This document discusses architecting multi-sided businesses. It begins by explaining that modern businesses need to operate in multiple markets simultaneously and satisfy different stakeholders. The emerging response is to configure the enterprise as a platform of services rather than a traditional value chain. However, this transformation involves profound architectural challenges. It then discusses various topics related to architecting multi-sided businesses including viewing the supply chain as a stack, challenges with stack design, and strategic choices regarding where to position the business in the stack. The document emphasizes the importance of understanding indirect relationships in multi-sided markets and delivering indirect value in addition to direct value.
2. About this presentation
An earlier version of this presentation was given to the
UK Chapter of IASA on February 13th 2012. I’m afraid
some of the slides may not be completely self-
explanatory. Feel free to contact me for further
discussion.
The material is an extract from my Business Architecture
Bootcamp. See Unicom website for more details.
http://unicom.co.uk/product_detail.asp?prdid=1864
3. Agenda
A modern business typically needs to operate in multiple
markets simultaneously, and satisfy the overlapping needs of
different stakeholders.
The emerging architectural response to this challenge is to
configure the enterprise as a platform of services, rather
than a traditional value chain.
But this kind of transformation involves profound
architectural challenges, which business architects need to be
able to master.
4. Supply Chain as Stack
We can start by picturing the
supply chain as a stack. Passenger
Transport Services
Software engineers are
familiar with the concept of Airline
stack in software and
communications. But here we Landing Services
are talking about a business
Airport
stack, in which each
organization provides a Engineering Services
platform of services for the
organizations directly above it Engineer
in the stack.
5. Straight-Through Processing
Straight-through processing (STP)
generally makes the following
Car Driver assumptions:
Insurance
There is a collaboration between
Broker several service providers
The purpose of the collaboration
Underwriting is to expedite some customer
transaction
Insurance The service providers have a
common view of this transaction
Claims
The customer transaction belongs
within some domain, in which all
Claims
the service providers participate.
6. Disintermediation The passenger can easily
bypass the travel agent,
and buy tickets direct
from the airline.
Passenger What makes this
easy?
Ticket Services
Travel Agent
Passenger Services
Airline The passenger might also
bypass the airline, and
Airplane Charter charter a plane directly.
What makes this
Airplane
more difficult?
7. Making Disintermediation Harder
Does this count as adding value?
Easier Harder Example
Business Same Different Tickets versus
Concepts Landing Slots
Granularity Same Different Individual Seat
versus whole
Plane
Time Synchronous Asynchronous Annual Harvest
versus All-Year-
Round Supply
… ? ? ?
8. Stack Challenges The UK’s vertically integrated
rail network (British Rail) was
Here’s an example of a seriously flawed stack.
decomposed into a stack of
separately owned and operated
companies.
Passenger
Transport Services Knowledge was fragmented –
nobody knew the full state of
Train Co the network.
Rail Services
Service levels were
Track Co incommensurable and
muddled.
Engineering Services
Engineer Serious safety issues emerged
(Hatfield).
9. Stack Design and Governance
Critical success factors
Analysis and Design Monitoring and Control
Understand the transformation Proper distribution of risk
between layers. Getting a holistic view on what
Work out the implications for is going on.
service levels and pricing.
10. Stack Strategy
Strategic Questions
Where exactly should we be in
Where do I want to be in the stack? the stack? Can we influence
the stack geometry?
Does the telecoms company
Bank sell direct to banks, or via
software companies and
Packaged Solution system integrators?
Can the identity company
Software bypass (disintermediate) the
telecoms company?
Packaged Identity
Strategic Impact
Telecoms … on the commercial viability
of the platform?
Identity Services
… on the agility
(responsiveness) of the stack
Identity Co as a whole?
11. Stack Architecture
Stack geometry and governance calls for architectural thinking.
Architectural Questions
Demand Side
How many layers? How can this geometry
??
be both adapted and adaptable.
What is the appropriate granularity in each
layer?
??
Differential Rate of Change
What is the rate of change within each
layer? How much coupling is there
?? between layers?
Innovation Gradient
What are the trust and security
Trust Gradient
?? requirements in each layer?
What is the appropriate technology for
Supply Side
each layer?
12. Emergent Properties of Stacks
Stacks typically fail to provide clean
BUT separation of concerns.
Stacks tend to get more complicated over
time.
