Thursday, April 3, 2008

The force that Porter forgot


Preston McAfee was the first to realize that Michael Porter's famous industry analysis leaves out one crucial force: cooperation from complements. A new article, How Companies Become Platform Leaders, offers a framework for thinking about strategy in industries like telecommunications where success requires creating an "ecosystem" of complementary products.

A company must first decide whether to pursue a "product" or a "platform" strategy:
Put simply, a product is largely proprietary and under one company’s control, whereas an industry platform ... requires complementary innovations to be useful, and vice versa. An industry platform, therefore, is no longer under the full control of the originator, even though it may contain certain proprietary elements.
One of the biggest mistakes a company can make is to pursue a product strategy and fail to recognize the platform value of their product. The best example of this is perhaps Macintosh computer which, due to its early technological lead, could have become the dominant platform for personal computing. Instead they priced high, failed to encourage complementary innovotion, and let Microsoft become the dominant platform.

If you decide on a platform strategy, then the authors recommend one of two strategies, coring or tipping.
"Coring" is using a set of techniques to create a platform by making a technology "core" to a particular technological system and market. ... Examples of successful coring include Google Inc. in Internet search and Qualcomm Inc. in wireless technology.

"Tipping" is the set of activities that helps a company "tip" a market toward its platform rather than some other potential one. Examples of tipping include Linux's growth in the market for Web server operating systems

2 comments:

  1. Thank you very much Luke for referring to our article on Platform Leadership. For readers interested in this topic, please refer to the website www.platformleadership.com (which will be completely revamped by end of April). Also, there is going to be a conference at Imperial College Business School in London on 2nd June which I am organizing, on Platforms, Markets and Innovation. Please contact me at a.gawer@imperial.ac.uk for further information.

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  2. Frazer MiddletonMay 14, 2008 at 2:40 PM

    I disagree with the Mac comment. IBM made the platform play, Apple made the product play. For the first two decades or so of the PC and Mac, PC became the dominant player. Can't argue that point.

    However, I would contest that IBM got it wrong. They are, to a large extent, a bit player in the PC marketplace today, and for a good deal of the last decade have been displaced by Dell, HP/Compaq, and their ilk. What involvement in the PC market do they have today? Little to none. Could they regain their share of the market if they so choose? I doubt it.

    Apple on the other hand retained control of their product, and suffered greatly for their sins for a long time. However, it would be hard to argue today that they have been unsuccessful in their strategy to not create a platform... True, ancillary products (iPod, iPhone, iEtc.) have helped through their halo effect and they have adopted a platform OS (Unix). However the fact remains that the Mac is not a platform, it is a vertically controlled product with an increasing share of the market, and Apple is the primary beneficiary rather than third party builders.

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