Stm c8 1st_year pt_group-e
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Michael A. Cusumano is a professor at MIT Sloan School of Management who has published 9 books and over 70 articles on management strategy and innovation. An industry platform provides a common foundation technology that can be reused across product variations. It requires complementary products and services from other firms to create value for users. Platform providers need to attract these complementors to join their ecosystem and help the platform grow through network effects that benefit both the platform and complementors. Winning platforms have a strong ecosystem backing their strategy rather than just the best technology.
Stm c8 1st_year pt_group-e
- 2. Michael A. Cusumano ◦ Sloan Management Review Distinguished Professor of Management, MIT Sloan School of Management B.A. degree from Princeton in 1976 Ph.D. from Harvard in 1984 Postdoctoral fellowship in Production and Operations Management at the Harvard Business School during 1984-86 ◦ Published 9 books and more than 70 articles. His latest book, Staying Power: Six Enduring Principles for Managing Strategy & Innovation in an Uncertain World (2010, based on the 2009 Oxford Clarendon Lectures), was named one of the top business books of 2011 by Strategy + Business magazine, with translations into Japanese, Chinese, Korean, and Italian. ◦ Ref: http://web.mit.edu/cusumano
- 3. Platform” defined as a foundation product or key technology in a system like the PC or a Web- enabled cell phone. It should have relatively open technical interfaces Easy licensing terms Encourage other firms to contribute complementary products and services. These external innovations create an ecosystem around the platform.
- 4. Industry platform has two essential differentiation: First: Industry platform provides a common foundation or core technology that a firm can reuse in different product variations. Second: The industry platform has relatively little value to users without these complementary products or services e.g. ◦ Windows and Office for PC software are boxes without add on products ◦ Smartphones without software tools and application / wireless telephony or internet services is useless. ◦ Amazon, EBay for online buying and selling.
- 5. NEED OF COMPLEMENTORS: The company that makes the platform is unlikely to have the resources or capabilities to provide all the useful applications to the end user to make platform compelling for users. It is necessary to open the technology to competitors to build add on to the platform to make it industry platform. For that industry platform provider has to give financial subsidy to complementors to join their ecosystem.
- 6. Creation of Network effect: Positive feedback loops that can grow at geometrically increasing rates as adoption of the platform and the complements rise. Direct Network effect: Technical compatibility / Interface standard between ◦ Windows-Intel PC and Windows-based applications ◦ VHS or DVD players and media recorded according to those format. Indirect Network effect: When application developers, content producers adopt a particular platform that requires complements to adopt a specific set of technical standards that define how to use or connect to the platform. ◦ Windows-Intel PC as Platform provider and application development services: eBay, Google, Amazon, and Facebook social networking etc. as Complementor. More external adopters in the ecosystem that create or use complementary innovations, the more valuable the platform.
- 7. Standards are not platforms They are rules or protocols specifying how to connect components to a platform How to connect different products and use them together. Examples of platforms incorporating specific standards ◦ Telegraph, telephone, electricity, radio, television, video recording and computer.
- 8. SWITCHING AND BUNDELING OF PRODUCT AS STRAGETY Platforms companies are attracting users by offering many different features for one low price. They are making it difficult for user to move to different platform. e.g. ◦ Telephonic companies offering voice, data and video service PLATFORM COMPANIES MARKETING STRAGEGY: They have more than one market side to them. E.g. Micorsoft & Apple: Apart from users to their products, they also attract software and hardware firms to build applications products and peripheral devices, such as printers and Webcams compatible to their standard. Social media i.e Google, Microsoft, FB: Apart from competing for users, also competes for third segment of the market i.e. advertisers Companies that like to sell video have more complicated task to attract not only end users, application developers, and advertisers, but also producers of content as well as aggregators of other people’s content
- 9. OTHER STRATEGY FOLLOWED BY PLATFORM COMPANIES (PRICING): MICROSOFT & NETSCAPE: Provides browser as free but charges for server. Adobe: Provides Acrobat Reader free but charges for its servers and editing tools. Firms can give one part of the platform away to some users (students or the general consumer) but charge others (corporate users). STRATEGY OF “OPEN, BUT NOT OPEN: Make access to the interfaces easily available but keep critical parts of the technology proprietary or very distinctive E.g. Netscape Navigator: Special versions of programming languages, and intranet and extranet combinations Microsoft: Entire set of Windows technologies, including Office and other applications are encrypted.
