4. Digital platforms, network models & metrics Flashcards
THE NATURE OF PRODUCTS IS CHANGING
Traditional view:
Products included hard
goods, information and
services
Last 20 years: „Services“
have become a way to
deliver „products“
Today and Future:
Services are connecting
to integrated services,
forming ecosystems
INDUSTRIAL ECONOMICS
= economic principles of product industries (discrete products)
* Product: can only be consumed once, value declines with usage,
vaue is largely independent of other product users, no PIU data
* Profit: production/distribution costs, revenue only when product is
sold
* Implications for competition:
* Ability to differentiate on attributes of product
* Accuracy: forecast future demand
* Predict: Need for detailed predictions of external industry change
INFORMATION ECONOMICS
= economic principles of internet or digital industries
* Product: digital product, can be used repeatedly, service value
increases with usage, PIU-data
* Profit: initial MVP to attract users, low costs for each incremental
service, grow is low-to-no costs, usage data has potential service for
third parties
* Implications for competition:
* Continuous and fast improvement of products
* Speed: user growth, continously update products
NETWORK EFFECTS
- = Interesting properties of the value of networks (or communties) to the
participating members of the network. - Product: interdependent activity of members in the network, value of
network increases with growth, the larger the community, the more attractive
for remaining non-users - Profit: revenue from access to network, usage data
- Implications for competition:
- Accelerate network growth: independency among users can yield
dramatic growth in the user base and create a very powerful asset
which is an active user community.
Examples:
Lock-in effect
Snowball-effect
Penguin-effect
WHAT IS INDUSTRIAL ECONOMICS?
INDUSTRIAL ECONOMICS (PREDICT)
Source: Garrett & Ritchie
Properties:
* Physical Products
* Independent Users
* Product Value Decreases
with Usage
Basis of Competition:
* Product Attributes
* Revenue from Usage
Implications for
WHAT IS INFORMATION ECONOMICS?
(PREPARE)
Source: Garrett & Ritchie
Information economics
Properties:
* Digital Products
* Independent Users
* Service value Increases with Usage Basis of Competition:
* Digital Service Attributes
* Revenue from Data about Usage Implications for Executive
* Speed
+ Network effects
Properties:
* Independent Network of Users
* Network Value Increases as Users Join
* Network Value Attracts More Users Basis of Competition:
* Network Size
* Revenue from Access to Network Implications for Executive
* Accelerate Network Growth
What is running the first mile?
1. ENVISION THE DISRUPTIVE POTENTIAL
- ENVISION THE DISRUPTIVE POTENTIAL
* Gain perspective,
* Requires considerable foresight (=internal
executive team capability)
* Implications of the technological change
within industry (zero, some or major
impact)
* Success depends on how fast firms
respond to technological discontinuity
What is running the first mile?
2. ASSESS THE MAGNITUDE OF CAPABILITY GAPS
- ASSESS THE MAGNITUDE OF CAPABILITY GAPS
* Clear understanding of current and future
capabilities.
* Capability gap: the difference in magnitude
between the portfolio of current capabilities and
those necessary to launch a connected product or
service
* Size of gap impacts:
* Scope of needed transformation
* Perception as threat or opportunity
* Speed to market
* Need for acquisition of capabilities or thirdparty
services
* Inability to identify gap èinability to formulate and
implement a response
What is running the first mile?
3. INVEST TO IMPLEMENT THE RESPONSE
- INVEST TO IMPLEMENT THE RESPONSE
* Assessment of internal resources (skilled
people and money) to acquire necessary
capabilities
* Funding of transformation process often
means redeploying existing resources
away from current use.
* Finding balance between managing the
present and building for the future.
What is running the first mile?
OVERCOME DOMINANT LOGIC INERTIA
- Firm‘s leaders ability to recognize and
choose to react to external changes - Responsibility of executives
- Sum of leader‘s mental models about
company - determines „way things work“ - Problem when leaders do not recognize
that industry disruption
Example: Blockbuster
Firm level: OVERCOME STRUCTURAL INERTIA
Structural inertia = relative slowness caused
by the firm‘s systems, people, and culture
which are aligned to today‘s strategy and
aren‘t able to support the new, or in this
case, the „connected strategy“
What is a digital platform?
Digital Platform: Repository of
business, data, and infrastructure
components used to rapidly
configure digital offerings.
A multi-sided market with a software-based core that
enables two or more actors to interact with each other
and that underlies the influence of network
externalities. The software-based core of a multi-sided
market is extensible, reusable and provides stable
interfaces (architecture). On the platform services for
end users or for developers may be developed, added
or changed and products and services may be sold.
