HBR’S 10 MUST READS ON
PLATFORMS AND
ECOSYSTEMS
BY HARVARD BUSINESS REVIEW
Contents
The Players in a Platform Ecosystem 3
Examples of Two-Sided Networks 4
A Framework for Analyzing the Pace of Technology
Substitution
5
How Fast Does New Technology Replace the Old? 6
The Connected-Car Ecosystem 7
Profiting from a Growing Customer Base 8
Which Network Structure is More Defensible? 9
The players in a platform ecosystem
A platform provides the infrastructure and rules for a marketplace that brings together producers and consumers. The players in the ecosystem fi ll four main roles but may shift rapidly from one role to another. Understanding the relationships both within and outside the ecosystem is central to platform strategy.
Platform
Providers
Owner
Producers Consumers
Buyers or usersof the offerings
Creators of theplatform’s offerings(for example, apps
on Android)
Controller ofplatform IP andarbiter of who mayparticipate and inwhat ways (Googleowns Android)
Interfaces forthe platform
(mobile devices areproviders on Android)
Value and dataexchange and feedback
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3
Networked market Side 1 Side 2 Platform providers
Rival providers of proprietary platforms
PC operating systems Consumers Application developers *
Windows, Macintosh
Online recruitment Job seekers * Employers Monster, CareerBuilder
Miami Yellow Pages Consumers * Advertisers BellSouth, Verizon
Web search Searchers * Advertisers Google, Yahoo
HMOs Patients * Doctors Kaiser, WellPoint
Video games Players * Developers PlayStation, Xbox
Minneapolis shopping malls
Shoppers * Retailers Mall of America, Southdale Center
Rival providers of shared platforms
Linux application servers Enterprises Application developers
IBM, Hewlett-Packard, Dell
Wi-Fi equipment Laptop users Access points Linksys, Cisco, Dell
DVD Consumers Studios Sony, Toshiba, Samsung
Phoenix Realtors Association
Home buyers * Home sellers 100+ real estate brokerage fi rms
Gasoline-powered engines
Auto owners Fueling stations GM, Toyota, Exxon, Shell
Universal Product Code Product suppliers
Retailers NCR, Symbol Technologies
* Denotes network’s subsidy side
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4
A framework for analyzing the pace of technology substitution The pace of substitution is determined by how quickly the new technology’s ecosystem challenges are resolved and whether the old technology can exploit ecosystem opportunities for extension.
Ecosystem extension opportunity for old technology
Ecos
yste
m e
mer
genc
e ch
alle
nge
for
new
tec
hnol
ogy
Quadrant 3 Illusion of resilience
Stasis followed by rapid substitution
● GPS navigators vs. paper maps ● High- defi nition TV vs.
standard- defi nition TV● MP3 fi les vs. CDs
Quadrant 1 Creative destruction
Fastest substitution
● 16GB vs. 8GB fl ash drives● Inkjet printers vs. dot matrix
printers
Quadrant 4 Robust resilience
Slowest substitution
● Fully electric cars vs. gasoline- fueled cars
● RFID chips vs. bar codes ● DNA memory vs. semiconduc-
tor memory ● Cloud computing vs. desktop
computing— in the 1990s
Quadrant 2 Robust coexistence
Gradual substitution
● Solid- state vs. magnetic storage (e.g., fl ash memory vs. hard disk drives)
● Hybrid engines vs. internal- combustion engines
● Cloud computing vs. desktop computing— in 2016
Low
High
HighLow
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5
How fast does new technology replace the old? Traditionally the substitution of a new technology for an old one is shown with two S curves (the solid lines). A more holistic view adds two more dynamics. First, if the new technology depends on the emergence of a new ecosystem, it becomes dominant more slowly (dotted line). Second, the old technology’s competitiveness is extended if it can benefi t from performance improvements in its surrounding ecosystem (dashed line).
Perf
orm
ance
Creative destruction
Point A The classic— and fastest— substitution takes place when the new technology’s ecosystem is ready to go and the old technology’s ecosystem can’t be signifi cantly improved.
Robust coexistence
Point B If the new technol-ogy is compatible with the existing ecosystem and the old technology’s ecosystem can be signifi cantly im-proved, substitution takes place later (relative to creative destruction) and at a higher perfor-mance level.
Illusion of resilience
Point C If the new technol-ogy’s ecosystem needs considerable development and the old technol-ogy’s ecosystem has little room for improvement, the changeover occurs after time has passed without per-formance gains.
Robust resilience
Point D If the new technol-ogy’s ecosystem needs considerable development and there are abundant opportunities to improve the old tech-nology’s ecosystem, the substitution oc-curs after the longest period of time and at the highest perfor-mance level.
Time
Note: The exact positions of B and C will depend on the specifi cs of the case, but they will refl ect an inter-mediate pace of substitution (relative to points A and D) and intermediate performance at substitution.
A
B
C
D
Old technology
New technology
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6
The connected-car ecosystem Three software platforms—Android Auto, Apple CarPlay, and, to a lesser extent, OpenCar—dominate the market for integrating smartphone functionality into vehicles. They constitute powerful bottleneck assets because they have scores of supply-chain partners ( left ) and they enable other stakeholders ( right ) to reach consumers. (Note: The companies, apps, and regulators listed are selected examples only.)
AndroidAuto
AppleCarPlay
OpenCar
App platformsSierra Wireless
TeslaVinli
Connectivity playersAT&T
OnStarVerizon
Auto manufacturers
Tier 1 and 2 suppliers
FordMercedes-Benz
Toyota
BoschDelphiMagna
Providers of software systems & services
HarmanMicrosoft
Nvidia
Makers of semiconductors & processing infrastructure
GemaltoIntel
Qualcomm
AppsGarminiTunesNest
Skype
Insurance companiesFarmers
GeicoProgressive
Auto service providersAAA
GoodyearJiffy Lube
RegulatorsEuropean Parliament
Federal CommunicationsCommission
National Highway TrafficSafety Administration
Commercial businessesMcDonald’s
SafewayWalgreens
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7
Profi ting from a growing customer base For traditional product and service businesses, gaining additional customers does not continue adding commensurate value after a certain point. However, many platform businesses (Amazon, Facebook, and the like) become more and more valuable as more people and companies use them, connect with one another, and create network eff ects.
Traditional product orservice business
Digital platform withstrong network effects
Econ
omic
val
ue
Number of users
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8
Which network structure is more defensible? Some digital networks are fragmented into local clusters of users. In Uber’s network, riders and drivers interact with network members outside their home cities only occasionally. But other digital networks are global; on Airbnb, visitors regularly connect with hosts around the world.
Platforms on global networks are much less vulnerable to challenges, because it’s diffi cult for new rivals to enter a market on a global scale.
UberAirbnb
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