Focused Knowledge Brief (FKB 001) - Internal …...• Platform business models are often labelled...
Transcript of Focused Knowledge Brief (FKB 001) - Internal …...• Platform business models are often labelled...
Focused Knowledge Brief (FKB 001) Platformisation
March 2016
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016
Confidentiality Our clients’ industries are extremely competitive. The confidentiality of companies’ plans and data is obviously critical. ICG will protect the confidentiality of all such client information. Similarly, management consulting is a competitive business. We view our approaches and insights as proprietary and therefore look to our clients to protect ICG’s interests in our proposals, presentations, methodologies and analytical techniques. Under no circumstances should this material be shared with any third party without the explicit written permission of ICG.
Disclaimer ICG has made good faith efforts to ensure that this material is a high-quality publication. However, ICG does not warrant completeness or accuracy, and does not warrant that use of the material ICG’s provisioning service will be uninterrupted or error-free, or that the results obtained will be useful or will satisfy the user's requirements. ICG does not endorse the reputations or opinions of any third party source represented in this material.
Copyright Notice While third party materials have been referenced and analysed in this material, the content represents the original work of ICG's personnel. This work is subject to copyright. ICG is the legal copyright holder. No person may reproduce this material without the explicit written permission of ICG. Use of the copyright material in any other form, and in any medium whatsoever, requires the prior agreement in writing of the copyright holder. The user is allowed ‘fair use’ of the copyright material for non-commercial, educational, instructional, and scientific purposes by authorised users.
2
Disclaimer
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016
Table of Content
3
Section Component Description
1 Executive Summary • Overview of our research and findings
2 What is a Platform? • Key Frameworks • Relevant articles and books
3 Appendix • Relevant published materials for further reading
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 4
Source: ICG analysis
Platformisation: What is it?
• Direct/same side network effects: the more users in one customer segment will attract more users in that customer segment (users of fax machines; users of an instant messaging system)
• Indirect/cross-side network effects: the more users in one customer segment will attract more users in the other customer segment (users of videogames and game developers)
• A platform business model creates value by facilitating interactions between the different customer segments (eg matchmaking and transaction costs reduction)
• Platform business models are often labelled “two-sided markets” or ”multi-sided markets”, on the basis of how many customer segments they work with
• Platforms generate network effects (see below) but also a chicken-and-egg problem in terms of how to attract both sides of the market at the same time (they use “ratcheting” or “zig zag” strategies to achieve this
WHAT IS PLATFORMISATION
NETWORK EFFECTS
• Apple iPod/iTunes system • Windows operating system • Google platform • Ebay • Credit cards • Newspapers • Consulting, unbundled: (ICG)
EXAMPLES OF PLATFORMS
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016
Table of Content
5
Section Component Description
1 Executive Summary • Overview of our research and findings
2 What is a Platform? • Key Frameworks • Relevant Articles • Published books
3 Appendix • Relevant published materials for further reading
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 6
Platform businesses: definition and the chicken-and-egg problem
Definition and network effects
• A platform business model creates value by facilitating interactions between the different customer segments (eg matchmaking and transaction including search cost reduction)
• Platform business models are often labelled “two-sided markets” or ”multi-sided markets”, on the basis of how many customer segments they work with
• The value of the platform grows to the extent that it attracts more users
• Direct/same side network effects: the more users in one customer segment will attract more users in that customer segment (users of fax machines; users of an instant messaging system)
• Indirect/cross-side network effects: the more users in one customer segment will attract more users in the other customer segment (users of videogames and game developers)
Key success factors
• Attract both customers on board at the same time through a sophisticated price mechanism
• You might need to subsidize the more price sensitive segment and charge the side that increases its demand more strongly as a result of the other side growth (Xbox, PSP)
• In markets with high sensitivity to quality, you may need to charge more the side that has to supply quality. In this way, you are able to attract providers of high quality products (Xbox, PSP) and maintain a quality platform that attracts the other side of the market
• Acquiring new customers at a low cost
• Retain customers for a long period of time
• Attract “lead” users, with lower joining prices or agreements not to join rival platforms to build initial momentum
Source: Eisenmann, T., Parker, G., & Van Alstyne, M. W. 2006. Strategies for two-sided markets. Harvard Business Review, 84(10): 92
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 7
Source: ICG analysis
SUPPLIERS RETAILER CUSTOMERS
CUSTOMER SEGMENT 1
PLATFORM
CUSTOMER SEGMENT 2
“Right” to use the platform
A)
B)
From linear supply chains to platform-based business models
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 8
Networked market Side 1 Side 2 Platform Providers
Examples of two-sided markets from a variety of industries provide a springboard for innovation in your industry
Source: Eisenmann, T., Parker, G., & Van Alstyne, M. W. 2006. Strategies for two-sided markets. Harvard Business Review, 84(10): 92
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016
What does a platform-based ecosystem look like?
