Managing Our Hub Economy (2017) PDF

FEATURE MANAGING OUR HUB ECONOMY THOMAS M. SCHEER/EYEEM/GETTY IMAGES 84 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2017 MANAGING OUR HUB ECONOMY STRATEGY, ETHICS, AND NETWORK COMPETITION IN THE AGE OF DIGITAL...

FEATURE MANAGING OUR HUB ECONOMY THOMAS M. SCHEER/EYEEM/GETTY IMAGES 84 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2017 MANAGING OUR HUB ECONOMY STRATEGY, ETHICS, AND NETWORK COMPETITION IN THE AGE OF DIGITAL SUPERPOWERS BY MARCO IANSITI AND KARIM R. LAKHANI SEPTEMBER–OCTOBER 2017 HARVARD BUSINESS REVIEW 85 FEATURE MANAGING OUR HUB ECONOMY T he global economy is coalescing around a advertisers) to change the structure of the auto indus- few digital superpowers. We see unmistak- try itself. (Disclosure: Both of us work or have worked able evidence that a winner-take-all world is with some of the firms mentioned in this article.) emerging in which a small number of “hub firms”— If current trends continue, the hub economy will including Alibaba, Alphabet/Google, Amazon, spread across more industries, further concentrat- Apple, Baidu, Facebook, Microsoft, and Tencent— ing data, value, and power in the hands of a small occupy central positions. While creating real value number of firms employing a tiny fraction of the for users, these companies are also capturing a workforce. Disparity in firm valuation and individ- disproportionate and expanding share of the ual wealth already causes widespread resentment. value, and that’s shaping our collective economic Over time, we can expect consumers, regulators, future. The very same technologies that promised and even social movements to take an increasingly to democratize business are now threatening to make hostile stand against this concentration of value and it more monopolistic. economic connectivity. In a painfully ironic turn, af- Beyond dominating individual markets, hub firms ter creating unprecedented opportunity across the create and control essential connections in the net- global economy, digitization—and the trends it has works that pervade our economy. Google’s Android given rise to—could exacerbate already dangerous and related technologies form “competitive bottle- levels of income inequality, undermine the economy, necks”; that is, they own access to billions of mobile and even lead to social instability. consumers that other product and service providers Can these trends be reversed? We believe not. The want to reach. Google can not only exact a toll on “hub economy,” as we will argue, is here to stay. But transactions but also influence the flow of informa- most companies will not become hubs, and they will tion and the data collected. Amazon’s and Alibaba’s need to respond astutely to the growing concentration marketplaces also connect vast numbers of users of hub power. Digitizing operating capabilities will not with large numbers of retailers and manufacturers. be enough. Digital messaging platforms, for example, Tencent’s WeChat messaging platform aggregates have already dealt a blow to telecom service provid- a billion global users and provides a critical source ers; investment advisors still face threats from online of consumer access for businesses offering online financial-services companies. To remain competitive, banking, entertainment, transportation, and other companies will need to use their assets and capabilities services. The more users who join these networks, differently, transform their core businesses, develop the more attractive (and even necessary) it becomes new revenue opportunities, and identify areas that for enterprises to offer their products and services can be defended from encroaching hub firms and oth- through them. By driving increasing returns to scale ers rushing in from previously disconnected economic and controlling crucial competitive bottlenecks, sectors. Some companies have started on this path— these digital superpowers can become even might- Comcast, with its new Xfinity platform, is a notable IN BRIEF ier, extract disproportionate value, and tip the global example—but the majority, especially those in tradi- competitive balance. tional sectors, still need to master the implications of THE SITUATION Hub firms don’t compete in a traditional fashion— network competition. A few digital vying with existing products or services, perhaps with Most importantly, the very same hub firms that superpowers, or hub firms, are capturing a improved features or lower cost. Rather, they take the are transforming our economy must be part of the disproportionate and network-based assets that have already reached scale solution—and their leaders must step up. As Mark growing share of the in one setting and then use them to enter another in- Zuckerberg articulated in his Harvard commencement value being created in dustry and “re-architect” its competitive structure— address in May 2017, “we have a level of wealth inequal- the global economy. transforming it from product-driven to network-­ ity that hurts everyone.” Business as usual is not a good driven. They plug adjacent industries into the same option. Witness the public concern about the roles that THE CHALLENGE This trend threatens competitive bottlenecks they already control. Facebook and Twitter played in the recent U.S. presi- to exacerbate already For example, the Alibaba spin-off Ant Financial