- 10. As long as there is room for companies to differentiate their platform offering, and consumer can easily buy one or more platform, then it is unlikely for one dominant platform to emerge-unless the direct or indirect network effects are overwhelmingly strong. E.g. The gaming platforms (the consoles) Sony, Microsoft, and Nintendo ◦ All consoles are different and user can afford to but more than one console. ◦ They are subsidized by the makers (hope to make money from software fees) ◦ Truly hit complements, (the games) often become available on all three platforms Winning and loosing is not defined by who has the best technology or first product but the one who has the best platform strategy and the best ecosystem to back it up.
Editor's Notes
- #5: One of the reliable ways that a company can build a long-lasting, sustainable competitive advantage in the tech business is to transition from building just a product into building a whole platform. Building a “platform” usually means allowing third-parties a way to plug in to your product and offer platform-level services so that they can leverage your core product and build on top of it. In effect, you build an eco-system around your product, extending the benefits of your product to your partners and to your users. If done right, it results in a win-win-win: Your users get the benefit of a broader set of features, your partners are able to leverage your platform to reach more users, and you also benefit by “renting out” your core assets. But before a platform can work, it has to have one key ingredient - A monetizable, core asset. This is the core asset that your product is really good at building, and this is the asset that you allow external partners access to. This is far more tricky than it sounds, and often times it is very hard to even recognize what the “core asset” is. Lets take Facebook as an example. Facebook has differentiated itself from all the social networks that came before it by building a platform. But what is at the core of this platform? What is Facebook’s most valuable, core asset that they have managed to monetize so well? It is tempting to say that Facebook’s core assets are its users but I don’t think that is it. Facebook freely allows access to your friends list, and any app can easily request permission to view your friends and friends-of-friends, and could potentially duplicate the whole friends graph. In fact, through the open-graph API, facebook easily (and freely) gives out access to this information. What Facebook has really built up at its core is not just users but user’s profile and interest information. Facebook has painstakingly collected very detailed information about each one of its users – what their interests are, what activities they usually engage in, what kinds of games they play, what kinds of things they consume and spend their money on, and a hundred other small pieces of information about every user. Facebook can use this information to then deliver targeted ads, which is what they monetize. And the platform allows external parties – Game and App developers, external websites etc… to plug into the platform and get access to Facebook’s social and interest graphs, and in return, Facebook collects even more information about how its users are accessing partner’s apps and games and websites. The spreading of the “Like” button across the web, for example, allows Facebook to now track what is users are doing across the web rather than just inside Facebook.com. Another great example of a platform is Amazon.com’s marketplace. Amazon allows trusted third-parties to list their stuff on the amazon.com website, and makes all that searchable. Users can then browse through that selection and order stuff off of Amazon.com, and the third parties fulfill the orders. In the past few years, Amazon has extended this program to sell not just physical goods, but also digital goods like e-Books, Apps, Songs, Movies and a whole lot more. It’s an e-commerce site that has successfully become a platform of choice for both consumers and sellers. So what makes Amazon’s platform tick? Is it the users that come in to the site every day? Is it amazon’s powerful recommendations system? I don’t think it is any of that. All of that can be replicated, and e-Commerce sites have usually very little “differentiation”. So what is that asset that Amazon has that no-one else can replicate? I think it is the ~150 million credit card details that it has in its database. Amazon has collected all these credit card details and built a “one-click” shopping experience (which it infamously patented). It is the most friction-less check out process there is. You can literally buy stuff with just one-click, which is such a huge asset for capturing impulse shoppers. And Amazon allows third parties access to plug into the platform and take advantage of the friction-less shopping experience, which they will not be able to duplicate on their own sites. And for some sellers, it is actually more profitable for the sellers to list on Amazon rather than doing their own e-Commerce site. That’s the holy grail of a platform! Amazon has very cleverly used their core asset – the millions of credit card details – to successfully enter related areas like Mobile Apps and Movie Downloads. Apparently, developers are making more money from the Amazon android app store than Google’s own android app store! At the end of the day, building a whole platform can be a very good strategy. If done right, it creates large, sustainable competitive advantages, and can be very lucrative. But to execute on a platform strategy, you need to be very clear what the core, monetizable asset of the product is, and the product has to be very good at building up the core asset. Often, it is not obvious what the core asset is, and discovering it can be a hard task. But if your product has such an asset, you must consider opening it up via a platform strategy and developing an eco-system around it.
