Geoffrey ParkerDartmouth College

@g2parker

Marshall Van AlstyneBoston University

@InfoEcon

Chapter 1

Introduction: Welcome to Platform WorldPlatform Revolution: Making Networked Markets Work for You

Questrom School of Business

2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 Int’l (CC BY-SA 4.0).

with Sangeet ChoudaryPlatform Thinking Labs

@sanguit

1. Introduction: Welcome to Platform World2. Network Effects: The Power of the Platform3. Architecture: Basic Principles for Designing Successful Platforms4. Disruption: How Platforms Conquer &Transform Traditional Industries5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms6. Monetization: Capturing the Value Created by Network Effects7. Openness: Defining What Platform Users/Partners Can &Cannot Do8. Governance: Policies That Increase Value and Enhance Growth9. Metrics: How Platform Managers Can Measure What Really Matters10. Strategy: How Platforms Change Competition11. Policy: How Platforms Should (and Should Not) Be Regulated12. Future: Industries Facing Imminent Change

Platform Revolution: Chapter 1 - Introduction

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@InfoEcon

SOMETHING HAS CHANGEDFIRM YEAR EMPLOYEES MKT CAP

BMW 1916 116,000 $53B

UBER 2009 7,000 $60B

MARRIOT 1927 200,000 $17B

AIRBNB 2008 5,000 $21B

WALT DISNEY 1923 185,000 $165B

FACEBOOK 2004 12,691 $315B

KODAK 1888 145,000 $30B (heyday)

INSTAGRAM 2010 13 $1B (acquisition)

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THESE ARE THE MOST FAMOUS GLOBAL BRANDS

Source: Interbrand 2015 % is growth relative to prior year, $ is value of brand equity

@InfoEcon

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13 OF THESE ARE PLATFORMS

Based on presence of a developer or buyer/seller ecosystem.

@InfoEcon

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Source: International Monetary Fund

North America Europe Africa, Latin America, ROW

Asia

2015 Nominal GDP US$ Total: 73.1 T

THE GLOBAL ECONOMY IS RELATIVELY BALANCED

v10.7 T23.5 T19.5 T 19.5 T

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Source: P. Evans, CGE; CB Insights, Capital IQ, CrunchBase, 2015

North America Europe Africa & Latin America

Asia

North America has the most $1B+ platform firms, as measured by market cap. China, with a large homogeneous market, is growing fast. Europe, with a more fragmented market, has less than ¼ the value of North America

 

  Private

Public

THE PLATFORM ECONOMY IS UNBALANCED

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DIGITAL ECONOMY IS DOMINATED BY PLATFORMS

Source: The Internet Map 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

9

PLATFORMS ARE OVERTAKING ENERGY AND BANKING

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10Source: CGE Platform Database with Quid visualization, 2015

Over $3 trillion in firm market cap

The New Multinationals

EXPLOSION OF PLATFORM COMPANIES

Selected Platform Companies Emerging platform clusters

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INDUSTRY EXAMPLESAgriculture John Deere, Intuit Fasal

Communication and Networking LinkedIn, Facebook, Twitter, Tinder, Instagram, Snapchat, WeChat

Consumer Goods Nike, Philips, McCormick Foods FlavorPrint

Education Udemy, Skillshare, Coursera, edX, Duolingo

Energy and Heavy Industry Nest, Tesla PowerWall, General Electric, Enernoc

Finance Bitcoin, Lending Club, Kickstarter

Healthcare Cohealo, SimplyInsured, Kaiser Permanante

Gaming Xbox, Nintendo, PlayStation

Labor and Professional Services Upwork, Fiverr, 99designs, Sittercity, LegalZoom

Local Services Yelp, Foursquare, Groupon, Angie’s List

Logistics and Delivery Munchery, Foodpanda, Haier Group

Media Medium, Viki, YouTube, Wikipedia, Huffington Post, Kindle Publishing

Operating Systems iOS, Android, MacOS, Microsoft Windows

Retail Amazon, Alibaba, Walgreens, Burberry, Shopkick

Transportation Uber, Waze, BlaBlaCar, GrabTaxi, OlaCabs

Travel Airbnb, TripAdvisor

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Source: P. Evans, “Networks, Data and Platforms,” in Growing Global: Lessons for the New Enterprise, Center for Global Enterprise, 2015.

Trends likely to continue and intensifyFORCES OF CHANGE

Surge in data and tools that can manage and

analyze dataNetworks connect physical, digital, and social

Age of Networks Age of DataFIRM

Age of PlatformsNew business models that that

leverage networks and intelligence

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LINEAR PIPE VS. TRIANGULAR PLATFORM

Elements of value exchangeSource Content Edit/ Curate Create Bundles Multiple channels

RAW MAT’LS PRODUCTION ASSEMBLY DISTRIBUTION

CONSUMERSPRODUCERS

PLATFORM 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

A PLATFORM: • Is a nexus of rules and

architecture• Is open, allowing regulated

participation• Actively promotes (positive)

interactions among different partners in a multi-sided market

• Scales much faster than a pipeline business because it does not necessarily bear the costs of external production.