dential election, Google’s challenges with global regu- dangerous levels of does not simply offer better payment services, a bet- latory bodies, criticism of Uber’s culture and operating income inequality, ter credit card, or an improved investment manage- policies, and complaints that Airbnb’s rental practices undermine the economy, ment service; it builds on data from Alibaba’s already are racially discriminatory and harmful to municipal and destabilize society. vast user base to commoditize traditional financial housing stocks, rents, and pricing. THE ANSWER services and reorganize a good chunk of the Chinese Thoughtful hub strategies will create effective ways While there are ways for financial sector around the Ant Financial platform. to share economic value, manage collective risks, and companies that depend The three-year-old service already has over half a sustain the networks and communities we all ulti- on hubs to defend their billion users and plans to expand well beyond China. mately depend on. If carmakers, major retailers, or me- positions, the hubs Similarly, Google’s automotive strategy does not sim- dia companies continue to go out of business, massive themselves will have to do more to share ply entail creating an improved car; it leverages tech- economic and social dislocation will ensue. And with economic value and nologies and data advantages (many already at scale governments and public opinion increasingly attuned sustain stakeholders. from billions of mobile consumers and millions of to this problem, hub strategies that foster a more stable 86 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2017 economy and united society will drive differentiation by the physicist Albert-László Barabási: the notion among the hub firms themselves. that digital-network formation naturally leads to the We are encouraged by Facebook’s response to the emergence of positive feedback loops that create in- public outcry over “fake news”—hiring thousands of creasingly important, highly connected hubs. As dig- dedicated employees, shutting down tens of thou- ital networks carry more and more economic trans- sands of phony accounts, working with news sources actions, the economic power of network hubs, which to identify untrue claims, and offering guides for spot- connect consumers, firms, and even industries to one ting false information. Similarly, Google’s YouTube another, expands. Once a hub is highly connected (and division invests in engineering, artificial intelligence, enjoying increasing returns to scale) in one sector of and human resources and collaborates with NGOs to the economy (such as mobile telecommunications), ensure that videos promoting political extremists and it will enjoy a crucial advantage as it begins to con- terrorists are taken down promptly. nect in a new sector (automobiles, for example). This A real opportunity exists for hub firms to truly lead can, in turn, drive more and more markets to tip, and our economy. This will require hubs to fully consider the long-term societal impact of their decisions and to prioritize their ethical responsibilities to the large eco- nomic ecosystems that increasingly revolve around DIGITAL TECHNOLOGY IS ENABLING GROWTH them. At the same time, the rest of us—whether in established enterprises or start-ups, in institutions or communities—will need to serve as checks and bal- ances, helping to shape the hub economy by provid- ing critical, informed input and, as needed, pushback. IN VALUE ACROSS THE DIGITAL DOMINO EFFECT OUR ECONOMY, BUT The emergence of economic hubs is rooted in three principles of digitization and network theory. The first VALUE CAPTURE IS is Moore’s law, which states that computer processing power will double approximately every two years. The GETTING MORE SKEWED implication is that performance improvements will continue driving the augmentation and replacement of human activity with digital tools. This affects any AND CONCENTRATED. industry that has integrated computers into its opera- tions—which pretty much covers the entire economy. the many players competing in traditionally separate And advances in machine learning and cloud comput- industries get winnowed down to just a few hub firms ing have only reinforced this trend. that capture a growing share of the overall economic The second principle involves connectivity. Most value created—a kind of digital domino effect. computing devices today have built-in network con- This phenomenon isn’t new. But in recent years, nectivity that allows them to communicate with one the high degree of digital connectivity has dramati- another. Modern digital technology enables the shar- cally sped up the transformation. Just a few years ago, ing of information at near-zero marginal cost, and cell phone manufacturers competed head-to-head for digital networks are spreading rapidly. Metcalfe’s industry leadership in a traditional product market law states that a network’s value increases with the without appreciable network effects. Competition number of nodes (connection points) or users— led to innovation and differentiation, with a business the dynamic we think of as network effects. This model delivering healthy profitability at scale for a means that digital technology is enabling significant dozen or so major competitors. But with the intro- growth in value across our