- #7: One of the reliable ways that a company can build a long-lasting, sustainable competitive advantage in the tech business is to transition from building just a product into building a whole platform. Building a “platform” usually means allowing third-parties a way to plug in to your product and offer platform-level services so that they can leverage your core product and build on top of it. In effect, you build an eco-system around your product, extending the benefits of your product to your partners and to your users. If done right, it results in a win-win-win: Your users get the benefit of a broader set of features, your partners are able to leverage your platform to reach more users, and you also benefit by “renting out” your core assets. But before a platform can work, it has to have one key ingredient - A monetizable, core asset. This is the core asset that your product is really good at building, and this is the asset that you allow external partners access to. This is far more tricky than it sounds, and often times it is very hard to even recognize what the “core asset” is. Lets take Facebook as an example. Facebook has differentiated itself from all the social networks that came before it by building a platform. But what is at the core of this platform? What is Facebook’s most valuable, core asset that they have managed to monetize so well? It is tempting to say that Facebook’s core assets are its users but I don’t think that is it. Facebook freely allows access to your friends list, and any app can easily request permission to view your friends and friends-of-friends, and could potentially duplicate the whole friends graph. In fact, through the open-graph API, facebook easily (and freely) gives out access to this information. What Facebook has really built up at its core is not just users but user’s profile and interest information. Facebook has painstakingly collected very detailed information about each one of its users – what their interests are, what activities they usually engage in, what kinds of games they play, what kinds of things they consume and spend their money on, and a hundred other small pieces of information about every user. Facebook can use this information to then deliver targeted ads, which is what they monetize. And the platform allows external parties – Game and App developers, external websites etc… to plug into the platform and get access to Facebook’s social and interest graphs, and in return, Facebook collects even more information about how its users are accessing partner’s apps and games and websites. The spreading of the “Like” button across the web, for example, allows Facebook to now track what is users are doing across the web rather than just inside Facebook.com. Another great example of a platform is Amazon.com’s marketplace. Amazon allows trusted third-parties to list their stuff on the amazon.com website, and makes all that searchable. Users can then browse through that selection and order stuff off of Amazon.com, and the third parties fulfill the orders. In the past few years, Amazon has extended this program to sell not just physical goods, but also digital goods like e-Books, Apps, Songs, Movies and a whole lot more. It’s an e-commerce site that has successfully become a platform of choice for both consumers and sellers. So what makes Amazon’s platform tick? Is it the users that come in to the site every day? Is it amazon’s powerful recommendations system? I don’t think it is any of that. All of that can be replicated, and e-Commerce sites have usually very little “differentiation”. So what is that asset that Amazon has that no-one else can replicate? I think it is the ~150 million credit card details that it has in its database. Amazon has collected all these credit card details and built a “one-click” shopping experience (which it infamously patented). It is the most friction-less check out process there is. You can literally buy stuff with just one-click, which is such a huge asset for capturing impulse shoppers. And Amazon allows third parties access to plug into the platform and take advantage of the friction-less shopping experience, which they will not be able to duplicate on their own sites. And for some sellers, it is actually more profitable for the sellers to list on Amazon rather than doing their own e-Commerce site. That’s the holy grail of a platform! Amazon has very cleverly used their core asset – the millions of credit card details – to successfully enter related areas like Mobile Apps and Movie Downloads. Apparently, developers are making more money from the Amazon android app store than Google’s own android app store! At the end of the day, building a whole platform can be a very good strategy. If done right, it creates large, sustainable competitive advantages, and can be very lucrative. But to execute on a platform strategy, you need to be very clear what the core, monetizable asset of the product is, and the product has to be very good at building up the core asset. Often, it is not obvious what the core asset is, and discovering it can be a hard task. But if your product has such an asset, you must consider opening it up via a platform strategy and developing an eco-system around it.