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Chapter 10 – Strategy: How platforms change competition, Whirlpool &…
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
Resource-based view of the firm
A particularly effective barrier to entry is control of an indispensable and
inimitable resource
In today :star:
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
A platform competes with its partners
This strategy may strengthens the platform, but at the expense of weakening partners
Microsoft & Amazon
Third level
Two unrelated platform partners compete for positions within the platform ecosystem
First level
One platform competes with another
Strategic advantage is based not on the attractiveness of particular products or services but rather on the power of entire ecosystems
Sony (PlayStation), Microsoft (Xbox), and Nintendo (Wii)
In platform business:star:
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
How Platforms Complete
(2)
:Fostering Innovation, then Capturing its Value
The
open-ended nature of platforms
creates enormous opportunities for users to
create new value.
First
,by
giving
partners frictionless opportunities to innovate.
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.
Second
,by
capturing
some or all of the value created by acquisition or duplication.
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).
How Platforms Complete
(3)
: Leveraging the Value Of Data
“Data is the new oil”
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.
1.Tactically
Tactical data use
is in the performance of A/B testing, to optimize particular tools or features of the platform.
Tactical data analysis
is
quite effective
.
Amazon
2.Strategically
Strategic data analysis
is broader in its scope.
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
LinkedIn
social networks
of
all professionals
,
not just active
job seekers.
How Platforms Complete
(1)
: Preventing Multihoming By Limiting Platform Access
Beginning
with the strategy of limiting platform access so as to control and capture a greater share of the value created on the platform.
Platforms
seek exclusive access to
essential assets
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
Platforms
do this
by developing rules, practices, and protocols that discourage multihoming.
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.
e.g Real Audio VS MS Windows
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
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
are an industrial-era source of market power
strong network effects
are the Internet-era source of market power
high multihoming or switching costs
when users participate on more than one platform
lack of niche specialization
When a particular set of users has distinctive needs or tastes, they can support a separate network, thereby weakening the winner-take-all effect
Whirlpool & GE
Continually improving its manufacturing efficiencies
Squeezing the supply chain
Engineering differentiated products
G4
Thet Thet
Terry
Vivian
Houghton Mifflin Harcourt & McGraw-Hill
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