economy, particularly as duction of iOS and Android, the industry began to tip open-network connections allow for the recombina- away from its hardware centricity to network struc- tion of business offerings, such as the migration from tures centered on these multisided platforms. The payment tools to the broader financial services and platforms connected smartphones to a large number insurance that we’ve seen at Ant Financial. of apps and services. Each new app makes the plat- But while value is being created for everyone, value form it sits on more valuable, creating a powerful net- capture is getting more skewed and concentrated. work effect that in turn creates a more daunting bar- This is because in networks, traffic begets more traf- rier to entry for new players. Today Motorola, Nokia, fic, and as certain nodes become more heavily used, BlackBerry, and Palm are out of the mobile phone they attract additional attachments, which further business, and Google and Apple are extracting the increases their importance. This brings us to the third lion’s share of the sector’s value. The value captured principle, a lesser-known dynamic originally posited by the large majority of complementors—the app SEPTEMBER–OCTOBER 2017 HARVARD BUSINESS REVIEW 87 FEATURE MANAGING OUR HUB ECONOMY developers and third-party manufacturers—is gener- dashboard screens in many cars; drivers can use Apple ally modest at best. or Google apps on the car’s built-in display instead of on The domino effect is now spreading to other sec- their smartphones. If consumers embrace self-­driving tors and picking up speed. Music has already tipped to vehicles, that one hour of consumer access could be Apple, Google, and Spotify. E-commerce is following worth hundreds of billions of dollars in the U.S. alone. a similar path: Alibaba and Amazon are gaining more Which companies will capitalize on the vast com- share and moving into traditional brick-and-mortar mercial potential of a new hour of free time for the strongholds like groceries (witness Amazon’s acquisi- world’s car commuters? Hub firms like Alphabet and tion of Whole Foods). We’ve already noted the grow- Apple are first in line. They already have bottleneck as- ing power of WeChat in messaging and communica- sets like maps and advertising networks at scale, and tions; along with Facebook and others, it’s challenging both are ready to create super-relevant ads pinpointed traditional telecom service providers. On-premise to the car’s passengers and location. One logical add-on feature for autonomous vehicles would be a IF CONSUMERS “Drive there” button that appears when an ad pops up (as already happens on Google’s Waze app); pressing it would order the car to head to the touted destination. EMBRACE SELF-DRIVING In a future when people are no longer behind the wheel, cars will become less about the driving expe- VEHICLES, AN HOUR rience and more about the apps and services offered by automobiles as they ferry passengers around. Apart from a minority of cars actually driven for fun, differ- OF ACCESS TO CAR entiation will lessen, and the vehicle itself might well become commoditized. That will threaten manufac- COMMUTERS COULD BE turers’ core business: The car features that buyers will care most about—software and networks—will WORTH HUNDREDS OF be largely outside the automakers’ control, and their price premiums will go down. The transformation will also upend a range of BILLIONS OF DOLLARS. connected sectors—including insurance, automo- tive repairs and maintenance, road construction, law enforcement, and infrastructure—as the dig- computer and software offerings are losing ground to ital dominos continue to fall. (See the exhibit “The the cloud services provided by Amazon, Microsoft, Connected-Car Ecosystem.”) Google, and Alibaba. In financial services, the big For existing auto manufacturers, the picture is players are Ant, Paytm, Ingenico, and the indepen- grim but not hopeless. Some companies are explor- dent start-up Wealthfront; in home entertainment, ing a pay-per-use model for their cars and are acquir- Amazon, Apple, Google, and Netflix dominate. ing, launching, or partnering with car-as-a-service Where are powerful hub firms likely to emerge providers. GM, for one, invested $500 million in the next? Health care, industrial products, and agricul- ride-sharing service Lyft, and its luxury-car division ture are three contenders. But let’s examine how the is now offering a monthly car subscription service. digital domino effect could play out in another prime Daimler launched a car-sharing business called car2go. candidate, the automotive sector, which in the United Several manufacturers have also invested in their own States alone provides more than seven million jobs research into driverless vehicles or partnered with and generates close to a trillion dollars in yearly sales. external providers. Beyond these business-model experiments, auto- makers will need to play as the hubs do, by participat- RE-ARCHITECTING THE AUTOMOTIVE SECTOR ing in the platform competition that will determine As with many other products and services, cars are value capture in the sector. At least for the moment, al- now connected to digital networks, essentially becom- ternatives to Google and Apple are scarce. One exam- ing rolling information and transaction nodes. This ple is