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1© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Barcelona, Spain • October 29-31, 20...
2© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
@InfoEcon
Firm Year Empl. Mkt Cap
BMW...
3© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
The transition to Internet era firms ...
4© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
InterBrand: 2016 Global Brands @Info...
5© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Dominated by Platforms
6© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Platforms are overtaking energy and ...
7© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
The Product Business
Model is Broken
...
8© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
The Product Business Model is Broken
...
9© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
1980-2000 Microsoft Platform Beats Ap...
10© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
InterBrand: 2016 Global Brands @Inf...
11© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Moovel: Daimler’s mobility services...
12© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Does having an API Strategy matter?...
13© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Information cost relevance in const...
14© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Information cost relevance in const...
15© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
API Economy Visualized: Amazon vs W...
© 2017 Parker & Van AlstyneTwitter: @InfoEcon:: marshall@mit.edu :: PlatformEconomics.org
Who is Getting More 3rd Party Va...
17© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Amazon growth over 10 years 2491% vs...
18© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Idea: Business Agility Correlates w...
19© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Idea: Firm Performance Is Driven By...
20© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Empirical Strategy
Questions on:
❑ ...
21© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Industries vary on API use
Have API...
22© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Monetization strategies
23© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Our IT Dept Heavily Reuses Assets
H...
24© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Our IT Dept is Unparalleled in Abil...
25© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Customer Satisfaction is Much Highe...
26© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Firms experience Net Income gains.
...
27© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Where to begin?
Firms starting with...
28© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
How are these Related?
1: Each side ...
29© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Network Effects: Users create value...
30© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
The giants of the Internet era rese...
31© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Giants of Supply Side Economies of s...
32© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Giants of Demand Side Economies of s...
33© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
In any market with network effects,...
34© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Value creation shifts from internal ...
35© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Value creation inside versus outside
36© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Value creation inside versus outside...
37© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Value creation inside versus outside...
38© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Business Models Can Overlap
Platform...
39© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Founded in 2008, Airbnb operates at ...
40© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
41© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
``In 2015, Uber, the world’s
largest...
42© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Platforms Open Themselves to Third P...
43© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
A platform is a system that
can be… ...
44© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
It’s Working when Users do Something...
45© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
It’s Working when Users do Something...
46© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
− Open to .com”
Open to developers −...
47© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
The Rise & Ignominius Fall of MySpac...
48© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Most firms can only concentrate
on m...
49© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
▪ Consider product innovation
alone
...
50© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
▪ Finance
Shareholder Value → Stakeh...
51© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Products To Platforms:
1-Open Supply...
52© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Traditional Supply Chain
Supply
$ $
...
53© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Traditional Supply Chain
Biz
$ $
Biz...
54© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Creating a B2C Platform
BizBiz Cust
...
55© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Creating a B2C Platform
Biz Cust
Biz...
56© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Example: Converting a Product to
Pla...
57© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com © 2017 Parker & Van AlstyneTwitter:...
58© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com © 2017 Parker & Van AlstyneTwitter:...
59© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
IoT Platform Strategy: Data, Sensor...
60© 2016 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
• Washers by softener and soap
• Pri...
61© 2016 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Marketing changes: point of intercep...
62© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
What’s Next?
© 2017 Parker, Van Alst...
63© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Car as Platform
64© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Block Chain & Finance as Platform
$ ...
65© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Architecture Information Modules as ...
66© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
City as Platform
67© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Internet of Things as Platform
68© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Energy/Smart Grid as Platform
69© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Education as Platform
70© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
Healthcare as Platform
71© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
1. Platforms beat products every ti...
72© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
@InfoEcon1. Introduction
2. Network...
73© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
THANK YOU
QUESTIONS & DISCUSSION
© 2...
74© 2013 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com © 2014 Parker, Van AlstyneTwitter: @...
75© 2013 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com © 2014 Parker, Van AlstyneTwitter: @...
