MIT-fit-for-the-future-final

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Networks effect mean that most platforms tip toward just a few major platforms, such as iOS and Android in the smartphone market. 14 COGNIZANT September 2012 Step 7: Plan for platforms Platformisation is here to stay Platforms are foundational technologies that serve as gateways, reducing inefficiencies and friction between users who want to interact or transact business with each other. They make transactions happen by: • Connecting: offering the mechanism by which business is done — for instance, Amazon Marketplace taking orders from customers on behalf of sellers. • Expanding: providing a variety of content in one place. GQ magazine UK found that iPad users were buying back issues because the platform made it easy to find them — enabling GQ to monetise its archive. • Matching: Facebook matches advertisers with appropriate consumers. Amazon recommends related products. • Pricing: Platforms can set prices within their ecosystem, just as iTunes standardised prices for music and video. 11 Whereas ‘value chain’ implies a linear structure, the concept of platforms recognises the true complexity of modern business. Users (such as developers, rights owners, and consumers) transact with each other across the platform — on YouTube, video creators, viewers, advertisers and rights owners all interact. 12 And participants can simultaneously play more than one role — on eBay you can be both buyer and seller. Network effects cause platform consolidation The most critical characteristic of platforms, whether eBay or Facebook, is that they are subject to network effects, for both buyers and suppliers. 13 The more consumers that join, the more valuable the platform becomes: generating content, reviews and ratings that add value for members. A larger base is attractive for suppliers too, as it grows the revenue opportunity. For example, Facebook is useless to you if your friends aren’t on it. But once they’ve joined and the network reaches critical mass, it’s much more valuable to you — and to companies like Zynga that offer games to Facebook users. Network effects can be negative, too: it’s hard to stand out when thousands of developers or sellers are competing for the same customers. And size is not a guarantee of continuing success, past a certain point additional users add little value. Network effects by themselves do not necessary provide a sustainable advantage: users may migrate from a dominant platform to a newer, more exciting one — as happened to MySpace when Facebook emerged. Considering your platform role Your company, or the virtualized network that you’re part of, can take a number of different roles in platforms. 14 You can choose to supply content to another company’s platform — for instance, you might be a book publisher that loads content onto Kindle. There are two ways of affiliating yourself with such platforms: the first is via an exclusive deal, where the platform owner demands that you only use its platform (this happens a lot in video games). Or you might take a platform-agnostic approach, using many platforms — apps are often available for iOS, Android and BlackBerry OS.
Alternatively, you can create or sponsor your own exclusive platform, as Microsoft does for the Xbox — where you control who can join the platform and what offerings can be transacted on it. You can of course run a platform and provide the content for it yourself, or collaborate to: • Create a shared platform: compete with each other by offering differentiated but compatible versions of the platforms — for example, ten companies collaborated to develop the DVD platform, after which they competed against each other by making DVD players. • Develop a joint venture platform: jointly create a new entity — for example, UK TV companies are working together on YouView. • Adopt a licensor platform model: develop the platform and then grant use licenses to others — for example, Sony licenses its Blu-ray platform to hardware manufacturers and video companies. Platform strategy How do you choose between the different kinds of platforms, roles and affiliation strategies available to you? It’s complex. A sustainable platform strategy must be built upon the PSD roles you play, leveraging VRIN resources. But your choice may be limited if a few platforms already dominate your market. The following sections show how to make the decision. Evaluating joining a platform This is often the default choice when a massive platform, such as Kindle or iTunes, presents a ready-made route to market. That’s why Waterstones chose to work with Kindle instead of building its own ebook platform. But scale is not the sole determinant of success — value creation through the PSD framework is what attracts and keeps users. So consider: You also have to choose your affiliation. Making an exclusive commitment — even if forced into it by the sponsor — may help the platform sustain its market position, and means you avoid the cost of dealing with multiple platforms. But it also ties you in to the platform’s fortunes, and can mean you sacrifice shortterm revenue that you could have gained by participating in other platforms. Creating a platform The main reason to create a platform is to avoid being at the mercy of other platform owners. Although you will have to shoulder the costs of creating, running and marketing the platform, you avoid paying any money to Amazon or Apple, and keep hold of your brand, pricing schemes, terms and conditions, the usability of the product or service, partnerships, user data, and user relationships. That’s why the Financial Times chose to abandon its iPhone app to move to a Web application over which it has complete control. Value, VRIN and PSD are still the most important factors in success. JK Rowling’s Pottermore can go up against Amazon because it has the Harry Potter brand. The BBC can make iPlayer work because it has a vast amount of content. But for most providers the biggest challenge will be gaining the sustainable network effects in a contested space. If you create a joint venture network, increase network effects by keeping it open to new suppliers. September 2012 COGNIZANT 15
Page 1 and 2: In association with Fit for the Fut
Page 3 and 4: Contents 4. Step 1: Scan for change
Page 5 and 6: Globalisation Thanks to advances in
Page 7 and 8: The real disruption is that platfor
Page 9 and 10: Step 3: Co-opt threats You can’t
Page 11 and 12: Leverage VRIN to grow your business
Page 13: Step 6: Build virtual value network
Page 17 and 18: Building demand To take users away
Page 19 and 20: About Cognizant Cognizant knows you

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