Lecture slides for the Aalto University course S-38.3042 Seminar on Networking Business, Fall 2011. Topic: Mobile platforms. Lecture 2 of 2.

1. S-38.3042 Seminar on Networking
Business P
Second lecture, 2011-11-10
Timo Smura

2. Outline
• Your task (once again)
• Literature review
– General terminology
• Value networks, ecosystems, industry architectures
• Network effects
• Standards wars
– Platforms
• Platform typology
• Industry platforms: definition, examples, competition and innovation
• Platform strategies and success factors
• Useful concepts and frameworks for analysis
• Other information sources
• Structure of paper and presentation

3. Task
• Your task is to study a given company in terms of its
mobile platform strategy
• The goal is to understand the role of mobile business in
relation to the overall business of the company, and how
does this affect the mobile platform strategy
• Logical structure of the analysis:
1. Company overview
2. Company’s mobile business
3. Mobile platform strategy
4. Future outlook and recommendations

4. Definition
• By ”Mobile Platforms”, we refer to industry platforms
upon which software applications can be built for
mobile devices (phones, tablets, etc.)
– These platforms enable independent software developers to
build, market, and sell applications running on mobile devices
• We are not that interested in internal platforms or supply
chain platforms (see typology in later slides)

5. Literature review

6. Value networks and industry architectures
Source: Smura 2012

7. Value Chain and Value System
Single-Industry Firm:
Supplier Firm Channel Buyer
Value Chains Value Chain Value Chains Value Chains
Diversified Firm: Firm Value Chain
Business Unit
Value Chain
Supplier Business Unit Channel Buyer
Value Chains Value Chain Value Chains Value Chains
Business Unit
Value Chain
Source: Porter (1985)

8. Value network
Christensen & Rosenbloom (1995)
• A nested network of producers and markets through which the
components are made and sold to integrators at the next higher level in
the system
• Example: Value network of portable personal computing
Source: Christensen & Rosenbloom (1995)

9. Value net
Brandenburger & Nalebuff: Co-opetition (1996)
Customers
Substitutors Company Complementors
Suppliers
Source: Brandenburger & Nalebuff (1995, 1996)

10. Network effects
• Network effects (or ’network externalities’) are present in products and
services, for which the benefit that the consumer derives depends upon the
number of other consumers purchasing compatible items, i.e. who are in
the same ”network”
• Examples from 1985:
– Direct effects: Utility that a consumer derives from purchasing a telephone
depends on other users that have joined the telephone network
– Indirect effects: A consumer purchasing a PC is concerned with the number of
other consumers purchasing similar hardware, because the amount and variety
of software that will be supplied depends on the number of hardware units sold
• Examples from 2011:
– Direct effects: Replace ’purchasing a telephone’ with e.g. ’joining Facebook’
– Indirect effects: Replace ’PC’ with e.g. ’Android smartphone’
Source: Katz & Shapiro (1985, 1986)

11. Standards wars
• Battles for market dominance between incompatible technologies
• Take place when two or more technologies are close substitutes
and targeted at the same markets
• Outcomes of these battles determine also the faith of
complementary goods and services offered around each of the
competing alternatives
• Especially crucial in markets with strong network effects
• Success factors in standards wars:
– Control over an installed base of users
– Intellectual property rights
– Ability to innovate
– First-mover advantages
– Manufacturing capabilities
– Strengths in complements
– Brand name and reputation Sources: Shapiro & Varian (1999), Suarez (2004)

12. Platforms – typology (1/2)
Type of Internal platforms Supply chain Industry platforms Multi-sided markets or
platform platforms platforms
Context Within the firm Within a supply chain Industry ecosystems Industries
Number of One firm Several firms within a Several firms who don’t Several firms (or groups
participants supply chain necessarily buy or sell from of firms) who transact
each other, but whose with each other, through
products/services must the intermediary of a
function together as part of double-sided (or multi-
a technological system sided) market
Platform • To increase the • To increase For the platform owner: • To facilitate the
objectives productive efficiency productive efficiency • To stimulate and capture transactions between
of the firm along the supply value from external, different sides of the
• To produce variety chain complementary platform or market
at lower costs • To produce variety at innovation
• To achieve mass lower costs For complementors:
customization • To achieve mass • To benefit from the
• To enhance flexibility customization installed base of the
in the design of new • To enhance flexibility platform, and from direct
products in the design of new and indirect network
products effects
Source: Gawer (2009)