OpenCar, recently acquired by Inrix, a traditional connectivity is reshaping the structure of the automo- auto supplier. Unlike Apple CarPlay and Google’s tive industry. When cars were merely products, car Android Auto, which limit automaker-­specific cus- sales were the main prize. But a new source of value tomization and require access to proprietary car data, is emerging: the connection to consumers in transit. the OpenCar framework is fully controlled by the car Americans spend almost an hour, on average, getting manufacturer. To take on the established giants, we to and from work every day, and commutes keep get- believe that OpenCar and Inrix will have to develop an ting longer. Auto manufacturers, responding to con- effective advertising or commerce platform or adopt sumer demand, have already given hub firms access to some other indirect monetization strategy—and to do 88 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2017 THE CONNECTED-CAR ECOSYSTEM App platforms Three software platforms—Android Sierra Wireless Auto, Apple CarPlay, and, to a lesser extent, OpenCar—dominate the Tesla market for integrating smartphone Vinli functionality into vehicles. They constitute powerful bottleneck assets because they have scores of Apps Connectivity players supply-chain partners (left) and they Garmin enable other stakeholders (right) AT&T to reach consumers. (Note: The iTunes OnStar companies, apps, and regulators Nest Verizon listed are selected examples only.) Skype Auto manufacturers Insurance companies Ford Farmers Mercedes-Benz Geico Toyota Progressive Android Auto Tier 1 and 2 suppliers Apple CarPlay Auto service providers Bosch AAA Delphi OpenCar Goodyear Magna Jiffy Lube Providers of software Regulators systems & services European Parliament Harman Federal Communications Microsoft Commission Nvidia National Highway Traffic Safety Administration Makers of semiconductors & processing infrastructure Commercial businesses Gemalto McDonald’s Intel Safeway Qualcomm Walgreens SEPTEMBER–OCTOBER 2017 HARVARD BUSINESS REVIEW 89 FEATURE MANAGING OUR HUB ECONOMY PROFITING FROM that, they’ll probably need to partner with companies that have those capabilities. To reach the scale required to be competitive, au­ A GROWING tomotive companies that were once fierce rivals may need to join together. Here Technologies, which pro­ CUSTOMER BASE vides precision mapping data and location services, is an interesting example. Here has its roots in Navteq, one of the early online mapping companies, which was first bought by Nokia and later acquired by a con­ sortium of Volkswagen, BMW, and Daimler (the multi­ billion-dollar price tag may have been too high for any single carmaker to stomach). Here provides third- party developers with sophisticated tools and APIs for creating location-based ads and other services. The company represents an attempt by auto manu­ Digital platform with facturers to assemble a “federated” platform and, in strong network effects doing so, neutralize the threat of a potential compet­ itive bottleneck controlled by Google and Apple. The Economic value consortium could play a significant role in preventing automotive value capture from tipping completely Traditional product or toward existing hub firms. service business Of course, successful collaboration depends on a common, strongly felt commitment. So as traditional enterprises position themselves for a fight, they must understand how the competitive dynamics in their industries have shifted. INCREASING RETURNS TO SCALE ARE HARD TO BEAT Number of users Competitive advantage in many industries is mod­ erated by decreasing returns to scale. In traditional product and service businesses, the value creation curve typically flattens out as the number of consum­ ers increases, as we see in the exhibit “Profiting from For traditional product and service a Growing Customer Base.” A firm gains no particular businesses, gaining additional advantage as its user base continues to increase be­ customers does not continue adding yond already efficient levels, which enables multiple commensurate value after a certain competitors to coexist. point. However, many platform Some digital technologies, however, exhibit in- businesses (Amazon, Facebook, creasing returns to scale. A local advertising platform and the like) become more and gets better and better as more and more users at­ more valuable as more people and tract more and more ads. And as the number of ads companies use them, connect with one increases, so does the ability to target the ads to the another, and create network effects. users, making individual ads more valuable. An ad­ vertising platform is thus similar to software platforms such as Windows, Linux, Android, and iOS, which ex­ hibit increasing returns to scale—their growing value to consumers increases the number of available apps, while the value to app developers rises as the number of consumers rises. The more consumers, the greater the incentive for developers to build apps, and the more apps there are, the more motivated consumers are to use their digital devices. These considerations are important to the nature of hub competition. The economics of traditional decreasing returns make it possible for several com­ petitors to coexist and provide differentiated value to 90 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2017 