Last week I wrote about one of the talks at the annual conference of the MIT Initiative on the Digital Economy, - Only Humans Need Apply by Tom Davenport, based on his recently published book of the same title. I would now like to discuss another excellent talk at the same conference, - How Platforms Change Strategy by Boston University professor Marshall Van Alstyne, also based on a recently published book, Platform Revolution: How Networked Markets are Transforming the Economy and How to Make Them Work for You, co-authored with Geoffrey Parker and Sanjeet Choudary. The three also published a related article in the April issue of the Harvard Business Review.
Van Alstyne started out his presentation by noting that back in 2007, seven firms controlled 99% of handset profits: Nokia, Samsung, Ericsson, Motorola, LG, RIM and HTC. That same year, Apple’s iPhone was born and began gobbling up market share. By 2015, only one of the former incumbents had any profit at all, while Apple now generated 92% of the industry’s global profits.
What happened? “Is it likely all 7 incumbents had failed strategies, run by clueless management, lacking execution capabilities?,” he asked. “Or was something more fundamental happening?… Nokia and the others had classic strategic advantages that should have protected them: strong product differentiation, trusted brands, leading operating systems, excellent logistics, protective regulation, huge R&D budgets, and massive scale. For the most part, those firms looked stable, profitable, and well entrenched.” How can we explain their rapid free fall?
We all know the answer to Van Alstyne’s rhetorical questions. “Apple (along with Google’s competing Android system) overran the incumbents by exploiting the power of platforms and leveraging the new rules of strategy they give rise to. 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 value they create and their competitive advantage.”