Platform Ecosystems: Aligning Architecture, Governance, and Strategy (2014)

Introduction

Platform Ecosystems provides a strategic roadmap for designing and orchestrating software platform ecosystems. The book is based on two assumptions. First, there are no cheap tickets to mastering platforms. If there were, we’d have a hundred Facebooks and Apples today. Second, nurturing platforms requires thinking at the nexus of software design and business strategy.

This book was motivated by the disproportionate attention in the popular press to a few superstar platforms, such as Amazon, Apple, Google, and Facebook, and the alarming overuse of phrases such as “competitive advantage” and “disruptive innovation.” “Be more like them,” urge the pundits. Advising companies to follow the examples of such companies is like advising me to emulate Tom Cruise! Good in theory, but utterly unrealistic and impractical. Attempting to emulate superstar platforms put on a pedestal by the business press is a futile exercise for most companies that lack their heft and resources, and because popular press admonitions overlook their humble and scrappy beginnings. Such anecdotes make enjoyable reading but are a hazardous basis for running a business. Instead of attempting to generalize lessons from a few outlier superstar platforms, this book distills a few enduring principles for developing and sustaining platform businesses designed and run by mere mortals like you and I. The book targets an unfilled void for an actionable managerial guide to orchestrating the evolution of software-based platform ecosystems.

Think of this book as a map, not a global positioning system. As luddite as it sounds for a software-centric book, a map remains valuable long after the GPS has run out of batteries. However, with a map you have to get your bearings first and then do the driving yourself. This book will simply provide you the tools, but how you use them is up to you. This is neither a technology book nor a management book; rather, it is about how their nuanced interplay shapes a platform ecosystem’s evolution. It offers an actionable, graspable introduction to this interplay, backed by original research, tangible metrics, rich historical data, and real-world cases.

Four properties that differentiate platform markets from other markets—the figurative baby in the bathwater—are fundamental to the platform thinking introduced in this book:

1. Compressed evolution. Dynamics visible only over 30–40 years in most industries can be observed in 5–7 years in platform businesses. As a growing variety of nontechnology industries become more software-centric, they increasingly acquire properties that were historically unique to the software business.

2. Evolution predicts survival. A successful product or service that meets the needs of existing customers will fail if it does not evolve. Platforms must be designed to be evolvable, and evolutionary metrics—not software or business metrics—are needed to chart their evolutionary trajectory.

3. Harnessing external disruptions. All major disruptive innovations in almost every industry have always come from outsiders. Platform industries simply allow such disruption to be harnessed productively by industry insiders, offering them the opportunity to be some part of the new order. Understanding the dynamics of platform markets, irrespective of your industry, is increasingly critical to avoid becoming the next Borders, Circuit City, or Pony Express.

4. Architecture–governance alignment shapes evolution. The architecture of a platform is inseparable from how it ought to be governed. This requires codesigning and coevolving them as a platform ecosystem progresses through different stages in its lifecycle. How alignment of platform governance with its architecture shapes the evolutionary trajectory of platform ecosystems is therefore the overarching theme of this book.

Preview of this book’s message

The key message of this book can be summarized on an index card (see Figure 1) as follows:

1. Platform ecosystems are replacing traditional models in and beyond the software industry, driven largely by the digitization of products, services, and business processes. They can expand the pie for everyone but require a fundamental shift in strategic mindset.

2. Survival and prosperity of platform ecosystems require a platform owner to deliberately orchestrate their evolution.

3. Orchestrating their evolution requires that their architecture and governance interlock and subsequently coevolve, which is biologically inspired business design.

FIGURE 1 An index card–sized preview of the book.

How this book is organized

The jigsaw in Figure 2 summarizes the organization of this book. The book is organized in four parts. In spite of the hyperlinked world in which we dwell, I recommend that you go against the grain and read this book linearly. The reason: Each part builds on ideas introduced in the preceding parts. Therefore, ideas in Part II will make more sense if you read them after you read Part I. A Lessons Learned section summarizes the key ideas at the end of each chapter. Hopefully, this will be more useful as a tickler than as a cure for insomnia.

FIGURE 2 Organization of this book.

