Vorlesung 5: Strategy and Competition Flashcards
How to identify platform opportunity / threat?
Platforms have the potential at displacing incumbents when one or multiple of the following characteristics apply:
▪ Do two distinct sides exist?
▪ Are there unexploited long-tails?
▪ Is one side already on board?
▪ Is there a potential for cross-side network effects?
Platforms are not good at displacing incumbents when:
▪ There is a lot of perceived difference among the offerings, i.e. the
experience of the offering is of high importance
▪ Brand attachment is high
▪ Only few possible market participants exist
▪ Offers are complicated and communication-intense
Competitive platform options
1)Belong to a platform
▪ Challenge: exploit the advantages without being run over by the platform itself
▪ Strategic options:
▪ Leverage the platform giant, e.g., Pharmapacks on Amazon
▪ Support a competing platform, e.g., GM funded Lyft
▪ Making alternative platforms your home, e.g., MyTaxi for Black Cabs in London vs. Uber
2)Buy an existing platform (esp. the technology and the talent)
-Challenge: not retaining key talent, integrating technology into legacy systems, cultural rejection from parent company
-Successful example: Walmart acquired jet.com
3)Build a new platform
Challenge:
▪ One of the most challenging options, but potentially the most rewarding
▪ Change whole business model, chicken-egg problem, network effects, processes, tendencies
of command and control, governance, working with competitors
Strategic options:
▪ Integrated in core business
▪ Separated
Transforming into a platform provider
Case: Smart service providers
▪ Business-to-business (B2B), manufacturers
▪ Smart service platform: A digital boundary object that builds on a smart product to enable direct interactions between two or more distinct but interdependent groups of users to create mutual value
▪ Smart product: a digitally networked device, with the following set of
properties:
▪ Unique identity
▪ Location
▪ Connectivity
▪ Sensors and actuators
▪ Data storage and data processing capabilities
▪ Interfaces that enable them to interact with other actors, including humans, other
smart products or information systems
Transforming into a platform provider
Options
Option 1: Establish a smart data platform
▪ Platform owner keeps full control over field data retrieved by machines
▪ Enables third-party service providers and customers to access and use aggregated data ▪ Example: Siemens’ teamplay digital health platform
Option 2: Establish a smart product platform
▪ Platform owner controls what data are streamed and made available by their machines
▪ Enables third-party service providers and customers to access and use data on machine level ▪ Example: WAGO Cloud
Option 3: Establish a matching platform
▪ Platform owner controls customer interface and facilitates interaction between customers and third-party service providers
▪ Platform stands alone and does not interface with smart products to retrieve, analyze or use field data
▪ Example: Lufthansa‘s StaffNow
Establishing successful multi-sided platforms
Critical issues that multi-sided platforms must address:
▪ Getting the pricing structure right: critical for the establishment and for long-term profitability
▪ Recognizing the opportunity: when frictions keep market participants from dealing with each other easily and directly transaction costs can be reduced
▪ Securing critical mass: solve the chicken-egg problem
▪ Governance: how participants interact with each other in physical
or virtual places
▪ Managing the broader ecosystem: other firms, governments, regulation, and other institutions
Platform risks and failure
Minefields for platforms:
▪ Antitrust, e.g., Microsoft
▪ Pursue growth and network effects at the expense of maintaining trust
▪ Seeking labor cost reductions to the extent of possibly breaking labor laws and destroying workforce relationships, e.g., Uber
→ need to find the right balance between pursuing growth without abusing (unlimited) power
Reasons innovation platforms fail:
▪ Failure to optimize “openness”, e.g., no open access iOS in the beginning
▪ Failure to engage developers, e.g., Panoptix
▪ Failure to share the surplus, e.g., Covisint
▪ Failure to launch the right side, e.g., Google Health
▪ Failure to put critical mass ahead of money, e.g., Billpoint
▪ Failure of imagination, e.g., HP’s handheld calculators
Manifestations of reverse network effects
▪ User-abandonment
▪ Output abuse
▪ Echo chambers, e.g., YouTube, Facebook
▪ The hive mind, e.g., Reddit
▪ Crowd-as-a-herd, e.g., Wikipedia
▪ The rich become richer
▪ The long tail abuse
Principles of platform design
Platform configurations based on platform stack
Across all platforms, three distinct layers emerge repeatedly:
▪ Network/marketplace/community layer:
Participants of the platform and their
relationships
▪ Goods, e.g., ebay
▪ Standardized services, e.g., Uber
▪ Non-standardized services, e.g., TaskRabbit
▪ Infrastructure layer: Tools, services, and rules that enable plug-and-play
▪ Data layer
Using the platform stack to compare firms
The Chicken-Egg Problem
▪ Conditions for chicken-egg problem:
▪ Strong network effects
▪ High multi-homing costs
▪ Limited differentiation
▪ High other entry barriers, e.g., supply-side economics of scale, regulatory barriers
▪ Meta chicken-egg problem: chicken-egg problem could be overcome with enough financing, but investors want to see solutions to chicken-egg problem first
▪ Platforms must focus on increasing perceived value, decreasing cost, or increasing subsidy value, since:
𝑝𝑒𝑟𝑐𝑒𝑖𝑣𝑒𝑑 𝑣𝑎𝑙𝑢𝑒 − 𝑝𝑒𝑟𝑐𝑒𝑖𝑣𝑒𝑑 𝑐𝑜𝑠𝑡 + 𝑠𝑢𝑏𝑠𝑖𝑑𝑦 𝑣𝑎𝑙𝑢𝑒 > 0
Staging vs. simultaneous onboarding
Timing of platform launch
Timing of platform launch
Data network effects
the more that the platform learns from the data it collects on users, the more valuable the platform becomes to each user
