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The Rise of Platforms - And What It Means for Business

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Why do business platforms beat products every time? This is my keynote at EMERCE eDay. We cover changes in global brands, how feedback effects work, how innovation is different, and examples of coming platforms.

The Rise of Platforms - And What It Means for Business

  1. 1. Rise of the Platform & What It Means for Business Marshall Van Alstyne Boston University & MIT marshall@mit.edu InfoEcon@twitter.com © 2013 Parker, Van Alstyne & Choudary
  2. 2. InterBrand: 2013 Best Global Brands
  3. 3. These are Platforms
  4. 4. Platform firms becoming more Important in economy Firm Market Cap Apple 438 Exxon Mobile 380 Google 291 Microsoft 282 Berkshire Hathaway 281 3 of top 5 firms in 2013 by market cap.
  5. 5. MKT CAP Weighted Platform Firms Platform firms becoming more Important in economy 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 % of top 20 firms by market cap since 2001
  6. 6. The Product Business Model is Broken
  7. 7. The Product Business Model is Broken
  8. 8. 1980-2000 Microsoft platform beats Apple product Apple launched the PC revolution but Microsoft licensed widely, built a huge developer ecosystem, 6X larger.
  9. 9. Apple Feb 5, 1996 Michael Dell “I‟d shut it down and give the money back to the shareholders.”
  10. 10. InterBrand: 2013 Best Global Brands
  11. 11. Nike builds a biz platform
  12. 12. 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
  13. 13. How are these related? 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 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 Each Side Attracts More of the Other
  14. 14. More Amex Merchants More Amex Users … get more Amex Users… … get more Amex Merchants…
  15. 15. More Android Developers More Android Users … get more Android Users… get more Android Developers… …
  16. 16. Why platforms beat products every time
  17. 17. Apple iPod pre-Platform Apple iPod Listener $ Music Producer Retailer $ $ (1) Product First Thinking (3) User bought music retail (or (2) Standard linear value chain P2P) (4) Minimal network effects
  18. 18. Apple iPod combined with iTunes Apple iPod Listener $ Music Producer Retailer $ $
  19. 19. Apple iPod post-Platform User Content $$ Apple (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
  20. 20. How Apple is killing standalone platforms Usr Usr Dvpr Usr Gam Mus Lumia Zune Nokia User PSP Sony Microsoft User Calls Music MP3 Video TV Games Dvpr Web HTML Publi eBooks Apple has vastly stronger network effects. Sony could have done this. It has many great standalone products. Google is not making this mistake with Android
  21. 21. How Apple is killing standalone platforms 2007 Today Usr 2007 Usr Dvpr Today Gam Usr Mus Lumia Zune Nokia User PSP Sony Microsoft User Calls Music MP3 Video TV Games Dvpr Web HTML Publi eBooks Apple has vastly stronger network effects. Sony could have done this. It has many great standalone products. Google is not making this mistake with Android
  22. 22. How Apple is killing standalone platforms R1 P1 Polycom Speakerphone User U1 P1 Cisco Flip Camera User Calls R1 P1 U1 Music MP3 Video TV Games R1 U1 HP Calculator Dvpr Web HTML Publi eBooks Message for you: A great standalone product might not be sufficient.
  23. 23. How Apple is killing standalone platforms Usr Usr Upld Usr Upld Dvpr GPS Blkbry TomTom User Photo Flickr RIM User Calls Music MP3 Video TV Games Dvpr Web HTML Publi eBooks Message for you: A great standalone product might not be sufficient.
  24. 24. Why Apple isn‟t killing Kindle: Amazon Ecosystem © 2012 Zimedia
  25. 25. Why Apple isn‟t killing Kindle User User Calls Music MP3 Video TV Games Dvpr Web HTML eBooks You can‟t make calls … unless you load Skype. Publi
  26. 26. Prices Change :: Tweet #1 Monetizing platforms means free pricing is profitable
  27. 27. To price a platform with network effects, who gets the subsidy?
  28. 28. There are 2 types of Free 1) Cellphones & Minutes, Razors & Blades 2) Amazon also uses 2sided platform pricing. Will do it more often than authors or publishers. Writers Readers Platform
  29. 29. Supply Chains Change :: Tweet #2 Platforms unlock new value from spare resources and user generated content
  30. 30. 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
  31. 31. Instagram sold for $1B not because of contributions from 13 employees but from 30 million users
  32. 32. Internal Organization Changes :: Tweet #3 Employees must see across the platform, which must support a shared data layer
  33. 33. Sony was a virtual Galapagos of holding companies
  34. 34. Bezos Platform Mandate 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.
  35. 35. Innovation Changes :: Tweet #4 Platforms open themselves to third party contribution
  36. 36. “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
  37. 37. It‟s working when users do something you didn‟t expect Ford Model T Flour Mill Hay Carrier Racecar
  38. 38. It‟s working when users do something you didn‟t expect Mobile Church Sawmill Snowmobile Goat Carrier
  39. 39. Does Openness Work? Open to developers − − Open to “.com” The Rise & Ignominius Fall of MySpace – Business Week 2011
  40. 40. Does Openness Work? „„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.‟‟ The Rise & Ignominius Fall of MySpace – Business Week 2011
  41. 41. Platforms get enormous value From 3rd party developers 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
  42. 42. Why Platforms Beat Products Value Added - Time 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.
  43. 43. Industry Changes :: Tweet #5 Platforms will displace gatekeepers with meritocratic crowds
  44. 44. Video production and curation moves to viewers from TV station staff Advice from travelers replaces that of travel agents
  45. 45. What‟s next?
  46. 46. City as Platform
  47. 47. Energy/Smart Grid as Platform
  48. 48. Education as Platform
  49. 49. Healthcare as Platform
  50. 50. If you believe in the power of people connecting, embrace the platform. If you convert your product/service to platform, what would it do?
  51. 51. and Choudary
  52. 52. CREDITS Photos: Energy/Smart Grid as Platform Source: Wikipedia Solar Energy Education as Platform © 2012 Tomi Um, MIT Technology Review Healthcare as Platform © Aleksandar Stojanovic Presentation Design: Sanja Ignjatovic sania.ignjatovic@gmail.com www.saintartdesigns.com Es Dzi http://darkleaf.webnode.com

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