Monthly Archives: May 2011

Creating “network effects” in the Cloud with iPaaS?

Emergence of iPaaS-layer solutions in the Cloud, such as this one by MuleSoft, could be a start-up catalyst and “network effects” accelerator for multi-sided platform businesses.  “The platform, Mule iON, is designed to help cloud-based software providers expedite the onboarding of new customers through rapid integration of applications, services and data across the enterprise and clouds.”  http://connectedplanetonline.com/bss_oss/news/mulesoft-launches-integration-platform-as-a-service-0523/



LinkedIn Platform’s Road Map to $8.9B Success

Infographic from Mashable depicts LinkedIn’s many-year journey from inception to successful IPO: 

http://mashable.com/2011/05/19/linkedin-ipo-infographic/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+mashable%2Fbusiness+%28Mashable+%C2%BB+Business+and+Marketing%29

Winning Platform Strategies: Envelopment, Follower, and Staircase

In their recent article, “How platform leaders win” (Journal of Strategy  VOL 32 NO. 2, Jan 2011), Gezinus J. Hidding, Jeff Williams and John J. Sviokla provide a look  into the emergence of successful businesses in modern platform industries:  “Platform industries, which are gaining considerable attention (Cusumano and Gawer, 2002), are information technology industries with components and rules that facilitate interactions among a network of users.”  

In addition to identifying a short list of “four fundamental drivers of the rise of platform businesses,” they also reassess earlier-assembled data sets and attempt to explain successful outcomes in terms of certain common behaviors of firms:  namely, “platform envelopment,” with correlates of (1) follower advantage, (2) staircase strategies.

The data studied covered a range of platform industries (as summarized here), from which the outcomes and the strategies pursued by different firms (including the ultimate leaders/winners) were described.

One notable common behavior or pattern observed among successful firms is described as “platform envelopment:” 

“Although there are many strategies that are potentially relevant for platform leaders, at least 12 of the 15 platform leaders that we studied employed ‘‘platform envelopment:’’  Platform envelopment is defined as ‘‘entry by one platform provider into another’s market, combining its own functionality with the target’s in a multi-platform bundle that leverages common components and/or shared user relationships’’ (Eisenmann et al., 2007).  As platform envelopment occurs, previously separate products evolve and integrate into ever-larger platforms.”

 

Successful “platform envelopers,” it is noted, tend to engage in two other characteristic patterns of behaviors:  (1) “following” and (2) “staircase.”

“Following” as a successful strategy was attributed to a number of factors, including a follower’s “free-ridership” exploitation and self-selection due to available resources/competencies. While better equipped followers often have an advantage over start-ups in many industries/businesses, in platform industries/businesses this outcome seems to be more pronounced (perhaps because of the unique developmental dynamics and requirements of platform businesses, e.g., incremental, sustainable innovation, network externalities, etc. that require time and resources to establish).

Unlike more traditional, one-sided businesses, platform businesses and multi-sided markets tend to exhibit “tippiness,” significantly associated with “network effects or externalities” that can tip a platform business into accelerated growth — or backward into rapid decline.  This effect, which accounts for the frequency of “winner takes all” platform markets/businesses, amounts to a fulcrum of success and defeat in the competitive struggle of platform businesses.

Integration (at all levels), and the management thereof, are key success factors for platform businesses. This is true from the level of technology applications to the level of networked markets and ecosystems.   But the overriding factor or objective becomes that of “a strategically crafted portfolio of customer experiences that expand the company’s original products.”  As stated more comprehensively:

“To manage integration of product architectures, platform envelopers employ ‘‘staircase strategies’’ (Williams, 1998) that treat product extensions as part of a strategically crafted portfolio of customer experiences that expand the company’s original products. Each step up the staircase is part of a long-term vision of how relationships among past, present, and future products create a highly sustainable advantage. Staircase strategies unlock growth pathways for platform envelopers by opening attractive upgrade paths as new products increasingly reinforce each other. Staircase strategies treat product extension as part of an expanding suite of functionalities linked to the company’s original source of market entry. …  Platform envelopers draw on a variety of design tactics and market strategies to construct a cascading series of customer experiences built on compatibility with past products, thereby creating customer lock-in.”

 

As developing platform businesses continue to “staircase” (consolidating control over platform architecture and customer experience), other steps become valuable and productive.  For example:

“Platform envelopers also pay attention to and leverage the economic incentives of potential partners and bring them to the platform through alliances early on. Third-party product tie-ins are encouraged. Of particular importance is any emergence of applications from third-party vendors that can be adopted into the staircase to make the platform much more attractive. …  Platform envelopers also recruit evangelists, as success depends upon support from a broad based community of users. Platform envelopers may also wish to keep prices low initially to gain widespread market penetration. This may preclude competitors from doing the same, as they may not have the same resources or incentives. This approach is particularly relevant if the platform has network effects.

