Marshall Van Alstyne Explains Platform Strategies

At the recent Platform Strategy Summit, Van Alstyne talked about 'extraordinary changes' taking place.


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      Digital Business Transformation

      How would you describe the current pace and accomplishments of digital technologies at your business or enterprise?

      Paula KleinCreated by Paula Klein on Sep 21, 2015 in Public Site: MIT IDE

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      Much has changed in the past two years since MIT IDE presented its first Platform Strategies Summit. The idea of interconnected, information-driven networks creating value through open partnerships is no longer a radical vision; it’s becoming mainstream.

       

      Even a few years ago, the notion put forth by John Reynolds, Managing Director, Agile Fractal Grid Inc., may have been futuristic thinking.  At the July 15 MIT Platform Strategy Summit hosted by the  MIT Initiative on the Digital Economy, however, he described a “platform-of-platforms”/ digital marketplace for operational, analytical and financial applications to be used by members of the National Rural Electric Cooperative Association and their tenants. Reynolds explained details of a planned, shared-infrastructure partnership with 960 rural electric cooperatives that will cover over 75% of the country for decentralized power, communications and computing.

       

      The program will offer services from 2.5 million electrical transformers that are “fundamental to the Network-as-a-Service” concept that the Fractal Grid will provide. The planned services will include: E-Commerce products; software-as-a-service; free mobile apps; media hosting; user-generated content and two-sided marketplaces.

       

      Re-shaping Traditional Industries

      Clearly, platform business models are rapidly reshaping the structures and conditions of industries from media, energy and telecommunications, to academia, gaming and retail. While upstart businesses—such as Uber, Airbnb and others -- are forging ahead with new business models, traditional industries and organizations also realize that they need to address the challenges and behavior of platform-based markets in any way they can.

       

      Simon Torrence, (pictured below, left) an advisor at Bearing Point, noted that, “Most incumbent enterprises are fundamentally ‘linear’ and pipe-centric” making platforms very new and potentially scary for them. But if platform is the winning business model in the digital economy, he said, “Digital ecosystem management must be the new enterprise discipline” for reaping new opportunities.

      _DSC0826bearing point2.jpg


      Nevertheless, Torrence acknowledged that expertise in ecosystem design/management, software engineering and data science is hard to find. Moreover, there are significant organizational barriers that he said require ‘Ninja IT’ and ‘Lean Start Up’ methods to quickly demonstrate value.

       

      Emphasis has shifted to recruiting talent to develop platforms and to work in these new environments, according to Janel Garvin, CEO of Evans Data Corp., and for those who can adjust existing strategies to accommodate the new models.

       

      MIT IDE experts have forecasted the rapid ascent of platforms for some time. As MIT Research Fellow, Geoff Parker (pictured below, right), and Boston University’s Marshall VanAlstyne, wrote recently:  “Platforms typically employ just a tiny fraction of the people the incumbents employ. Ecosystem partners provide labor and capacity. By contrast, a pipeline business employs a step-by-step arrangement for creating and transferring value, with producers at one end and consumers at the other as in a traditional linear value chain.”

       

      In a recent Harvard Business Review article, they noted that “platform businesses bring together producers and consumers in high-value exchanges. Their chief assets are information and interactions, which together are also the source of the value they create and their competitive advantage.”_DSC0253 (2).jpg

       

      Global Platform Acceptance

      This year’s Summit speakers emphasized how widespread and global platform acceptance has become. Keynote speaker, Samuel Palmisano, Chairman of the Center for Global Enterprise, said the companies achieving the largest scale today possess few assets but build an extensible platform ecosystem. “These companies have tremendous leverage and return on capital,” he said.

       

      According to a recent global survey of platform enterprises by the Center, the largest platform companies today –Amazon, Facebook, Google--are typically young, public and American. But that is changing. China is the second-largest platform market, in part, because it has barriers of entry for American firms.

       

      Asia and Africa are poised for rapid growth, according to the Center’s VP,  Peter Evans, while Europe’s strict regulations have led to a paucity of homegrown platforms. Regardless of geography, he said, “If you’re not on the platform wave, you’ll be in trouble, long-term.”

      The service sector is by far the largest in the global economy, comprising close to 65 percent of the world’s overall GDP, and between 70 and 80 percent in the more advanced economies. Most of the working population in such countries are employed in services in one way or another, — roughly two thirds of all jobs in Brazil, Japan and the European Union and around 80 percent in the U.K. and the U.S.

       

      In July of 2009, the U.K.’s Royal Society released a report — Hidden Wealth: the contribution of science to service sector innovation. “Our main conclusion…” said the report, “is that services are very likely to remain central to the new economy, not least because we are at or near a tipping point: innovations now underway seem likely to change dramatically the way we live and to generate many services (though few can be predicted in detail at present).”

       

      According to the study, STEM (science, technology, engineering, math) is omnipresent in the service sector, but, unlike the case with the industrial sector, its impact is rarely recognized.