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The Platform Revolution: How Networked Markets Are Transforming the Economy -- and How to Make Them Work for You

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Facebook, PayPal, Alibaba, Uber—these seemingly disparate companies have upended entire industries by harnessing a single phenomenon: the platform business model. In this session, professor and author Marshall Van Alstyne will explore the what, how, and why of this revolution and provide an “owner’s manual” for creating a platform marketplace. Revealing the strategies behind some of today’s rising platforms, Marshall Van Alstyne will explain how entrepreneurs—and traditional companies—can thrive in this new world.

Published in: Technology

The Platform Revolution: How Networked Markets Are Transforming the Economy -- and How to Make Them Work for You

  1. 1. 1© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Barcelona, Spain • October 29-31, 2016 © 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Marshall Van Alstyne Boston University mva@bu.edu InfoEcon@twitter.com Platform Shift: How New Biz Models Are Changing the Shape of Industry Seth Benzell Guillermo Lagarda Geoffrey Parker
  2. 2. 2© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com @InfoEcon Firm Year Empl. Mkt Cap BMW1916 116,000 $55B Uber 2009 7,000 $60B Marriott 1927 200,000 $35B Airbnb 2008 5,000$21B Walt Disney 1923 185,000 $179B Facebook 2004 12,691 $410B Kodak 1888 145,000 $30B (heyday) Instagram 2010 13 $1B (acquisition)
  3. 3. 3© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com The transition to Internet era firms resembles the transition to Industrial era firms … but for the opposite reason @InfoEcon
  4. 4. 4© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com InterBrand: 2016 Global Brands @InfoEcon
  5. 5. 5© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Dominated by Platforms
  6. 6. 6© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Platforms are overtaking energy and banking Source: Visualcapitalist.com, Bloomberg
  7. 7. 7© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com The Product Business Model is Broken © 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  8. 8. 8© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com The Product Business Model is Broken In 2009, BlackBerry had nearly 50% market share in U.S. operating systems, according to IDC. Now: 2.1% 50% 40% 30% 20% 10% 0%
  9. 9. 9© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com 1980-2000 Microsoft Platform Beats Apple Product Apple launched the PC revolution but Microsoft licensed widely, built a huge developer ecosystem, 6X larger.
  10. 10. 10© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com InterBrand: 2016 Global Brands @InfoEcon
  11. 11. 11© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Moovel: Daimler’s mobility services ecosystem • One stop shop for urban mobility • Compare transport time & cost across bus, train, taxi, bike & walk • Book & pay Car2Go, MyTaxi, Flinkster • CROOVE is Airbnb for Mercedes Benz & others • Valet pickup / dropoff, insurance by Allianz Gathers information and community in a single place
  12. 12. 12© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Does having an API Strategy matter? © 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  13. 13. 13© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Information cost relevance in construction Planning Contractor Labor Materials Supplier ▪ Supplier A represent a small fraction of total material costs e.g. 2-4% in construction ▪ Information costs of search, design, planning, changes, errors/clashes and coordination can easily sum to 5-25% or more ▪ Even doubling A’s share will not overtake share that a platform can capture working on information costs Data source: source: International Facility Management Association, IFMA Cost of search, planning, design, compliance, coordination, changes/errors Info Non-Info
  14. 14. 14© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Information cost relevance in construction along entire lifecycle Planning Contractor Labor Materials Savings from smart facilities management Supplier ▪ Majority of maintenance works are reactive ▪ The information costs for maintenance and passive utility management can easily sum to 10-20% or more ▪ Introducing predictive maintenance and smart utility management can have significant effects Data source: source: International Facility Management Association, IFMA Utilities Maintenance & repair Other Search, planning, design, compliance, coordination, changes/errors Info Non-Info Info
  15. 15. 15© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com API Economy Visualized: Amazon vs Walmart 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 Enterprise / storage Walmart Amazon SNS Alexa Web Inform Amazon Marketplac e Amazon SimpleDB Amazon Product Advertising Amazon CloudWatc h Amazon Flexible Amazon Redshift Amazon SC2 Amazon S3 Amazon Mechanical Turk Amazon RDSAmazon DynamoDB Amazon Queue Service Walmart Amazon Companies
  16. 16. © 2017 Parker & Van AlstyneTwitter: @InfoEcon:: marshall@mit.edu :: PlatformEconomics.org Who is Getting More 3rd Party Value Add? Source: P. Evans, CGE; CB Insights, Capital IQ, CrunchBase, 2015
  17. 17. 17© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Amazon growth over 10 years 2491% vs. Walmart (48%), Target (23%), Macy’s (-12%), Best Buy (-31%) Logistics & supply chain squeezing have limits. External value add is much less limited.
