Chapter 3: Build Platforms, Not Just Products PDF

Stuvia - Koop en Verkoop de Beste Samenvattingen Chapter 3: Build Platforms, not just products Competition Airbnb is an example of a platform—a class of businesses that are rethinking which competitive assets need to be owned by a firm (e.g., rental properties and trained service staff) and which c...

Stuvia - Koop en Verkoop de Beste Samenvattingen Chapter 3: Build Platforms, not just products Competition Airbnb is an example of a platform—a class of businesses that are rethinking which competitive assets need to be owned by a firm (e.g., rental properties and trained service staff) and which can be managed through new kinds of external relationships. A platform = a class of businesses that are rethinking which competitive assets need to be owned by a firm (e.g., rental properties and trained service staff) and which can be managed through new kinds of external relationships. The digital revolution is redefining competition and relationships between firms in To (digital) several ways: From Clear distinctions between partners and rivals Competition is a zero-sum game Key assets are held inside the firm A few dominant competitors per category Blurred distinctions between partners and rivals Competitors cooperate in key areas Key assets reside in outside networks Winner-takes-all due to network effects Definition of platforms A platform = a business that creates value by facilitating direct interactions between two or more distinct types of customers. Three key points are included in the definition: 1. Distinct types of customers: To be a platform, the business model must serve two or more distinct sides, or types, of customers. 2. Direct interaction: Platforms must enable these two or more sides to interact directly—that is, with a degree of independence 3. Facilitating: Even though the interactions are not dictated by the platform business, they must take place through it and be facilitated by it. ➢ This is why the definition of platforms does not include a franchise business like McDonald’s or H&R Block Platforms and the Customers they bring together: - Airbnb: Hosts & Renters Uber: Freelance drivers & Riders Paypal: Account holders & Merchants/Banks Youtube: Video viewers & Advertisers & Creators Four types of platforms 1. Exchanges: These types of platforms (or marketplaces) bring together two distinct groups of customers for a direct value exchange, with each group attracted by the number and quality from the other side. 2. Transaction systems: these platforms act as an intermediary between different parties to facilitate payments and financial transactions. Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen 3. Advertising-supported media: platform plays an additional role of creating (or sourcing) media content that is attractive to consumers. 4. Hardware/software standards: platforms that provide a uniform standard for the design of subsequent products to enable their interoperability and benefit to the ultimate consumer. This list is not exclusive; new platform businesses could well arise that don’t quite fit any of these four types. But these categories provide a useful way of thinking about the differences among current platform businesses. Direct and Indirect Network effects Network effects = the value of platforms increases as more customers use them. Direct network effects = occur when the increasing number of customers or users of a product drives an increase in value or utility for that same type of user (same side network effects). ➢ For example, when the first user made a Facebook account, utility was zero because they had nobody to connect with. But, when the number of users increased, each additional user led to an increase in the number of potential connections that could be made. Indirect network effects = occur when an increase in the number and quality of customers on one side of the platform drives increasing value for customers on the other side of the platform. ➢ Most common type of network effect in platforms. ➢ For example, you don’t sign up for Visa because it has lots of other cardholders like you, but the presence of lots of Visa cardholders makes it more attractive for a merchant to accent Visa (which then creates more value for you again). ➢ Not always reciprocal: in advertising-supported media, the indirect network effects only run one way: as the number of readers increases for a newspaper, its value to advertisers increases as well; but increasing the number of ads does not directly increase the value for readers. How digital impacts platforms Digital technologies are supercharging the growth and power of multisided platforms via the Web, on-demand cloud computing, social media, and mobile computing devices. Together, these digital technologies are driving four key elements of platforms: Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen 1) Frictionless acquisition: The process of acquiring new customers for platform in increasingly frictionless thanks to the Web and software development kits. 2) Scalable growth: Cloud computing allows any size business to rapidly scale the size of its platform as fast as it can acquire new customers. 3) On-demand access and speed: mobile computing allows every platform to be accessible to all of its customers anywhere at any time. 4) Trust: Anonymity isn’t very helpful for a platform business. The ability to authenticate customers through their Facebook, Google, Twitter, or LinkedIn identities makes is much easier to use a verification system for new customers on a platform.Before the digital age, platform businesses used to be large enterprises because of the resources required to attract sufficient numbers of participating partners. Competition of platforms 1. Light in assets: because platforms give their customers the job of creating much of their value (Facebook doesn’t create its own value; Airbnb owns no real estate), they tend to be light in assets and have few employees for the revenue they generate because their customers do much of the work that employees would normally do. 2. Scaling fast: platform businesses can grow extremely quick due to low operating costs combined with a scalable cloud computing architecture (as described before). - Another factor is that platforms are able to increase revenue with relatively slow employee growth. 3. Winner takes all: once a platform is widely established in its category, it is extremely hard to launch a direct challenger with a similar service – a result of the power of network effects. 4. Economic efficiency: platforms enable the efficient usage of distributed pockets of economic value (labour, assets, skills) that otherwise could not be effectively used. - Results in a profusion of platforms that bring together lone actors and empower them to contribute economically. - Platforms are often mislabelled as a “sharing economy”, while actually only very few platforms have been established to share assets or labour free of charge. Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen Competition between platforms Platforms can compete on five areas of value: 1. 2. 3. 4. 