Chapter 10 – Strategy: How platforms change competition
The very nature of the competitive battle changes
Alibaba
Strategic insights of CEO Jack Ma
Government-imposed restrictions on foreign companies operating in China
Explosive growth of China’s middle class
Alibaba has forged a partnership with ShopRunner
The ability to seamlessly incorporate the resources and connections of outside partners into the
activities and capabilities of the platform
Assemble capabilities of dozens of preexisting entities and swiftly become a contender
for the title of merchant to the world
Strategy In The Twentieth Century: A Capsule History
Five forces model of competition
The threat of substitute products or services
The threat of substitute products or services
The threat of new entrants to the market
The bargaining power of suppliers
The intensity of competitive rivalry in the industry
Houghton Mifflin Harcourt & McGraw-Hill
Whirlpool & GE
Control the best authors and content
Copyright
Continually improving its manufacturing efficiencies
Squeezing the supply chain
Engineering differentiated products
Resource-based view of the firm
A particularly effective barrier to entry is control of an indispensable and
inimitable resource
In today ⭐
Flexibility provides the crucial competitive edge
Advantage is evanescent
Competition is perpetual motion
Three-dimensional Chess: The New Complexities Of Competition In The World Of Platforms
Second level
Third level
First level
One platform competes with another
A platform competes with its partners
Two unrelated platform partners compete for positions within the platform ecosystem
Strategic advantage is based not on the attractiveness of particular products or services but rather on the power of entire ecosystems
This strategy may strengthens the platform, but at the expense of weakening partners
Sony (PlayStation), Microsoft (Xbox), and Nintendo (Wii)
Microsoft & Amazon
In platform business⭐
A winning strategy blurs boundaries among market participants, thereby increasing valuable interactions on the platform
The nature of the inimitable resource shifts from physical assets to access to customer–producer networks and the interactions that result
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Thet Thet
Terry
How Platforms Complete(2):Fostering Innovation, then Capturing its Value
How Platforms Complete(3): Leveraging the Value Of Data
How Platforms Complete(1): Preventing Multihoming By Limiting Platform Access
“Data is the new oil”
The open-ended nature of platforms creates enormous opportunities for users to create new value.
Data can be a source of enormous value to platform businesses, and well-run firms are using data to shore up their competitive positions in a wide variety of ways.
First,by giving partners frictionless opportunities to innovate.
Beginning with the strategy of limiting platform access so as to control and capture a greater share of the value created on the platform.
1.Tactically
2.Strategically
Tactical data use is in the performance of A/B testing, to optimize particular tools or features of the platform.
Strategic data analysis is broader in its scope.
Tactical data analysis is quite effective.
Amazon
Seeks to aid ecosystem optimization by tracking who else is creating, controlling, and siphoning value both on and off the platform and studying the
nature of their activities.
Facebook and Instagram
Some notable platform strategy battles have been won by companies that took advantage of data supremacy to outcompete their rivals.
Monster
only active job seekers
social networks of all professionals, not just active job seekers.
Second,by capturing some or all of the value created by acquisition or duplication.
Platform-world variant of the resource-based theory of value
Should seek to own the resources whose value is greatest.
Need not own all the inimitable resources in its ecosystem.
This is why Alibaba (rather than Baidu) owns search on its platform.
In Growth of social sharing and network effects
May seek to absorb the function of the innovative partner and the value it creates by acquisition.
Facebook succeeded in acquiring Instagram.
Facebook failed to acquire Snapchat (December 2013).
- Platforms seek exclusive access to essential assets
- Platforms do this by developing rules, practices, and protocols that discourage multihoming.
Multihoming occurs when users engage in similar types of interactions on more than one platform.
A driver who solicits rides through both Uber and Lyft.
How the effort to limit multihoming plays out in the new world of strategy.
Adobe Flash Player
How the strategic battle for control of access to the customer can play out.
Alibaba and Baidu
HOW PLATFORMS COMPETE (4):
REDEFINING MERGERS AND ACQUISITIONS
Classic merger and acquisition (M & A) strategy
the key question is whether the target company creates value for a user base that significantly overlaps with the one they are currently servin
If the answer is yes
the target may be worth acquiring can be reached
there are additional hurdles to be surmounted
the profitability of the target company
the ability to elicit a continuing stream of repeat interactions from platform participants.
Unlike a traditional pipeline company, a platform owner can delay an acquisition until it has observed how a partner transacts on the platform
solves the traditional challenge of information asymmetry in M & A evaluation
the purchaser can rely on firsthand observation of transaction data and even run real-world experiments to test various strategic scenarios
two significant benefits
claiming a portion of the value created by a platform partner is far less risky than buying that partner
e.g. Farmville and Mafia
keeping a partnership at arm’s length reduces the platform’s technological complexity
HOW PLATFORMS COMPETE (5):
PLATFORM ENVELOPMENT
adjacent platforms
serve similar or overlapping user bases
Platform managers need to continually scan the horizon, observing the activities of this.
threat
here’s a possibility that users of your platform may find the new feature attractive enough to begin multihoming or even to abandon your platform altogether
e.g Real Audio VS MS Windows
the opportunities and threats run both ways
If Platform A is trying to envelop adjacent Platform B by developing a feature that competes with Platform B’s most attractive offering
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
platforms compete by trying to improve the quality of the tools they provide to pull in users, facilitate interactions, and match producers with consumers
Case Vimeo & YouTube
Case Airbnb &Craigslist
WHEN ADVANTAGE IS SUSTAINABLE: WINNER-TAKE-ALL MARKETS
When the company has maintained a sustained advantage
supply economies of scale
strong network effects
high multihoming or switching costs
lack of niche specialization
are an industrial-era source of market power
are the Internet-era source of market power
when users participate on more than one platform
When a particular set of users has distinctive needs or tastes, they can support a separate network, thereby weakening the winner-take-all effect
Vivian