Geoffrey ParkerDartmouth College

@g2parker

Marshall Van AlstyneBoston University

@InfoEcon

Chapter 4

DisruptionPlatform Revolution: Making Networked Markets Work for You

Questrom School of Business

2016 Parker & Van Alstyne with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 Int’l (CC BY-SA 4.0).

Sangeet ChoudaryPlatform Thinking Labs

@sanguit

1. Introduction: Welcome to Platform World2. Network Effects: The Power of the Platform3. Architecture: Basic Principles for Designing Successful Platforms4. Disruption: How Platforms Conquer &Transform Traditional Industries5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms6. Monetization: Capturing the Value Created by Network Effects7. Openness: Defining What Platform Users/Partners Can &Cannot Do8. Governance: Policies That Increase Value and Enhance Growth9. Metrics: How Platform Managers Can Measure What Really Matters10. Strategy: How Platforms Change Competition11. Policy: How Platforms Should (and Should Not) Be Regulated12. Future: Industries Facing Imminent Change

Platform Revolution: Chapter 4 - Disruption

(click to order on Amazon)

2016 Parker & Van Alstyne – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

2016 Parker & Van Alstyne – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

Pathway to disruption: online pipes’ superior marginal economics of production & distribution

https://www.poynter.org/2012/times-picayune-confirms-end-of-daily-publication/175038/

http://newspaperdeathwatch.com/pittsburgh-post-gazette-hikes-prices-even-as-circulation-plummets/

http://www.nbcnews.com/id/22452666/ns/business-us_business/t/cincinnati-post-stops-press-after-years/

Disruption Past: Efficient pipelines disrupt inefficient pipelinesNewspapers under tremendous pressure

2016 Parker & Van Alstyne – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

http://articles.latimes.com/2013/nov/06/entertainment/la-et-mn-blockbuster-video-stores-closing-20131106

Disruption Past: Efficient pipelines disrupt inefficient pipelinesMedia retailers under tremendous pressure

Pathway to disruption: online pipes’ superior marginal economics of production & distribution

Disruption Stage 2 - Platforms disrupt pipelinesEmergence of Platforms into traditional print news and classified markets

Path: Aggregation; Classified Ad RevenueSuperior economics: Social Curation

Path: Low cost new supply; fixed costs covered, low variable costsProblem Solved: Trust/Insurance

Disruption Stage 2 - Platforms disrupt pipelinesAirbnb lists rooms without having to commit capital

Path: New Supply; Break the Bundle. Problem To Solve: Certification

Disruption Stage 2 - Platforms disrupt pipelinesTraditional Bricks and Mortar Schools under pressure

Disruption Future: Professional & Financial Services

Path: Bypass Gatekeepers. Problem To Solve: Regulatory Restrictions

http://apptology.com/blog/tag/blockchain/

Disruption Future: Distributed Energy Resources

http://www.siliconvalley.com/2015/02/25/solarcity-and-google-partner-on-750-million-solar-fund-largest-of-its-kind/

http://www.intechopen.com/books/progress-in-gas-turbine-performance/micro-gas-turbine-engine-a-review https://www.tesla.com/powerwall

PLATFORM SPONSORSystem Status by time & location

Prices by time & locationEcosystem Rules Architecture

Disruption Future: A Platform Distributed for Energy Resources

Platform Provider/Distribution System

Adjacent Service

Providers

Household RetailESCOs

Facilitate user role change

Government/

Commercial

Industrial

Supply: Bulk Power

& DER

http://scholarspace.manoa.hawaii.edu/bitstream/10125/41519/1/paper0370.pdf

Path: New Supply; Market Aggregation. Problems To Solve: Launch, Federal vs. State Regulations

Why Now? Dramatic increase in computational power

http://aiimpacts.org/trends-in-the-cost-of-computing/

Why Now? Many new users and devices!

http://mobilemarketingmagazine.com/four-connected-devices-per-person-worldwide-by-2020/

Why Now? New Behavior

TAKEAWAYS FROM CHAPTER FOUR

The disruption of business by the Internet has proceeded through two stages. In stage one, efficient pipelines ate inefficient pipelines. In stage two, platforms eat pipelines.

Platforms are able to outcompete pipelines because of their superior marginal economics and because of the value produced by positive network effects. As a result, platforms are growing faster than pipelines and taking leading positions in industries once dominated by pipelines.

The rise of platforms is also disrupting business in other ways. It is reconfiguring value creation to tap new sources of supply; reconfiguring value consumption by enabling new forms of consumer behavior; and reconfiguring quality control through community-driven curation.

The rise of platforms is also causing structural changes in many industries—specifically, through the phenomena of re-intermediation and market aggregation.

Incumbent companies can fight back against platform-driven disruption by studying their own industries through a platform lens and beginning to build their own value-creating ecosystems, as Nike and GE are doing.

2016 Parker & Van Alstyne – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

Platform Revolution: Next Chapter 5 – Launch

1. Introduction: Welcome to Platform World2. Network Effects: The Power of the Platform3. Architecture: Basic Principles for Designing Successful Platforms4. Disruption: How Platforms Conquer &Transform Traditional Industries5. Launch: Chicken or Egg? 8 Ways To Launch Successful Platforms6. Monetization: Capturing the Value Created by Network Effects7. Openness: Defining What Platform Users/Partners Can &Cannot Do8. Governance: Policies That Increase Value and Enhance Growth9. Metrics: How Platform Managers Can Measure What Really Matters10. Strategy: How Platforms Change Competition11. Policy: How Platforms Should (and Should Not) Be Regulated12. Future: Industries Facing Imminent Change

(Click on left hand icons to access content)

2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

For More Chapter 4 InformationSuggested background: MBA Course Readings

1. David Ferris, Jeffrey Tomich and Edward Klump, "NRG's David Crane wants to rule -- and overthrow." EnergyWire: Tuesday, September 9, 2014. http://www.eenews.net/stories/1060005411

2. Charles Moldow. "A Trillion Dollar Market By the People, For the People: How Marketplace Lending Will Remake Banking As We Know It." Foundation Capital Whitepaper

3. Marc Andreessen, “Why Software Is Eating the World,” Wall Street Journal, August 20, 2011, http://www.wsj.com/articles/SB10001424053111903480904576512250915629460.

4. Arun Sundararajan, “From Zipcar to the Sharing Economy,” Harvard Business Review, January 3, 2013, https://hbr.org/2013/01/from-zipcar-to-the-sharing-eco/

5. Dan Charles, “In Search of a Drought Strategy, California Looks Down Under,” The Salt, NPR, August 19, 2015, http://www.npr.org/sections/thesalt/2015/08/19/432885101/in-search-of-salvation-from-drought-california-looks-down-under.

6. Jason Tanz, “How Airbnb and Lyft Finally Got Americans to Trust Each Other,” Wired, April 23, 2014, http://www.wired.com/2014/04/trust-in-the-share-economy/.

Geoffrey Parker@g2parker

Marshall Van Alstyne@InfoEcon

2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

For More Chapter 4 InformationSuggested background: PhD Course Readings

1. Hemant K. Bhargava and Vidyanand Choudhary, “Economics of an Information Intermediary with Aggregation Benefits,” Information Systems Research 15, no. 1 (2004): 22– 36.

2. Marco Ceccagnoli, Chris Forman, Peng Huang, and D. J. Wu, “Cocreation of Value in a Platform Ecosystem: The Case of Enterprise Software,” MIS Quarterly 36, no. 1 (2012): 263– 90.

3. Thomas Eisenmann, Geoffrey Parker, Marshall Van Alstyne, "Platform Envelopment,” Strategic Management Journal 32 (2011).

4. Peter C. Evans and Marco Annunziata, “Industrial Internet: Pushing the Boundaries of Minds and Machines,” General Electric, November 26, 2012, http:// www.ge.com/ docs/ chapters/ Industrial_Internet.pdf.

5. Feng Zhu and Marco Iansiti, “Entry into Platform-Based Markets,” Strategic Management Journal 33, no. 1 (2012): 88– 106.

6. Richard Tabors, Michael Caramanis, Elli Ntakou, Geoffrey Parker, Marshall Van Alstyne, Paul Centolella, Rick Hornby (2016), “Distributed Energy Resources: New Markets and New Products.”

Geoffrey Parker@g2parker

Marshall Van Alstyne@InfoEcon

2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

For More Chapter 4 InformationSuggested video for disruption

1. Platform Revolution - Lecture at MIT Platform Symposium - Geoff Parker https://www.youtube.com/watch?v=F-EJrG3J4GQ

2. Platform Revolution - MIT Initiative on the Digital Economy - Marshall Van Alstyne https://www.youtube.com/watch?v=jfd3k4VUYh4&t=817s

3. Four forms of market-driven disruption - Sangeet Paul Choudaryhttps://www.youtube.com/watch?v=32nTvAzS8Tg

2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

Platform RevolutionAuthor video links

1. Geoff Parkerhttps://www.youtube.com/playlist?list=PLMMkE0nV-WxySm4apD9EsOFXHjgc5mMdP

2. Marshall Van Alstyne https://www.youtube.com/results?search_query=marshall+van+alstyne

3. Sangeet Paul Choudaryhttps://www.youtube.com/channel/UCv9bXzmPIQBXpWSPgBGzF2g/videos

2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).