Rise of the Platform
& What It Means for Business
Marshall Van Alstyne
Boston University & MIT
marshall@mit.edu
InfoEcon@twitter.com
© 2013 Parker, Van Alstyne & Choudary

InterBrand: 2013 Best Global
Brands

These are Platforms

Platform firms becoming more
Important in economy
Firm
Market Cap
Apple
438
Exxon Mobile
380
Google
291
Microsoft
282
Berkshire Hathaway
281
3 of top 5 firms in 2013 by market cap.

MKT CAP Weighted Platform Firms
Platform firms becoming more
Important in economy
Percentage of Platform Firms weighted by
MKT CAP (2001-2013)
35%
30%
25%
20%
15%
10%
5%
0%
2001 2002
2003
2004 2005
2006
2007 2008
2009
2010
2011
2012
2013
% of top 20 firms by market cap since 2001

The Product Business Model is
Broken

The Product Business Model is
Broken

1980-2000 Microsoft platform beats
Apple product
Apple launched the PC revolution but Microsoft licensed widely, built a
huge developer ecosystem, 6X larger.

Apple Feb 5, 1996
Michael Dell “I‟d shut it down and give the money back to the shareholders.”

InterBrand: 2013 Best Global
Brands

Nike builds a biz platform

To be a platform
The system must provide a
useful function or service and
allow 3rd party access.
Examples:
iTunes: get music onto iPod
SAP: execute ERP systems
Facebook: connect family, friends & acquaintances
Cisco Smart Grids: capture AC/DC sources, route
power
Nike Fuel: motion capture and social benchmarking
Products have features,
Platforms have communities

How are these related?
eBay Sellers
Expedia Airlines/Hotels
Xbox Developers
American Express
Merchants
Aga Khan Doctors
YouTube Videographers
AirBnb Rooms
Electric Car Charge
Stations
Mechanical Turk Laborers
LinkedIn Employers
Android Developers
eBay Buyers
Expedia Travelers
Xbox Gamers
Amex CardHolders
Aga Khan Patients
YouTube Viewers
AirBnb Renters
Electric Car Drivers
Mechanical Turk Jobs
LinkedIn Employees
Android Users
Each Side Attracts More of the
Other

More Amex Merchants
More Amex Users
… get more Amex Users… … get more Amex Merchants…

More Android Developers
More Android Users
… get more Android Users… get more Android Developers…
…

Why platforms beat products
every time

Apple iPod pre-Platform
Apple iPod
Listener
$
Music
Producer
Retailer
$
$
(1) Product First Thinking
(3) User bought music retail (or
(2) Standard linear value chain
P2P)
(4) Minimal network effects

Apple iPod combined with iTunes
Apple iPod
Listener
$
Music
Producer
Retailer
$
$

Apple iPod post-Platform
User
Content
$$
Apple
(1) Remove supply chain inefficiency
(2) Triangular platform supply
network
(3) Apple owns financial chokepoint
(4) Apple helps users find content
(5) Stronger network effects

How Apple is killing standalone platforms
Usr
Usr
Dvpr
Usr
Gam
Mus
Lumia
Zune
Nokia
User
PSP
Sony
Microsoft
User
Calls
Music
MP3
Video
TV
Games
Dvpr
Web
HTML
Publi
eBooks
Apple has vastly stronger network effects.
Sony could have done this. It has many great standalone products.
Google is not making this mistake with Android

How Apple is killing standalone platforms
2007
Today
Usr
2007
Usr
Dvpr
Today
Gam
Usr
Mus
Lumia
Zune
Nokia
User
PSP
Sony
Microsoft
User
Calls
Music
MP3
Video
TV
Games
Dvpr
Web
HTML
Publi
eBooks
Apple has vastly stronger network effects.
Sony could have done this. It has many great standalone products.
Google is not making this mistake with Android

How Apple is killing standalone platforms
R1
P1
Polycom
Speakerphone
User
U1
P1
Cisco
Flip Camera
User
Calls
R1
P1
U1
Music
MP3
Video
TV
Games
R1
U1
HP
Calculator
Dvpr
Web
HTML
Publi
eBooks
Message for you: A great standalone product might not be sufficient.