       

      “Scientific and technological developments (many of which originated in fundamental blue skies research), have precipitated major transformations in services industries and public services, most notably through the advent of the internet and world-wide-web… However, the full extent of STEM’s current contribution is hidden from view — it is not easily visible to those outside the process and is consequently under-appreciated by the service sector, policymakers and the academic research community. This blind spot threatens to hinder the development of effective innovation policies and the development of new business models and practices…”

       

      The study used Hidden Wealth in its title to make the point that

      Even though services constitute such a large portion of GDP and of jobs around the world, their very nature remains vague — a kind of hard-to-measure dark matter.

      Services are ubiquitous across many sectors of the economy, e.g., finance, healthcare, retail, creative industries, business support, education and transportation and logistics. However, they’re neither easily visible nor well understood.

       

      It’s often easier to define the service sector by what it doesn’t include: it’s not agriculture or fishing, and it’s not manufacturing, construction or mining. Just about every other job is in services, including manual ones like janitors, gardeners, restaurant employees and health care aides, and white collar ones like sales and office workers, managers and professionals. Perhaps, the one definition everyone can agree to is one attributed to The Economist: a service is “anything sold in trade that cannot be dropped on your foot.”

       

      We’ve been applying science and technology to the agriculture and industrial sectors of the economy ever since the advent of the Industrial Revolution over two hundred years ago. But until recently it’s been difficult for universities, companies and policy makers to support the same kind of research and education programs in the service sector. This has all been changing. Services are now front and center in some of the most prominent areas in IT, such as analytics and data science, cloud computing, and design thinking. Let me say a few words about each.

       

      Analytics and Data Science

      “This is the first time in human history that we have the ability to see enough about ourselves that we can hope to actually build social systems that work qualitatively better than the systems we’ve always had,” said MIT ProfessorAlex “Sandy” Pentland in an online conversation, Reinventing Society in the Wake of Big Data.

       

      “I believe that the power of Big Data is that it’s information about people’s behavior — it’s about customers, employees, and prospects for your new business . . . This Big Data comes from location data from your cell phone and transaction data about the things you buy with your credit card. It’s the little data breadcrumbs that you leave behind you as you move around in the world… and by analyzing this sort of data, scientists can tell an enormous amount about you. They can tell whether you are the sort of person who will pay back loans. They can tell you if you’re likely to get diabetes.”

       

      Throughout history, scientific revolutions have been launched when new tools make possible new measurements and observations, e.g., the telescope, the microscope, spectrometers, DNA sequencers. Over the past few hundred years, we’ve significantly increased our understanding of the natural world around us by collecting large amounts of data and by developing disciplined ways to analyze and make sense of all that data.

       

      Our new big-data tools now have the potential to usher an information-based scientific revolution, helping us extract insights from all the data we’re now collecting by applying tried-and-true scientific methods, that is, empirical and measurable evidence subject to testable explanations and predictions. We’ve long been applying scientific methods in the natural sciences and engineering. But given our new-found ability to gather valuable data on almost any area of interest, we can now bring out tried-and-true scientific methods to just about any domain of knowledge. This should enable us to better understand and make predictions in complex, people-centric, service-oriented systems like healthcare, business organizations, government agencies and cities.

       

      Cloud Computing

      As technologies become ubiquitous in society— electricity, telephones, cars, TVs, computer — a much more disciplined, engineering-oriented approach is needed in how they are generated, delivered and consumed. With the rise of cloud computing, IT has been going through a similar transformation.

       

      Cloud computing is essentially the Internet of Services. Data centers have now become the production plants of cloud-based services. Software and information are increasingly being delivered as industrial-scale online services, while the Internet and wireless networks connect more and more devices to such offerings.

       

      Cloud computing requires well-engineered infrastructures, applications and services, a transformation that’s been pioneered by born-to-the-cloud companies like Amazon, Google, and Salesforce. The architectural standards and management disciplines of public cloud providers have been increasingly embraced by many other companies, so they too can efficiently deliver high quality services to their own customers, business partners and employees.

       

      Design Thinking

      High quality and competitive costs are the key objectives of good products. But services are all about people, as consumers and/or providers of the service. In addition to high quality and competitive costs, achieving a superior customer experience is now a top priority across all industries given the growth of services throughout the economy.

       

      It’s much easier to appreciate the role of design when it comes to physical objects: cars, bridges, buildings, dresses, shoes, jewelry, smartphones, laptops, and so on. But, it’s considerably harder to appreciate its importance when it comes to more abstract entities like services, systems, information and organizations. Yet, they account for the bulk of the growing complexity in our daily lives.

      Design thinking is all about having positive service experiences with the companies we do business with.

      Good design aims to make our interactions with complex institutions, — e.g., a business, a healthcare provider, a government function — as appealing and intuitive as possible. Design-centric organizations are adamantly focused on their customers’ needs.

       

      We may not be hearing as much about service science because, in a sense, the battle has been won. The technologies, methods and concepts once pioneered in service science are now well accepted in mainstream IT and academic disciplines. We still have much to do, but we no longer have to argue that science, engineering and design now play a prominent role in services all across the economy.

       

      This blog war first posted on July 26, 2016, here, and at ide.mit.edu. It also appears on IDE's Medium publication here.

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