9
• Ecosystem: Interfaces to other platforms, data sources (bank feeds, tax records, payment systems) and compatible devices
• Platform: architected system which facilitates housing of components and easy navigation by customers to compile their ideal solution set
• Pillars: categories of components to assist with customer navigation
• Components: best-of-breed (curated) products, services, learning modules, tools and apps, which help along the path of many customer journeys
• Customer Solution Set: Platform-mandatory, platform-advised, and customer-selected component combination which mass customises or personalises the customer experience at a granularity that no segment-based business model can achieve
Platform
Platform Platform
Pillar
Pillar
Pillar
Pillar
Component Component Component Component
Ecosystem
Third-party components
House components
Co-created components
partnerships/ extended enterprise
Customer Ideal Solution Set
Mandatory Customer-selected
Device Agnostic Customer Journey Support
House Purchase Car Accident
SOURCE: David Moloney, ICG
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016
Platforms create digital “enmeshment”?
10
1. Customer to service experience
2. Frictionless
3. Context sensitive
4. Needs based selling
5. Asyncronous communications
1. Customer to platform components
2. Customer to cohort/community
3. Constantly connected/part of daily life
4. Real time/synchronous communication
5. Cognitive solutioning
• Customer to product(s)
• Product sales
• Branch manager
• Stilted HQ communications
Effection Enmeshment Engagement 1. Customer co-dependency
2. Third line forcing
3. Uncancellable contracts
4. Refuse, difficult to close/switch
Entanglement
Unconscionable, Illegal
Legal
# Products
Footings
FOC
US
MEA
SUR
ES # Connected
Platform Components
EV
Customer Outcomes
NPS
NPV
20th Century 2010-2018 Starting
SOURCE: David Moloney, ICG
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016
Digital disruption enables new institutional options with distinct economics
11
TWO DIMENSIONS DEFINE STAKED ARCHITECTURES: UNCERTAINTY AND ECONOMIES OF MASS
• Smart, connected products require companies to build and support an entirely new technology infrastructure
• This “technology stack” is made up of multiple layers, including new product hardware, embedded software, connectivity, a product cloud consisting of software running on remote servers, a suite of security tools, a gateway for external information sources, and integration with enterprise business systems
• In a smart, connected world, companies face key new strategic decisions. A firm’s choices. will have a major impact on every activity in its value chain
Source: Borges’ map: Navigating a World of Digital Disruption, Boston Consulting Group, 2015
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016
In the Internet of Things, playing with platforms and ecosystems is the norm rather than the exception
12
KEY POINTS THE NEW TECHNOLOGY STACK
• Smart, connected products require companies to build and support an entirely new technology infrastructure
• This “technology stack” is made up of multiple layers, including new product hardware, embedded software, connectivity, a product cloud consisting of software running on remote servers, a suite of security tools, a gateway for external information sources, and integration with enterprise business systems
• In a smart, connected world, companies face key new strategic decisions. A firm’s choices. will have a major impact on every activity in its value chain
Source: How smart connected products are transforming companies, Porter, M. and Heppelmann James, Harvard Business Review, 2015
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 13
Source: Osterwalder, A., & Pigneur, Y. 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers: OSF
Key points
• The Business Model Canvas has become the “standard” visual representation of business models
• Business model is here defined as “A business model describes the rationale of how an organization creates, delivers, and captures value”, clearly identifying the three key area of the canvas
• Multi-sided platforms (or multi-sided markets):
• A credit card company needs a large base of credit card holders and a large base of merchants who accept those credit cards
• An enterprise offering a free newspaper needs a large reader base to attract advertisers. On the other hand, it also needs advertisers to finance production and distribution. Both segments are required to make the business model work
• Multi-sided platforms can use aspects of other business models, such as freemium business models and open business models
Business Model Canvas
The Business Model Canvas has become the “standard” visual representation of business models
In a multi-sided business model, the offer (or value proposition) and the customer segments are tightly linked
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 14
PSP/Xbox “give away” expensive consoles to hardcore gamers and obtain royalties from game developers
Key points Business Model Canvas
• Targeted gamers are very demanding and require high quality game experiences
• Thanks to a platform business model, PSP/Xbox guarantee that only the best game developers participate on the platform because only the “good” ones are willing to pay the expensive entry fees.
• Game players are subsidized by the “other side of the market”. Note that PSP/Xbox also develope their own ‘house’ games to seed the platfomr
Source: Osterwalder, A., & Pigneur, Y. 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers: OSF
Console Audience
Game Developers
High Performance Console
Hardcore Gamers
Hardware Sales at a Loss
Royalties
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 15
Wii attracts a large group of casual gamers with relatively inexpensive consoles and royalties from game developers
Key points Business Model Canvas
• Originally, Nintendo’s Wii value proposition was attractive to non professional gamers because of the “fun factor” and “social interactions” – especially younger children, retirement home communities and families
• These didn’t need a sophisticated and expensive technology like hardcore gamers but wanted a simple intuitive interface model
Source: Osterwalder, A., & Pigneur, Y. 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers: OSF
Maddie: Please redo chart using ICG
colours and use the cavnvas from slide
10
“Family” Console
Access to console users & cheap game development costs
Casual gamers
Game Developers
Profitable Hardware Sales
Royalties
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 16
Freemium as a business model: providing the service for free to some customer segments to subsidize other customer segments
Infrastructure development & maintenance
Free basic service Large base of
free users
Premium service
Small base of paying users
Platform
Free basic services Fixed costs
Cost of service for premium users
Cost of service for free users
Automated and mass customized
Paid premium services
Key points Business Model Canvas
• Skype is an example of platform business model with a freemium component
• A large base of free users is subsidized by a small base of paying users
Source: Osterwalder, A., & Pigneur, Y. 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers: OSF
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 17
Managing strategy and innovation in an uncertain world requires executives to think in terms of platforms rather than products
FROM PRODUCTS TO PLATFORMS KEY POINTS
• To strive for competitive advantage in an uncertain world, platform thinking should replace product thinking I
• Key capabilities to develop to succeed in a platform based competition are:
• Pull: link each step in a company key operations backwards from the market in order to respond in real time to changes in demand, customer preferences, competitive conditions or internal difficulties
• Scope: seek efficiencies in activities not suited to conventional economies of scale, such as research, engineering, and product development as well as design and delivery
• Flexibility: companies should be flexible not only in manufacturing product development and other operations, but also in strategic decision making and organizational evolution
Source: Cusumano, M. A. 2010. Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World: Oxford University Press
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 18
A Platform Ecosystem is comprised of the Platform, its Complements and the Network Effects
• To compete effectively in a platform market, a company needs to have
1. open (but not too open) interfaces
2. modular architectures (easy to build on/extend)
3. compelling complements (generally result of most vibrant ecosystem)
KEY POINTS THE PLATFORM ECOSYSTEM
Source: Cusumano, M. A. 2010. Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World: Oxford University Press
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 19
Types of Platforms and “Platforms within Platforms”
• There are several types of platforms, and the last one is the most important nowadays
1. In-house product platform: set of common components or modules around which an organization can create a family of related products or services
2. Retail distribution platform: network of distribution channels, including physical outlets or web sites, through which an organization can distribute a variety of products or services
3. Supply-chain platform: network of suppliers who provide components (or “content”) that enable an organization to create new products or services
