Lezione Scuola di Liberalismo Fondazione Einaudi 2012

1. PIATTAFORME DIGITALI:
Nuovi motori d’innovazione o tiranni in
agguato?
Carmelo Cennamo
Scuola di Liberalismo 2012
Boston Consulting Group
16 Maggio 2012

2. Assistant Professor @ Bocconi
Area: Strategy
Teaching: Entrepreneurship &
Business Planning
Research Coordinator: GOLDEN
for sustainability
PhD Management @ IE
Business School
Research Visiting Fellow (2009)
@ Harvard U.
MSc Economics @ Bocconi
BA Law & Economics @ Bocconi
Scuola di Liberalismo 2012 © Cennamo BCG, 16 Maggio 2012

3. Publications & Awards
Awards
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

4. Focus
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

5. The phenomenon
Competition between incompatible technology platforms
• Technological standards battles (Suarez, 2004)
• Fierce competition to win the market (“winner-take-all”) (e.g., Eisenmann et al.
2006; Schilling, 2002)
Platform: interface mediating distinct but interdependent groups of
users that transact on the platform to obtain value (Evans, 2003;
Hagiu, 2005; Rochet & Tirole, 2003, 2006)
The market race unfolds through accumulation of co-
specialized assets (complementary applications) and
users installed base
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

6. Platform Markets: examples
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

7. My Research
Scuola di Liberalismo 2012 © Cennamo BCG, 16 Maggio 2012

8. Functioning & Evolution: Economics view
System evolution driven by (indirect) network effects (e.g.,
Armstrong 06; Caillaud & Jullien 03; Clements & Oashi 05; Eisenmann et al. 06; Hagiu 05, 09; Rochet & Tirole 03, 06)
Users Installed
Base
Higher-level Platform Platform
mechanisms System Performance
– Market Share
Complementary
Applications
Platform-level
mechanisms
Aggressive Pricing
Royalties structure-fees
Feedback
effect
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

9. Functioning & Evolution: Technology view
System evolves according to waves of innovation (e.g., Schilling 02, 03;
Sheremata 04; Suarez 04, 05;Venkatraman & Lee 04; Wade 95)
Technological Technological Technological
Selection Bandwagons Dominance
Regime of
Users Installed
appropriability Base
Switching costs
Platform Platform
Characteristics Performance
System
technological field
Social dynamics
Complementary
Applications
Platform-level
mechanisms
Technological superiority
Licensing–Timing–Marketing
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

10. Platform-centric view
source: Cennamo (2012)
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

11. Platform challenges
Create value for platform users!!!
Reduce tech & mkt uncertainty (shadow entry barrier); trigger initial demand (Hill
97; Sheremata 04)
Pricing structure on two sides (Hagiu 05; Eisenmann et al. 06; Rochet & Tirole 06)
Managing users expecations (Suarez 04)
Improve quality, facilitate investments in specialized assets (Rothaermel et al. 06)
Manage innovation appropriability to enhance potential for value creation (Hagiu &
Yoffie 09; Gawer & Henderson 07)
Foster network dynamic stability (growth) by envisioning/structuring roles &
interdependencies of developers (“ecosystem architecture”) (Jacobides et al. 06; Ozcan &
Eisenhardt 09; Gawer 10)
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

12. Strategic issues
Switching costs Lock-in effects
compatibility issues (apps & (co-)specialized
complementary products) investments
learning investments “portfolio” effect
(software, interface...)
+ Hold-up problems
exclusivity contracts
pricing/competition
(indirect) Network effects “mutual hostages”
winner take-all dynamics
Incentives for exploitation
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

13. PIATTAFORME DIGITALI:
Nuovi motori d’innovazione o tiranni in
agguato?
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

14. ...few examples
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

15. Quality vs. Competition
7.4
7.2
Title Quality (fitted)
“Escape
7
competition”
vs. “rent effect”
6.8
6.6
6.4
0 10 20 40
Title Competition
source: Cennamo & Santaló (2012)
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

16. Orchestration tradeoffs
source: Cennamo (2012)
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

17. Orchestration tradeoffs
Exclusivity licensing
& apps market
competition
create conflicts if implemented
with same intensity (“market
for lemons”)
source: Cennamo & Santaló (in press)
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

18. pro Innovation Engines
Digital convergence
Disrupts existing industry
Technological (disruptive) innovation boundaries and economics
Business model innovation “Envelopment” opportunities
Relative importance of users
experience quality Reduce lock-in effects
Focus on quality
Relative importance of users
heterogenous preferences
Ecosystem orchestration is key!
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

19. pro Tyranny
Incremental technology innovation
Strong switching costs &
Relative importance of compatibility lock-in effects
Homogenous preferences
Winner take-all dynamics no credible commitment
“get-big-fast” logic
Strong network effects
Focus on exploitation of network
effects
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

20. Implications
Industry Architecture
Platform traits Ecosystem Architecture Platform Competition
• Firm History • Strategic
Customers maneuvering
• Vision Base
• Capabilities (tech & • Strategic positioning
orchestration) • Management of
Complementors/ expectations
• Strategic objectives
Applications • Network effects &
lock-in
Multidimensional game!
Scuola di Liberalismo 2012 © C. Cennamo BCG, 16 Maggio 2012

21. !
T h a n k Y o u
carmelo.cennamo@unibocconi.it
www.unibocconi.eu