PLATFORM

CONSUMERSPRODUCERS

Source: Platform Revolution

Elements of value exchange

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PLATFORMS BEAT PRODUCTS/SERVICES

• Apple iPhone

• Uber

• Facebook• Amazon

• Microsoft Zune, Garmin GPS, Sony PSP, HP Calculator, Olympus Voice Recorder

• Ford, BMW, Nissan• NY Times, Fox News, Walt Disney• Hachette, Norton, Blockbuster, Time Warner

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70%Platforms

30%Non

Platforms

Global Unicorns = 115

Source: P. Evans, CGE; CB Insights, Capital IQ, CrunchBase, 2015

Platform = 80 of 115 companies, $300B valuation

MOST UNICORNS ARE PLATFORMS

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Source: P. Evans, CGE; Coleman Walker, Geoffrey Parker, Tulane University 2016

© Evans

Not Just IPO FundingAccumulated platforms profitsTop 50 public platforms, 2012 Q1 – 2016 Q1

Running Sum of Gross

Profits

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© Evans

CHINA STILL ACCELERATINGGrowth of China’s Leading Platform CompaniesIncrease in net sales from 2011 Q2 to 2016Q1

Source: P. Evans, CGE; Coleman Walker, Geoffrey Parker, Tulane University 2016 2016 Parker & Van Alstyne, with Choudary – licensed under Creative

Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

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1 connection

2 phones

10 connections

5 phones

66 connections

12 phonesMore users = more value = more users…

PLATFORMS LEVERAGE NETWORK EFFECTS

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In any market with network effects, the focus of attention must shift from inside to outside the firm.

Source: Platform Revolution

IMPLICATION

Reason: You can’t scale network effects inside as easily as outside.

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To have an external focus, you must have a

community strategy.

... this implies ...

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Shift 1: From resource control to resource orchestrationShift 2. From internal optimization to external interactionShift 3. From focus on customer value to focus on ecosystem value

THE PLATFORM SHIFT

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• Know where you are in relation to platforms: provider, partner, potential partner, competitor.

• Assess your data assets; create a data strategy• Invest in Governance to attract partners and their

investments

IMPLICATIONS FOR PRODUCT/SERVICE FIRMS

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CRITICAL CAPABILITIES FOR FIRMS IN A PLATFORM WORLD• Optimize external as well as internal supply chains• Coordinate a distributed ecosystem• Build and manage a common data layer• Reset strategy to emphasize community as an asset, not

just owned resources

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TAKEAWAYS FROM CHAPTER ONE

A platform is a nexus of rules and open infrastructure. A platform business enables value- creating interactions between external producers and consumers. It sets governance conditions for healthy interactions to occur.

A platform’s overarching purpose: to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants.

Because platform businesses create value using resources they don’t own or control, they can grow much faster than traditional businesses.

Platforms derive much of their value from the communities they serve. The best platforms create strong network effects.

Platforms invert companies, blurring business boundaries and transforming firms’ traditional inward focus into an outward focus.

The rise of the platform has already transformed many major industries—and more equally important transformations are on the way.

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Platform Revolution: Next Chapter 2 – Network Effects

1. Introduction: Welcome to Platform World2. Network Effects: The Power of the Platform3. Architecture: Basic Principles for Designing Successful Platforms4. Disruption: How Platforms Conquer &Transform Traditional Industries5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms6. Monetization: Capturing the Value Created by Network Effects7. Openness: Defining What Platform Users/Partners Can &Cannot Do8. Governance: Policies That Increase Value and Enhance Growth9. Metrics: How Platform Managers Can Measure What Really Matters10. Strategy: How Platforms Change Competition11. Policy: How Platforms Should (and Should Not) Be Regulated12. Future: Industries Facing Imminent Change

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For More Chapter 1 InformationSuggested background: MBA Readings

1. Andreessen, M. (2011). Why Software Is Eating The World'. Wall Street Journal, p.20.2. Cusumano, M. (2010) “Platforms not just Products,” (Chapter 1 of Staying Power)3. Evans, P. & Gawer, A. (2016) "The Rise of the Platform Enterprise: A Global Survey."

Center for Global Enterprise research paper.4. Gawer, A., & Cusumano, M. A. (2002). Platform leadership: How Intel, Microsoft, and

Cisco drive industry innovation (pp. 29-30). Boston: Harvard Business School Press.5. O’Reilly, T. (2015) Networks & The Nature of the Firm (medium.com) August 14, 2015 6. Tiwana, A. (2013). Platform ecosystems: aligning architecture, governance, and strategy.

Newnes.

Geoffrey Parker@g2parker

Marshall Van Alstyne@InfoEcon

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with Sangeet Choudary@sanguit

For More Chapter 1 InformationSuggested background: PhD Readings

1. Hagiu A. & Wright, J. (2015), “Marketplace or Reseller?” Management Science 61, no. 1 January : 184–203.

2. M. Rysman, M. (2009) “The Economics of Two-Sided Markets,” Journal of Economic Perspectives 23, no. 3: 125–43.

3. Parker, G. & Van Alstyne, M. (2000), “Information Complements, Substitutes and Strategic Product Design,” Proceedings of the Twenty-First International Conference on Information Systems (Association for Information Systems)

4. Parker, G., Van Alstyne, M. & Jiang, X. (2017). “Platform Ecosystems: How Developers Invert the Firm” MISQ.

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Click on left hand icons to access content (downloaded slides).

Geoffrey Parker@g2parker

Marshall Van Alstyne@InfoEcon

with Sangeet Choudary@sanguit