platform strategy and digital ecosystems

Platform Strategy & Ecosystems

Open Business ConferenceMay 6th 2014

Warming Up

Let’s take a look at the 5-year predictable horizon

The world will be faster, more connected, with a billion more participants in the global economy.

A rising middle class in Brazil, India, China, and Indonesia will adopt devices first and computers second, leaping the digital divide.

Gen-Y consumers and employees will be in their 30s, defining the conventions for work and play styles.

4G wireless will be broadly available and 5G will be in limited deployment.

Carrier networks will be optimized for traffic against specific services and media types.

Consumer devices will be dominant, but small devices for data sensing and processing will make up a significant percentage of mobile and Internet traffic.

Most commerce will be initiated via mobile devices and completed on a range of platforms.

Most transactions, when executed, will be multi-party: between the app and the underlying services.

Social media with effective partitions and channels will be the dominant mode of communication.

User attention will continue to fragment, alternately directing and being directed by a range of apps.

Data will be a unit of value and a mechanism of lock-in.

Industries will be platform-shaped, with a dominant player occupying the high-margin platform position and pushing others to supporting roles.

What is a Platform Business Model?

Product to Platform

Product

SubsystemSuppliers

ComponentSuppliers

Raw MaterialsSuppliers

Pro

du

cts

Product to Platform

Product

SubsystemSuppliers

ComponentSuppliers

Raw MaterialsSuppliers

Pro

du

cts

Product to Platform

Product

SubsystemSuppliers

ComponentSuppliers

Raw MaterialsSuppliers

Pro

du

cts

Resellers

Products

Consultants

Platform

Data

Pro

du

cts

+ D

ata

A platform business model is defined as follows:

It is a business model which builds value for multiple sides in a given market by consolidating customers, simplifying market-wide processes, and rewarding each player in the value network between the value network and the customers.

There are many examples of platform business models in action today.

Eisenmann, Parker, Van Alstyne (2006),“Strategies for Two-Sided Markets,” SSRN.com.

There are many examples of digital platform business models in action today.

1. Desktop OS: Unix, Mac, Windows2. PDAs: Palm, Psion, Newton3. Game Consoles: Wii, Xbox, PlayStation4. Network Switches: Cisco, IBM, HP5. Multimedia: Adobe/Flash, MS/Silverlight, Google-Apple/HTML5 6. Payment Systems: PayPal, Google Checkout, Visa, Apple, Mobile Felica 7. Mobile Devices: iPhone, Android, Symbian, Blackberry8. Enterprise Systems: Salesforce, Oracle, i2, IBM, SAP9. Social Networks: Facebook, MySpace, LinkedIn, Monster, Twitter10.Batteries: Sony, Panasonic, Sanyo, A12311.Web Search: Google, Bing+Yahoo!, Baidu12.eBooks: Amazon, iPad, Nook, Sony13.Smart Grids: IBM etc.14.Health Care: Microsoft, WebMD, IBM etc.

Eisenmann, Parker, Van Alstyne (2011), “Platform Envelopment,” Strategic Management Journal.

Platform businesses are built on network effects.

The more network effects, the stronger the platform.

Kindle

Usr Book

PSP

Usr Gam

Zune

Usr Mus

MicrosoftSonyAmazon

Eisenmann, Parker, Van Alstyne (2011), “Platform Envelopment,” Strategic Management Journal.

MP3

User Music

Video

TV

Games

Dvpr

Web

HTML

eBooks

Publi

Calls

User

Apple

Openness is a critical element of all platform businesses.

Eisenmann, Parker, Van Alstyne (2011), “Platform Envelopment,” Strategic Management Journal.

V4V3

Price

q1

p1

Quantity

V1

V2

Platform sponsor gives away platform value.

Partners build apps for installed base, adding new layers of value.

Platform sponsor benefits from increased sales & royalties.

Partners benefit from cost savings and installed base.

Parker, Van Alstyne (2011), “Innovation, Openness & Platform Control,” SSRN.com.

Platform models generate profit through first and third party usage.

Most firms can only concentrate on most

valuable apps

Profits increase when others add to

platform’s “Long Tail”

Parker, Van Alstyne (2011), “Innovation, Openness & Platform Control,” SSRN.com.

Platform models build digital ecosystems through virtuous cycles.

We view Digital Ecosystems to be the digital counterparts of biological

ecosystems, exploiting the self-organising properties of biological

ecosystems, which are considered to be robust, self-organising and scalable

architectures that can automatically solve complex, dynamic problems.

Digital Ecosystems are a novel optimisation technique where the

optimisation works at two levels: a first optimisation, migration of agents

(representing services) which are distributed in a decentralised peer-to-peer

network, operating continuously in time; this process feeds a second

optimisation based on evolutionary computing that operates locally on

single peers and is aimed at finding solutions to satisfy locally relevant

constraints.

“

G. Briscoe, P. DeWildeIEEE Conference on BIONETICS (2006)

A digital ecosystem is a distributed, adaptive, open socio-

technical system with properties of self-organization,

scalability and sustainability inspired from natural

ecosystems.

Digital ecosystem models are informed by knowledge of

natural ecosystems, especially for aspects related to

competition and collaboration among diverse entities.

“

Various authorsWikipedia: Digital Ecosystem

[Ecosystem Competition]

Kishore S. Swaminathan (2009), Chief Scientist, Accenture

This approach of common platforms

and shared incentives

is the path to digital ecosystem success.

One Last Thought

Given current abundance of choices and scarcity of user attention,

compelling experiences

must deliver platform capabilities and content to users.

Without such experiences, an ecosystem fails to thrive.

Weill & Woerner (2013), “Optimizing Your Digital Business Model,”

MIT Sloan Management Review

Thank youPlease send questions and comments to:

@sramjisramji@apigee.com