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CDPSG1[PR] Chapter 10 – Strategy_How Platforms Change Competition, G1…
CDPS
G1
[PR] Chapter 10 – Strategy_How Platforms Change Competition
STRATEGY IN THE TWENTIETH CENTURY:
A CAPSULE HISTORY
1984- the resource-based view
by Birger Wernerfelt
a particularly effective barrier to entry
is control of an indispensable and inimitable resource
e.g. De Beers cartel
1979-Five forces model of competition
outlined by Michael Porter
threat of substitute
products or services
intensity of competitive
rivalry in the industry
bargaining power of suppliers
threat of new entrants
to the market
bargaining power of customers
create a protective moat
to achieve a competitive advantage
they suggest that the nature of competition has become
more complicated and dynamicthan Porter’s model might imply.
the rise of the platform is transforming
the nature of competition
Explosive network effects and strong economies of scale
the ability to seamlessly incorporate the resources and connections of outside partners
e.g. Alibaba
In 20th century
sustainable advantage is illusory
2013-"The End of Competitive Advantage"
by Rita Gunther McGrath
flexibility provides the crucial competitive edge, competition is perpetual motion, and advantage is evanescent.
1994- "Hypercompetition"
by Richard D’Aveni
slow-moving oligopolies fall to nimbler competitors attacking with new tools and technologies.
THREE-DIMENSIONAL CHESS
Background
two new realities are shaking up the world of strategy
instead of responding markets, platforms now can manipulate network effects to
remake market
platform businesses often
grow
the pie or
create
an alternative pie that taps new markets and sources of supply
Case Amazon
: innovating new models
Actively managing network effects
changes the shape of markets
rather than taking them as fixed.
platforms turn business
inside out
firms do not need to seize every new opportunity on its own
all partners sharing the value they jointly created
Platform against platform
one platform competes with another
Case Sony(PlayStation), Microsoft(Xbox), and Ninetendo(Wii)
Strategic advantage
is not the attractiveness of particular products or service but
the power of entire ecosystem
Sony's stronger gaming devices verses Apple's Iphone
Platform against partner
Case Microsoft
using its partner innovation(browsers, multithreading, streaming media, and intant messaging)into its operating system
Case Amazon
operates as a platform for independent merchants while selling some of the same goods on the same platforms at the same time
strengthen the platform but also at the expense of weakening partners
it is a dangerous move
Partner against partner
competition between
two unrelated platform partners
for position in the platform ecosystem to attract the same consumers
HOW PLATFORMS COMPETE (1)
Preventing Multihoming by limiting platform access
Multihoming
occurs when users engage in
similar types of interaction
on more than one platform
prevent multihoming because it facilitate
switching
, which means a user
abandons one platform
in favor of another
limiting multihoming is a cardinal competitive tactic
Case Adobe Flash Player
a
browser application
that delivers Internet content to users, including audio and video playback and real-time game play
it could have been used by app developers on Apple's iPhone operating system
Apple prevent this by making its iOS
incompatible with Flash
and insisting that developers use similar tools created by Apple
Apps developed in Flash could multiuhome,
reducing the iPhone's distinctiveness
cause Apple to
lose
its 30 percent
cut
of every interaction
control over the
associated usage data
(information that provides valuable clues concerning trends on the market place)
Case Alibaba
great explosion occurs when it devised a policy requiring every employee to find and list 20,000 items for sale by some person or merchant
(to attract users and generate significant network effect)
increase in product listings generated two-sided demanded
they
created technological barriers
that prevented Baidu from searching their website
not only focus on the shopping interaction taking place on the platform but also on the potential to monetize the platform by selling advertising
HOW PLATFORMS COMPETE (2)
Fostering innovation, then capturing its value
creating enormous opportunities for users to create new value
giving partners frictionless opportunities to
innovate
and then
capturing
some or all of the value created by acquisition or duplication
A platform business need not own all the inimitable resources in its ecosystem, but it should seek to own the resources whose value is greatest
explains why platform managers need to keep a careful watch on new features or applications that appear on the platform
make their first appearance far down the long tail adoption, with relatively few platform participants using them to co-create value
most will stay there, but a few show the ability to jump rank, climbing rapidly toward the head of the distribution curve and some even show signs of
attracting their own interactive communities
, which means they have the potential to become platforms themselves
such as Instagram and Snapchat
The platform may seek to absorb the
function of the innovative partner and the value it creates by acquisition
The platform may also seek to weaken the startup by promoting competitors
HOW PLATFORMS COMPETE
3.LEVERAGING THE VALUE OF DATA
how to use data
strategically
example: A/B Testing
Amazon
placement of buy-it-now button
tactically
aid ecosystem optimization
tracking who is creating,controlling, and siphoning value
studying the nature of the user's activity
example
without data
Monster
built-in limitations
targeted only active job seekers
no information concerning users’ broader social networks
once job search interaction was completed
users leave the platform
1 more item...