4. Industry-wide platform: one of the above but opened to outside organizations to create an “ecosystem” of partners
KEY POINTS EXAMPLES OF FOUR INTERCONNECTED PLATFORMS
Source: Cusumano, M. A. 2010. Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World: Oxford University Press
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 20
Types of Platforms and “Platforms within Platforms”
HOW TO USE LEVERS TO DESIGN PLATFORM STRATEGIES
• To compete effectively in a platform market, a company needs to have
1. open (but not too open) interfaces
2. modular architectures (easy to build on/extend)
3. compelling complements (generally result of most vibrant ecosystem)
KEY POINTS
Source: Cusumano, M. A. 2010. Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World: Oxford University Press
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 21
Four Business Models for the Digital Era KEY DECISION DRIVERS
• In selecting the business model, with associated capabilities and relationships, executives need to determine
1. the extent to which they want to control the value chain, or drive or be part of an ecosystem that delivers on the end customer’s total needs; and
2. the extent to which they know about their end customer’s goals
FOUR BUSINESS MODELS FOR THE DIGITAL ERA
Four business models in the digital era: the power of being an ecosystem (ie platform) business
ECOSYSTEM DRIVERS: FIDELITY
• An ecosystem is a destination for customers in a specific domain (for example, health care, retail, entertainment, financial services or small business)
• Ecosystem drivers use their brand strength to attract participants, ensure a great customer experience and offer one-stop shopping
• They aspire to “own” the customer relationship in one domain like financial services by increasing their knowledge of their end consumers
• They extract rents from participants in their ecosystem — both consumers and service providers — and rely on brand strength and feedback from consumer ratings and reviews to build their reputation and revenues.
• Example: Fidelity’s platform offers its own mutual funds but also includes funds from competitors such as Vanguard and products and services from complementors such as personal investment advisors
Source: Weill, P., & Woerner, S. L. 2015. Thriving in an increasingly digital ecosystem. MIT Sloan Management Review, 56(4): 27
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 22
Use the following questions to assess your digital business model and prioritize improvements
DIAGNOSTIC QUESTIONS
Source: Weill, P., & Woerner, S. L. 2015. Thriving in an increasingly digital ecosystem. MIT Sloan Management Review, 56(4): 27
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 23
FOUR MODELS OF PLATFORM BUSINESSES KEY POINTS
• Platforms get enormous value from third party developers
• Platforms should split IP rights from point of customer contact
1. Open access 2. Extent platform 3. Touch customers 4. Change platform
Controlling openness is a key strategic decision for platforms
Source: Parker, G., & Van Alstyne, M. W. Platform Strategy & Open Business Models, The MIT Centre for Digital Business
One Provider Many Providers
One Sponsor
Many Sponsors
Users
Users Users
Users Dvprs
Dvprs Dvprs
Dvprs
Provider
Provider
Sponsor Sponsor
…
…
Providers
Sponsors
Dell Acer HP
RedHat Debian Ubuntu
1) Proprietary: e.g. Mac 2) Licensing: e.g. Google Android
3) Joint Venture: e.g. Orbitz 4) Shared: e.g. Linux
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 24
THREE MODELS OF PLATFORM CONTROL KEY POINTS
• Originally, Apple tried to control too much of the original Macs, controlling both hardware and software, chocking network effects
• Instead, Microsoft, opened much more of its ecosystem, including open APIs. It achieved strong network effects
• To achieve real profits, platforms need to control a full layer
Control full layers to achieve real profits
Source: Parker, G., & Van Alstyne, M. W. Platform Strategy & Open Business Models, The MIT Centre for Digital Business
Users Dvprs
…
…
Dell Acer HP
RedHat Debian Ubuntu
Users Flights
Sponsor Providers
Users Dvprs
Provider
Sponsors Linux:
No one driving the bus. Limited scope of
control.
