ORCHESTRATING THE ECOSYSTEM IN   THE RACE FOR THE MARKET: How platforms build and expand their         ecosystem overtime ...
The phenomenon          Competition between incompatible technology platforms               • Technological standards batt...
Platform Markets: examplesGhoshal Conference, LBS             © C. Cennamo       5/14/12
Study’s Focus             Platform’s complementary applications                     Platform-level explanatory factors    ...
Econ lit. (Two-sided markets)     System evolution driven by (indirect) network effects (e.g.,      Armstrong 06; Caillaud...
Technology lit.      System evolves according to waves of (platform technology)      innovation (e.g., Schilling 02, 03; S...
Gaps        Paucity of analysis on platform-level mechanisms                   How to “build” a competitive ecosystem?    ...
The modelGhoshal Conference, LBS     © C. Cennamo   5/14/12
ContributionGhoshal Conference, LBS      © C. Cennamo   5/14/12
Hypothesis 1                                                               (+)                          Variety           ...
Hypothesis 2                                                         (+)                            Variety             Ne...
Hypotheses                                 In-house development                                       capability          ...
Empirical setting - Methods          US Videogame Industry (1995-2008)               • Monthly obs. on each console and ga...
FindingsGhoshal Conference, LBS    © C. Cennamo   5/14/12
FindingsGhoshal Conference, LBS    © C. Cennamo   5/14/12
Implications          Ecosystem architecture:          orchestration capability + vision about industry architecture      ...
Implications                                                            Industry Architecture                    Platform ...
!T h a n k     Y o u            carmelo.cennamo@unibocconi.it                  www.unibocconi.eu
!T h a n k        Y o u            carmelo.cennamo@unibocconi.it                  www.unibocconi.eu
Variables          ∆ Applications variety: ln(Xt/Xt-1), where X = # game titles (Cottrell & Nault 04)          In-house de...
Correlation statisticsGhoshal Conference, LBS           © C. Cennamo     5/14/12
The Market-RaceGhoshal Conference, LBS        © C. Cennamo   5/14/12
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Orchestrating platform ecosystem innovation

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Talk @ London Business School for the Goshal Startegy Conference – London, May 2012

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Orchestrating platform ecosystem innovation