13. Platforms – typology (2/2)
Type of Internal platforms Supply chain Industry platforms Multi-sided markets or
platform platforms platforms
Context Within the firm Within a supply chain Industry ecosystems Industries
Design rules • Re-use of modular • Re-use of modular • Interfaces around the • Not usually addressed
components components platform allow plugging-in in the economics
• Stability of system • Stability of system of, and innovation on, literature*
architecture architecture complements
End-use of the • Is known in • End-use is defined • Variety of end-uses • Not usually a variable
final product, advance and by the • End-uses may not be of interest in the
service, or defined by the firm assembler/integrator known in advance economics literature
technology of the supply chain
• End-use is known in
advance
Key questions • How to reconcile • How to reconcile low • How can a platform owner • How to price the
asked in the low cost and cost and variety stimulate complementary access to the double-
literature variety within a within a supply innovation while taking sided (or multi-sided)
firm? chain? advantage of it? market to the distinct
• How can incentives to groups of users, to
create complementary ensure their adoption
innovation be embedded in of the market as an
the design of the platform? intermediary?
Source: Gawer (2009)

14. Industry platforms - Definition
• Industry platforms are products, services or
technologies, that serve as foundations upon which
other firms can build complementary products,
services or technologies
• Firms developing the complements
– don’t necessarily buy or sell from each other
– are not part of the same supply chain
– do not they share patterns of cross-ownership.
Source: Gawer (2009)

15. Industry platforms - Examples
• Windows, Linux, Mac operating systems
• Mobile operating systems
• Intel microprocessors
• Internet
• Facebook
• Game consoles

16. Industry platforms – Competition and
Innovation
• Emergence of platforms often alters the power balance in the
industry
– ’Keystone firms’ (Iansiti & Levien 2004) or ’platform leaders’ drive
change towards a system of separately developed components
– Power of assemblers wrt. component makers change
– Industry leaders change
• Platforms tend to facilitate and innovation on complementary
products and services
– The more innovation there is on complements, the more value it
creates for the platform and its users
– Complements and network effects increase barriers to entry
• Social welfare questions arise: Tradeoffs between system-
level competition and platform-specific innovation
Source: Gawer (2009)

17. Platform strategies: Coring and Tipping
Strategic option Technology/design actions to Business actions to consider
consider
Coring • Solve an essential ’system’ problem • Solve an essential business problem for
How to create a • Facilitate external companies’ many industry players
new platform provision of ’add-ons’ • Create and preserve complementors’
when none • Keep intellectual property closed on business incentives to contribute and
existed before the innards of your technology innovate
• Maintain strong interdependencies • Protect your main source of revenue
between platform and complements and profit
• Maintain high switching costs to
competing platforms
Tipping • Try to develop unique, compelling • Provide more incentives for
How to win features that are hard to imitate and complementors than your competitors
platform wars by that attract users do
building market • Tip across markets: absorb and • Rally competitors to form a coalition
momentum bundle technical features from an • Consider pricing or subsidy
adjacent market mechanisms that attract users to the
platform
Source: Gawer (2009), Gawer and Cusumano (2008)

18. Platform success factors
1. Pricing strategies to generate momentum behind a platform
– e.g. subsidizing one ’side’ of the platform
2. Having a large set of complementary products that increase the
value of the platform
3. The strength of network effects
– Tilt the balance in favor of platforms that can build their installed base
faster
4. Technological or design advantages
– Possibility that one platform may achieve a high level of differentiation
over competitors
Source: Suarez & Cusumano (2009)