Joint Venture: e.g. Orbitz airline
collaboration
Licensing: e.g. Google Android
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 25
Relevant Articles
Title Year Authors
Disrupting beliefs: A new approach to business-model innovation. The McKinsey Quarterly (July)
2015 De Jong & van Dijk
Strategies for two-sided markets. Harvard Business Review, 84(10): 92 2006 Eisenmann, Parker, & Van Alstyne
Borges’ Map: Navigating a world of digital disruption 2015 Evans & Forth
A method for architecting product platforms. Research in Engineering Design, 12(2): 61-72
2000 Gonzalez-Zugasti & Baker
Multi-sided platforms: From microfoundations to design and expansion strategies. Harvard Business School Strategy Unit Working Paper (09-115)
2009 Hagiu
Strategic decisions in multisided platforms. MIT Sloan Management Review, 55(2): 71-80
2014 Hagiu
Platform leadership: How Intel, Microsoft, and Cisco drive industry innovation. Innovation, 5(1): 91-94
2003 Hauptman
Developing product platforms: analysis of the development process. Technovation, 20(11): 617-630
2000 Muffatto & Roveda
Platform Strategy & Open Business Models, The MIT Centre for Digital Business 2015 Parker & Van Alstyne
How smart, connected products are transforming companies 2015 Porter & Heppelmann Optimizing your digital business model. MIT Sloan Management Review, 54(3): 71 2013 Weill & Woerner
Thriving in an increasingly digital ecosystem. MIT Sloan Management Review, 56(4): 27
2015 Weill & Woerner
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 26
Relevant Books
Title Year Authors Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World: Oxford University Press
2010 Cusumano
Invisible engines: how software platforms drive innovation and transform industries: MIT Press
2008 Evans, Hagiu, & Schmalensee
Platform economics: Essays on multi-sided businesses 2011 Evans, Schmalensee, Chang & Garcia-Swartz
Platform leadership: How Intel, Microsoft, and Cisco drive industry innovation: Harvard Business School Press Boston
2002 Gawer & Cusumano
The power of product platforms: Simon and Schuster 1997 Meyer & Lehnerd
Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers: OSF
2010 Osterwalder & Pigneur
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016
Table of Content
27
Section Component Description
1 Executive Summary • Overview of our research and findings
2 What is a Platform? • Key Frameworks • Relevant Articles • Published books
3 Appendix • Relevant published materials for further reading
FKB 001 – PLATFORMISATION COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2016 28
CCS – Certified Case Study
Best publically available information supplemented where possible with mystery shopping
KEY
CUSTOM / BESPOKE GENERAL SPECIFIC
ERT – Expert Round Table
Focused collation of expert insights and opinions on a subject matter of interest. Can be convened with local and or global experts.
BAF® – Best Affiliate Forward
Fit for purpose professionals to assist with customer and confidential research, analysis and insight generation often augmented with industry leading methods
General Buying Pattern
ICG IP Publications span general needs (through public and syndicated reports) and specific needs (through case studies) to custom needs optimising your spend
TIR – The Insights Review
Reviews of published insights from the word’s leading branded management consulting firms
KAR – Knowledge Area Review
Synthesised and structured publically available knowledge from across the global on your chosen topic.
GIR – Global Industry Radar
Global scan of relevant market evolution, trends, and important innovations and impactful case studies
ICG Publications (IP) World best professional know-how distilled as data, information, insights, case studies, benchmarks and frameworks
CMT – Capability Maturity Trajectory
Map of the current state of applied management science in all aspects of business operations
FKB – Focus Knowledge Brief
Review of a research and/or practice area with key frameworks and insights as well as references for further studies
UNBUNDLED CONSULTING • PROJECT SUPPORT • CAPABILITY BUILDING • PROFESSIONAL ASSOCIATION
Internal Consulting Group
Email [email protected] or visit our website at www.internalconsulting.com