Business Model Innovation

Transcription

1 Business Model Innovation à Platform Canvas Kimmo Karhu Postdoctoral Researcher Aalto University

2 Business model innovation plays a key role in capturing value of a product or technology innovation Example Xerox

3 One definition of a business model

4 Business model innovation example: Skype

5 A more detailed look: By Business Model Alchemist - CC BY-SA 1.0,

6 55 Business model patterns White paper: (FREE!!!!)

7 Razor and Blade

8 Freemium

9 Subscription

10 Patterns are / can be combined Freemium + Subscription

11 Platform Business model

12 From technical platforms to platform economy Internal to the firm Alliance / Industry Open to external actors at arms-lenght product platform industry platform We are more used to this side Opening the platform market place innovation social Based on Carliss Baldwin s presentation at AOM 2016

13 Platform economy in a nutshell Platforms are essentially matchmakers To be successful, there needs to be considerable enough friction that platform removes between the interacting sides Uber: between drivers and commuters Android: between app developers and users Producer side builds complements to the platform that make platform bundle more valuable to the user side E.g. apps This leads to self-reinforcing network effects The more apps à the more users value the platform The more users à the more attractive the platform is for developers What really was the friction here that app store solved?

14 Network effects Growth on one side drives the growth on other (or same) side (and vice versa) Self re-enforcing There may be multiple network effects that cross-feed each other Generative nature of digital technology further fuels network effects App complements Platform core Device complements Users More value together than separately Developers Device makers

15 Network effects: four types Positive Same-side Prefer more users on same side (e.g., Facebook) Prefer less users on same side (e.g., congestion) Prefer more users on the other side (e.g., Android) Prefer less users on the other side (e.g., app quality) Cross-side Negative

16 From business perspective, growth through network effects is the defining feature of platform economy and should be the starting point in designing a platform

17 DIGITAL PLATFORM: DATA AND/OR SOFTWARE An extensible digital core that is opened for third parties to contribute improvements or add complements to it Note! Both core and complements may be either software or data Google Android + apps Google Maps + place information More value together than separately Complements Boundary Resources Platform Core Add value to the total offering To open platform and enable complements Stable basis providing basic functionality

18 Boundary resources Resources on the boundary of the platform that enable and foster the sides to interact with the platform à Thus, form the essential design of the platform Govern the participants at armslength Without resource intensive and costly interaction between the parties Complements API Platform core HAL Device find App store CDD&C TS Users publish develop ensure interoperability Developers Device makers Ghazawneh, A., Henfridsson, O., Balancing platform control and external contribution in third-party development: the boundary resources model. Information Systems Journal 23 (2),

19 Platform Canvas Similarly like Business Model Canvas identifies the key elements of a business model, Platform Canvas identifies the key elements of a platform business If needed, Business Model Canvas can still be used as a complementing analysis from broader business perspective

20 Designed for: Designed by: Date: Fourkind Platform Canvas 2018 Producer side Core interaction between producer and consumer Consumer side Complement Value proposition Friction to be removed between parties + Motivation (e.g. revenue) Same-side network effects + Cross-side network effects + Same-side network effects Business decisions Boundary resources (marketplace, APIs, licenses, terms and conditions etc) Your platform core Third party platforms Other key resources Technical decisions

21 Apple App Store Designed for: Designed by: Date: Fourkind Platform Canvas Producer side Your platform core + - Core interaction between producer and consumer Friction to be removed between parties Cross-side network effects Boundary resources (marketplace, APIs, licenses, terms and conditions etc) Third party platforms + - Consumer side App developer Smartphone user app Complement Motivation (e.g. revenue) 70% of app sales Same-side network effects Congestion: the more developers, less appealing for new developers to come to the market Selling apps Developers had to separately negotiate with operators and/or manufacturers to get their app into the phone (in each local market) Difficult for users to find new apps The more apps, the more attracting the platform is for users The more users, the more attracting the market is for developers Value proposition Increased utility (incl. gaming, entertainment), customizability, and app selection,... Same-side network effects API, SDK, App Store, ios developer program terms & conditions ios platform UNIX (Darwin, BSD) Other key resources Business decisions Technical decisions

22 Group work (2-3 persons): Pick up some known platform and fill in a canvas for it

23 Home work: Apply Platform Canvas for your project work

24 Thank you!

25 Two ways to open platform and engage third parties 1. Access openness Let external actors to join the platform and do business (e.g., to add complements) Rationale: Generate network effects, and extract value from complementarities 2. Resource openness Open-source or otherwise give out your IPR (that you have invested in) - May be software or data as well Rationale: Strategic forfeiture - recover costs from somewhere else - Google has open-sourced AOSP and makes money from advertisement What are the other sides for which Google has opened access in Android platform?

26 Governance challenges When platforms are open, ecosystem governance is a challenge Balance control and generativity Ensure sufficient technical stability of core Foster complementor adoption When platforms act as market intermediaries between two or more sides of users Manage interaction between platform and each of its sides Facilitate interaction between the sides Use network effects to drive platform adoption by each side Pricing Regulating platform access and activities users may take on platform Thomas, L. D., Autio, E., & Gann, D. M. (2014). Architectural leverage: putting platforms in context. The Academy of Management Perspectives, 28(2),

27 Beyond APIs Orchestrated use of various kinds of boundary resources App store / in-app purchases are critical for helping complementors to monetize Google Play Services for managing device (and thus API) fragmentation Terms & conditions to agree on data sharing principles How can you opportunistically benefit from other platforms? Amazon built its competing Fire platform on top of Android Instead of brute-forcing new APIs, can you offer new functionality that truly stimulates 3rd party innovation? 3rd party developers APIs, marketplace, monetization AI / Machine Learning Platform Users Data sharing rules

28 Strategic use of AI and Machine Learning in platform context Platforms collect vast amount of data so there is potential for use of AI and ML How to foster network effects? How to improve match? Recommendation engines, etc. How to reduce congestion? How much to price / subsidize each side? Dynamic pricing AI/ML can also be utilized for providing higher level (more useful/interesting) APIs 3rd party developers APIs, marketplace, monetization AI / Machine Learning Platform Users Data sharing rules