19. Useful concepts and frameworks for
analysis

20. Focus of analysis
• Put less focus on reporting the macro-environment
– Important to understand, but mostly shared between the different company cases >> We don’t
want repetition in all the papers
– >> Avoid e.g. reporting extensive PESTEL analysis
• Industry analysis and definition is important
– The companies, although all somehow involved in mobile platforms, come from different industries
• E.g. Google vs. Amazon vs. Nokia vs. HP
• Reasons for entering the mobile platform business differ
– E.g. Porter’s Five Forces framework
– Brandenburger & Nalebuff: Value Net framework, complementors
– Value network / ecosystem literature and illustrations in general
• Business and corporate level strategy concepts are important
– Competitive advantage
– Strategic capabilities, resources, competences
• Resource-based view, dynamic capabilities
• SWOT analysis (relative to competitors)
– Price / differentiation / focus strategies: Porter, The Strategy Clock
• Target segments (regions, price points)
– Diversification: In which other markets (products) the company is active
• Complements to mobile platform business, synergies?

21. Porter’s Five Forces framework
The Five Competitive Forces that Determine Industry Profitability
Potential
Entrants
Threat of
New Entrants
Industry
Bargaining Power competitors Bargaining
of Suppliers Power of Buyers
Suppliers Buyers
Rivalry Among
Existing Firms
Threat of Substitute
Products or Services
Substitutes
Source: Porter 1985

22. Porter’s Five Forces framework
Elements of Industry Structure, defining strength of the Five Forces
Entry Barriers Rivalry Determinants
Economies of scale Industry growth
Proprietary product differences Fixed (or storage) costs / value added
Brand identity Intermittent overcapacity
Switching costs Product differences
Capital requirements Brand identity
Potential
Access to distribution Switching costs
Entrants
Absolute cost advantages Concentration and balance
Proprietary learning curve Informational complexity
Access to necessary inputs Threat of Diversity of competitors
New Entrants
Proprietary low-cost product design Corporate stakes
Government policy Exit barriers
Expected retaliation Industry
Bargaining Power competitors Bargaining
of Suppliers Power of Buyers
Suppliers Buyers
Rivalry Among
Existing Firms
Determinants of Supplier Power Determinants of Buyer Power
Threat of Substitute
Products or Services Bargaining Leverage Price Sensitivity
Differentiation of inputs
Switching costs of suppliers and firms in the Buyer concentration versus
industry Price / total purchases
Substitutes firm concentration Product differences
Presence of substitute inputs
Buyer volume Brand identity
Supplier concentration
Buyer switching costs relative Impact on quality /
Importance of volume to supplier
to firm switching costs performance
Cost relative to total purchases in industry Determinants of Substitution Threat Buyer information Buyer profits
Impact of inputs on cost or differentiation
Ability to backward integrate Decision makers’ incentives
Threat of forward integration relative to threat of Relative price performance of substitutes Substitute products
backward integration by firms in the industry Switching costs Pull-through
Buyer propensity to substitute
Source: Porter 1985

23. Brandenburger & Nalebuff: Value Net
Customers
Substitutors Company Complementors
Suppliers
Source: Brandenburger & Nalebuff (1995, 1996)

24. SWOT analysis
Strengths Weaknesses
Internal
Opportunities Threats
External

25. Generic strategies
Competitive advantage
Lower cost Differentiation
Competitive scope
Broad
1. Cost Leadership 2. Differentiation
target
Narrow 3B. Differentiation
3A. Cost Focus
target Focus
Source: Porter 1985

26. Information sources

27. Information sources
• Companies’ own web sites
– Press, Investor relations
• Industry analysts
– Canalys, Forrester Research, Frost & Sullivan, Gartner, IDC,
Informa Telecoms & Media, Ovum Ltd, Strategy Analytics, Yankee
Group, ...
– VisionMobile (e.g. ”Mobile Platforms: The Clash of Ecosystems”)
– Press releases, free reports
• Market research companies
– Nielsen, ComScore, GfK
– Netbiscuits (e.g. ”Mobile Web Metrics Report 2011”)
– Asymco.com
• Google, Twitter, blogs, ...