5. Network-added value: This is the most obvious way that platforms compete. Due to network effects, the platform with the most current customers is often the one most likely to draw future customers. Platform-added value: The platform itself has to develop unique features and benefits to attract customers Open standards: Another important way that a platform competes is by offering more-open and easier-to-use standards than its competitors. Interaction tools: Once a platform has attracted customers, it can compete by providing them with the best tools to find and interact with the right partners Trust enablers: The last way that platforms compete to attract customers is by offering better methods to enable trust among the parties they bring together Tool: the platform business model map The Platform Business Model Map = an analytic and visualization tool designed to identify all the critical parties in a platform and analyse where value creation and exchange take place among the different customers and with the platform business itself. The shapes indicate the parties within the model: - Circle: The platform - Diamonds: The payers (customers that provide revenue to the platform) Rectangle: The sweeteners (customers that provide no revenue but help to attract other valuable customers) - Spikes: The number of other customer types that are attracted (e.g., publishers have one spike because they attract only users, but users have four spikes because they attract publishers, advertisers, app developers, and more users like themselves) - Double-borders: The linchpin (the customer type with the most spikes; the king of network effects) Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen The shifting landscape of competition Digital technologies are contributing to three major shifts in the competitive landscape: 1. Co-opetition: competition with rivals is changing, becoming less of a direct contest and zero-sum game (where one side wins and the other loses) • A zero-sum game sets up a race to the bottom that nobody can win as it leads to price wars and low profitability). • Effective strategy calls for even direct competitors to find ways to work together cooperatively in certain areas. 2. Fluid industries and asymmetric competitors: - Today, industry boundaries are much less static due to rapid technological change. - Companies can expect to compete with more and more businesses that do not look much like them. • Symmetric competitors offer similar value propositions to customers via similar business models (while carmakers may differ in size, the broad model is the same – manufacturing plants, dealerships, and pricing for sale and lease) • Asymmetric competitors offer similar value propositions to customers, but their business models are not similar. Example: an asymmetric competitor for BMW might include a ride-sharing service like Uber: customers might buy less cars because Uber can fulfil their transit needs. 3. Disintermediation and intermediation: Disintermediation = the removal of an intermediary or middleman from a series of business transactions. Often, a new, digital-first challenger arrived to act as intermediary, letting suppliers sidestep their traditional channel for reaching customers. Companies trying to reach their ultimate consumers may build their own digital channel to sidestep, or disintermediate, their traditional partners. 4. Intermediation = new business manages to insert itself as an intermediary between the customers and a company that used to sell directly to them. This happens when a platform builds such a large customer base and becomes such a viable interface to customers those other businesses cannot afford to skip the opportunity to reach customers through that platform. Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen Tool: the competitive value train Competitive value train = a tool designed to analyze competition and leverage between a firm and its business partners, rivals, and asymmetric competitors. - - Focuses on competition by looking at the leverage between companies in a supply chain and their potential substitutes and by mapping how a particular product or service reaches a particular group of customers. Allows managers to focus on competitive and cooperative forces at work in delivering a particular stream of value A competitive value train starts with a horizontal train of firms leading to a final consumer on the right. The number of firms drawn will depend on your business model and means of distribution. Following are three broad types commonly seen as you move upstream from the final consumer: 1. Distributor = delivers the product or service to the customer, although it may not manufacture the product or service (e.g., a (e)retailer like Walmart or Amazon) 2. Producer = creates the finished product, service, or offering paid for by the consumer (e.g., insurance company, record label book publisher, laptop manufacturer). 3. Originator = creates unique elements or parts of the offering (e.g., a manufacturer producing operating systems or chips for laptops or a musician creating recordings for a record label) Understanding competition as leverage Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen A) Facebook, inserting itself between the newspapers and readers, gains competitive power as an intermediary. B) Classified websites have disintermediated the newspapers in the path from advertisers to readers. C) Newspapers may face a threat from reporters who write their articles. Star journalists are able to cultivate brand visibility directly with their audience, especially via social media. The two rules of power in value trains 1. Power to the unique value creator 2. Power to the ends Organisational challenges of competition As businesses adapt to the growing importance of platforms and the shifting landscape of competition and cooperation between firms, many of the challenges that arise are not just strategic challenges but also organizational ones. Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen 1. Shifting roles midstream ➢ Reshuffling the roles and relationships of a company’s value train can be difficult for an enterprise that has a long-standing business model and relationships with both upstream suppliers and downstream distributors. ➢ Channel conflict is the common term for the situation where a business is balancing both working with a key sales channel and going around it. ➢ Shifting channel strategies is particularly difficult for a business because of its vested interest in existing channels and the risk of cannibalizing its current sales in pursuit of a new opportunity 2. Warfare mentality ➢ Both co-opetition and the search for leverage in value trains require leaders to look at competition as more than a zero-sum contest. ➢ In organizations where the “competition is war” metaphor and mindset run deep, cooperating with rivals, and competing with partners can pose a cultural challenge. 3. Openness ➢ One of the biggest challenges of a platform business model is letting go of some of the value creation process. By their nature, platforms grow by letting their distinct outside parties each bring their own value to the platform and interact with a substantial degree of independence. ➢ This requires a hands-off approach that may not be possible for some leaders or some company cultures. Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen?