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

G4

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

LinkedIn

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).

  1. Platforms seek exclusive access to essential assets
  1. 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