Marshall Van Alstyne Explains Platform Strategies

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

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

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      Business leaders are continuously seeking out new and improved ways to drive decisions and meet consumer needs. Many digital platform companies are conducting experiments with online users every minute to glean insights, improve engagement and heighten transaction volume, for instance.


      In particular, companies such as Yahoo, Nike, Facebook and Google can monitor the habits and data of ten- to 100 million people at a time. At that scale — and in real-time — huge data sets can be analyzed and dissected very differently than in most of today’s R&D environments. Sinan Aral, Professor of Management at the MIT Initiative on the Digital Economy, described some of these experiments and their benefits at the 2015 CIO Symposium.


      At the same time, many businesses find large-scale experimentation unattainable. At this year’s May 18 CIO Symposium, Prof. Aral discussed new ways to achieve these goals: using big data analytics to substitute for marketing experimentation in business environments. Each approach can reap rewards, he said, but since it’s not always easy, affordable or feasible to do large-scale experimentation, social analytics using big data offers good alternatives.


      “Experimentation is very robust, but can be very narrow and difficult to do,” Aral told attendees. “If you have a big digital platform, a/b testing is easy; but if you have a product that’s not digital, or it’s not legitimate to randomly test strategies or approaches on users,” a big data solution may be more appropriate.


      Deconstructing Fitness Habits

      As an example, Aral cited a large fitness company that analyzed data about consumer running habits in order to create engagement and peer-to-peer demand for products and services. To measure exercise frequency, the company tracked global data on 14 million runners over five years. It also added a social network component to encourage new data input. That data then was correlated to weather data to establish patterns and to determine the influence of outside factors and peers on running activity.

      In another case, The New York Times collected data from tweets and site clicks to see how word-of-mouth recommendations and social media drive readership — and what that means to monetization and paywall design.



      For the full details on these two cases, watch Prof. Aral’s presentation here.

      For more on Prof. Aral’s work, view details here.

      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.”


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