  18. 18. 18© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Idea: Business Agility Correlates with… • Company cultural drivers such as decentralized decisions, shared purpose, and ‘rewarding’ initiative • IT assets such as APIs, SDKs, and templates • Processes such as code reuse and ability to experiment and fail fast
  19. 19. 19© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Idea: Firm Performance Is Driven By… • Sales & Net Income increase from B2C APIs • Operational efficiency increase from internal APIs • Cost reduction and supply chain efficiency from B2B APIs • Market Cap gains from agility and from APIs BizBiz Cust Upstrea m APIs Dnstream APIs Internal APIs B2 B B2 C
  20. 20. 20© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Empirical Strategy Questions on: ❑ API Strategy ❑ Time to spot trends ❑ Parallel vs Serial decisions ❑ Risk taking culture ❑ Reuse ❑ … ❑ Experimentation ➔ Business Agility Index (BAI) Data from: ❑ 239 API using firms including usage intensity ❑ 132 Firms’ financials from Compustat, Orbis, Hoovers ❑ 4 to 1 match of non-API adopting firms ❑ Supplemental research on developer portals (e.g. Wayback Machine) ➔ Rigorous econometric testing Survey of 500 Firms Match Firms’ API use to $$$
  21. 21. 21© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Industries vary on API use Have API Strategy No API Strategy
  22. 22. 22© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Monetization strategies
  23. 23. 23© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Our IT Dept Heavily Reuses Assets Have API Strategy No API Strategy
  24. 24. 24© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Our IT Dept is Unparalleled in Ability to Fail Fast & Experiment Have API Strategy No API Strategy API adopters spend less time on maintenance and more on innovation
  25. 25. 25© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Customer Satisfaction is Much Higher Than Our Top Competitor Have API Strategy No API Strategy
  26. 26. 26© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Firms experience Net Income gains. Large Market Cap gains of 2-10% after API adoption Log net income grouped by adoption date Source: Benzell, Lagarda, Van Alstyne (2016) “The Role of APIs in the Firm Performance” using Apigee data
  27. 27. 27© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Where to begin? Firms starting with Internal APIs showed earliest gains Source: Benzell, Lagarda, Van Alstyne (2016) “The Role of APIs in the Firm Performance” using Apigee data BizBiz Cust Upstrea m APIs Dnstream APIs Internal APIs B2 B B2 C Biz
  28. 28. 28© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com How are these Related? 1: Each side attracts the Other 2: They’re all outside – provide external ecosystem Uber Riders eBay Buyers Xbox Gamers Amex CardHolders Aga Khan Patients YouTube Viewers AirBnb Renters Tesla Car Drivers Mechanical Turk Jobs LinkedIn Employees Upwork Freelancers Android Users Uber Drivers eBay Sellers Xbox Developers Amex Merchants Aga Khan Doctors YouTube Videographers AirBnb Rooms Tesla Charge Stations Mechanical Turk Laborers LinkedIn Employers Upwork Projects Android Developers
  29. 29. 29© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Network Effects: Users create value for Users Source: Albert Cañigueral “Platforms are Eating the World” slideshare.net @InfoEcon
  30. 30. 30© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com The giants of the Internet era resemble those of the Industrial era but for the opposite reason. © 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  31. 31. 31© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Giants of Supply Side Economies of scale Standard Oil 1909 Acklam Ironworks 1924 Vanderbilt Colossus of (Rail) Roads Electric Dynamo 1893 Ford Model T 1908
  32. 32. 32© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Giants of Demand Side Economies of scale Social Networks Windows OS Mobile Merchant Mkts
  33. 33. 33© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com In any market with network effects, the focus of attention must shift from inside to outside the firm. Reason: You can’t scale network effects inside as easily as outside. @InfoEcon
  34. 34. 34© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Value creation shifts from internal to external servicing What Changes :: Operations & Logistics © 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  35. 35. 35© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Value creation inside versus outside