  1. 1. ORCHESTRATING THE ECOSYSTEM IN THE RACE FOR THE MARKET: How platforms build and expand their ecosystem overtime Carmelo Cennamo Sumantra Ghoshal Conference London Business School, London 14th May 2012
  2. 2. The phenomenon Competition between incompatible technology platforms • Technological standards battles (Suarez, 2004) • Fierce competition to win the market (“winner-take-all”) (e.g., Eisenmann et al. 2006; Schilling, 2002) Platform: interface mediating distinct but interdependent groups of users that transact on the platform to obtain value (Evans, 2003; Hagiu, 2005; Rochet & Tirole, 2003, 2006) The market race unfolds through accumulation of co- specialized assets (complementary applications) and users installed baseGhoshal Conference, LBS © C. Cennamo 5/14/12
  3. 3. Platform Markets: examplesGhoshal Conference, LBS © C. Cennamo 5/14/12
  4. 4. Study’s Focus Platform’s complementary applications Platform-level explanatory factors Impact of platform’s (orchestration) capabilities on platform system evolutionGhoshal Conference, LBS © C. Cennamo 5/14/12
  5. 5. Econ lit. (Two-sided markets) System evolution driven by (indirect) network effects (e.g., Armstrong 06; Caillaud & Jullien 03; Clements & Oashi 05; Eisenmann et al. 06; Hagiu 05, 09; Rochet & Tirole 03, 06) Users Installed Base Higher-level Platform Platform mechanisms System Performance – Market Share Complementary ApplicationsPlatform-level mechanismsAggressive PricingRoyalties structure-fees Feedback effectGhoshal Conference, LBS © C. Cennamo 5/14/12
  6. 6. Technology lit. System evolves according to waves of (platform technology) innovation (e.g., Schilling 02, 03; Sheremata 04; Suarez 04, 05;Venkatraman & Lee 04; Wade 95)Technological Technological Technological Selection Bandwagons Dominance Regime of Users Installed appropriability Base Switching costs Platform Platform Characteristics Performance System technological field Social dynamics Complementary Applications Platform-level mechanisms Technological superiority Licensing–Timing–MarketingGhoshal Conference, LBS © C. Cennamo 5/14/12
  7. 7. Gaps Paucity of analysis on platform-level mechanisms How to “build” a competitive ecosystem? Platform system positioning? What about the ecosystem evolution (i.e., the race competition per se)? ...closing the gap • Managing relationships with complementors (Boudreau, 10; Cennamo & Santaló, in press; Gawer 2010; Gawer-Cusumano 2002;Yoffie-Kwak; 2006) • Learning and internal R&D (Gawer-Cusumano 2002; Hill 1997; Schilling 2002, 2003) • Industry-Platform evolution (Jacobides et al. 2006; Ozcan-Eisenhardt 2009)Ghoshal Conference, LBS © C. Cennamo 5/14/12
  8. 8. The modelGhoshal Conference, LBS © C. Cennamo 5/14/12
  9. 9. ContributionGhoshal Conference, LBS © C. Cennamo 5/14/12
  10. 10. Hypothesis 1 (+) Variety In-house development Complementary capability Applications Firm-specific (dynamic) capability that help appraise new tech & mkt trajectories, deliver quality innovation, keep relevant a firm’s valuable assets (Ambrosini & Bowman 09; Helfat 97; Lavie 06; Rothaermel & Hess 07; Teece 07) • Reduce tech & mkt uncertainty (shadow entry barrier); trigger initial demand (Hill 97; Sheremata 04) • Improve quality, facilitate investments in specialized assets (Rothaermel et al. 06)Ghoshal Conference, LBS © C. Cennamo 5/14/12
  11. 11. Hypothesis 2 (+) Variety Network Orchestration Complementary capability Applications Ability to engage, manage & leverage competences of external developers to elicit complementary innovation (Cusumano & Gawer 02; Dhanaraj & Parkhe 06). “Capacity to shape the ecosystem” (Teece 07:1320) 1) Facilitate share of info & knowledge to maximize innovation output (Dyer & Singh 98; Kogut 00) 2) Manage innovation appropriability to enhance potential for value creation (Hagiu & Yoffie 09; Gawer & Henderson 07) 3) Foster network dynamic stability (growth) by envisioning/structuring roles & interdependencies of developers (“ecosystem architecture”) (Jacobides et al. 06; Ozcan & Eisenhardt 09; Gawer 10)Ghoshal Conference, LBS © C. Cennamo 5/14/12
  12. 12. Hypotheses In-house development capability H1a (+) H2a (+) In-house development capability H1 (+) Variety Complementary H2 (+) Network orchestration Applications capability H3a/b (+)/(–) Network orchestration x In-house developmentGhoshal Conference, LBS © C. Cennamo 5/14/12
  13. 13. Empirical setting - Methods US Videogame Industry (1995-2008) • Monthly obs. on each console and game-titles supplied to it (sales, intro date, producer etc....) • Data from NPD research group and specialized website Panel model, fixed effects + 2SLS to account for unobserved individual effects and endogeneity issues Control variables: users installed base; games portfolio scope; platforms av. age; # rival platforms; generation-year dummies (time trends effects)Ghoshal Conference, LBS © C. Cennamo 5/14/12
  14. 14. FindingsGhoshal Conference, LBS © C. Cennamo 5/14/12
  15. 15. FindingsGhoshal Conference, LBS © C. Cennamo 5/14/12
  16. 16. Implications Ecosystem architecture: orchestration capability + vision about industry architecture • Need for design and control over trajectory of ecosystem evolution • Balance platform’s WTA incentives with those of external providers of complementary apps/content • Envision & shape interdependence between ecosystem & industry architecture for competitive advantage • coevolution of platform’s capabilities and network effects Multidimensional game!Ghoshal Conference, LBS © C. Cennamo 5/14/12
  17. 17. Implications Industry Architecture Platform traits Ecosystem Architecture Platform Competition • Firm History • Strategic Customers maneuvering • Vision Base • Capabilities (tech & • Strategic positioning orchestration) • Management of Complementors/ expectations • Strategic objectives Applications • Network effects & lock-inGhoshal Conference, LBS © C. Cennamo 5/14/12
  18. 18. !T h a n k Y o u carmelo.cennamo@unibocconi.it www.unibocconi.eu
  19. 19. !T h a n k Y o u carmelo.cennamo@unibocconi.it www.unibocconi.eu
  20. 20. Variables ∆ Applications variety: ln(Xt/Xt-1), where X = # game titles (Cottrell & Nault 04) In-house development: % in-house game titles > 75th percentile of title sales distribution (robustness: # in-house games) (Corts & Lederman 09) Network orchestration: ∆ producers platform embeddedness (Venkatraman & Lee 04); ∑i(Pji,t)2; Pji = proportion of platform j’s titles released by developer i. Generation evolution pace: ln(St/St-1); S=sales all new generation platformsGhoshal Conference, LBS © C. Cennamo 5/14/12
  21. 21. Correlation statisticsGhoshal Conference, LBS © C. Cennamo 5/14/12
  22. 22. The Market-RaceGhoshal Conference, LBS © C. Cennamo 5/14/12

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