Platforms: How Change in Industry is Driving Change in Strategy

Barcelona, Spain • October 29-31, 2015
© 2015 Parker & Van AlstyneTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
Marshall Van Alstyne
Boston University & MIT
marshall@mit.edu
InfoEcon@twitter.com
Platform Shift: How New Biz Models
Are Changing the Shape of Industry
MIT Leading Disruption Nov 18, 2015

2© 2015 Parker & Van AlstyneTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
The transition to Internet era firms resembles the transition
to industrial era firms … but for different reasons
@InfoEcon

InterBrand: Global Brands @InfoEcon

Dominated by Platforms @InfoEcon

Platform Firms Becoming More Important in Economy
3 of top 5 firms in 2015 by market cap.
FIRM MARKET CAP
Apple 627
Exxon Mobile 385
Microsoft 377
Berkshire Hathaway 357
Google 344
@InfoEcon
FIRM MARKET CAP
Apple 635
Google 500
Microsoft 424
Exxon Mobile 333
Berkshire Hathaway 328

Platform Firms Becoming More Important in Economy
% of top 20 firms by market cap since 2001
Percentage of Platform Firms weighted by MKT CAP
(2001-2014)
35%
30%
25%
20%
15%
10%
5%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014
MKTCAPWeightedPlatform
Firms
@InfoEcon

InterBrand: Global Brands @InfoEcon

8© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
Nike Builds a Biz Platform

10
1. Enumerate embeddable features: salty,
citrus, sour, toasted, …
2. Get consumer preferences
3. Match to best recipes
4. Mix new combinations, help users create
& upload, allow ratings, build a
community
How would you create a platform around spice?
© 2015 Parker, Van Alstyne & ChoudaryTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com

11
Create a whole geometry of flavor combinations

The Product Business
Model is Broken
@InfoEcon

The Product Business Model is Broken
In 2009, BlackBerry had nearly 50% market share in
U.S. mobile, according to IDC. In 2013: 2.1%
2008 2009 2010 2011 2012 2013
50%
40%
30%
20%
10%
0%
@InfoEcon

1980-2000 Microsoft Platform Beats Apple Product
Apple launched the PC revolution but Microsoft licensed
widely, built a huge developer ecosystem, 6X larger.
@InfoEcon

How are these Related?
Each Side Attracts More of the Other
eBay Buyers
Uber Riders
Xbox Gamers
Amex CardHolders
Aga Khan Patients
YouTube Viewers
AirBnb Renters
Tesla Car Drivers
Mechanical Turk Jobs
LinkedIn Job Seekers
Upwork Freelancers
Android Users
eBay Sellers
Uber Drivers
Xbox Developers
Amex Merchants
Aga Khan Doctors
YouTube Videographers
AirBnb Rooms
Tesla Charge Stations
Mechanical Turk Laborers
LinkedIn Job Listings
Upwork Project Listings
Android Developers

Network Effects: Users create value for Users
Source: Albert Cañigueral “Platforms are Eating the World” slideshare.net
@InfoEcon

The giants of the Internet era resemble those of the
Industrial era but for the opposite reason.
@InfoEcon

Giants of Supply Side Economies of scale
Electric
Dynamo
1893
Ford Model T
1908
Standard Oil
1909
Acklam Ironworks
1924
Vanderbilt
Colossus of
(Rail) Roads
@InfoEcon

Giants of Demand Side Economies of scale
Social Networks
Windows OS Mobile
Merchant Mkts
@InfoEcon

$1B+ Platforms by Region
Source: P. Evans, CGE; CB Insights, Capital IQ, CrunchBase, 2015
Private
Public
North America Asia Europe Africa & L. AmericaNorth America Europe Africa & Latin
America
Asia
North America has more platform firms than anywhere else in the world. China, with a large
homogeneous market, is growing fast. Europe, with a more fragmented market, has less than ¼
the value of North America and is not far ahead of developing regions

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

Businesses shift from outbound messaging to
inbound servicing
What Changes :: Marketing
@InfoEcon

Four Decades of Consumer Marketing
1980’s
Segmentation
Source: Rob Cain, CIO Coca Cola Company
Single
Message
1990’s
Individual
Targeting
2000’s
Virality / Social
Influence
2010’s

Four Decades of Consumer Marketing
1980’s
Segmentation Individual
Targeting
Virality / Social
Influence
Single
Message
1990’s 2000’s 2010’s
PUSH / OUTBOUND PULL / INBOUND

Emphasis shifts from employees to contractors,
from internal experts to external crowds, and
from subordinate dictation to community persuasion
What Changes :: Human Resources
@InfoEcon

Instagram sold for
$1B not because of
contributions from 13
employees but from 30
million users

These sources of value are outside the firm
eBay Buyers
Uber Riders
Xbox Gamers
Amex CardHolders
SAP Enterprise Clients
YouTube Viewers
AirBnb Renters
Tesla Car Drivers
Mechanical Turk Jobs
LinkedIn Job Seekers
Upwork Freelancers
Android Users
eBay Sellers
Uber Drivers
Xbox Developers
Amex Merchants
SAP Developer Network
YouTube Videographers
AirBnb Rooms
Tesla Charge Stations
Mechanical Turk Laborers
LinkedIn Job Listings
Upwork Project Listings
Android Developers
@InfoEcon

Upwork outsources even middle management
Firms are accessing “cloud labor” at the team and
individual level
Hierarchy
@InfoEcon© 2015 Marshall Van Alstyne
Flat Freelance

