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Platform Shift: How New Biz Models 
Are Changing the Shape of Industry 
Marshall Van Alstyne 
Boston University & MIT 
mar...
InterBrand: 2014 Best Global Brands 
Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Al...
These Grew Fastest 
Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
These are Platforms 
Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
Dominated by Platforms 
Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choud...
Platform Firms Becoming More Important in Economy 
FIRM MARKET CAP 
Apple 598 
Exxon Mobile 416 
Google 398 
Microsoft 385...
Platform Firms Becoming More Important in Economy 
Percentage of Platform Firms weighted by MKT CAP 
(2001-2014) 
2001 200...
Platforms Draw Value from Network Effects 
Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, ...
Network Effects 
Value rises as more people 
use the platform 
Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics...
Network Effects 
Value rises as more people 
use the platform 
Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics...
In any market with network effects, the focus of 
Reason: You can’t scale network effects inside as 
attention must shift ...
... this implies ... 
To have an external focus, 
you must have an API 
strategy. 
Twitter: @InfoEcon :: marshall@mit.edu ...
Bezos Platform Mandate 
1. All teams will expose their data… 
2. Teams must communicate 
through interfaces. 
3. … no othe...
Platforms Beat Products Every Time 
See ‘’Platform Envelopment’’ (2011) Strategic Management Journal, Eisenmann, Parker & ...
Apple iPod pre-Platform 
Apple iPod Listener Retailer 
$ $ $ 
(1) Product First Thinking 
(2) Standard linear value chain ...
Apple iPod Combined with iTunes 
Music 
Producer 
Apple iPod Listener Retailer 
$ $ $ 
Twitter: @InfoEcon :: marshall@mit....
Apple iPod post-Platform 
User Content 
Apple 
(1) Remove supply chain inefficiency 
(2) Triangular platform supply networ...
How Apple is Killing Standalone Platforms 
Lumia 
Usr 
Dvp 
r 
PSP 
Usr 
Ga 
m 
Nokia Sony Microsoft 
User Music 
MP3 
Vid...
Usr Mus 
Zune 
Microsoft 
How Apple is Killing Standalone Platforms 
2007 Today 2007 Today 
Lumia 
Usr 
Dvp 
r 
PSP 
Usr 
...
How Apple is Killing Standalone Platforms 
P1 R1 U1 P1 R1 U1 
TomTom 
GPS 
Cisco 
Flip Camera 
P1 R1 U1 
HP 
Calculator 
U...
What changes? Prices 
Monetizing Platforms Means Free Pricing is Profitable 
See ‘’Strategies for Two Sided Markets” (2006...
Price 
Market One 
Quantity 
q1 
p1 
Price 
Market Two 
Quantity 
q2 
p2 
If markets are independent, collect profits in b...
Price 
Market One 
q1 
Quantity 
q1 
p1 
p1 
Price 
Market Two 
q2 
Quantity 
p2 
p2 
q2 
But if markets are coupled, disc...
There are 2 types of Free 
1) Cellphones & Minutes, 
Razors & Blades 
2) eBay, Amex, Google, 
Amazon all use 2-sided 
plat...
What Changes :: Innovation 
Platforms Open Themselves to Third Party 
Contributions 
Twitter: @InfoEcon :: marshall@mit.ed...
Platforms Get Enormous Value from 3rd Party Developers 
Most firms can only concentrate on 
most valuable apps 
Profits in...
 Consider product innovation alone 
 Harnessing 3rd party resources, 
innovation occurs at a higher 
combined rate 
 Ev...
What Changes :: Strategy 
Goal shifts from control, entry barriers, and 
differentiation to more valuable market exchanges...
Porter’s Five Forces & Resource Based View 
1. Goal is a protected market niche, 
emphasizing industry barriers 
2. Catego...
Platform Strategy Differs 
1. Goal is transactions volume & 
creating customer value. Network 
effects provide sustainabil...
Platform Strategy Differs 
1. Goal is transactions volume & 
creating customer value. Network 
effects provide sustainabil...
THANK YOU 
QUESTIONS & DISCUSSION 
marshall@mit.edu 
Twitter: @InfoEcon 
Find research HERE. Find blog posts HERE. 
Twitte...
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Platform Shift: How New Business Models are Changing the Shape of Industry - Marshall van Alstyne

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Platform Shift: How New Business Models are Changing the Shape of Industry - Marshall van Alstyne, Boston University and MIT

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Platform Shift: How New Business Models are Changing the Shape of Industry - Marshall van Alstyne

  1. 1. Platform Shift: How New Biz Models Are Changing the Shape of Industry Marshall Van Alstyne Boston University & MIT marshall@mit.edu InfoEcon@twitter.com Barcelona, Spain • October 29-31, 2014 I ♥ APIs September 9, 2014 Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  2. 2. InterBrand: 2014 Best Global Brands Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  3. 3. These Grew Fastest Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  4. 4. These are Platforms Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  5. 5. Dominated by Platforms Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  6. 6. Platform Firms Becoming More Important in Economy FIRM MARKET CAP Apple 598 Exxon Mobile 416 Google 398 Microsoft 385 Berkshire Hathaway 340 3 of top 5 firms in 2014 by market cap. Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  7. 7. Platform Firms Becoming More Important in Economy Percentage of Platform Firms weighted by MKT CAP (2001-2014) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014 %of top 20 firms by market cap since 2001 35% 30% 25% 20% 15% 10% 5% 0% MKT CAP Weighted Platform Firms Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  8. 8. Platforms Draw Value from Network Effects Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  9. 9. Network Effects Value rises as more people use the platform Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary Metcalfe’s Law
  10. 10. Network Effects Value rises as more people use the platform Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary Source: David Sacks
  11. 11. In any market with network effects, the focus of Reason: You can’t scale network effects inside as attention must shift from inside to outside the firm. easily as outside. Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary Source: Marshall Van Alstyne
  12. 12. ... this implies ... To have an external focus, you must have an API strategy. Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2013 Parker, Van Alstyne & Choudary
  13. 13. 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. Source: Yegge Rant Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  14. 14. Platforms Beat Products Every Time See ‘’Platform Envelopment’’ (2011) Strategic Management Journal, Eisenmann, Parker & Van Alstyne Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  15. 15. Apple iPod pre-Platform Apple iPod Listener Retailer $ $ $ (1) Product First Thinking (2) Standard linear value chain Music Producer (3) User bought music retail (or P2P) (4) Minimal network effects Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  16. 16. Apple iPod Combined with iTunes Music Producer Apple iPod Listener Retailer $ $ $ Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  17. 17. 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 $$ Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  18. 18. How Apple is Killing Standalone Platforms Lumia Usr Dvp r PSP Usr Ga m Nokia Sony Microsoft User Music MP3 Video TV Games Dvpr Web Usr Mus Zune HTM L eBook s Publi Calls User Sony could have done this. It has many great standalone products. Apple has vastly stronger network effects. Google is not making this mistake with Android Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  19. 19. Usr Mus Zune Microsoft How Apple is Killing Standalone Platforms 2007 Today 2007 Today Lumia Usr Dvp r PSP Usr Ga m Nokia Sony User Music MP3 Video TV Games Dvpr Web HTM L eBook s Publi Calls User So what happened? Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  20. 20. How Apple is Killing Standalone Platforms P1 R1 U1 P1 R1 U1 TomTom GPS Cisco Flip Camera P1 R1 U1 HP Calculator User Music MP3 Video TV Games Dvpr Web HTM L eBook s Publi Calls User Message for you: A great standalone product is not sufficient. Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  21. 21. What changes? Prices Monetizing Platforms Means Free Pricing is Profitable See ‘’Strategies for Two Sided Markets” (2006) Harvard Business Review Eisenmann, Parker & Van Alstyne Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  22. 22. Price Market One Quantity q1 p1 Price Market Two Quantity q2 p2 If markets are independent, collect profits in both. Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  23. 23. Price Market One q1 Quantity q1 p1 p1 Price Market Two q2 Quantity p2 p2 q2 But if markets are coupled, discounting one builds demand in the other. Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  24. 24. There are 2 types of Free 1) Cellphones & Minutes, Razors & Blades 2) eBay, Amex, Google, Amazon all use 2-sided platform pricing. Platform Group 2 Group 1 Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  25. 25. What Changes :: Innovation Platforms Open Themselves to Third Party Contributions Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  26. 26. 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 Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  27. 27.  Consider product innovation alone  Harnessing 3rd party resources, innovation occurs at a higher combined rate  Even if a platform starts behind, its value overtakes the product leader  ‘’Permissionless Innovation” protects information asymmetry.  Not only does this fill ecosystem space, hard problems get solved by multiple attempts.  Shed costs, keep 30% gains! Why Platforms Beat Products Time Value Added Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  28. 28. What Changes :: Strategy Goal shifts from control, entry barriers, and differentiation to more valuable market exchanges. Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  29. 29. Porter’s Five Forces & Resource Based View 1. Goal is a protected market niche, emphasizing industry barriers 2. Categories are sharp 3. Weapon is cost leadership or product differentiation 4. Inimitable resources you own provide sustained advantage Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  30. 30. Platform Strategy Differs 1. Goal is transactions volume & creating customer value. Network effects provide sustainability. 2. Boundaries can be altered 3. Competition is multi-layered, more like 3D chess. Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary
  31. 31. Platform Strategy Differs 1. Goal is transactions volume & creating customer value. Network effects provide sustainability. 2. Boundaries can be altered 3. Competition is multi-layered, more like 3D chess. 4. Don’t need to own inimitable resources. Have them join you! Owned / inimitable resources Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary Profits increase when others add to platform’s Long Tail You don’t need to own this
  32. 32. THANK YOU QUESTIONS & DISCUSSION marshall@mit.edu Twitter: @InfoEcon Find research HERE. Find blog posts HERE. Twitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com © 2014 Parker, Van Alstyne & Choudary

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