10 From Products to Platforms Flashcards
What is the fundamental difference between step processes and platform systems as described by Baldwin?
Step processes are production chains where each stage is essential and throughput is limited by the bottleneck stage. Platform systems, in contrast, feature a core platform plus optional modules; adding options always increases value, and there is no single “bottleneck” constraining all outputs.
Why did vertically integrated, hierarchical firms dominate during the era of step-based manufacturing processes?
In step processes, minimizing bottlenecks and synchronizing production flows was crucial. Vertical integration enabled firms to control all stages under one hierarchy, rapidly address bottlenecks, and maintain efficiency. Centralized authority and stable, long-term ownership structures (i.e., the corporation) facilitated systematic management and direct control over workers and production.
How did the rise of modular design and open platforms transform the computer industry’s structure?
As computer architectures became modular and open, firms could specialize in particular layers (e.g., chips, software, peripherals), enabling a transition from vertically integrated “silos” to horizontally layered ecosystems. This shift increased innovation and diversity of products, as multiple independent firms could supply components and add new features without a single firm controlling the entire stack.
What organizational implications arise from the technological shift toward platform systems with modular designs?
In platform systems, option value, risk-taking, and modularity are rewarded over predictable efficiency. Firms sponsoring open platforms benefit from allowing external suppliers and complementors to join their ecosystem. This leads to more decentralized, collaborative networks of firms, reduced vertical integration, and the rise of platform sponsors who set design rules rather than exercising direct hierarchical authority over all production stages.
How do products differ from platforms in technology-based industries?
A product is largely self-contained and controlled by one company, whereas a platform provides a foundation technology that other firms build upon. Platforms are essential parts of broader ecosystems, requiring complementary innovations and benefiting from others’ contributions.
What are the two basic strategies for companies aspiring to become platform leaders?
The two basic strategic options are (1) coring, which involves creating a new platform and making it essential to a broader system, and (2) tipping, which involves winning platform wars by building market momentum and encouraging adoption that leads to one platform’s dominance.
What are the conditions needed for a product to have “platform potential”?
Two conditions must be met: (1) The product must solve an essential “system” problem, meaning the whole system relies on it. (2) It must be easy for third parties to connect to it or build upon it, enabling complements that increase the platform’s overall value.
What technological and business challenges must be addressed in coring?
Technological challenges: Designing a core architecture and interfaces that let external firms easily develop complements, while protecting key intellectual property.
Business challenges: Ensuring that complementors have incentives to invest and innovate, and that the platform leader captures sufficient value from its core technology.
What is “tipping” in the context of platform leadership?
Tipping refers to strategic moves that push a market to choose one platform over competing alternatives. Tactics include investing in unique features, building coalitions, offering subsidies or bundling with other platforms to create momentum that drives market-wide adoption.
How did Google succeed as a platform leader in Internet search?
Google solved a key technical challenge (relevant, fast searches) and made its search easily accessible (via toolbars, interfaces). On the business side, it introduced a profitable advertising model, linking advertisers to user search queries. Together, these moves established Google’s search as the core of a vast digital ecosystem.
What common pitfalls do platform-leader wannabes face?
ompanies may fail by:
- Misjudging whether their product can become a platform.
- Not providing enough incentives or tools for complementors to invest.
- Overly restricting or too freely sharing IP, upsetting their ecosystem’s balance.
- Using pricing strategies that either alienate complementors or fail to generate sufficient value.
Can small or medium-sized companies become platform leaders?
Yes. Although large firms have advantages in scale and distribution, small innovators can become platform leaders by creating essential, unique solutions and recruiting partners to form coalitions. Strong technology, compelling value propositions, and effective ecosystem-building can overcome size limitations.
Why is choosing between a product and a platform strategy crucial?
Early strategic decisions on architecture and openness shape both technical evolution and business relationships. Product-centric strategies differ from platform strategies in required capabilities, incentives, and ecosystem dynamics. Without clarity, companies risk strategic confusion and missed opportunities.
How does convergence influence platform strategies?
Technological convergence expands platform boundaries, allowing companies to “tip across markets” by incorporating functionalities from adjacent sectors. This strategy can broaden appeal and drive adoption, but requires careful management of complexity, partner relationships, and brand positioning.