Attempts to export costs and risk upwards
or downwards usually result in greater
aggregate cost and risk.
13. Implications for Business Strategy
THEREFORE
Business strategy calls for understanding the whole stack –
indirect relationships as well as direct relationships.
A sustainable business will deliver indirect value as well as
direct value.
So let’s see what happens when we view business as a
multi-sided platform.
14. Business as Platform
A platform can satisfy many different types of customer.
Typical Outsourcing Issues
Management / Coordination
Delegation / Risk
Airport Airline
Outsourcing Strategy
Engineering
Services Platform Strategy
Typical Platform Issues
Engineer Engineer
Pricing & Service Levels
Granularity / Unbundling of
Services
15. Raising the Platform
Moving the platform upwards (or downwards) is a strategic move.
Premium added-value services
Corporate
New Business Network
Old Business Network
Telecoms
Commodity services
Downward pressure on price
Non-viable as long-term
business
17. Many Platforms are single-sided, with Media Producers & Media
Distributors and Broadcasters at one end and buyers at the other.
Source: Maat International
18. Multi-Sided Business Models provide benefits by increasing and
capturing indirect network externalities
Growth in the number of potential customers
on Side One for complementary contents and
services on Side Two occurs
This then leads to an increase in the quantity
and diversity of complements made available
Side One
by Side Two
Side Two
Because Side One users are favorably inclined
to a wider variety of contents and services on
the other side, more join the platform.
The increased number of users makes it even
more attractive for Side Two to develop new
complements.
Source: Maat International
19. A Media information aggregator builds a relationship with end users and
connects them to various retailers and Contents / Services Providers.
Source: Maat International
20. Examples of Multi-Sided Markets
Business Complementors Customers A Customer Situation Indirect Benefits
Platform
Social Private Aircraft Travellers Team travelling to a fixture Cost-effective
Flights direct travel
Credit Merchants Card holders On holiday in Paris Transaction
Cards convenience
Smart Applications Users Organizing things while we’re Personal
phones away on holiday organization
Sports Teams, Sponsors Spectators Following our local team Family social
clubs event
Hospitals Doctors, Pharma Patients Complications from a bite Treatment for my
from a deer tick condition
Airports Airlines, Retail Travellers Making a flight connection Personal travel
Cable Content providers Audiences Being able to watch things Personal viewing
networks when we choose
Microsoft Developers Customers Applications that support the Personal
way I work computing
Source: Asymmetric Design
21. Elements of a Multi-Sided Market
Definition Example: Social Flights
Customer Situations in which there is a need The need for members of a
Situations for a particular form of collaboration team to travel together to
between customers and play an ‘away’ match
complementors.
Customers The end-users within a customer The team members
situation
Complementors The suppliers whose Owners of private aircraft
product/service offerings are offering lower overall costs
needed within particular customer on the particular route
situations.
Platform The means by which customers The capability to bring
and complementors are enabled to customers and
come together to form a complementors together
collaboration
Source: Asymmetric Design
22. General Pattern
Consumer Questions
Consumer
Consumer
Where are the products
and services located?
Complementor
Complementor
Complementor How is the platform
designed and managed?
How does the platform
support indirect
Platform Business relationships?
Where is the added value
located?
23. Design principles for multi-sided markets
Solid understanding of the needs of The solution should, where relevant,
the different sides of the market is define appropriate strong branding
key. that communicates the common
There should be a business model characteristics of the solution to end-
that balances the benefits for both users, such as reach (size of the
sides of the market, and if applicable network), basic user experience, etc.
their service providers (positive The solution should strive to remove
business case for all players). unnecessary frictions on network
The design process should be driven growth, such as high entry barriers,
by an independent party to ensure etc.
neutrality and impartiality. The solution should, were
The solution should remain as appropriate, foster both same-side
flexible as possible to enable service and cross-side network effects as
providers to define their own unique much as possible, especially during
differentiating propositions towards the growth stage of the network.
their customers (competitive services
on top of the collaborative scheme).
Source: Innopay
24. Four Types of Customer Behaviour
Comparison Destination
Supply Infrastructure
• Choosing between • There is only one
different solutions to place for the
the same demand customer to go.
Cost Convenience Custom
• Choosing between • Supplier adapting the
similar standardized offering to the
offerings customer’s
requirement
Capability Requirement
25. Microsoft Architecture Journal
Diffusion Model Asymmetric Design
Destination/
Experience
Coordination
Coordination Comparison/
HOW WHY
of the whole
Product
Making
WHAT WHO/M
things work
Cost/
Commodity
inside outside Custom/
Solution
Interoperability Destination/
Experience
26. Managing over the whole Microsoft Architecture Journal
governance cycle
Asymmetric Design
Standardization of model of
relation to context
Requires asymmetric
governance
comparison destination
Customisation of
Standardization of service under
model for customised
coordination of model of supply
supply
cost custom
Requires platform-based
Customization of service under architecture
standardised model of supply
27. Strategic choices
The move from destination to product involves reducing the
exposure to integration risks by externalizing the exogenous
risks.
The move from product to cost involves reducing the
exposure to the technology and engineering risks by
standardizing the business model.
The move from cost to custom involves increasing the
exposure to integration risks again, but only the endogenous
ones.
Only the move from custom to destination faces the business
with the exo-interoperability risks.
28.
29. Differentiating Capabilities: The
Architecture of Knowledge
Core
Partnering [source: Amin & Cohendet]
High trust / security
knowledge intensity
Competence
Network
Medium trust /
security
Peripheral
Market
Low trust / security
distance from core
30. Decoupling different levels of abstraction
Standardizing the Differentiating the
platform level business level
capabilities. capabilities.
For example, a For example, offering a
standard approach to wide range of third
customization. party products and
technologies.
32. Compare and Contrast Platform Strategies
Each of these companies
has a distinctive platform
strategy.
Which architectural
viewpoint (or business
modelling language) is most
useful for understanding
the strategic differences
between these companies?
33. New Challenges for Business Architects
Ecosystem Horizontal accountability
Mapping the ecosystem of organisations, Considering how to strengthen
customers and contexts within which horizontal accountability in ways
business must to decide how to act. which hold accountable the
Indirect value individuals who are dealing
directly with customers.
Defining the indirect value for our
customers beyond the immediate value Agility
arising from their involvement with our Developing the agility of systems
services. and processes to cope with
Economies of governance variation in the scale and scope
of individuals’ needs, and in
Establishing economies of governance in response to continued change in
the way business and other resources can economics conditions and/or
be brought together and combined in customer demand
individual interventions.
34. Six Views of Business
STRATEGIC CAPABILITY MANAGEMENT
VIEW VIEW VIEW
What the business wants What the business does How the business thinks
VALUE KNOWEDGE
$TREAM VIEW
How the business does What business knows
ORGANIZATION
VIEW
What the business is including platform
configuration
35. Future Events
Future Events Other Material and Links
Business Architecture
Bootcamp RVsoapbox.
February 28-29
Organizational Intelligence
Workshop
BlogSpot.com
March 1
Enterprise Architecture
twitter.com/
Forum
March 29
richardveryard
Notas del editor
For example, a retail company can define its business model as providing a platform for manufacturers to sell their good to consumers.
The traditional retailer acts as a hub in the food supply chain, aggregating food supply from fields and factories, and distributing food to workshops and private kitchens. This is essentially a positional strategy: the retailer seeks to establish and maintain a strategic position within a value chain, as the bottleneck/hinge point between upstream and downstream. Within the positional strategy, the business drivers are understood in terms of the economics of scale and the economics of scope.But if we shift from a value-chain perspective to a service-oriented perspective (effects-ladder), we can see that the retailer is providing a service (=delivering value) downwards as well as upwards – it is a food distribution platform for farmers and manufacturers as well as a food supply platform for consumers and catering companies.So instead of drawing the merchant in the middle, we can draw the merchant as a new kind of platform providing various kinds of market interaction.This takes us from a positional strategy to a relational strategy. No longer just focused on the economies of scale and scope, the relational strategy emphasizes how economies of governance are generated in relation to two kinds of demand context. The big question for a company such as Wal-Mart is how to balance the exploitation of each of these forms of asymmetric advantage.
http://cloudmedia.kactoo.com/multisided-business-model-_smart_multisided-business-model-168664065262.htmGrowth in the number of potential customers on Side One for complementary contents and services on Side Two occursThis then leads to an increase in the quantity and diversity of complements made available by Side TwoBecause Side One users are favorably inclined to a wider variety of contents and services on the other side, more join the platform.The increased number of users makes it even more attractive for Side Two to develop new complements.
