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SCD G2 [PR] Chapter 10 – Strategy: How platforms change competition, G2…
SCD G2 [PR] Chapter 10 – Strategy: How platforms change competition
How Platform Change Competition
Transformation
Change
Not simply types of competitor but nature of competitive battle
Dramatic competitive battles
occur between Platform company
Struggle
Threat by unexpected rivals
Example
Alibaba
Invest $ 25 billion at IPO in 2014 (largest IPO in history)
Fast growing local firm which make a huge profit through online sales
Enter to US stock in 2014
That make significant threat to US
Huge Source
Chinese goods for around the world
Open consumer market for Global Brand
Strategy in twenty century
Twenty-First Century
Challenge Resource-Based View :warning:
Technological advances
Shorter cycle times
ford the moats of scarce resources
Internet Era
Redraw industrial and geographic boundaries
Oligopolies falling to nimbler competitors
new tools and tech
Able to attack incumbent firms
Competing with Union Pacific railroad in 1915
A firm with 5 decades head start
investments
Locomotives
Rolling stock
Virtually Impregnable
Depots, Warehouses
Terminals
Legal works
other Fixed assets
Competing with Global 500 companies in 2015 ?
Buy Production resources internationally
wide range of supplies for cloud and computing services
various intermediary companies for marketing and distribution
Professional services from Online Freelancers
Hypercompetitive Environment
Infrastructure ownership
Flexibility
crucial competitive edge :check:
Perpetual motion competition :check:
Evanescent Advantage :check:
Nature of competition is evolving
Author Steve Denning
Weakness of Porter's assumption
Avoid competition
The purpose of business
To Create a Customer
Sustainable Advantage is an illusion
Ever Lasting source of Value
Company's relationship with customers
Become more Complicated and dynamic
Porter's model might not be enough to imply
Twentieth Century
Three dimensions chess
how platforms work
manipulate network effects to remake markets
not just respond to markets
a zero-sum game is far less suitable in the world of platforms.
platforms turn businesses inside out
moving managerial influence from inside to outside the firm’s boundaries.
with all partners sharing the value they jointly create
Platform strategy resembles traditional strategy
three-dimensional chess resembles the traditional game
dynamic tradeoffs involving competition at three levels
platform against platform
not on the attractiveness of particular products or services
on the power of entire ecosystems
platform against partner
Amazon operates as a platform for independent merchants
sell some of the same goods on the same platform in competition
at the expense of weakening partners
lead to painful long-term consequences
partner against partner
two game app developers strive to attract the same consumers
The resource-based view assumes that a firm must own
Platform focuses on customer–producer networks and the interactions that result
As the examples of Airbnb and Uber
It grows much faster than the platform company itself
How platform compete (1)
discourage multihoming
what
users engage in many similar platforms
e.g.music fan
why
it will facilitate switching
abandon one in favor of another
Limiting multihoming is a cardinal competitive tactic for platforms
examples
A
pple & Flash
iOS incompatible with Flash
dismay
Flash
browser app
deliver Internet content to users
Apple
2010 "Thoughts on Flash"
Flash consumes excessive energy
deeper reason
multihoming
reduce iPhone's distinctiveness
Alibaba& Baidu
denying a powerful competitor access to Alibaba
Baidu
China's biggest Internet search engine
Alibaba
create technological barriers
log-term strategic game
eyes on selling advertising
How platform compete (2) & (3)
Fostering Innovation, Then capturing its value
enormous opportunities
first giving partners frictionless opportunities to innovate then capturing some or all of the value created by acquisition or duplication.
Platform-world variant of the resource-based theory of value
critical to control
less valuable, or more niche, resources
ceded without significantly weakening the competitive position of the platform itself.
"long tail" of adoption, co-create value
Social Gaming company Zynga and photo-sharing services Instagram and Snapchat
to grow fast
a Strategic tug-of-war
absorb the function of the innovative partner and the value it creates by acquisition.
weaken the startup by promoting competitors
Leveraging the value of data
Data is the new oil
a lot of truth
a source of enormous value - well-run firms are using data
Tactically
to optimize particular tools or features of the platform
quite effective
why amazon now places the buy-it-now button at the top right of a web page
Strategically
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 activites
Eg. Monster vs LinkedIn
New data tools
create a formidable barrier to entry
competitors don't have the data, they can't create the value
How platform compete (4) & (5)
Redefining mergers & acquisitions
Managing a Platform
Take a partnership
Test drive
before sign purchase agreement
2 Significant benefits of Process
First
Claiming a portion of the value created by a platform
Far less risky than buying that partner
Second
Platform purchases must be
integrated w/ platform
creates both technical & strategic challenges
Platform Envelopment
Particularly platforms that serve similar or overlapping user base
If there is new feature on
adjacent platform
competitive threat
users of your platform find new feature attractive enough
to begin multihoming
to abandon your platform altogether
Apple is now endeavoring to use its iPhone platform to envelop markets for mobile payment systems & wearable technology
Platform adjacent
The opportunities and threats run both ways
In this kind of development battle, the larger platform, with its more numerous initial base& more powerful effects
generally triumphant
Remember
No victory is permanent
How platform compete (6)
Superior Platform Design
Specialized needs and high end products
Airbnb
Organized and user-friendly design
Ergonomic design
Craigslist
Unmanged and unorganized option
Off-platform rental agreement
When advantage is sustainable
Winner-take all market characteristics
Supply Economies of Scale
Greater the supply economies of scale = Greater market concentration
Strong Network Effects
Positive network effect attracts more users
High Multihoming and Switching Cost
Multihoming Cost
Taking benefits from multiple platforms
Monetary
Multiple subscription fees
Non-monetary
Inconvenience of running 2 or more platforms
Switching Cost
Cost moving from one platform to another
Monetary
Cancelation penalties
Non-monetary
Inconvenience of moving data
Lack of Niche Specialization
serving a distinct market
Apple
Caters niche market
Windows
Generic
G2
Wai wai
Pingyen
Jocelyn
Ysa
Kimmy
Mulan
Christine
Platform built from 12 independently developed technologies
will break sooner, cost more &deliver a worse customer experience
VS
1 built on a lean architecture
conducts all its business activity through clean interfaces
Resource-Based View
Porter's Five Force model
Popular for 3 decades
Guide Firms' decisions
Which markets to enter and exit
Mergers or acquisitions ?
Which products to innovate?
What supply chain strategy ?
Ex- Whirlpool and GE
Ex- Hughton Mifflin Harcourt and McGraw-Hill
effective barrier
controlling indispensable and inimitable resource
safe from New entrants
Example De Beers Diamond mines
90%market share in 80s
hundred years worth of profits
Farmville & Mafia Wars developed by Zynga
reaction of Facebook
It was far better for Facebook to let hundreds of game companies compete to produce next hit
Defensible Advantage :red_cross:
Platforms seek exclusive access to essential assets.
deliver poor performance on mobile devices