Platform Ecosystems. Aligning Architecture, Governance, and Strategy

299 Pages·2014·5.26 MB·English

by  Amrit Tiwana (Auth.)

Platform Ecosystems
Aligning Architecture,
Governance, and Strategy
Platform Ecosystems
Aligning Architecture,
Governance, and Strategy
Amrit Tiwana
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To my Dad.
Introduction
PlatformEcosystemsprovidesastrategicroadmapfordesigningandorchestratingsoftwareplatform
ecosystems.Thebookisbasedontwoassumptions.First,therearenocheapticketstomasteringplat-
forms.Iftherewere,we’dhaveahundredFacebooksandApplestoday.Second,nurturingplatforms
requires thinking at the nexus ofsoftware design and business strategy.
Thisbookwasmotivatedbythedisproportionateattentioninthepopularpresstoafewsuperstar
platforms,suchasAmazon,Apple,Google,andFacebook,andthealarmingoveruseofphrasessuchas
“competitiveadvantage”and“disruptiveinnovation.”“Bemorelikethem,”urgethepundits.Advising
companiestofollowtheexamplesofsuchcompaniesislikeadvisingmetoemulateTomCruise!Good
intheory,bututterlyunrealisticandimpractical.Attemptingtoemulatesuperstarplatformsputona
pedestalbythebusinesspressisafutileexerciseformostcompaniesthatlacktheirheftandresources,
andbecausepopularpressadmonitionsoverlooktheirhumbleandscrappybeginnings.Suchanecdotes
make enjoyable reading but are a hazardous basis for running a business. Instead of attempting to
generalizelessonsfromafewoutliersuperstarplatforms,thisbookdistillsafewenduringprinciples
fordevelopingandsustainingplatformbusinessesdesignedandrunbymeremortalslikeyouandI.The
book targets an unfilled void for an actionable managerial guide to orchestrating the evolution of
software-basedplatform ecosystems.
Thinkofthisbookasamap,notaglobalpositioningsystem.Asludditeasitsoundsforasoftware-
centricbook,amapremainsvaluablelongaftertheGPShasrunoutofbatteries.However,withamap
youhavetogetyourbearingsfirstandthendothedrivingyourself.Thisbookwillsimplyprovideyou
the tools, but how you use them is up to you. This is neither a technology book nor a management
book;rather,itisabouthowtheirnuancedinterplayshapesaplatformecosystem’sevolution.Itoffers
an actionable,graspableintroduction tothisinterplay, backed byoriginalresearch,tangiblemetrics,
rich historical data,and real-worldcases.
Fourpropertiesthatdifferentiateplatformmarketsfromothermarkets—thefigurativebabyinthe
bathwater—arefundamentaltothe platform thinking introduced inthis book:
1. Compressedevolution.Dynamicsvisibleonlyover30–40yearsinmostindustriescanbeobserved
in5–7yearsinplatformbusinesses.Asagrowingvarietyofnontechnologyindustriesbecomemore
software-centric, they increasingly acquire properties that were historically uniqueto the
software business.
2. Evolution predicts survival. Asuccessful product or service that meets the needs ofexisting
customers will fail if it does not evolve. Platformsmustbe designed tobe evolvable, and
evolutionary metrics—not software orbusiness metrics—are needed tochart their
evolutionary trajectory.
3. Harnessing external disruptions. All major disruptive innovations in almost every industryhave
always comefrom outsiders. Platformindustries simply allow such disruption tobe harnessed
productivelybyindustryinsiders,offeringthemtheopportunitytobesomepartoftheneworder.
Understanding the dynamicsof platform markets, irrespective ofyour industry, isincreasingly
criticaltoavoid becoming the next Borders, Circuit City,or Pony Express.
4. Architecture–governancealignmentshapesevolution.Thearchitectureofaplatformisinseparable
from how it ought tobe governed.Thisrequires codesigning andcoevolving them asa platform
xv
xvi Introduction
ecosystemprogressesthrough different stages inits lifecycle.How alignment ofplatform
governance with its architecture shapes the evolutionary trajectoryof platformecosystems is
therefore the overarchingtheme ofthis book.
