Chapter 1

Introduction: Welcome to Platform World

Platform Revolution: Making Networked Markets Work for You

Geoffrey Parker Marshall Van Alstyne

Dartmouth College Boston University
@g2parker @InfoEcon

Questrom School of Business

with Sangeet Choudary

Platform Thinking Labs
@sanguit
2016 Parker & Van Alstyne with Choudary
licensed under Creative Commons Attribution-
ShareAlike 4.0 Intl (CC BY-SA 4.0).
Platform Revolution: Chapter 1 - Introduction

1. Introduction: Welcome to Platform World

2. Network Effects: The Power of the Platform
3. Architecture: Basic Principles for Designing Successful Platforms
4. Disruption: How Platforms Conquer &Transform Traditional Industries
5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms
6. Monetization: Capturing the Value Created by Network Effects
7. Openness: Defining What Platform Users/Partners Can &Cannot Do
8. Governance: Policies That Increase Value and Enhance Growth
9. Metrics: How Platform Managers Can Measure What Really Matters
10. Strategy: How Platforms Change Competition
11. Policy: How Platforms Should (and Should Not) Be Regulated
12. Future: Industries Facing Imminent Change

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 @InfoEco

SOMETHING HAS CHANGED

FIRM YEAR EMPLOYEES MKT CAP

BMW 1916 116,000 $53B

UBER 2009 7,000 $60B
MARRIOT 1927 200,000 $17B
AIRBNB 2008 5,000 $21B
WALT DISNEY 1923 185,000 $165B
FACEBOOK 2004 12,691 $315B

KODAK 1888 145,000 $30B (heyday)

INSTAGRAM 2010 13 $1B (acquisition)

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THESE ARE THE MOST FAMOUS GLOBAL BRANDS

Source: Interbrand 2015 % is growth relative to prior year, $ is value of brand equity

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13 OF THESE ARE PLATFORMS

Based on presence of a developer or buyer/seller ecosystem.

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THE GLOBAL ECONOMY IS RELATIVELY BALANCED

North America Asia Europe Africa, Latin

America, ROW

19.5 T 23.5 T 19.5 T 10.7

v T

2015 Nominal GDP US$ Total: 73.1 T

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Source: International Monetary Fund
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THE PLATFORM ECONOMY IS UNBALANCED
North America Asia Europe Africa & Latin
America

Public
Private

North America has the most $1B+ platform firms, as measured by market cap. China, with a large
homogeneous market, is growing fast. Europe, with a more fragmented market, has less than the value
of North America

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Source: P. Evans, CGE; CB Insights, Capital IQ, Crunc
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DIGITAL ECONOMY IS DOMINATED BY PLATFORMS

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Source: The Internet Map
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PLATFORMS ARE OVERTAKING ENERGY AND BANKING

Source: Visualcapitalist.com, Bloomberg

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EXPLOSION OF PLATFORM COMPANIES
Over $3 trillion in firm market cap

Selected Platform Companies Emerging platform clusters

The New Multinationals

Source: CGE Platform Database
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 INDUSTRY EXAMPLES
Agriculture John Deere, Intuit Fasal
Communication and Networking LinkedIn, Facebook, Twitter, Tinder, Instagram, Snapchat, WeChat
Consumer Goods Nike, Philips, McCormick Foods FlavorPrint
Education Udemy, Skillshare, Coursera, edX, Duolingo
Energy and Heavy Industry Nest, Tesla PowerWall, General Electric, Enernoc
Finance Bitcoin, Lending Club, Kickstarter
Healthcare Cohealo, SimplyInsured, Kaiser Permanante
Gaming Xbox, Nintendo, PlayStation
Labor and Professional Services Upwork, Fiverr, 99designs, Sittercity, LegalZoom
Local Services Yelp, Foursquare, Groupon, Angies List
Logistics and Delivery Munchery, Foodpanda, Haier Group
Media Medium, Viki, YouTube, Wikipedia, Huffington Post, Kindle Publishing
Operating Systems iOS, Android, MacOS, Microsoft Windows
Retail Amazon, Alibaba, Walgreens, Burberry, Shopkick
Transportation Uber, Waze, BlaBlaCar, GrabTaxi, OlaCabs
Travel Airbnb, TripAdvisor

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FORCES OF CHANGE
Trends likely to continue and intensify

Age of Networks Age of Data

Networks connect physical,
FIRM Surge in data and tools
that can manage and
digital, and social analyze data

Age of Platforms
New business models that that
leverage networks and intelligence
Source: P. Evans, Networks, Data and Platforms, in
Growing Global: Lessons for the New Enterprise, Center
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LINEAR PIPE VS. TRIANGULAR PLATFORM
RAW MATLS PRODUCTION ASSEMBLY DISTRIBUTION

Source Content Edit/ Curate Create Bundles Multiple channels

Elements of value exchange

PRODUCERS CONSUMERS

PLATFORM
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A PLATFORM:
Is a nexus of rules and Elements of value exchange
architecture
Is open, allowing regulated
participation PRODUCERS CONSUMERS
Actively promotes (positive)
interactions among different
partners in a multi-sided market
PLATFORM
Scales much faster than a
pipeline business because it
does not necessarily bear the
costs of external production.

