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Platform Revolution - Ch 01 Intro: How Platforms are Changing Commerce

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Content: (1) Evidence platforms beat products in value, recognition, speed (2) Platform definition (3) Firm implications

These slides provide complimentary course materials for the Ch 1 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

Platform Revolution - Ch 01 Intro: How Platforms are Changing Commerce

  1. 1. Geoffrey Parker Dartmouth College @g2parker Marshall Van Alstyne Boston University @InfoEcon Chapter 1 Introduction: Welcome to Platform World Platform Revolution: Making Networked Markets Work for You Questrom School of Business 2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution- ShareAlike 4.0 Int’l (CC BY-SA 4.0). with Sangeet Choudary Platform Thinking Labs @sanguit
  2. 2. 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 Platform Revolution: Chapter 1 - Introduction (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. @InfoEco SOMETHING HAS CHANGED FIRM YEAR EMPLOYEES MKT CAP BMW 1916 116,000 $53B UBER 2009 7,000 $60B MARRIOT 1927 200,000 $17B AIRBNB 2008 5,000 $21B WALT DISNEY 1923 185,000 $165B FACEBOOK 2004 12,691 $315B KODAK 1888 145,000 $30B (heyday) INSTAGRAM 2010 13 $1B (acquisition) 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  4. 4. THESE ARE THE MOST FAMOUS GLOBAL BRANDS Source: Interbrand 2015 % is growth relative to prior year, $ is value of brand equity @InfoEco 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  5. 5. 13 OF THESE ARE PLATFORMS Based on presence of a developer or buyer/seller ecosystem. @InfoEco 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  6. 6. Source: International Monetary Fund North America Europe Africa, Latin America, ROW Asia 2015 Nominal GDP US$ Total: 73.1 T THE GLOBAL ECONOMY IS RELATIVELY BALANCED v10.7 T23.5 T19.5 T 19.5 T 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  7. 7. Source: P. Evans, CGE; CB Insights, Capital IQ, Crunc North America Europe Africa & Latin America Asia North America has the most $1B+ platform firms, as measured by market cap. China, with a large homogeneous market, is growing fast. Europe, with a more fragmented market, has less than ¼ the value of North America Private Public THE PLATFORM ECONOMY IS UNBALANCED 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  8. 8. DIGITAL ECONOMY IS DOMINATED BY PLATFORMS Source: The Internet Map2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  9. 9. PLATFORMS ARE OVERTAKING ENERGY AND BANKING 9 Source: Visualcapitalist.com, Bloomberg 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  10. 10. 10 Source: CGE Platform Database with Quid visualization, 2015 Over $3 trillion in firm market cap The New Multinationals EXPLOSION OF PLATFORM COMPANIES Selected Platform Companies Emerging platform clusters 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  11. 11. 11 INDUSTRY EXAMPLES Agriculture John Deere, Intuit Fasal Communication and Networking LinkedIn, Facebook, Twitter, Tinder, Instagram, Snapchat, WeChat Consumer Goods Nike, Philips, McCormick Foods FlavorPrint Education Udemy, Skillshare, Coursera, edX, Duolingo Energy and Heavy Industry Nest, Tesla PowerWall, General Electric, Enernoc Finance Bitcoin, Lending Club, Kickstarter Healthcare Cohealo, SimplyInsured, Kaiser Permanante Gaming Xbox, Nintendo, PlayStation Labor and Professional Services Upwork, Fiverr, 99designs, Sittercity, LegalZoom Local Services Yelp, Foursquare, Groupon, Angie’s List Logistics and Delivery Munchery, Foodpanda, Haier Group Media Medium, Viki, YouTube, Wikipedia, Huffington Post, Kindle Publishing Operating Systems iOS, Android, MacOS, Microsoft Windows Retail Amazon, Alibaba, Walgreens, Burberry, Shopkick Transportation Uber, Waze, BlaBlaCar, GrabTaxi, OlaCabs Travel Airbnb, TripAdvisor 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  12. 12. 12 Source: P. Evans, “Networks, Data and Platforms,” in Growing Global: Lessons for the New Enterprise, Center for Global Enterprise, 2015. Trends likely to continue and intensify FORCES OF CHANGE Surge in data and tools that can manage and analyze data Networks connect physical, digital, and social Age of Networks Age of Data FIRM Age of Platforms New business models that that leverage networks and intelligence 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  13. 13. LINEAR PIPE VS. TRIANGULAR PLATFORM Elements of value exchange Source Content Edit/ Curate Create Bundles Multiple channels RAW MAT’LS PRODUCTION ASSEMBLY DISTRIBUTION CONSUMERSPRODUCERS PLATFORM 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  14. 14. A PLATFORM: • Is a nexus of rules and architecture • Is open, allowing regulated participation • Actively promotes (positive) interactions among different partners in a multi-sided market • Scales much faster than a pipeline business because it does not necessarily bear the costs of external production. PLATFORM CONSUMERSPRODUCERS Source: Platform Revolution Elements of value exchange 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  15. 15. PLATFORMS BEAT PRODUCTS/SERVICES • Apple iPhone • Uber • Facebook • Amazon • Microsoft Zune, Garmin GPS, Sony PSP, HP Calculator, Olympus Voice Recorder • Ford, BMW, Nissan • NY Times, Fox News, Walt Disney • Hachette, Norton, Blockbuster, Time Warner 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  16. 