platform shift: how new business models are changing the shape of industry
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Barcelona, Spain • October 29-31, 2013
© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Marshall Van AlstyneBoston University & [email protected]@twitter.com
Platform Shift: How New Biz Models Are Changing the Shape of Industry
MIT Industrial Liaison Program April 24, 2014
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2© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
InterBrand: 2013 Best Global Brands
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3© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
These Grew Fastest
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4© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
These are Platforms
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5© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Platform Firms Becoming More Important in Economy
3 of top 5 firms in 2013 by market cap.
FIRM MARKET CAPApple 474
Exxon Mobile 433
Google 361
Microsoft 332
Berkshire Hathaway 314
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6© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Platform Firms Becoming More Important in Economy
% of top 20 firms by market cap since 2001
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
MKT
CAP
Wei
ghte
d Pl
atfo
rm
Firm
s
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7© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
The Product Business Model is Broken
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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8© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: 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%
2008 2009 2010 2011 2012 2013
50%
40%
30%
20%
10%
0%
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9© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: 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.
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10© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Apple Feb 5, 1996
Michael Dell - ”Shut it down and give the money back to the shareholders.”
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11© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Interbrand: 2013 Best Global Brands
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12© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Nike Builds a Biz Platform
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13
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14
1. Enumerate embeddable features: salty, citrus, sour, toasted, …
2. Get consumer preferences3. Match to best recipes4. Mix new combinations, help users
create & upload, allow ratings, build a community
How would you create a platform around spice?
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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15
Create a whole geometry of flavor combinations
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16© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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
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17© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
How are these Related?
Each Side Attracts More of the Other
eBay BuyersExpedia TravelersXbox GamersAmex CardHoldersAga Khan PatientsYouTube ViewersAirBnb RentersElectric Car DriversMechanical Turk JobsLinkedIn EmployeesAndroid Users
eBay SellersExpedia Airlines/Hotels
Xbox DevelopersAmerican Express
MerchantsAga Khan Doctors
YouTube VideographersAirBnb Rooms
Electric Car Charge Stations
Mechanical Turk Laborers
LinkedIn EmployersAndroid Developers
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More Amex Users… get more Amex Merchants…
More Amex Merchants… get more Amex Users…
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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More Android Users… get more Android Developers…
More Android Developers… get more Android Users…
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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Why Platforms Beat Products Every Time
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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21© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Apple iPod pre-Platform
(1)Product First Thinking(2)Standard linear value
chain
(3) User bought music retail (or P2P)(4) Minimal network effects
Music Produce
rListen
erApple iPod Retailer
$ $ $
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22© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Apple iPod Combined with iTunes
Music Produce
rListen
erApple iPod Retailer
$ $ $
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23© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Apple iPod post-Platform
(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
$$User Conte
nt
Apple
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24© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Sony could have done this. It has many great standalone products.Google is not making this mistake with Android
How Apple is Killing Standalone Platforms
Lumia
Usr Dvpr
PSP
Usr Gam
MP3
User
Music
Video
TV
Games
Dvpr
Web
HTML
eBooks
Publi
Calls
User
Zune
Usr Mus
MicrosoftSonyNokia
Apple has vastly stronger network effects.
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25© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Zune
Usr Mus
Microsoft
How Apple is Killing Standalone Platforms
Lumia
Usr Dvpr
PSP
Usr Gam
MP3
User
Music
Video
TV
Games
Dvpr
Web
HTML
eBooks
Publi
Calls
User
SonyNokia
So what happened?
2007
Today
$30/share
$8/share
2007
Today
$53/share
$19/share
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26© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Message for you: A great standalone product is not sufficient.
PolycomSpeakerphone
R1P1 U1 R1P1 U1
CiscoFlip Camera
R1P1 U1
HPCalculator
How Apple is Killing Standalone Platforms
MP3
User
Music
Video
TV
Games
Dvpr
Web
HTML
eBooks
Publi
Calls
User
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27© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
MP3
User
Music
Video
TV
Games
Dvpr
Web
HTML
eBooks
Publi
Calls
User
Photo
Usr Upld
FlickrBlkbry
Usr Dvpr
RIMGPS
Usr Upld
TomTom
How Apple is Killing Standalone Platforms
Message for you: A great standalone product is not sufficient.