Preview of this book’s message
The keymessage of thisbook can besummarized onan indexcard (see Figure 1)asfollows:
1. Platformecosystemsarereplacingtraditionalmodelsinandbeyondthesoftwareindustry,driven
largely by the digitization ofproducts, services,and business processes.Theycan expand the
pie for everyonebutrequireafundamentalshift instrategicmindset.
2. Survivalandprosperityofplatformecosystemsrequireaplatformownertodeliberatelyorchestrate
their evolution.
3. Orchestrating their evolution requiresthat their architecture andgovernance interlock and
subsequentlycoevolve,which isbiologically inspiredbusiness design.
How this book is organized
ThejigsawinFigure2summarizestheorganizationofthisbook.Thebookisorganizedinfourparts.In
spiteofthehyperlinkedworldinwhichwedwell,Irecommendthatyougoagainstthegrainandread
thisbooklinearly.Thereason:Eachpartbuildsonideasintroducedintheprecedingparts.Therefore,
ideasinPartIIwillmakemoresenseifyoureadthemafteryoureadPartI.ALessonsLearnedsection
Index Card Preview of this Book
1 Platform
Shift Ecosystems
Architecture
Traditional
Governance
Models
1
2
3
01010110+ Interlocking
Digitization Ubiquity Shapes
2
Evolution
Orchestration
Drives
Survival
FIGURE1
Anindexcard–sizedpreviewofthebook.
Introduction xvii
2
Architecture and
Governance
1
Core Principles
Evolutionary
Orchestrating
Dynamics
Evolution
and Metrics
3
4
FIGURE2
Organizationofthisbook.
summarizesthekeyideasattheendofeachchapter.Hopefully,thiswillbemoreusefulasaticklerthan
as acure for insomnia.
PartIofthebookdescribestheriseofplatformecosystems(Chapter1)andthendescribestheircore
concepts and nine principles (Chapter 2). I then describe what makes platform businesses different
from product and service businesses (Chapter 3), and their value proposition from the perspective
of a platform owner, app developers, and end-users (Chapter 4). This part also provides a four-lens
framework for spottingopportunities for transforming productsand services into platforms.
PartIItacklesthetwogearsofthemotorofplatformevolution:platformarchitectureandgover-
nance.Itfirstexplainstheroleofarchitectureinpartitioningandintegrationofinnovationworkamong
theplatformownerandappdevelopers(Chapter5).Thearchitectureofaplatformandthemicroarch-
itectureofitsapps,however,mustbeappropriatelygovernedtorealizetheirinnovationpotential.The
multifaceted notion of platform governance encompassing pricing, control, and decision rights is
described inChapter6.
PartIIIprovidesafoundationforunderstandingevolutioninplatformmarkets.Itbeginswithoper-
ationalandstrategicmetricsofevolutionthatspanthedifferenttimehorizons(Chapter7),followedby
realoptionsthinkingforcopingwithtechnologicalandmarketuncertainty(Chapter8).Ithendescribe
fivediscrete operationsthat provide the alphabet for evolving platforms andapps (Chapter 9).
Part IV puts the two gears of ecosystem evolution—architecture and governance—together. It
describeshowtheinterplayoftechnicalarchitectureandgovernanceguidestheevolutionoftheplat-
form,itsapps,andentireecosystems.Itdescribeshowplatforms(Chapter10)andapps(Chapter11)
evolvetodevelopandsustainacompetitiveadvantageovertime.Wedelveintohowsucharchitecture–
governance alignment shapes their resilience, scalability, and composability in the short term;
xviii Introduction
stickiness, platform synergy, and plasticity in the medium term; and envelopment, durability, and
mutation in the long term. The emphasis is on helping readers—both platform owners and app
developers—makeinformed,practicaldecisionswithanappreciationoftheirshort-termandlong-term
evolutionary consequences.
Part V—the book’s conclusion—summarizes and extends the core ideas developed in this book
beyond software platform ecosystems to business ecosystems across a variety of nontechnology
industries. It also provides a Monday morning agenda for preparing managers to spot opportunities
to nurture biologically inspired platform-like business ecosystems in nontechnology product and
service industries.
