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CHAPTER 10: STRATEGY How Platforms Change Competition, WHEN ADVANTAGE IS…
CHAPTER 10: STRATEGY
How Platforms Change Competition
WHEN ADVANTAGE IS SUSTAINABLE:
WINNER-TAKE-ALL MARKETS
winner-take-all market
encourage users to gravitate toward one platform and to abandon others
economies of scale
strong network effects
high multihoming or switching costs
lack of niche specialization
Types of competitors | Nature of the competitive battles
are being transformed**
new competitive threats from
unexpected/counterintuitive rivals
(a rapid emergence, development)
Battles between traditional businesses and platform businesses
Houghton Mifflin Harcourt | McGraw-Hill vs. Amazon (book)
NBC | ABC vs. Netflix (broadcast)
Lexis | Westlaw vs. Google | LegalZoom (Legal services)
Whirlpoo | GE | Siemens vs. Nest (Smart home appliance)
Facebook | Myspace vs. Instagram | WhatsApp
Battles between US and Britain I Germany businesses in steel and heavy machinery
Battles between US and Japan upstarts in auto and electronics
(for many decades)
Battles among platform businesses
2010:
Alibaba - largest IPO
(sheer vastness and parochialism of the Chinese market)
(the impact of government protectionism)
(online sales - a lucrative, walled-off bazaar)
(could not become global brands)
2014:
Alibaba launched in the US market
(threat to U.S. domination of the Internet)
(Alibaba had outcompeted eBay in China)
(become a global business in distribution of Chinese goods)
(opened Chinese consumer for global companies)
(challenged Amazon and eBay in US maket)
The traditional successful elements
(strategic insights of CEO Jack Ma)
(the explosive growth of China’s middle class )
(the impact of government protectionism)
The new realities of platform competition
(network effects and strong economies of scale)
(near-frictionless cross-border trading)
(incorporate the resources and connections of outside partners)
STRATEGY IN THE TWENTIETH CENTURY:
A CAPSULE HISTORY
Porter's
five forces model of competition
the threat of new entrants to the market
Traditional Strategies
erect barriers to new entrants
promote competition among suppliers
keeping buyers relatively small, disunited, and powerless.
Specific segment markets
Differentiate products
Control resources, a
Avoid price wars
Defend its profit margins
Products Innovation
avoiding ruinous competition for itself
encouraging it for everyone else
Mergers or Acquisitions (M&A)
horizontal integration
controls most or all of a specific product
or service marketplace
vertical integration
controls an entire value chain from materials to marketing
the threat of substitute products or services
the bargaining power of customers
the bargaining power of suppliers
the intensity of competitive rivalry
Birger Wernerfelt's
Resource-based View
Effective barriers are
indispensable and inimitable resources
De Beers (Global diamond marketing system)
Richard D’Aveni | Rita Gunther McGrath
the role new technologies in
the age of hypercompetition
shorter and shorter cycle times
of products or services
Internet redraw industrial
and geographic boundaries
Competition is perpetual motion
(Flexibility is more important than
ownership of infrastructure)
Denning
"to create a customer"
relationships between companies and customers are lasting source of value
Three-dimensional chess:
the new complexities of competition
Platform businesses manipulate network effects
to remake markets, not just respond
Make the pie bigger
instead of fighting over the old one
moving managerial influence from inside
to outside the firm’s boundaries
pursuing best opportunities,
instead of holding every opportunity
platform against platform
Strategic advantage is based on
power of entire ecosystems (not only products)
platform against partner
incorporates partners
into platform business's operating system
partner against partner
two unrelated platform partners compete for the same positions in the platform ecosystem
Collaboration and co-creation vs. competition
outside values vs. inside values
opportunity vs. ownership
interaction vs. separation
inimitable resource vs. ability to access to the networks
HOW PLATFORMS COMPETE (1)
PREVENTING MULTIHOMING BY LIMITING PLATFORM ACCESS
Who participates in a platform ecosystem?
Strategy of limiting platform access
Rules
Practice experiences
Limiting multihoming
Adobe Flash and Apple's Strategy
Alibaba | Tabao and Baidu
What value do they create?
Who controls that value?
How big the size of the market is?
HOW PLATFORMS COMPETE (3):
LEVERAGING THE VALUE OF DATA
Tactical data use
Capturing some or all of the value created by M&A
Strategic data analysis
Capturing some or all of the value created by M&A
HOW PLATFORMS COMPETE (6):
ENHANCED PLATFORM DESIGN
improve the quality of the tools
to pull in users, facilitate interactions, and match producers with consumers
superior platform design enables a platform to dramatically outcompete a preexisting rival
to pull in users, facilitate interactions, and match producers with consumers
HOW PLATFORMS COMPETE (2):
FOSTERING INNOVATION, THEN CAPTURING ITS VALUE
giving partners frictionless opportunities
to innovate
Capturing some or all of the value created by M&A
HOW PLATFORMS COMPETE (4):
REDEFINING MERGERS AND ACQUISITIONS
add complementary products
ability to access bigger market
subtract supply chain costs
target company creates value
for a user base that significantly overlaps with their users
HOW PLATFORMS COMPETE (5):
PLATFORM ENVELOPMENT
scan the horizon
observing the activities of adjacent platforms
a new feature appears on
an adjacent platform
provide a similar feature directly
the phenomenon "platform envelopment" to the win-win competition way
offer it indirectly
via an ecosystem partner