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© 2012 Zimedia
Why Apple isn’t Killing Kindle: Amazon Ecosystem
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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29© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
You can’t make calls …
Why Apple isn’t killing Kindle
MP3
User Music
Video
TV
Games
Dvpr
Web
HTML
eBooks
Publi
Calls
User
unless you load Skype.
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Monetizing Platforms Means Free Pricing is Profitable
What changes? Prices
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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31© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
To Price a Platform with Network Effects, Who Gets the Subsidy?
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32© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
If markets are independent, collect profits in both.
Pric
e
Quantity
Market One
q1
p1
Pric
e
Quantity
Market Two
q2
p2
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33© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
But if markets are coupled, discounting one builds demand in the other.
Pric
e
Market One
Quantityq1
p1
p1
q1
Pric
e
Market Two
Quantityq2
p2
p2
q2
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© 2014 Van Alstyne All rights reserved. 34
Two Sided Network Effects are Very Robust
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Additive
Additive Recursive
Multiplicative
Multiplicative Recursive
Shifted Multiplicative
Elasticity and spillover properties hold for any of these functional forms:
See Parker & Van Alstyne “Two Sided Networks: A Theory of Information Product Design” Management Science 2005
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35© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
There are 2 types of Free
1) Cellphones & Minutes, Razors & Blades
2) eBay, Amex, Google, Amazon all use 2-sided platform pricing.
Platform
Group 2Group 1
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Platforms Unlock New Value from Spare Resources
and User Generated Content
What Changes :: Supply Chains
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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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
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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Instagram sold for $1B not because
of contributions from 13 employees but from 30 million
users
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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39© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
2005
2013© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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Employees Must See Across the Platform, which Must Support a Shared Data Layer
What Changes :: Internal Organization
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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Sony was a virtual Galapagos of
holding companies
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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43© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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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.
Bezos Platform Mandate
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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Platforms Open Themselves to Third Party Contributions
What Changes :: Innovation
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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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 © 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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47© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
It’s Working when Users do Something You Didn’t Expect
Hay Carrier
RacecarFlour Mill
Ford Model T
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48© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
It’s Working when Users do Something You Didn’t Expect
Snowmobile
GoatCarrier
Sawmill
MobileChurch
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49© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
− Open to .com”
Open to developers −
The Rise & Ignominius Fall of MySpace – Business Week 2011
Does Openness Work?
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50© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: 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?
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51© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: 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
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52© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: 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 will overtake the product leader
Shed costs, keep 30% gains!
Why Platforms Beat Products
Time
Valu
e Ad
ded
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Platforms will Displace Gatekeepers with Meritocratic Crowds
What Changes :: Industry Bottlenecks
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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Advice from Travelers Replaces
that of Travel Agents
Video Production and Curation Moves to
Viewers from TV Station Staff© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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Bypass editors. Twitter lets everyone be a reporter and RT
tells what’s important.
Forget product buyers. Threadless uses crowd
votes to predict / guarantee sales.© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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Goal shifts from control, entry barriers, and differentiation to more valuable market
exchanges.
What Changes :: Strategy
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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1. Goal is a protected market niche, emphasizing industry barriers
2. Categories are sharp3. Weapon is cost leadership
or product differentiation4. Inimitable resources you
own provide sustained advantage
Porter’s Five Forces & Resource Based View
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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Platform Strategy Differs
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
1. Goal is transactions volume & creating customer value. Network effects provide sustainability.
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Platform Strategy Differs
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
1. Goal is transactions volume & creating customer value. Network effects provide sustainability.
2. Boundaries can be altered
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Platform Strategy Differs
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
1. Goal is transactions volume & creating customer value. Network effects provide sustainability.
2. Boundaries can be altered3. Competition is multi-
layered, more like 3D chess.
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1. Goal is transactions volume & creating customer value. Network effects provide sustainability.
2. Boundaries can be altered3. Competition is multi-
layered, more like 3D chess.4. Don’t need to own
inimitable resources. Have them to join you!
Platform Strategy Differs
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Owned / inimitableresources
Profits increase when others add to platform’s
Long Tail
You don’t need to own this
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What’s Next?
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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64© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
City as Platform
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65© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Energy/Smart Grid as Platform
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66© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
Education as Platform
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67© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.comHealthcare as Platform
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68© 2014 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
If you believe in the power of people connecting, embrace the platform.If you convert your product/service to platform, what would it do?
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
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THANK YOUQUESTIONS & DISCUSSION
© 2013 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: [email protected] :: PlatformEconomics.com
[email protected] Twitter: @InfoEcon
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