Assumptions about you
Imakethreeassumptionsaboutyouasareaderofthisbook.Ihopethatatleasttwoofthesearetrueif
thisbookisgoingtohelpyou.First,thatyouareeitheranITprofessionalwhoappreciatesthatgreat
technology with bad business strategy often fails in the market or you are a business manager who
appreciates that bad technology can stall even the most brilliant business strategy. Second, that you
appreciatethatevolutionoftechnologymattersagreatdealtoitscompetitivesurvivalandprosperity.
Third,thatyoulackthedeeppocketsofthelikesofAmazonandFacebookyetwanttounderstandhow
platformthinkingcanbeappliedtoyourownwork.Ifyouareanappdeveloper,youprobablyalready
understandmodularity,systemsintegration,andtheroleofSDKs,APIs,andtoolkitsbutnothoweco-
nomicprinciples,governance,andtechnicaldesignchoicespreordainbusinessstrategyandevolution.
This book provides you insights into the business consequences of technical decisions. If you are a
business manager and those words are Greek to youbut youdo understand concepts such asreturns
toscale,lock-in,andcompetitiveadvantage,thisbookwillprovideyounewinsightsintohowtheyare
inseparable from technology architectures in competitive markets. The ideas in Part III and beyond,
which originate inevolutionary biology, are likely tobe less familiar toeither group.
What this book is not about
Let me also explain what this book is not about and what distinguishes this book’s approach. This
book is:
(cid:129) Notaboutmyopinion.IenjoywatchingDavidLettermanasmuchasmynext-doorneighbor,but
Iwould notbet my livelihoodon his opinion.Opinions can be flawed, sometimestotally
wrong. IfPeter Drucker’s opinioncan be wrong, socan your$1,200-an-hourGucci-clad
consultant’s.Thisbookisnotbuiltoncherry-picked“bestpractices”ofafewsuperstarplatformsor
the epiphany thatI had inthe shower thismorning on how you should runyour business. Those
are adime a dozen. Instead, thisbook isbased onyearsofresearchspanning 139studies by
precisely 105researchers (including someof myown research) in hundreds ofbig andsmall
companies indozens ofcountries.This research—cited at the end ofthis book—spans business
strategy, software architecture, economics, and evolutionarybiology.Thebook isbased on
research, butisnot atheorybook. It isdesigned tobe an enduring, practical toolkit.
(cid:129) Notabout trends. Trends fade butprinciples endure.Today’s poster child becomes tomorrow’s
has-been.Thecyclerepeats.iOStookoverBlackberry,whichtookoverPalm,whichtookoverthe
Introduction xix
paper organizer. Thepatternissurprisingly predictable; inevery case, the incumbentrealized
toolatethattherulesofthegamehadchanged.Ratherthanbeingtrendy,thisbookwillhelpyou
benefit from trends. Thinkofice harvesters in Minnesota inthe 1800s,the cotton gin,the horse
buggy, the Pony Express,residential telephones, andvideorental stores. Their albatrosswas
their failure toevolve,which iswhy platform evolutionthat has historicallyescapedthe radar
screensofbothmanagersandtechnologistsisapervasivethemeinthisbook.Theframeworkshere
provide ropes and anchors tonavigateprogress into the unknown.
(cid:129) Notabouta silver bullet. This book offers no “methodology” thatpromisesthe world but
often cannot even deliver a village.Amethodology assumes that there isaformula. Like an
airplane, amethodology gets you and273 othercompanies following it toexactly the same
destination—hardly agood way tocreate aunique competitive advantage.
(cid:129) Notaboutbusiness common sense andexecution. Rumors ofthe demise ofbasiceconomic
principleshave been greatly exaggerated. Basic business common sense (e.g., the need tomake
more money than you spend) isalive andkicking,and no insight inthis book willtrumpthat.
Similarly,solidexecutioniswhatkeepsagoodideafromdegeneratingintocheaptalk.However,
thisbookwill spend little time on executionas there are many other excellent bookson
software implementation.
Think of this book as a conversation between you and me. I would love to hear your comments,
suggestions, reactions, andcriticisms. Feel free toemail me at [email protected].
AmritTiwana
Athens, Georgia
Supplemental Materials
Supplemental materials can be downloaded from https://store.elsevier.com/product.jsp?isbn=
9780124080669&_requestid=291788
PART
I
The Rise of Platforms
2
Architecture and
Governance
1 Core Principles
Evolutionary
Orchestrating
Dynamics
Evolution
and Metrics
3
4