE
  13. 13. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). MOVING TO 3 PRINCIPLES OF PLATFORM DESIGN…
  14. 14. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). 1. DEFINE THE VALUE UNIT Exchanged: ride, stay, video, news, tweet, design, auction item VALUE CREATION OUTSIDE THE PIPE VALUE UNIT
  15. 15. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). STAYS TWEETS VIDEOS PROJECTS SERVICES VALUE CREATION OUTSIDE THE PIPE
  16. 16. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). 2. DESIGN THE INTERACTION AROUND THE VALUE UNIT Creation, Curation, Consumption VALUE CREATION OUTSIDE THE PIPE PRODUCER CONSUMERSVALUE UNIT
  17. 17. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). 3. Design the platform that enables this interaction PLATFORM PRODUCER CONSUMERS VALUE CREATION OUTSIDE THE PIPE COMPLETE EXCHANGE INCLUDES INFORMATION, GOODS / SERVICES, AND CURRENCY
  18. 18. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). The fallacy: Platforms are in the business of BUILDING FUNCTIONALITY
  19. 19. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Instead… the goal is ENABLING INTERACTIONS
  20. 20. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). How do we optimize the platform value chain?
  21. 21. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Design the architecture to support a network, tools and data. PLATFORM NETWORK DATA TOOLS OPTIMIZING THE PLATFORM PRODUCER CONSUMERS
  22. 22. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). 1. Design the network to get both roles on board NETWORK PRODUCER CONSUMERS OPTIMIZING THE PLATFORM
  23. 23. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). 2. Provide them tools to interact and exchange value TOOLS PRODUCER CONSUMERS OPTIMIZING THE PLATFORM
  24. 24. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). 3. Use data to make the best match Data OPTIMIZING THE PLATFORM
  25. 25. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). What’s inside and what’s outside the Platform?
  26. 26. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Put high frequency usage, low variety components in the core platform (network). Put low frequency usage, high variety components at the app layer (ends), even if low level. Implementing any function incurs some resource penalty regardless of whether the function is used or not. Putting this function in the network distributes these penalties among all clients, regardless of whether they use that function or not. Saltzer, Reed & Clark (1981) END TO END PRINCIPLE ALSO FACILITATES NETWORK GROWTH
  27. 27. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). This deep principle of network architecture also applies to business architecture. Mac OS X broke from Mac OS 9. Apps incompatible but emulator helped OS 9 users. Respecting end-to-end principle vastly improved efficiency & upgrades Vista tried to do all things for all users. Compatible back to DOS. Critics dubbed it “goatware” because it ate everything. Did NOT respect end-to-end principle. XP discontinued in 2008 but had 12% market share to Vista 2% in 2015 END TO END PRINCIPLE ALSO FACILITATES NETWORK GROWTH
  28. 28. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Social media / web Job search / work E-commerce Tools / cloud / big data Payments API Clusters Messaging services Source: Rahul Basole and Peter Evans, with data from ProgrammableWeb, Center for Global Enterprise, 2015 Walmart Amazon Companies Enterprise / storage Points represent APIs. Links represent mashups or recombinations of API calls AMAZON APIS LET OTHERS BUILD ON THEIR SYSTEMS VS WALMART Walmart Amazon SNS Alexa Web Inform Amazon Marketplace Amazon SimpleDB Amazon Product Advertising Amazon CloudWatch Amazon Redshift Amazon SC2 Amazon S3 Amazon Mechanical TurkAmazon RDS Amazon DynamoDB Amazon Queue Service Amazon Flexible
  29. 29. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Logistics & supply chain squeezing have limits. External value add is much less limited. WALMART VS AMAZON GROWTH OVER 10 YEARS: 12% VS 1516%
  30. 30. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). TAKEAWAYS FROM CHAPTER THREE A platform remakes the pipeline value chain, adding value creation outside the firm. A platform is fundamentally an infrastructure designed to facilitate three kinds of exchange: information, goods / services, and currency. The design of a platform should begin with its core interaction—one kind of interaction that is at the heart of the platform’s value- creation mission. Three key elements define the core interaction: the participants, the value unit, and the filter. The value unit is the most crucial, and often the most difficult to control. In order to make the core interaction easy and even inevitable, a platform must perform three crucial functions: pull, facilitate, and match. All three are essential, and each has its special challenges. As a platform grows, it often finds ways to expand beyond the core interaction. New kinds of interactions may be layered on top of the core interaction, often attracting new participants in the process. The end-to-end principle means putting high volume low variety functions in the platform, and putting low volume high variety functions in the apps. It’s important to design a platform to make valuable interactions easy for large numbers of users. But it’s also important to leave room for serendipity and the unexpected, since users themselves will find new ways to create value on the platform.
  31. 31. 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). Platform Revolution: Chapter 4 – Disruption 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 Traditional 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 (click to order on Amazon)2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

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