Platform Economy Kimmo Karhu Department of Computer Science, Aalto University

Transcription

1 Platform Economy Kimmo Karhu Department of Computer Science, Aalto University

2 The shift towards platform business models is transforming competition in all industries all over the world During the last decade, new incumbents have become the most valuable companies in the world by utilizing platform business models Firms with platform business models create new businesses and challenge the established competition in more and more industries every day Share of leading platform firms in S&P500 ~11% ~2 %

3 Cumulative downloads in App Store

4 Apple ios nation vs Finland in 2016 Apple ios: App Store revenues 23,8 Mrd Finland: Information and Communication Industry 20,8 Mrd

5 Platform economy fundamentals

6 From technical platforms to platform economy Internal to the firm Alliance / Industry Open to crowds at arms-lenght product platform industry platform platform economy Opening the platform

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8 Apple decided to open up and give out app production to 3rd parties

9 However, initially Jobs resisted "I called him a half dozen times to lobby for the potential of the apps" Apple board member Art Levinson "I couldn't imagine that we would create something as powerful as the iphone and not empower developers to make lots of apps. I knew customers would love them. SVP of worldwide product marketing Phil Schiller It is not easy - in today s exercise we will force ourselves the platform way

10 Platform economy in medieval times CONSUMER PLATFORM BOUNDARY RESOURCE PRODUCER

11 Platform economy in a nutshell 1. Direct interaction that removes friction 2. Growth through network effects 3. Digitalisation enables extended scale and scope 4. Production at arms-length using boundary resources

12 Direct interaction Platforms are essentially matchmakers that enable two sides for example, producer and user to directly interact with each other Market square: Sellers and buyers Uber: Drivers and commuters Android: App developers and smartphone users By cutting out the unnecessary middlemen, platforms remove considerable friction

13 Group discussion on friction First, individually write down (1-2min) What was the friction that App Store removed from app publishing? Then discuss your ideas in groups of 2-3 students (3min) Share your thoughts with the class

14 Pipeline vs Platform business model Producer You as a producer Sales channel Consumer Producer Direct interaction Consumer Network effect Producer Sales channel Consumer Boundary resources You as a reseller Platform You as a platform PIPELINE / RESELLER BUSINESS MODELS PLATFORM BUSINESS MODEL

15 Network effects When the benefit of one side depends on the amount of participants on the other side, platform growth is boosted by network effects The more (and varied) apps The more useful the platform is for users The more users The more attractive the platform market is for developers Network effect Side 1 Side 2 Platform

16 Same-side (direct) Cross-side (indirect) Four types of network effects Positive Prefer more users on same side (e.g., social network) Prefer more users on the other side (e.g., smartphone apps) Prefer less users on same side (e.g., producer congestion) Negative Prefer less users on the other side (e.g., advertisements)

17 Network effect For multisided platforms, there may be multiple network effects that cross-feed each other, e.g., Android: developers and users device manufacturers and users Chicken-and-egg problem: How to attract one side when neither is initially present? Aalto University Executive Education 21

18 Digital superpowers The Internet and other digital connectivity technologies enable an immediately global scale Digital software and data are easy to modify and combine, opening up vast opportunities and scope for third-party innovation - Re-proggrammability - Modular nature (interfaces) - Data homogenization These superpowers expand both the scale and scope of business in the digital space - Contrast with area and human labor requirements of the medieval market square

19 Venice operated at boat speed Venice was a flourising global market place due to its naval trading routes (cf. digital scale) Also innovation flourished in renessaince time (cf. digital scope)

20 Depend Digital platform & complements 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 Platform Core Add value to the total offering Stable basis providing basic functionality

21 Group discussion on Google Maps First, individually write down (1-2min) What is/are the network effects in Google Maps Then discuss your ideas in groups of 2-3 students (3min) Share your thoughts with the class

22 Boundary resources Resources on the boundary of the platform that enable and foster 3 rd party production E.g., APIs and SDKs Essential in governing the participants at arms-length distance no need for resource intensive and costly interaction facilitated by the platform owner Producer Consumer Boundary resources Platform