attract users. That’s the dynamic in the auto industry a practice enabling participants on one hub’s eco- today, with many car manufacturers competing with system to easily join another—can significantly one another to offer a variety of differentiated prod- mitigate the rise of hub power. For example, drivers ucts. But the increasing returns in digital assets like and passengers routinely multihome across differ- ad platforms (or possibly driverless-car technology) ent ride-sharing platforms, often checking prices on will heighten the advantage of the competitor with Uber, Lyft, and Fasten to see which is offering the best the largest scale, the largest network of users, or the deal. Retailers are starting to multihome across pay- most data. And this is where the hub firms will most ment systems, supporting multiple solutions (such as likely leverage their large and growing lead—and Apple Pay, Google Wallet, and Samsung Pay). If multi- cause value to concentrate around them. homing is common, the market is less likely to tip to In contrast with traditional product and service a single player, preserving competition and diffusing businesses, network-based markets exhibiting increas- ing returns to scale will, over time, tip toward a nar- row set of players. This implies that if a conventional decreasing-returns business (say, telecom or media) is COMPANIES SHOULD MAKE THEIR PRODUCTS threatened by a new type of competitor whose busi- ness model experiences increasing returns, the con- ventional player is in for a rough ride. With increas- ing returns to scale, a digital technology can provide a bottleneck to an entire industrial sector. And left AND SERVICES alone, competitive bottlenecks dramatically skew value capture away from traditional firms. AVAILABLE ON MULTIPLE PUSHING BACK HUBS TO AVOID BEING Hub firms often compete against one another. Microsoft has made substantial investments in aug- HELD HOSTAGE BY ONE mented reality in an effort to create a new hub and counterbalance the power that Google and Apple wield in the mobile space. Facebook acquired Oculus DOMINANT PLAYER. to force a similar structural shift in the emerging field of virtual reality. And a battle is looming in the value capture. Indeed, companies will need to make smart-home arena, as Google, Apple, Microsoft, and their products and services available on multiple hubs Samsung attempt to reduce Amazon’s early lead in and encourage the formation of new hubs to avoid voice-activated home technology. being held hostage by one dominant player. Take the But how does the rest of the economy deal with wireless-speaker manufacturer Sonos: It has ensured the increasing returns to scale of hub firms? With that its music system seamlessly integrates with as enough foresight and investment, traditional firms many music services as possible, including Apple can resist by becoming hubs themselves, as we are Music, Amazon Music Unlimited, Google Play Music, seeing especially in the internet of things (IoT) space. Pandora, Spotify, and Tidal. GE is the classic example of this approach, with its in- Collective action can also restructure economic vestment in the Predix platform and the creation of networks, shape value creation and capture, and GE Digital. [See the article “How I Remade GE,” page ease competitive bottlenecks. In the 1990s the open- 42.] Other companies are following suit in different source community organized to compete against settings—for example, Verizon and Vodafone with Microsoft Windows with the Linux operating system. their IoT platforms. That effort was actively supported by traditional play- Firms can also shape competition by investing to ers such as IBM and Hewlett-Packard and reinforced ensure that there are multiple hubs in each sector— later by Google and Facebook. Today Linux (and and even influencing which ones win. They can or- Linux-related products) are firmly established in en- ganize to support less-established platforms, thus terprises, consumer devices, and cloud computing. making a particular hub more viable and an industry Similarly, the Mozilla open-source community and its sector more competitive in the long term. Deutsche Firefox browser broke Microsoft’s grip on navigating Telekom, for instance, is partnering with Microsoft the internet. Even Apple, notorious for its proprietary Azure (rather than Amazon Web Services) for cloud approach, relies on open-source software for its core computing in Central Europe. operating systems and web services, and the infa- Most importantly, the value generated by networks mous iPhone jailbreaking craze demonstrated both will change as firms compete, innovate, and respond to the extraordinary demand for third-party apps and community and regulatory pressure. Multihoming— the burgeoning supply of them. SEPTEMBER–OCTOBER 2017 HARVARD BUSINESS REVIEW 91 FEATURE MANAGING OUR HUB ECONOMY Open source has grown beyond all expectations businesses. But such efforts will need to be scaled to create an increasingly essential legacy of common up and refined as hub firms find themselves at the intellectual property, capabilities, and methodolo- center of—and relying on—much larger and more- gies. Now collective action is going well beyond code complex ecosystems. Preserving the strength and pro- sharing to include coordination on data aggregation, ductivity of complementary