28. Structure of paper and presentation

29. Final report structure
• Main content max 6 pages in IEEE format
• Recommendation: Follow the IMRAD structure:
– Abstract
– Introduction
• Motivation and content description for the reader
• Short introduction to relevant literature and earlier academic work
– Method
• Concise general description of the method, not about the case
• Literature review + desktop research, using publicly available
infromation
– Results
• Company overview
This should be at the
• Company’s mobile business
• Mobile platform strategy focus of your PPT
• Future outlook and recommendations presentation!
– (And)
– Discussion
• Most important findings, validity, further research
– References

30. Final report instructions
• Read the template carefully
• Return MS or PDF formats, no other formats accepted
• Specific formatting instructions are in the template, follow them
• Remember to use styles properly in Word (now is a good time to
learn it, google “word style” or ask a friend for help )
• Add captions to figures and tables, refer to them in text also
• Use 2nd level subtopics, but avoid 3rd level subtopics
• Avoid lists, use tables instead
• Avoid direct quotations
• Avoid web sources, especially Wikipedia
• Use Google Scholar, Nelli, etc. to find relevant academic sources
(again, now is a good time to learn it, see
http://lib.tkk.fi/Nelli/nelli_pikaopas.pdf or ask a librarian for help)
• Plagiarism is strictly forbidden

31. References
• Brandenburger, A.M. & Nalebuff, B.J. (1995) The Right Game: Use Game Theory to Shape Strategy, Harvard Business Review, July-August 1995, pp.
57-71.
• Brandenburger, A.M. & Nalebuff, B.J. (1996) Co-opetition. New York: Currency/Doubleday.
• Chesbrough, H. and Rosenbloom, R.S. (2002) The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s
technology spin-off companies, Industrial and Corporate Change, 11 (3), 529-555.
• Christensen & Rosenbloom (1995) Explaining the attacker’s advantage: technological paradigms, organizational dynamics, and the value network,
Research Policy, Vol. 24, pp. 233-257.
• Gawer, A. (2009) Platform dynamics and strategies: from products to services. In Gawer, A. (2009) (ed.) Platforms, Markets and Innovation. Edward
Elgar Publishing Limited, Cheltenham, UK, pp. 44-76.
• Gawer, A. & Cusumano, M.A. (2008) How companies become platform leaders, MIT Sloan Management Review, Vol. 49, No. 2, pp. 28-35.
• Iansiti, M. and Levien, R. (2004) The Keystone Advantage: What New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and
Sustainability, Boston: Harvard Business School Press.
• Jacobides, M.G., Knudsen, T. and Augier, M. (2006) Benefiting from innovation: Value creation, value appropriation and the role of industry
architectures, Research Policy, 35, 1200-1221.
• Katz, M.L. & Shapiro, C. (1985) Network Externalities, Competition, and Compatibility, The American Economic Review, Vol. 75, No. 3, pp. 424-440.
• Katz, M.L. & Shapiro, C. (1986) Technology Adoption in the Presence of Network Externalities, Journal of Political Economy, Vol. 94, No. 4, pp. 822-
841.
• Normann, R. and Ramírez, R. (1993) From value chain to value constellation: Designing interactive strategy, Harvard Business Review, 71 (4), 65-77.
• Porter, M.E. (1985) Competitive Advantage, Free Press, New York, 1985.
• Shapiro, C. & Varian, H.R. (1999) The Art of Standards Wars, California Management Review, Vol. 41, No. 2, pp. 8-32.
• Stabell, C.B. & Fjeldstad, Ø.D. (1998) Configuring Value for Competitive Advantage: On Chains, Shops, and Networks, Strategic Managament Journal,
Vol. 19, No. 5, pp.413-437.
• Suarez, F.F. (2004) Battles for technological dominance: an integrative framework, Research Policy, Vol. 33, No. 2, pp. 271-286.
• Suarez, F.F. & Cusumano, M.A. (2009) The role of services in platform markets. In Gawer, A. (2009) (ed.) Platforms, Markets and Innovation. Edward
Elgar Publishing Limited, Cheltenham, UK, pp. 77-98.