With data
Linked-In
targeted all- professionals
higher degree of ongoing engagement
capture more data
vastly expanded user base
captured data from interactions among professionals interacting with one another as well as with recruiters
two separate feedback loops
emphasizing content creation
4.REDEFINING MERGERS AND ACQUISITIONS
M&A evaluation key question
whether the target company creates value for a user base that significantly overlaps with the one they are currently serving.
if yes,
challenges
the profitability of the target company
ability to elicit a continuing stream of
repeat interactions from platform participants.
advantages
firsthand observation of transaction data
benefits
claiming a portion of the value created by a platform partner is far less risky than buying that
partner
keeping a partnership at arm’s length reduces the platform’s technological complexity
PLATFORM ENVELOPMENT
Platform managers need to continually observe adjacent platform
adjacent platform could be a competitive threat
response
o provide a similar feature directly
to offer it indirectly via an ecosystem partner
platform envelopment
opportunity and threat runs both ways
example:
If Platform A is trying to envelop adjacent
Platform B
Platform B may try to envelop Platform A by mounting the same kind of attack in reverse
the larger platform, with its more numerous initial user base and more powerful
network effects, is generally triumphant.
HOW PLATFORMS COMPETE (6)
Enhanced Platform Design
Companies compete by attempting to create higher-quality products and services
Platform
improve the quality of the tools, pull in users
facilitate interactions
match producers with consumers
Vimeo & YouTube
Serving an overlapping market
Vimeo
better hosting services
greater bandwidth availability
more valuable viewer feedback
no obtrusive pre-roll advertisements, and other features that attract more selective video producers
YouTube
larger viewer base
Vimeo's competitive stance
identifying a specialized niche
to cater to that audience
creating a higher-end product designed
Airbnb & Craigslist
superior platform design enables a platform to dramatically outcompete a preexisting rival
Craigslist
drill down through an unmanaged list of options clustered by city and organized by time of posting
Airbnb
better job at facilitation and matching
search through options organized by
chatacteristics
quality
number of rooms
price
map geolocation
can strike deals directly through Airbnb
WHEN ADVANTAGE IS SUSTAINABLE
Winner-Take-All Markets
The company has maintained a sustained advantage
Happens most often in a winner-take-all market
Four forces
supply economies of scale
industrial-era source of market power
driven by the massive fixed costs of production
volume matters
amortizing costs over more buyers means that margins improve with scale
Intel
$1 billion to develop a semiconductor fabrication plant
the incremental costs of making a million chips are negligible
The greater the supply economies of scale, the greater the tendency toward market concentration
strong network effects
the Internet-era source of market power
positive network effects
the value created
increase as more users join the ecosystem
the profit margins
Houghton Mifflin
NBC
Lexis
Whirlpool
1 more item...
Amazon
Netflix
LegalZoom
Nest
1 more item...
high multihoming or switching costs
multihoming takes place when users participate on more than one platform
comes with a cost
monetary(multiple subscription fees)
otherwise(inconvenience of having to upload data to more than one platform website)
monetary( the penalty assessed when a cell phone user switches service providers in mid-contract)
non-monetary (such as the inconvenience of moving all your family photos from one web hosting service to another)
the costs associated with leaving
one platform and moving to another
tend to push a market toward higher concentration
dominated by fewer, larger companies
Android phone & Apple phone
difficult entering the mobile market behind Apple and Google
lower costs encourage people to
participate in two or more platforms at once
Credit card
late entrants can gain market share more easily
markets that are more open and fluid
most social networks offer free basic service
2 more items...
lack of niche specialization
When a particular set of users has distinctive needs or tastes, they can support a separate network
weakening the winner-take-all effect
Windows
Strong network effects
high multihoming cost
Apple
the niche specialization
popular among graphic artists and musicians
LinkeIn & Facebook
Served the distinctive needs of business professionals
G1
Thera
Winnie
Felline
Vivianna
multihoming
switching