Shift from valuing assets to also valuing interactions
What Changes :: Finance
@InfoEcon

• Estimate global taxi market
• Estimate market share
• Est. risk adjusted cash flow
• Consider proprietary
methods, barriers to
competition
• Value: $5.9 Billion
Aswath Damodaran: NYU Finance professor, Corporate
Valuation author, Herb Simon Prize.
@InfoEcon

Bill Gurley: Venture Capitalist, OpenTable, Zillow, Uber
• All true but overlooking
network effects.
• Prices decline expanding to
rental car market and car
replacement market and
delivery market.
• Oh, BTW, already 3x size in
2009 when Uber started.
• Value: $17 Billion
Source: David Sacks, COO PayPal, CEO Yammer
@InfoEcon

Value creation shifts from internal to external
servicing
What Changes :: Operations & Logistics
@InfoEcon

Value creation inside versus outside
@InfoEcon

STEP
1
STEP
2
STEP
3
STEP
…
STEP
N
@InfoEcon

DEMAND
PLATFORM
SUPPLY
@InfoEcon

Business Models Can Overlap
Platforms Scale More than Pipes
Dell
Coca Cola
Apple
Samsung
Airbnb
Uber

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 © 2015

API Economy Visualized: Amazon vs Walmart
Walmart
Amazon SNS
Alexa Web Inform
Amazon
Marketplac
e
Amazon
SimpleDB
Amazon Product
Advertising
Amazon
CloudWatch
Amazon
Flexible
Amazon
Redshift
Amazon
SC2
Amazon S3 Amazon
Mechanical
Turk
Amazon
RDSAmazon
DynamoDB
Amazon Queue
Service
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
Walmart
Amazon
Companies
Enterprise / storage

Walmart vs Amazon growth over 10 years: 12% vs 1516%
Logistics & supply chain squeezing have limits.
External value add is much less limited.

“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
@InfoEcon

Platforms Open Themselves to Third Party
Contributions
What Changes :: Innovation
@InfoEcon

“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© 2015 Parker & Van AlstyneTwitter: @InfoEcon :: marshall@mit.edu :: PlatformEconomics.com
Source: “The 3 kinds of Platform you Meet on the Internet” – Sept 16, 2007.
@InfoEcon

It’s Working when Users do Something You Didn’t Expect
Hay Carrier
Mobile ChurchFlour Mill
Ford Model T
@InfoEcon

− Open to .com”
Open to developers −
The Rise & Inglorious Fall of MySpace – Business Week 2011
Does Openness Work? @InfoEcon

 Consider product innovation alone
 Adding 3rd party resources,
innovation occurs at a higher rate
 Even if a platform starts behind, its
value overtakes the product leader
 Shed costs, keep 30% gains!
Why Platforms Beat Products
Time
ValueAdded

Goal shifts from control, entry barriers, and
differentiation to more valuable market exchanges.
What Changes :: Strategy
@InfoEcon

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
5. Core competence: focus what you do
best
Porter’s Five Forces & Resource Based View
@InfoEcon

Platform Strategy Differs
1. Goal is interactions that yield NW
effects - partner to partner value.
NW effects provide sustainability
@InfoEcon

2. Boundaries can be altered
@InfoEcon

3. Competition is multi-layered,
more like 3D chess.
@InfoEcon

Owned / inimitable
resources
Profits increase when
others add to platform’s
Long Tail
You don’t need to
own this
3. Competition is multi-layered,
more like 3D chess.
4. Don’t need to own inimitable
resources. Have them join you!

 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

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

Food & Agri
Protected by Credentialing, Complexity, Regulation & Hard Assets
Crop Yield : IBM
Spices : McCormick
Government
Farming : eChoupal City : Singapore
Medicine
Devices : Biomet
MRI : Cohealo
Healthcare:Harvard
Heavy
Industry
Tractors : Hitachi
Engines : GE Predix
Energy &
Mining
Mining : Gold Corp
Utility : EnerNOC

• Incandescent light bulb
• Edison patent filed 1878
• Same bulb 137 years later
• Energy efficiency < 5%
• Retail price $0.40

• Blue Ocean product strategy
• Compact fluorescent
efficiency 11%
• LED luminous efficiency 15%
• Multicolor programmable
• Retail price $4 - $40

IoT Platform Strategy: Data, Sensors, Open Ecosystem
• Offer Wii, Bluetooth, or LiFi
• 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 free

What’s Next?
@InfoEcon

City as Platform

Energy/Smart Grid as Platform

Education as Platform

Healthcare as Platform

1. Introduction: Welcome to Platform World
2. Network Effects: The Power of the Platform
3. Architecture: Basic Principles for Designing Successful Platforms
4. Disruption: How Platforms Conquer &Transform Traditi’l Industries
5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms
6. Monetization: Capturing the Value Created by Network Effects
7. Openness: Defining What Platform Users/Partners Can &Cannot Do
8. Governance: Policies That Increase Value and Enhance Growth
9. Metrics: How Platform Managers Can Measure What Really
Matters
10. Strategy: How Platforms Change Competition
11. Policy: How Platforms Should (and Should Not) Be Regulated
12. Future: Industries Facing Imminent Change
Platform Revolution: February 2016 (click to pre-order on Amazon)

Build your community. Build with Information.
Thank you
@InfoEcon

THANK YOU
QUESTIONS & DISCUSSION
marshall@mit.edu
Twitter: @InfoEcon
Find research HERE. Find blog posts HERE.

Platforms: How Change in Industry is Driving Change in Strategy

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