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Source: Platform Revolution
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PLATFORMS BEAT PRODUCTS/SERVICES

Apple iPhone Microsoft Zune, Garmin GPS, Sony PSP, HP

Calculator, Olympus Voice Recorder
Uber Ford, BMW, Nissan
Facebook NY Times, Fox News, Walt Disney
Amazon Hachette, Norton, Blockbuster, Time Warner

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MOST UNICORNS ARE PLATFORMS
Platform = 80 of 115 companies, $300B valuation Global Unicorns = 115

30%
Non
Platforms
70%
Platforms

Source: P. Evans, CGE; CB Insights,

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 Evans

Not Just IPO Funding

Accumulated platforms profits
Top 50 public platforms, 2012 Q1 2016 Q1

Running Sum
of Gross
Profits

Source: P. Evans, CGE; Coleman Walker,

2016 Parker & Van Alstyne, with Choudary licensed under Creative Geoffrey Parker, Tulane University 2016
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 Evans

CHINA STILL ACCELERATING

Growth of Chinas Leading Platform Companies
Increase in net sales from 2011 Q2 to 2016Q1

Source: P. Evans, CGE; Coleman Walker,

2016 Parker & Van Alstyne, with Choudary licensed under Creative Geoffrey Parker, Tulane University 2016
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PLATFORMS LEVERAGE NETWORK EFFECTS
More users = more value = more users
12 phones
5 phones
2 phones

1
connection 10
connections 66
connections

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IMPLICATION

In any market with network effects, the focus of

attention must shift from inside to outside the firm.
Reason: You cant scale network effects inside as easily
as outside.

Source: Platform Revolution

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 ... this implies ...
To have an external focus,
you must have a
community strategy.

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THE PLATFORM SHIFT
Shift 1: From resource control to resource orchestration
Shift 2. From internal optimization to external interaction
Shift 3. From focus on customer value to focus on ecosystem value

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IMPLICATIONS FOR PRODUCT/SERVICE FIRMS
Know where you are in relation to platforms: provider,
partner, potential partner, competitor.
Assess your data assets; create a data strategy
Invest in Governance to attract partners and their
investments

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CRITICAL CAPABILITIES FOR FIRMS IN A PLATFORM WORLD
Optimize external as well as internal supply chains
Coordinate a distributed ecosystem
Build and manage a common data layer
Reset strategy to emphasize community as an asset, not
just owned resources

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 TAKEAWAYS FROM CHAPTER ONE
A platform is a nexus of rules and open infrastructure. A platform business enables value-
creating interactions between external producers and consumers. It sets governance conditions
for healthy interactions to occur.
A platforms overarching purpose: to consummate matches among users and facilitate the
exchange of goods, services, or social currency, thereby enabling value creation for all
participants.
Because platform businesses create value using resources they dont own or control, they can
grow much faster than traditional businesses.
Platforms derive much of their value from the communities they serve. The best platforms
create strong network effects.
Platforms invert companies, blurring business boundaries and transforming firms traditional
inward focus into an outward focus.
The rise of the platform has already transformed many major industriesand more equally
important transformations are on the way.

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 Platform Revolution:
Next Chapter 2 Network Effects

1. Introduction: Welcome to Platform World

2. Network Effects: The Power of the Platform
3. Architecture: Basic Principles for Designing Successful Platforms
4. Disruption: How Platforms Conquer &Transform Traditional Industries
5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms
6. Monetization: Capturing the Value Created by Network Effects
7. Openness: Defining What Platform Users/Partners Can &Cannot Do
8. Governance: Policies That Increase Value and Enhance Growth
9. Metrics: How Platform Managers Can Measure What Really Matters
10. Strategy: How Platforms Change Competition
11. Policy: How Platforms Should (and Should Not) Be Regulated
12. Future: Industries Facing Imminent Change

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 For More Chapter 1 Information
Suggested background: MBA Readings

1. Andreessen, M. (2011). Why Software Is Eating The World'. Wall Street Journal, p.20.
2. Cusumano, M. (2010) Platforms not just Products, (Chapter 1 of Staying Power)
3. Evans, P. & Gawer, A. (2016) "The Rise of the Platform Enterprise: A Global Survey."
Center for Global Enterprise research paper.
4. Gawer, A., & Cusumano, M. A. (2002). Platform leadership: How Intel, Microsoft, and
Cisco drive industry innovation (pp. 29-30). Boston: Harvard Business School Press.
5. OReilly, T. (2015) Networks & The Nature of the Firm (medium.com) August 14, 2015
6. Tiwana, A. (2013). Platform ecosystems: aligning architecture, governance, and strategy.
Newnes.

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Geoffrey Parker Marshall Van Alstyne with Sangeet Choudary

@g2parker @InfoEcon @sanguit
(click to order on Amazon)
2016 Parker & Van Alstyne, with Choudary licensed under Creative
Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
 For More Chapter 1 Information
Suggested background: PhD Readings

1. Hagiu A. & Wright, J. (2015), Marketplace or Reseller? Management Science 61, no. 1
January : 184203.
2. M. Rysman, M. (2009) The Economics of Two-Sided Markets, Journal of Economic
Perspectives 23, no. 3: 12543.
3. Parker, G. & Van Alstyne, M. (2000), Information Complements, Substitutes and
Strategic Product Design, Proceedings of the Twenty-First International Conference on
Information Systems (Association for Information Systems)
4. Parker, G., Van Alstyne, M. & Jiang, X. (2017). Platform Ecosystems: How Developers
Invert the Firm MISQ.

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Geoffrey Parker Marshall Van Alstyne with Sangeet Choudary

@g2parker @InfoEcon @sanguit
(click to order on Amazon)
2016 Parker & Van Alstyne, with Choudary licensed under Creative
Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).