 

In addition, successful platform firms put extensive resource and effort into the cultivation and propagation of future vision and strategy, by which to lead and integrate customers, platform, and ecosystem partners:

Most important among these design tactics and market strategies is to have an overall vision, early on, of where you want to end up. A three- to five-year planning horizon is not unusual. … Here, it is important to get the sequence right: each step up the staircase should be gradual and steady, with no jumps that surprise the customer and create barriers to adoption. The research also highlights the supporting idea that for many of these products ‘‘good is good enough’’ – that is, cross-platform and backward connectivity, in the end, is more important than isolated functional excellence.

 

So in the end, success and leadership of platform businesses is hardly due to chance, but rather to careful following and timed entry with the right assets and skills as well as a systematic, disciplined strategy plan and orchestrated, step-wise execution of more and more integration and incremental innovation across the platform.  It is a protracted dynamic, and a risky one:  one in which the outcome of leadership success (or demise) can be established with sudden swiftness:

“When network effects turn platform innovations into winner-take-all, platform envelopers play high-stakes games with staircase strategies. Small competitive moves or missteps early in the game can have dramatic effects later on. Investment decisions can require considerable commitment and forbearance when revenue projections may materialize only after several years. Staircase strategies require long-term vision, foresight, discipline, and carefully executed commitments, and a willingness to assign resources to outcomes that may notbecome apparent until several years in the future. Still, successfully executed, staircase strategies can pay significant dividends over extended periods of time.”

 

What becomes clear through this perspective on platform businesses, is that platform strategies seem to call for another level of strategy, execution, and risk management above what may be required for more traditional businesses in one-sided markets.  Network effects seem to constitute an important, unique element of the underlying dynamics.  And management becomes more of a discipline of harnessing opposing forces, as if playing a game of chess and a game of poker at one time.

Take-aways: “Cloud Business Summit” NYC 5/11/11

I attended Saugatuck Technology’s “Cloud Business Summit”  this week.   Post continued below with link to Saugatuck’s published slides and to Saugatuck technology website.

There were my key take-aways: (1) Cloud should not be taken as just slippery hype or as a pure technology phenomenon (Cloud entails a business shift of the highest order, comparable to the advent of the PC and the Internet);  (2) 2011 is a critical year of catalyzation and acceleration (businesses that do not want to be behind the curve should be starting to engage in Cloud — but to experiment, learn, and form a launch pad for the next few years.  See attached PDF for Saugatuck’s “Take-away Summary” of the event:  Slides published by SaugatuckSaugatuck Technology, Inc. research website.

Amazon: The Mother of All Platforms?

Excellent slide presentation on the development of Amazon as a platform business.  http://techcrunch.com/2011/05/11/how-amazon-controls-ecommerce-slides/

Service Science/SSME: Is Service Design enough?

In their article “Service Science: The Opportunity to Re-think What We Know About Service Design,” Chris Voss and Juliana Hsuan provide an overview of the emerging discipline of Service Science, a field that would seem to complement and encompass Service Design. [In H. Demirkan et al. (eds.), The Science of Service Systems, Service Science: Research and Innovations in the Service Economy (Springer Science+Business Media, LLC, published 2011)]

According to Voss and Hsuan (if I may take the liberty of interpreting them), the discipline of Service Design suffers from some inherent biases and limitations.  But “the evolution of service science or Service Science, Management and Engineering – SSME, provides us with a platform to critically review the area of service design. The drivers for this include the lack of cross-disciplinary writing on service design, the limitations of the treatment of service design as an extension of product design and the dominance of B2C and neglect of B2B design.”

My take would be that Service Design is a “movement” of approaches and practices to design human-targeted services, while Service Science is the more comprehensive and rigorous perspective on the phenomenon of services, generally speaking.  In addition, the discipline of Service Science appears to makes more serious exertions to integrate other operational and technical disciplines into the analysis, modeling, and understanding of services, while trying to clarify the relationships between services and products (i.e., as concerns their design, development, delivery, consumption and management).   Such disciplines might include mathematical models of service processes or information systems architectures, among others.

Voss and Hsuan explain the importance of concepts such as Modularity, Service Delivery System, and Service Architecture in understanding services.  They also introduce a hierarchical set of levels (broad to specific) within a Service Architecture:

0. Industry
1. Service company/supply chain
2. Service bundle
3. Service package/component
 

So unlike Service Design, where the locus tends to be the interface of service delivery and human consumption, Service Science takes a much more comprehensive view of services that may span industry value systems, supply chains, and enterprises and which ultimately unbundle into more granular, but module-like , service packages and components.

To learn more about Service Science, you may see the above-referenced article and text can be previewed or purchased at http://www.springerlink.com/content/r74426k23062xr23/

Other links to Service Science information include:  http://www.sersci.com/ServiceScience/  and http://www.ibm.com/ibm/ideasfromibm/us/compsci/20080728/index.shtml.