16. 16 70% Platforms 30% Non Platforms Global Unicorns = 115 Source: P. Evans, CGE; CB Insights, Capital IQ, CrunchBase, 2015 Platform = 80 of 115 companies, $300B valuation MOST UNICORNS ARE PLATFORMS 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  17. 17. Source: P. Evans, CGE; Coleman Walker, Geoffrey Parker, Tulane University 2016 © Evans Not Just IPO Funding Accumulated platforms profits Top 50 public platforms, 2012 Q1 – 2016 Q1 Running Sum of Gross Profits 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  18. 18. © Evans CHINA STILL ACCELERATING Growth of China’s Leading Platform Companies Increase in net sales from 2011 Q2 to 2016Q1 Source: P. Evans, CGE; Coleman Walker, Geoffrey Parker, Tulane University 20162016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  19. 19. 19 1 connection 2 phones 10 connections 5 phones 66 connections 12 phones More users = more value = more users… PLATFORMS LEVERAGE NETWORK EFFECTS Source: Wikipedia.org2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  20. 20. In any market with network effects, the focus of attention must shift from inside to outside the firm. Source: Platform Revolution IMPLICATION Reason: You can’t scale network effects inside as easily as outside. 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  21. 21. To have an external focus, you must have a community strategy. ... this implies ... 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  22. 22. Shift 1: From resource control to resource orchestration Shift 2. From internal optimization to external interaction Shift 3. From focus on customer value to focus on ecosystem value THE PLATFORM SHIFT 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  23. 23. • Know where you are in relation to platforms: provider, partner, potential partner, competitor. • Assess your data assets; create a data strategy • Invest in Governance to attract partners and their investments IMPLICATIONS FOR PRODUCT/SERVICE FIRMS 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  24. 24. CRITICAL CAPABILITIES FOR FIRMS IN A PLATFORM WORLD • Optimize external as well as internal supply chains • Coordinate a distributed ecosystem • Build and manage a common data layer • Reset strategy to emphasize community as an asset, not just owned resources 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  25. 25. TAKEAWAYS FROM CHAPTER ONE A platform is a nexus of rules and open infrastructure. A platform business enables value- creating interactions between external producers and consumers. It sets governance conditions for healthy interactions to occur. A platform’s overarching purpose: to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants. Because platform businesses create value using resources they don’t own or control, they can grow much faster than traditional businesses. Platforms derive much of their value from the communities they serve. The best platforms create strong network effects. Platforms invert companies, blurring business boundaries and transforming firms’ traditional inward focus into an outward focus. The rise of the platform has already transformed many major industries—and more equally important transformations are on the way. Source: Platform Revolution2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
  26. 26. Platform Revolution: Next Chapter 2 – Network Effects 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). Click on left hand icons to access content (downloaded slides).
  27. 27. For More Chapter 1 Information Suggested background: MBA Readings 1. Andreessen, M. (2011). Why Software Is Eating The World'. Wall Street Journal, p.20. 2. Cusumano, M. (2010) “Platforms not just Products,” (Chapter 1 of Staying Power) 3. Evans, P. & Gawer, A. (2016) "The Rise of the Platform Enterprise: A Global Survey." Center for Global Enterprise research paper. 4. Gawer, A., & Cusumano, M. A. (2002). Platform leadership: How Intel, Microsoft, and Cisco drive industry innovation (pp. 29-30). Boston: Harvard Business School Press. 5. O’Reilly, T. (2015) Networks & The Nature of the Firm (medium.com) August 14, 2015 6. Tiwana, A. (2013). Platform ecosystems: aligning architecture, governance, and strategy. Newnes. Geoffrey Parker @g2parker Marshall Van Alstyne @InfoEcon (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). Click on left hand icons to access content (downloaded slides). with Sangeet Choudary @sanguit
  28. 28. For More Chapter 1 Information Suggested background: PhD Readings 1. Hagiu A. & Wright, J. (2015), “Marketplace or Reseller?” Management Science 61, no. 1 January : 184–203. 2. M. Rysman, M. (2009) “The Economics of Two-Sided Markets,” Journal of Economic Perspectives 23, no. 3: 125–43. 3. Parker, G. & Van Alstyne, M. (2000), “Information Complements, Substitutes and Strategic Product Design,” Proceedings of the Twenty-First International Conference on Information Systems (Association for Information Systems) 4. Parker, G., Van Alstyne, M. & Jiang, X. (2017). “Platform Ecosystems: How Developers Invert the Firm” MISQ. (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). Click on left hand icons to access content (downloaded slides). Geoffrey Parker @g2parker Marshall Van Alstyne @InfoEcon with Sangeet Choudary @sanguit

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