Michael A. Cusumano◦ Sloan Management Review Distinguished

Professor of Management, MIT Sloan School of Management

B.A. degree from Princeton in 1976

Ph.D. from Harvard in 1984

Postdoctoral fellowship in Production and Operations Management at the Harvard Business School during 1984-86

◦ Published 9 books and more than 70 articles.

His latest book, Staying Power: Six Enduring Principles for Managing Strategy & Innovation in an Uncertain World (2010, based on the 2009 Oxford Clarendon Lectures), was named one of the top business books of 2011 by Strategy + Business magazine, with translations into Japanese, Chinese, Korean, and Italian.

◦ Ref: http://web.mit.edu/cusumano

Platform” defined as a foundation product or key technology in a system like the PC or a Web- enabled cell phone.

It should have relatively open technical interfaces

Easy licensing terms

Encourage other firms to contribute complementary products and services.

These external innovations create an ecosystem around the platform.

Industry platform has two essential differentiation:

First:

Industry platform provides a common foundation or core technology that a firm can reuse in different product variations.

Second:

The industry platform has relatively little value to users without these complementary products or services e.g.

◦ Windows and Office for PC software are boxes without add on products

◦ Smartphones without software tools and application / wireless telephony or internet services is useless.

◦ Amazon, EBay for online buying and selling.

NEED OF COMPLEMENTORS:

The company that makes the platform is unlikely to have the resources or capabilities to provide all the useful applications to the end user to make platform compelling for users.

It is necessary to open the technology to competitors to build add on to the platform to make it industry platform.

For that industry platform provider has to give financial subsidy to complementors to join their ecosystem.

Creation of Network effect:

Positive feedback loops that can grow at geometrically increasing rates as adoption of the platform and the complements rise.

Direct Network effect: Technical compatibility / Interface standard between

◦ Windows-Intel PC and Windows-based applications

◦ VHS or DVD players and media recorded according to those format.

Indirect Network effect: When application developers, content producers adopt a particular platform that requires complements to adopt a specific set of technical standards that define how to use or connect to the platform.

◦ Windows-Intel PC as Platform provider and application development services: eBay, Google, Amazon, and Facebook social networking etc. as Complementor.

More external adopters in the ecosystem that create or use complementary innovations, the more valuable the platform.

Standards are not platforms

They are rules or protocols specifying how to connect components to a platform

How to connect different products and use them together.

Examples of platforms incorporating specific standards◦ Telegraph, telephone, electricity, radio, television, video

recording and computer.

SWITCHING AND BUNDELING OF PRODUCT AS STRAGETY

Platforms companies are attracting users by offering many different features for one low price.

They are making it difficult for user to move to different platform.e.g. ◦ Telephonic companies offering voice, data and video service

PLATFORM COMPANIES MARKETING STRAGEGY:

They have more than one market side to them.E.g. Micorsoft & Apple: Apart from users to their products, they also attract software and hardware firms to build applications products and peripheral devices, such as printers and Webcams compatible to their standard.

Social media i.e Google, Microsoft, FB: Apart from competing for users, also competes for third segment of the market i.e. advertisers

Companies that like to sell video have more complicated task to attract not only end users, application developers, and advertisers, but also producers of content as well as aggregators of other people’s content

OTHER STRATEGY FOLLOWED BY PLATFORM COMPANIES (PRICING):

MICROSOFT & NETSCAPE: Provides browser as free but charges for server.

Adobe: Provides Acrobat Reader free but charges for its servers and editing tools.

Firms can give one part of the platform away to some users (students or the general consumer) but charge others (corporate users).

STRATEGY OF “OPEN, BUT NOT OPEN: Make access to the interfaces easily available but keep critical parts of the technology proprietary or very distinctive

E.g. Netscape Navigator: Special versions of programming languages, and intranet and extranet combinations

Microsoft: Entire set of Windows technologies, including Office and other applications are encrypted.

As long as there is room for companies to differentiate their platform offering, and consumer can easily buy one or more platform, then it is unlikely for one dominant platform to emerge-unless the direct or indirect network effects are overwhelmingly strong.

E.g. The gaming platforms (the consoles) Sony, Microsoft, and Nintendo◦ All consoles are different and user can afford to but more than

one console. ◦ They are subsidized by the makers (hope to make money from

software fees)◦ Truly hit complements, (the games) often become available on all

three platforms

Winning and loosing is not defined by who has the best technology or first product but the one who has the best platform strategy and the best ecosystem to back it up.