Ch 4: platforms (final exam)

Question 1

What is a dominant design?

Answer 1

A single product or process architecture that dominates a product category (usually >50%). It is a de facto standard, meaning that while it may not be officially enforced or acknowledged, it has become a standard for the industry.

Question 2

Why is a dominant design selected?

Answer 2

• Increasing returns (caused by learning effects and network effects)
• Government regulation

Question 3

What are increasing returns?

Answer 3

When the rate of return (not just gross returns) from a product or process increases with the size of the installed base.

Question 4

What are learning effects?

Answer 4

The more a technology is adopted, the better it should become. As a process is repeated, it becomes more efficient (better performance or less costs). Learning rate can be influenced by strategy, nature of task, and prior experience

Question 5

How can investment in prior learning accelerate future learning?

Answer 5

By building the firm’s absorptive capacity.

Trying unsuccessful configurations before finding working solutions builds knowledge base on component behaviour, alternatives/projects success. –> more rapidly assess value of new materials, technologies and methods. Being ahead=maybe advantage in staying ahead

Question 6

What is absorptive capacity?

Answer 6

The ability of an organization to recognize, assimilate, and utilize new knowledge.

Question 7

What are network effects?

Answer 7

When the value of a good to a user increases with the number of other users of the same or similar good (installed base).

Question 8

What is the installed base?

Answer 8

The number of users of a particular good.

Question 9

Why may a consumer choose a platform based on the number of users rather than the technological benefits?

Answer 9

Increased ease of exchange/matching. If effort is needed to understand the platform, it is likely to invest that effort in the platform we believe will be most widely used.

Question 10

What are complementary goods?

Answer 10

Additional goods and services that enable or enhance the value of another good.

Question 11

How do network effects arise when complementary goods are important?

Answer 11

Large installed base = attract more developers of complementary goods. The availability of these goods influences consumers’ choice among competitors, hence the installed base, creating a self-reinforcing cycle.

Question 12

How can government regulation determine the dominant design?

Answer 12

In some sectors, consumer welfare benefits of having compatibility among technologies have prompted government regulation (utilities, telecommunications, television). Where government regulation imposes a single standard on an industry, the technology design embodied in that standard necessarily dominates the other technology options available.

Question 13

What is the result of forces towards dominant designs?

Answer 13

Winner-take-all markets; natural monopolies. (others may survive by focusing on niche, but majority).

Owner:

• huge rewards
• may dominate through several product generations
• shape evolution of industry

–> big winners, big losers

Question 14

What is path dependency?

Answer 14

When end results depend greatly on the events that took place leading up to the outcome. It is often impossible to reproduce the results that occur in such a situation.

Question 15

What is the value of a new technology a composite of?

Answer 15

• The technology’s stand-alone value

- Network externality value

Question 16

What is the buyer utility map?

Answer 16

Considers 6 utility levers and 6 stages of the buyer experience cycle to understand the utility to a buyer (stand-alone value). Each cell in the grid provides an opportunity to offer a new value proposition to a customer.

Question 17

What are the 6 stages of the buyer experience cycle?

Answer 17

Purchase → Delivery → Use → Supplements → Maintenance → Disposal

Question 18

What are the 6 utility levers?

Answer 18

Customer productivity → simplicity → Convenience → Risk → Fun & Image → Environmental Friendliness

Question 19

How can we explain that innovations with significant improvements in technological functionality often fail to displace existing technologies that are already widely adopted?

Answer 19

Network effect value. It is not enough for new technology’s stand-alone utility to exceed incumbent standard, but it must offer greater overall value.

Question 20

When users compare the value of a new technology to an existing technology, they are weighing a combination of:

Answer 20

• objective information. Actual technology benefits, actual information on installed base or complementary goods.
• subjective information. perceived technological benefits, perceived installed base and complementary goods.
• expectations for the future. Anticipated benefits, installed base and complementary goods.

Question 21

How can firms take advantage of the information that users use to compare technologies?

Answer 21

• Small installed base: large mindshare through heavy advertising.
• Shape expectations by announcing pre-orders, agreements, etc. (large PERCEIVED –> large ACTUAL installed base).

Question 22

What shape does the value of network effects follow?

Answer 22

s-curves.

Question 23

What is a common method used in industries where the value of a product system is strongly related to the number and quality of available complements?

Answer 23

Using modularity to create a platform ecosystem where many different firms contribute to the product system (instead of one doing everything)

Question 24

In what two ways can modularity be increased?

Answer 24

1. Expanding the range of compatible components (possible configurations)
2. Uncoupling integrated functions within components (modular on finer levels)

Question 25

What are the advantages of tightly integrated (non-modular) product systems?

Answer 25

• components customized to work together, enabling a performance level standardized components cannot achieve
• Producer control over end product = better monitoring of quality and reliability
• More attractive to customers that do not want to choose or assemble components themselves.

Question 26

What are the advantages of modular product systems?

Answer 26

• More choices over function, design, scale and other features = more close fit to needs and preferences
• Economies of substitution; components are reused in different combinations so product variety is achieved while still allowing scale economies in manufacturing the individual components.

Question 27

Modularity become increasingly valuable in product systems when there are:

Answer 27

• diverse technological options available to be recombined, and
• heterogeneous customer preferences.

Pressure for modularity can lead to platform ecosystems.

Question 28

What are platform ecosystems?

Answer 28

A system of mutually dependent entities (components, complements, end users) mediated by a stable core.

Question 29

What are some characteristics of platforms?

Answer 29

• Components/complements are not owned, but curated
• Choice and reconfigurability, but shepherded by platform sponsor
• Competition still incentivises
• Producer exerts some control over quality and compatibility (possible switching costs)
• Individual success depends (at least in part) on others success (network effects).

Question 30

What are some characteristics of Pure modularity?

Answer 30

• Combinations take place in the market, no co-specialization
• Choice and reconfigurability. Competition incentives firms to increase quality and decrease price
• Quality and compatibility is uncertain (hard for customers)

Question 31

What are some characteristics of pure integration?

Answer 31

• Combination predetermined by firm (no reconfiguration)
• Captive supply (no competition)
• High co-specialization ensures components optimised to work together
• Producer controls quality and compatibility

Question 32

Platforms will be more desirable in a market than a tightly integrated product when…

Answer 32

• customers are diverse and want more choices than a single firm can provide
• third-party options are diverse and high quality
• compatibility with third-party products can be made seamless without interaction
• the platform sponsor is powerful enough that it can retain control over quality and the overall product architecture without producing the complements itself.

Question 33

Platforms will be more valuable than purely modular systems when…

Answer 33

• complements are nonroutine purchases with uncertainty; prefer some shepherding by the platform sponsor
• some integration provides performance advantages
• market unlikely to provide all the complements the end customer needs at the adequate quality or value

Question 34

How can firms combine a pipeline and platform model?

Answer 34

“Platformize” parts of their product, i.e. open up certain layers of their product to third party complementors (Apple)

Question 35

What are some platform management challenges?

Answer 35

• Early stages; attract mass consumers when there are few producers (& vice versa)
• Balancing openness with need for quality control
• Maximizing innovation (allowing third-party flexibility) while maintaining coherence of all content
• From managing internal assets to orchestrating external assets
• From optimising internal innovation processes to facilitating interactions and recombinations that may lead to greater total value of ecosystem
• Governing who gets in, who gets out, who gets what, to get competitive advantage

Question 36

What are the components of value of a technology?

Answer 36

1. Technological utility
2. Installed base
3. Complementary goods available