Mention two perspectives on digital platforms
Source: Parker
DIGITAL PLATFORM
(technical view)
= An extensive codebase to which complementary third-party moduls can be added
- Consists of reusable digital components
(=slices of code) èAPI-enable components - Componensation is key
- Challenge: to keep track of all the components
- three repositories built (data-, infrastructurebusiness
components) on a base of cloud technologies to service the need of digital offerings
DIGITAL PLATFORM
(sociotechnical view)
= Technical elements (of software and hardware) and associated organisational processes and standards
Digital Platform as business model
* Business that enables value-creating actions between external producers and customers
* transformative concept, that is radically changing business, the economy, and society at large
What is in digital platforms from a technical view?
Digital offerings: software that includes code unique to that offerings as well as API, calls to the reusable components needed from the repositories
Cloud services: hosting and performance management of applications
Data components: heart of platform, operational data, data from sensors, smart devices and other web services
Business components: provides functionality required by multiple digital offerings
Infrastructure components: technical service components to adapt the services
mbedded in the cloud platform to the specific needs of the company‘s offerings and customers
What is in digital platforms from a sociotechnical view?
A digital platform is not only technology, but also a business model
1. Attract a critical mass: features and processes by which a platform attracts
and retains active consumers and producers.
2. Match: introduce both sides before they can interact, quality of matchmaking
is critical for success (timely, relevant and filtered information).
3. Connect: participants need to exchange information before moving on to
the transaction stage, increases trust and reduces information asymmetry.
4. Transact: transaction stage is at the heart of the platform value proposition.
Interaction that creates the most value for participants and facilitates
exchange (e.g., physical product, rental contract, ride, a photo)
5. Optimise digital offerings continuously: Enables rapid innovation and
experimentation due to easy access to data
What does the two perspectives of digital platforms focus on?
Economic Perspective:
(sociotechnical view) focuses on how platforms as markets mediate transactions across
different customer groups and how network effects fuel platform competition.
–> focus on network effects
Engineering Design Perspective:
(technical view) views product platforms as technological designs that help firms generate modular product innovation.
–> focus on modularity and systematic re-use of components, facilitation of innovation
Platform dynamics
- Reality of platform dynamics is very complex and roles can
change - Competition between platform owner and complementors
can change - Example the shifting relationship between Google and
Apple: Apple used to bundle Google Maps as a part of the
iPhone homescreen, but the iPhone5 replaced it with its
own Apple maps application. - Role of platform users are dynamic: User often play roles of
consumers and collaborative innovators in a non-separable
way –> feature of ecosystems - Example Facebook and Google: you use the service of the
platform (consumer) and contribute your data to the
platform (contribute to the supply) - Users also create content and become contributors
Building a digital platform incrementally
Source: Parker
Leadership:
* Clear vision and upfront investment needed
* foster component thinking
* Establish an architectural role to identify components that
might be reusable
Longterm perspective:
* DP can and should continuously evolve
* Recognize and invest in longer-term needs before those
needs become apparent
Challenge:
* platform may not seem important until there are enough
components to require formalized management
* risk at developing expensive and fragile digital offerings
Buying a digital platform
Source: Parker
Leadership:
* Decision to buy a start-up with a platform to introduce
new digital services and accelareate the adoption of
digital business capabilities.
Challenge:
* often not so well architectured (always check reusability
of business data and infrastructure components) in order
to integrate scalable digital offerings
* acquisition should also bring onboard the people and
their ways of working, because companies adopt
different habits as they built a digital platform.
WHAT DOES IT TAKE TO BUILD A DIGITAL PLATFORM?
Digital governance
- Ability to componentization
- No unnecessary complexity
Technological requirements
- Repositories of APIenabled data, infrastructure and business components
- Big data
Business process architecture
- Desired level of integration and standardisation
- Constant testing and improvement of digital offerings
People requirements
- Strong leaders with a clear digital vision
- Platform architects that understand components and further enhancement of platform Component owners
What is platform metrics?
Traditional (“Pipeline Business”) : key numbers like cash flow,
inventory turns, operating income –> measure the efficiency with
which value flows through the pipeline
VS.
Platform: creation of value for all users of the platform which
strengthens the community, improve its long-term health and
vibrancy, and encourages the continual growth of positive
network effects –> measure the success of the platform in
fostering sustainable repetition of desirable interactions.
* Activity on the platform is more crucial than number of
subscribers
* Platforms create value through the impact of network effects
* Platform metrics need to measure the rate of interaction
success and the factors that contribute to it
Platform metrics in start-up phase
START-UP PHASE
* simple measures, to guide decisionmaking
around key questions of
platform design and launch,
including the design of the core
interaction
* Track growth of most important asset:
active consumers and producers and
their successful interactions
* Focus on the core interaction
METRICS (examples)
* Liquidity
* Matching Quality
* Trust
Platform metrics in growth-phase
- Customer retention and conversion
of active users to paying customers
METRICS (examples)
* Producer-to-consumer ratio (balance
in the market)
* Calculate value for each user type
(all sides)
* Interaction conversion rate
* Rate of conversion to sale
Platform metrics in maturity-phase
- Important for the platform to
innovate: what is missing? - Track ongoing engagement of users
and value for users
METRICS (examples)
* More signal than noise
* New business models and services