  36. 36. 36© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Value creation inside versus outside STEP 1 STEP 2 STEP 3 STEP … STEP N
  37. 37. 37© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Value creation inside versus outside DEMAND PLATFORM SUPPLY
  38. 38. 38© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Business Models Can Overlap Platforms Scale More than Pipes Dell Coca Cola Apple Samsung Airbnb Uber
  39. 39. 39© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Founded in 2008, Airbnb operates at global scale: 1M+ listings, 34,000 cities, 180 countries Identify spare capacity, scale across boundaries Paris 5,692 listings40,000 listings 8,105 listings Berlin Sydney Source: http://tomslee.net/airbnb-data, 2015Courtesy Peter Evans © 2016
  40. 40. 40© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  41. 41. 41© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com ``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.’’ Tom Goodwin, Sr. VP of Strategy Havas Media © 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  42. 42. 42© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Platforms Open Themselves to Third Party Contributions What Changes :: R&D and Innovation © 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  43. 43. 43© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com 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 Andreessen: Venture Capitalist, Netscape Founder, Board HP, eBay© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  44. 44. 44© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com It’s Working when Users do Something You Didn’t Expect Hay Carrier RacecarFlour Mill Ford Model T
  45. 45. 45© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com It’s Working when Users do Something You Didn’t Expect Snowmobile Goat Carrier Sawmill Mobile Church
  46. 46. 46© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com − Open to .com” Open to developers − The Rise & Ignominius Fall of MySpace – Business Week 2011 Does Openness Work?
  47. 47. 47© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com The Rise & Ignominius Fall of MySpace – Business Week 2011 ‘‘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.’’ Does Openness Work?
  48. 48. 48© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com 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 Platforms Get Enormous Value from 3rd Party Developers
  49. 49. 49© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com ▪ 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 ▪ Shed costs, keep 30% gains! Why Platforms Beat Products Time ValueAdded
  50. 50. 50© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com ▪ Finance Shareholder Value → Stakeholder Value Incorporate network effects ▪ Human Resources Internal Employees → External communities ▪ R&D Experts & Specialized departments → Crowdsourcing & Open Innovation ▪ Strategy Entry Barriers & Inimitable Resources → Ecosystem husbandry & Long Tail ▪ Marketing Push → Pull, Outbound → Inbound ▪ IT Back Office (ERP) → Front Office (CRM) → Out-of-Office (Social & Big Data) ▪ Operations & Logistics Uber: biggest taxi company, no taxis, Airbnb (biggest accommodations but no real estate), Facebook (biggest media firm but creates no content), Alibaba (biggest merchant but has no inventory) Network Effects & Inverting the Firm Changes… @InfoEcon
  51. 51. 51© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Products To Platforms: 1-Open Supply Chain 2 – Add Information & Communities © 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  52. 52. 52© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Traditional Supply Chain Supply $ $ Assemble $ Manufacture Retail (1) Value accumulates from stage to stage (2) Standard linear value chain (3) Logistics optimize stuff (usu. not incentives) (4) No network effects
  53. 53. 53© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Traditional Supply Chain Biz $ $ Biz $ Biz Cust Potential B2B PlatformPotential B2C Platform
  54. 54. 54© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Creating a B2C Platform BizBiz Cust Potential B2C Platform Biz Biz Cust 1. Make your business a platform by facilitating interactions across your systems.
  55. 55. 55© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Creating a B2C Platform Biz Cust Biz BizBiz CustCust 1. Make your business a platform by facilitating interactions across your systems. 2. Expand the biz partners who can reach your customers. 3. Expand the customers who can reach your suppliers. 4. Foster network effects with high quality interactions.
  56. 56. 56© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Example: Converting a Product to Platform © 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  57. 57. 57© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com © 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com • Incandescent light bulb, Joseph Swan • Edison patent filed 1878 • Same bulb 137 years later • Energy efficiency < 5% • Retail price $0.40
  58. 58. 58© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com © 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com • Blue Ocean product strategy • Compact fluorescent efficiency 11% • LED luminous efficiency 15% • Multicolor programmable • Retail price $4 - $40
  59. 59. 59© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com IoT Platform Strategy: Data, Sensors, Open Ecosystem • Offer Wii, Bluetooth, or Cloud • Security alert – intruder or toddler wondering onto street • Bundle energy demand, sell demand management to utility • Time for grandma’s medication • Voice Commands: o “I’ve fallen and I can’t get up” o Remind John to take out garbage Can give away $4-40 bulbs and charge for servicesTry selling $4 bulb when competitor gives away $40 bulb freePlatforms are the business models for IoT
  60. 60. 60© 2016 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com • Washers by softener and soap • Printers buy paper and ink • Espresso machines buy coffee and milk • Thermostats buys energy Sanjay Sarma, codeveloper many RFID standards © 2016 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com When Things Buy Things – API Connectivity Explodes
  61. 61. 61© 2016 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Marketing changes: point of interception is not the person but the API. Sell laundry or printing or coffee as a service Machine changes: sell the device or enable the plug-in and sell the service Sanjay Sarma, codeveloper many RFID standards © 2016 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com When Things Buy Things – API Connectivity Explodes
  62. 62. 62© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com What’s Next? © 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com
  63. 63. 63© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Car as Platform
  64. 64. 64© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Block Chain & Finance as Platform $ € ¥ £€ $ ¥ £ €
  65. 65. 65© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Architecture Information Modules as Platform
  66. 66. 66© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com City as Platform
  67. 67. 67© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Internet of Things as Platform
  68. 68. 68© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Energy/Smart Grid as Platform
  69. 69. 69© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Education as Platform
  70. 70. 70© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Healthcare as Platform
  71. 71. 71© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com 1. Platforms beat products every time – faster innovation, value proportional to use 2. Business models differ because network effects (i.e. demand economies of scale) invert the firm, creating new monopolies 3. Information & Community are key resources 4. APIs are key. Relative to non-users, API users report: a. Lower maintenance costs & more innovation b. More ability to fail fast and experiment c. Higher customer satisfaction d. APIs predict a 2-10% increase in market cap! @InfoEcon
  72. 72. 72© 2017 Parker & Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com @InfoEcon1. Introduction 2. Network Effects 3. Architecture 4. Disruption 5. Launch 6. Monetization 7. Openness 8. Governance 9. Metrics 10. Strategy 11. Policy 12. Future Available on Amazon here.
  73. 73. 73© 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com THANK YOU QUESTIONS & DISCUSSION © 2017 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com mva@bu.edu Twitter: @InfoEcon Find research HERE. Find blog posts HERE. MIT Initiative on the Digital Economy
  74. 74. 74© 2013 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com © 2014 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Services Protected by Credentialing, Complexity, Regulation & Hard Assets Consumer Goods Home Goods Automotive Conslt: Eden MacC Labor : oDesk $$$: eToro, Kickstr News : Twitter Insurance : ? Law : LegalZoom Education : edX Art & Craft : Etsy Apparel:Lee & Fung Shirts : Threadless Shoes : Nike Fuel Watches : Apple Thermostat : Nest Lighting : Philips Appliance : Haier Rides : Uber Cars : 3d Printed Cars : Mercedes Info & Tech Games : Nintendo Cloud : AWS Search : Google OS : MS Windows Maps : Google APIs PDF : Adobe Movies : Netflix
  75. 75. 75© 2013 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com © 2014 Parker, Van AlstyneTwitter: @InfoEcon :: mva@bu.edu :: PlatformEconomics.com Food & Agri Protected by Credentialing, Complexity, Regulation & Hard Assets Crop Yield : IBM Spices : McCormick Energy & Mining Heavy Industry Government Farming : eChoupal Mining : Gold Corp Utility : EnerNOC Tractors : Hitachi Engines : GE Predix City : Singapore Medicine Devices : Biomet MRI : Cohealo Healthcare:Harvard

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