How Apple is killing standalone platforms
Usr
Usr
Upld
Usr
Upld
Dvpr
GPS
Blkbry
TomTom
User
Photo
Flickr
RIM
User
Calls
Music
MP3
Video
TV
Games
Dvpr
Web
HTML
Publi
eBooks
Message for you: A great standalone product might not be sufficient.

Why Apple isn‟t killing Kindle:
Amazon Ecosystem
© 2012 Zimedia

Why Apple isn‟t killing Kindle
User
User
Calls
Music
MP3
Video
TV
Games
Dvpr
Web
HTML
eBooks
You can‟t make calls … unless you load Skype.
Publi

Prices Change :: Tweet #1
Monetizing platforms means
free pricing is profitable

To price a platform with network
effects, who gets the subsidy?

There are 2 types of Free
1) Cellphones & Minutes,
Razors & Blades
2) Amazon also uses 2sided platform pricing.
Will do it more often than
authors or publishers.
Writers
Readers
Platform

Supply Chains Change :: Tweet #2
Platforms unlock new value
from spare resources and user
generated content

AirBnb sells users‟ spare
rooms, competing with
hotels that must own them
RelayRides sells users‟
spare cars, competing with
rental firms that must own
them

Instagram sold for $1B not because of
contributions from 13 employees but
from 30 million users

Internal Organization Changes :: Tweet
#3
Employees must see across the
platform, which must support a
shared data layer

Sony was a virtual Galapagos of
holding companies

Bezos Platform Mandate
1. All teams will expose their data…
2. Teams must communicate through interfaces.
3. … no other form of interprocess
communication allowed
4. Interfaces, without exception, must be
externalizable.
5. Anyone who doesn‟t do this will be
fired.

Innovation Changes :: Tweet #4
Platforms open themselves
to third party contribution

“A platform is a system that can be … adapted to
countless needs and niches that the platform’s
original developers could not possibly have
contemplated…”
Mark Andreeson: Venture Capitalist,
Netscape Founder, Board HP, eBay

It‟s working when users do
something you didn‟t expect
Ford Model T
Flour Mill
Hay Carrier
Racecar

It‟s working when users do
something you didn‟t expect
Mobile Church
Sawmill
Snowmobile
Goat Carrier

Does Openness Work?
Open to developers −
− Open to “.com”
The Rise & Ignominius Fall of MySpace – Business Week 2011

Does Openness Work?
„„We tried to create every feature in the world and said,
„O.K., we can do it, why should we let a third party do
it?‟ „‟ says (MySpace cofounder) DeWolfe.
„‟We should have picked 5 to 10 key features that we
totally focused on and let other people innovate on
everything else.‟‟
The Rise & Ignominius Fall of MySpace – Business Week 2011

Platforms get enormous value
From 3rd party developers
Most firms can only
concentrate on most
valuable apps
Profits increase when
others add to platform‟s
“Long Tail
You don’t need to
own this

Why Platforms Beat Products
Value Added
-
Time
Consider product
innovation alone
- Harnessing 3rd party
resources, innovation
occurs at a higher
combined rate.
- Even if a platform starts
behind, its value will
overtake the product
leader.

Industry Changes :: Tweet #5
Platforms will displace
gatekeepers with meritocratic
crowds

Video production and
curation moves to
viewers from TV
station staff
Advice from
travelers replaces
that of travel
agents

What‟s next?

City as Platform

Energy/Smart Grid as Platform

Education as Platform

Healthcare as Platform

If you believe in the power of
people connecting, embrace the
platform.
If you convert your product/service
to platform, what would it do?

and Choudary

CREDITS
Photos:
Energy/Smart Grid as Platform Source: Wikipedia Solar Energy
Education as Platform © 2012 Tomi Um, MIT Technology
Review
Healthcare as Platform © Aleksandar Stojanovic
Presentation Design:
Sanja Ignjatovic
sania.ignjatovic@gmail.com
www.saintartdesigns.com
Es Dzi
http://darkleaf.webnode.com