Marshall Van Alstyne on Platform Economics

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      Paula KleinCreated by Paula Klein on Aug 29, 2012 in Featured Content

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      Leading up to the MIT PLATFORM STRATEGY SUMMIT to be held on July 25, Marshall Van Alstyne, Research Associate at the MIT Center for E-Business and Associate Professor at Boston University, recently discussed how platform business models are rapidly reshaping the structures and conditions of many industries. Among these are media, energy, telecommunications, social networking, publishing, academia, gaming and retail. Organizations are finding their current business models to be insufficient or ineffective for addressing the challenges and behavior of platform-based markets.

       

      Van Alstyne explained some of the basics of “platform economics,” or why companies such as Uber, Apple, and Amazon are so successful—and what traditional product makers can do to emulate them. Below are some clips from his May presentation at the annual IDE/CDB meeting.

       

      More information on platform economics can be found here and here

       

       



      By now, most will agree that cloud computing is a major transformational force in the world of IT.  But, cloud has not the easiest concept to grasp.  Not that long ago, even people who agreed that something big and profound was going on, were not totally quite sure what it was they were excited about.

       

      “There is a clear consensus that there is no real consensus on what cloud computing is,” was the overall conclusion of a June, 2008 conference on The Promise and Reality of Cloud Computing.  Cloud has continued to evolve and advance over the ensuing years.  People are no longer starting their sessions by saying: “let’s define cloud computing,” said an article on a 2013 cloud conference.

       

      I find it helpful to look at cloud along two key dimensions: as a technology to improve IT productivity, and as a platform for enabling business innovation.  A 2012 survey of business and technology executives found that two thirds of respondents viewed cloud as a leading priority for their IT organizations, while one third said that it was a company-wide business priority.  Only one company in six viewed cloud as a way of fostering business innovation.

       

      An increasing number of companies are now deploying cloud-based solutions.  Most are focused on improving the economics of IT.  They are looking to cloud to help them expand their current offerings without major investments in additional IT infrastructure.  Cloud offers financial flexibility, reducing fixed IT costs by shifting from capital to operational, pay-per-use expenses, as well as the ability to easily and economically scale business operations by provisioning IT resources on an as-needed basis.  In addition, cloud can help business users become more agile and keep up with the fast pace of technological and market changes.  Turning to an external cloud service provider is often a faster and less costly way of prototyping and deploying a new application than relying on the internal IT organization.

       

      But, for many companies, the use of cloud to foster business innovation and growth remains elusive.  Some of the reasons are organizational and cultural.  A recent McKinsey study on Cloud and Innovation observed that “The problem in many cases is that adopting cloud technologies is an IT initiative, which means that cloud solutions are all around improving IT and IT productivity.  But that’s not where growth is going to come from. . . Incremental investments in productivity don’t drive growth. . . Investments need to go into innovation and disruptive business models . . . Unless companies are asking themselves how to use the cloud to disrupt their own business models or someone else’s, then adopting the cloud is just another IT project.”

       

      I agree with these points.  But, I also believe that another major reason lies behind the struggles faced by many companies in leveraging cloud for business innovation: the close connection between cloud and IT-based services.  Let me explain.

       

      I think of cloud as being fundamentally a kind-of Internet of Services, delivering mass customized services over the Internet to billions of smart mobile devices and trillions of smart sensors, and turning data centers into factories for IT-based services on an industrial scale.

       

      A somewhat similar point was made in a 2013 report by the McKinsey Global Institute, Ten IT-enabled business trends for the decade ahead, which listed cloud as one of its top trends and succinctly described its key value as realizing anything as a service.  The link between cloud and innovation is closely intertwined with the increasing number and variety of cloud-based services.

       

       

      To continue reading the full blog, read my June 25 post here.

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