communities should be a the use of common infrastructure, and the standard- fundamental part of any hub firm’s strategy. ization of practices to further equilibrate the power Uber provides an interesting example of the re- of hubs. Efforts like OpenStreetMap are leading the percussions of getting this wrong. Uber’s viability way in maps, and Mozilla’s Common Voice project depends on its relations with its drivers and riders, is crowdsourcing global voice data to open up the who have often criticized the company’s practices. speech-recognition bottleneck. Under pressure from those communities—and from Collective action will be increasingly crucial to competitors that offer drivers the potential to earn sustaining balance in the digital economy. As eco- more—Uber is making improvements. Still, its chal- nomic sectors coalesce into networks and as powerful lenges suggest that no hub will maintain an advantage hubs continue to form, other stakeholders will need over the long term if it neglects the well-being of its to work together to ensure that hubs look after the ecosystem partners. Microsoft learned a hard lesson interests of all network members. Cooperation will when it failed to maintain the health of its PC soft- become more important for the rivals that orbit hubs; ware ecosystem, losing out to the Linux community indeed, strategic joint action by companies that are in cloud services. not hubs may be the best competitive antidote to the But network ethics are not just about financial rising power of hub firms. considerations; social concerns are equally import- The public is also raising concerns about privacy, ant. Centralized platforms, such as Kiva for charita- online tracking, cybersecurity, and data aggregation. ble impact investing and Airbnb for accommodation Solutions being suggested include requirements for bookings, have been found to be susceptible to racial social network and data portability similar to the re- discrimination. In Airbnb’s case, external researchers quirements for phone number portability that tele- convincingly demonstrated that African-American communications regulators instituted to increase guests were especially likely to have their reserva- competition among phone service providers. tion requests rejected. The pressure is now on Airbnb to fight bias both by educating its proprietors and by modifying certain platform features. Additionally, as THE ETHICS OF NETWORK LEADERSHIP Airbnb continues to grow, it must work to ensure that The responsibility for sustaining our (digital) econ- its hosts heed municipal regulations, lest they face a omy rests partly with the same leaders who are poised potentially devastating regulatory backlash. to control it. By developing such central positions of Indeed, if hubs do not promote the health and power and influence, hub firms have become de facto sustainability of the many firms and individuals in stewards of the long-term health of our economy. their networks, other forces will undoubtedly step in. Leaders of hub companies need to realize that their Governments and regulators will increasingly act to organizations are analogous to “keystone” species in encourage competition, protect consumer welfare, biological ecosystems—playing a critical role in main- and foster economic stability. Consider the chal- taining their surroundings. Apple, Alibaba, Alphabet/ lenges Google faces in Europe, where regulators are Google, Amazon, and others that benefit dispropor- concerned about the dominance of both its search tionately from the ecosystems they dominate have advertising business and its Android platform. rational and ethical reasons to support the economic vitality of not just their direct participants but also the THE CENTRALIZING FORCES of digitization are not going to broader industries they serve. In particular, we argue slow down anytime soon. The emergence of powerful that hub companies need to incorporate value sharing hub firms is well under way, and the threats to global into their business models, along with value creation economic well-being are unmistakable. All actors in and value capture. the economy—but particularly the hub firms them- Building and maintaining a healthy ecosystem is selves—should work to sustain the entire ecosystem in the best interests of hub companies. Amazon and and observe new principles, for both strategic and ethi- Alibaba claim millions of marketplace sellers, and cal reasons. Otherwise, we are all in serious trouble. they profit from every transaction those merchants  HBR Reprint R1705F make. Similarly, Google and Apple earn billions in revenue from the third-party apps that run on their MARCO IANSITI is the David Sarnoff Professor of Business platforms. Both companies already invest heavily in Administration at Harvard Business School, where he heads the Technology and Operations Management Unit and the developer community, providing programming the Digital Initiative. KARIM R. LAKHANI is a professor of business frameworks, software tools, and opportunities and administration at Harvard Business School and the founding business models that enable developers to grow their director of the Harvard Innovation Science Laboratory. 92 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2017 Copyright 2017 Harvard Business Publishing. 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