The names for two of these four ways came from research on shopping behaviour by Gary Davies in which he distinguished ‘cost’ convenience (choosing between similar standardised offerings) and ‘comparison’ behaviours (choosing between different solutions to the same demand). The other two separated out circumstances where there was a demand particular to the customer, distinguishing offerings in which there was only one place for the customer to go ( ‘destination’), or in which the supplier would adapt the offering to the customer’s requirement ( ‘custom’) within their context-of-use. The point being made, however, was that the ‘destination’ form of offering required asymmetric governance because of the need to hold power at the edge of the organisation. What distinguishes this position in the cycle?If we think of the original development of pc-based spreadsheet programs in-house (destination), they soon became a limited number of alternative branded solutions (comparison) that in turn became dominated by the one offering all the others’ features in one package (cost). From here we have seen an increasing ability to customise the ways it can be used (custom) to the point where we are now looking at a new cycle of web-based solutions that we can build one-by-one (destination).http://www.asymmetricdesign.com/2006/04/managing-over-the-whole-governance-cycle/
PatternDescriptionComparison(WHOM-HOW)The demand is defined in such a way that the context from which it arises is ignored, but the service is coordinated in a way that enables it to respond to that particular demand. This characteristic corresponds to the "comparison" approach for the patient, who is looking for the best solution offered to his or her demand. For suppliers, this form of governance allows them to minimize their exposure to exo-risks by limiting the definition of demand that they will respond to (the user requirement); although, they are still faced by integration risks inside the business.Cost(WHOM-WHAT)Not only is the demand defined in such a way that the context from which it arises is ignored, but the response of the service is proceduralized, too, and there is no need for an explicit coordinating process. In this "cost" approach both the nature of the demands and the responses to them have become standardized. Now the integration risk is minimized for the supplier and the technology and engineering risks being proscribed.Custom(WHY-WHAT)An implicit form of coordination of how things work, often in the form of a particular budgetary regime, constrains the way the service is able to respond to the patient's condition. This characteristic corresponds to the "custom" approach, where the service is standardized but the way it is provided into the patient's context can be varied (mass customization). Here the supplier is exposed to integration risks again, as it builds more variability into the way its service works.Destination(WHY-HOW)Each of these three forms treats demand as symmetric to an implicit or explicit form of endogenous coordination. Only in the fourth case do we have asymmetric governance in which the endogenous and exogenous forms of coordination have to be aligned with each other. This characteristic corresponds to the "destination" approach, where the patient goes to that place where he or she can get a treatment exactly aligned to the nature of their condition. It is also only in this case that the supplier takes on the exo-interoperability risks explicitly.We are particularly focused on the risks associated with interoperability, not only because any given geometry is a particular coordination between its constituent services, but also because these are the ones that emerge as you coordinate across systems and organizations. (We have been following the recent developments around Hurricane Katrina with considerable interest because some of the public criticism of the Federal Emergency Management Agency [FEMA] clearly exposes difficulties in managing some of the interoperability risks.) How are we to think about the nature of these risks?
http://www.trainmor-knowmore.eu/75D2E63A.en.aspxhttp://www.anecdote.com.au/archives/2006/02/knowledge_hoard.htmlThe I-space² is a model describing how knowledge moves from being undiffused (ie only known by a few people) and concrete (ie very specific to a single situation) to becoming more abstract (ie. generalised to apply to more situations) and codified (ie. more able to be articulated). At point 3 on the diagram the knowledge has maximum value to an organisation because it can be applied in a variety of ways to a range of problems but hasn’t leaked (diffused) to its competitors. It is inevitable, however, that if the knowledge is valuable it will soon become common knowledge. In the case of the lawyers, the idea of using collaboration software to get all parties together can quickly arrive at point 3 but as soon as the solution is implemented the knowledge is diffused and available to everyone—competitive value diminished rapidly.Boisot’s argument is that organisations which operate in a slow moving environment, such as flute makers where the way flutes have been made hasn’t changed in a century, should do whatever it takes to protect their intellectual property including doing everything to retain their master craftspeople. Fast moving industries require a different strategy: keep your mean time at point 3 as high as possible. This requires an organisation to continually rotate through the I-space spiral with new ideas—constant innovation.