Part I of the book describes the rise of platform ecosystems (Chapter 1) and then describes their core 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 spotting opportunities for transforming products and services into platforms.

Part II tackles the two gears of the motor of platform evolution: platform architecture and governance. It first explains the role of architecture in partitioning and integration of innovation work among the platform owner and app developers (Chapter 5). The architecture of a platform and the microarchitecture of its apps, however, must be appropriately governed to realize their innovation potential. The multifaceted notion of platform governance encompassing pricing, control, and decision rights is described inChapter 6.

Part III provides a foundation for understanding evolution in platform markets. It begins with operational and strategic metrics of evolution that span the different time horizons (Chapter 7), followed by real options thinking for coping with technological and market uncertainty (Chapter 8). I then describe five discrete operations that provide the alphabet for evolving platforms and apps (Chapter 9).

Part IV puts the two gears of ecosystem evolution—architecture and governance—together. It describes how the interplay of technical architecture and governance guides the evolution of the platform, its apps, and entire ecosystems. It describes how platforms (Chapter 10) and apps (Chapter 11) evolve to develop and sustain a competitive advantage over time. We delve into how such architecture–governance alignment shapes their resilience, scalability, and composability in the short term; 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—make informed, practical decisions with an appreciation of their short-term and long-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

I make three assumptions about you as a reader of this book. I hope that at least two of these are true if this book is going to help you. First, that you are either an IT professional who appreciates that great 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 appreciate that evolution of technology matters a great deal to its competitive survival and prosperity. Third, that you lack the deep pockets of the likes of Amazon and Facebook yet want to understand how platform thinking can be applied to your own work. If you are an app developer, you probably already understand modularity, systems integration, and the role of SDKs, APIs, and toolkits but not how economic principles, governance, and technical design choices preordain business strategy and evolution. This book provides you insights into the business consequences of technical decisions. If you are a business manager and those words are Greek to you but you do understand concepts such as returns to scale, lock-in, and competitive advantage, this book will provide you new insights into how they are inseparable from technology architectures in competitive markets. The ideas in Part IIIand beyond, which originate in evolutionary biology, are likely to be less familiar to either 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:

• Not about my opinion. I enjoy watching David Letterman as much as my next-door neighbor, but I would not bet my livelihood on his opinion. Opinions can be flawed, sometimes totally wrong. If Peter Drucker’s opinion can be wrong, so can your $1,200-an-hour Gucci-clad consultant’s. This book is not built on cherry-picked “best practices” of a few superstar platforms or the epiphany that I had in the shower this morning on how you should run your business. Those are a dime a dozen. Instead, this book is based on years of research spanning 139 studies by precisely 105 researchers (including some of my own research) in hundreds of big and small companies in dozens of countries. This research—cited at the end of this book—spans business strategy, software architecture, economics, and evolutionary biology. The book is based on research, but is not a theory book. It is designed to be an enduring, practical toolkit.

• Not about trends. Trends fade but principles endure. Today’s poster child becomes tomorrow’s has-been. The cycle repeats. iOS took over Blackberry, which took over Palm, which took over the paper organizer. The pattern is surprisingly predictable; in every case, the incumbent realized too late that the rules of the game had changed. Rather than being trendy, this book will help you benefit from trends. Think of ice harvesters in Minnesota in the 1800s, the cotton gin, the horse buggy, the Pony Express, residential telephones, and video rental stores. Their albatross was their failure to evolve, which is why platform evolution that has historically escaped the radar screens of both managers and technologists is a pervasive theme in this book. The frameworks here provide ropes and anchors to navigate progress into the unknown.

• Not about a silver bullet. This book offers no “methodology” that promises the world but often cannot even deliver a village. A methodology assumes that there is a formula. Like an airplane, a methodology gets you and 273 other companies following it to exactly the same destination—hardly a good way to create a unique competitive advantage.

• Not about business common sense and execution. Rumors of the demise of basic economic principles have been greatly exaggerated. Basic business common sense (e.g., the need to make more money than you spend) is alive and kicking, and no insight in this book will trump that. Similarly, solid execution is what keeps a good idea from degenerating into cheap talk. However, this book will spend little time on execution as there are many other excellent books on software implementation.