23 Fourkind Platform Canvas Producer Direct interaction Consumer Network effect Boundary resources Platform

24 Typology of digital platforms Social Complementing Market place Freelancing Asset sharing Producer Information publisher Complementor Seller Professional Asset owner Consumer Information consumer User Buyer Hiring firm Asset user Complement/ Offer Social information Value adding digital software or data Digital or physical good/service Human resource Physical resource or its usage Physical Digital Examples Facebook, Linkedin Android, ios, Google Maps Amazon (B2C), Alibaba (B2B) Upwork, Uber, LinkedIn Cohealo, AirBnB, Uber Can be combined: E.g., Uber is both an asset sharing and a freelancing platform Examples help to communicate your platform idea: E.g., Upwork of Professional Education Aalto University Executive Education

25 Boundary Resources

26 Example: Android platform stack System apps User apps Boundary resources Google Play Services API App framework and libraries Platform core (system services, runtimes, etc) Kernel (e.g. Linux) Hardware Google Mobile Services (GMS) PROPRIETARY! Android open-source platform (AOSP) Apache License 2.0

27 Boundary resources are the concrete tools & rules that help to deal with platform s governance challenges

28 Three main functions for boundary resources 1. Define openness 2. Tools to foster interactions 3. Rules to control the platform Producer Consumer Boundary resources Platform

29 1. Define openness

30 Dimensions of openness 1. Access openness Let external actors to join the platform and do business 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) Rationale: Strategic forfeiture - recover costs from somewhere else Can be analyzed for each side separately For chosen type of openness, level of openness may also differ

31 Group discussion on openness First, individually write down (1-2min) How Apple ios is open considering the two forms of openness? - Access openness - Resource openness - What about Google Android? Then discuss your ideas in groups of 2-3 students (3min) Share your thoughts with the class

32 Access openness Resource openness Apple ios Developers Ad service providers Webkit (browser engine) Google Android Developers Device manfufacturers Ad service providers Android Open Source Project (AOSP) But keeps Google Mobile Services (GMS) proprietary

33 Open-source license BRs define access and resource openness towards different sides App developers APPS App store providers API APK Android Platform HARDWARE ABSTRACTION LAYER (HAL) Hardware manufacturers HARDWARE

34 2. Tools to foster interactions How to build outstanding producer experience?

35 Beyond APIs Orchestrated use of various kinds of boundary resources Software development kits (SDK) Market place Monetization mechanisms Revenue share In-app purchases Advertisement tools Instead of brute-forcing new APIs, can you offer new functionality that truly stimulates 3rd party innovation? E.g., location and accelerometer APIs for gaming Producer APIs, marketplace, monetization Platform Data sharing rules Consumer

36 Case Android: How to deal with fragmentation of installed base?

37 What is the problem with fragmentation from the platform strategic perspective? Complements APIs It is difficult to provide one set of APIs to complementors (precious and numerous partners) who depend on them Platform Core Hardware Bundled by manufacturer

38 Google invented Google Play Services Wrapping own APIs inside Google Play Services client library that is distributed through Google Play APIs can be fixed regardless of manufacturer update policy Can be updated to any Android version Rapid deployment to all developers and devices Building developer loyalty to Google APIs / services

39 3. Rules to control the platform

40 Alliance mebership contract (MADA) Rules to control different sides App developers APPS Publisher terms & conditions Android Platform 4.5 You may not use Google Play to distribute or make available any Product which has a purpose that facilitates the distribution of software applications and games for use on Android devices outside of Google Play. Hardware manufacturer s Compatibility definition document & test suite (CDD&CTS) HARDWARE 11/30/

41 Thank You! Some recommended additional reading materials Platform Economy Fourkind Platform Economy Handbook Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You Articles Eisenmann, Parker, and Van Alstyne (2006): Strategies for Two- Sided Markets Andrei Hagiu (2014): Strategic Decisions for Multisided Platforms Karhu, Gustafsson, and Lyytinen (2018): Exploiting and Defending Open Digital Platforms with Boundary Resources