Strategies for Being a Platform Leader

October 29, 2007

By Annabelle Gawer and Michael A. Cusumano

In recent years, many high-tech sectors have become battlegrounds for companies bent on establishing their product as the next industry platform. Whether it’s a smart phone or a videogame console, products that become platforms dominate sales in their niches, give rise to numerous complementary products from third-party developers, and reap enormous profits.

Too many companies, though, wind up losers in platform wars because they were too protective of their technology or intellectual property, or failed to recognize the platform potential of their products. Apple Inc.’s Macintosh computer and Sony Corp.’s Betamax video recorder were excellent products that could have become industry platforms. Apple recently realized that it may miss a major platform opportunity with its iPhone by limiting its use to selected carriers and preventing third-parties from adding new applications. It has decided to reverse the latter policy.

To have platform potential, a product, technology or service must:

  • Perform at least one essential function in a product or combination of products that execute an increasing variety of tasks — the way PCs have become an integral part of Web browsing, gaming, telephony and other activities — or solve an essential technological problem for many players in an industry.
  • Be easy to connect to or build upon, allowing the system to be expanded to new and even unintended uses.

Then a business strategy is required that enables a company to make its technology or service fundamental to an emerging platform and helps the market tip toward that platform. The company must create economic incentives that encourage other firms to develop complementary applications for the platform, and at the same time protect its own ability to profit from its innovations. This balancing act is perhaps the greatest challenge to platform leadership.

Google’s Success

Google Inc. is a prime example of a successful platform builder and leader. First, it solved an essential technical problem: how to find anything in the maze of Web sites, documents and other content online. Second, it distributed its technology to Web-site developers and users, making it easy to connect to and develop upon. It also allowed for different uses, such as combining search with different kinds of information or graphics, like maps and pictures.

Where Google cemented its position as the platform leader for Internet search, though, was with its business plan. In the early years of e-commerce, there was a lot of confusion about how to make money on the Web. Google found a way by linking focused advertising to user searches. Its ad fees also seem low or modest relative to the ads’ effectiveness. In effect, the company revolutionized advertising by redesigning the relationship between advertisers and Internet users. Today, Google’s market value stands at around $145 billion, eight times that of the largest ad agencies.

GM Loses Its Way

For a less-successful attempt at establishing a platform, consider General Motors Corp.’s 1996 introduction of OnStar, a wireless system that gave automobiles new communications capabilities, such as navigation, notification of accidents, engine diagnostics and opening of locked vehicles.

Initially, GM managed to get competing auto makers to adopt OnStar for their vehicles. Gradually, however, those rivals concluded that OnStar’s capabilities, and the information it generated about customer driving habits, were too valuable to let a competitor control. Consequently, these firms decided to build or buy competing systems.

GM failed to position its technology as an essential part of a neutral industry platform, which it might have done by spinning off OnStar as an independent company or building a Chinese wall around the unit, blocking any flow of information between it and GM that could be seen as damaging to OnStar’s clients. While GM failed at the business aspect of creating an industry platform, OnStar remains an attractive service platform for GM customers. OnStar Vice President Nick Pudar says that GM’s commitment has helped the unit rapidly deliver continued innovations for “a wide range of GM vehicles,” and that customers have responded well. “A broad adoption of OnStar throughout the industry would have resulted in slower technology development,” he adds.

The ability to establish a platform is an option for small and large companies alike. Success depends not on size but on a company’s vision, and its ability to create a vibrant ecosystem that works for the leader and its potential partners.

This can be difficult when an industry is undergoing transition and its contours are ill-defined, or when technology is evolving too rapidly. But on the other hand, these are the very conditions when platform strategies can stand out — precisely because they are so badly needed.

Source: Business Insight

Big money in Enterprise 2.0

October 29, 2007

Radicati Group, a leading analyst firm that tracks the messaging and collaboration industry, recently released some suprising data on the size and growth of the business social software market. According to Radicati, the market is expected to be $920 million this year and blossom to over $3.3 billion by 2011. These revenue numbers are staggering and indicate the significant investment that has started in Enterprise 2.0 technologies by business customers. Radicati’s numbers are indeed bullish compared to other analysts like Gartner which published back in July that the social software market would grow from $226 million in 2007 to more than $707 million by 2011.

Regardless of which numbers are accurate, what’s clearly driving this market is the shift of consumer-oriented Web 2.0 tools to the domain of ‘enterprise social computing’ and addressing real business problems. Gartner highlights this trend in a recent study entitled ‘Facebook and the Emerging Social Platform Wars’ and points out “the usefulness of social networking in the enterprise is becoming more visible to large (BEA Systems, Sun, IBM, Microsoft and Oracle) and small (Leverage Software, Spoke, Userplane, Corespeed, Unisfair, Tacit Software, Socialtext) vendors.” Clearly Enterprise 2.0 is more that just hype and the value of social software is shaping up to create a billion (or multi-billion) dollar market opportunity.

Source: Socialtext’s blog

Small/Medium Businesses Don’t Yet See the Value of Web 2.0

October 24, 2007

When it comes to taking advantage of Web 2.0 tools to obtain business management information, small and medium businesses (SMBs) are clearly taking a wait-and-see approach. This is one of the many findings in a new study released today by Bredin Business Information, Inc., which sought to gain a clearer understanding of how SMBs perceive the value of online tools such as blogs, social networks, wikis and other emerging formats.

The study asked over 300 U.S.-based SMBs to assess the importance of various Web 2.0 formats as sources of business management information over the next five years. Only 14% expect that blogs will be very or extremely important, with similar ratings coming in for wikis (21%), social networking sites (22%) and webcasts (31%). At the same time, more traditional methods of delivering resource information ranked high, with 49% rating email newsletters as very or extremely valuable over the next five years, and 46% giving that ranking to interactive tools such as quizzes or calculators.

Despite the hype surrounding Web 2.0, SMBs are not yet sure how these tools are useful in locating business-related information. The survey asked SMBs how their attitudes toward certain online tools had changed over the past several years. Interestingly, 41% said they were more positive about interactive tools and email newsletters, and 30% were more positive about community forums. Other Web 2.0 formats fared less well. While 19% were more positive about social networking, 21% were less positive. Blogs (18% more positive/16% less) and wikis (17% more positive/14% less) had similar results.

BBI simultaneously surveyed marketers at companies that sell to SMBs to rate the value of these tools for marketing purposes. The disparity between marketer’s plans to offer these tools with SMB interest in using them is striking. For example, 39% of marketers rated blogs as very/extremely valuable over the next five years (25 percentage points more than SMBs), and 67% rated webcasts as very/highly valuable (31 points higher than SMBs).

“SMBs are telling their vendors it is the message, not the medium, that matters,” said BBI CEO Stu Richards. “It is not surprising that SMBs have not yet warmed to Web 2.0 – they are typically not early adopters. While these formats offer tremendous potential to enhance relationships with SMBs, the challenge for marketers to use these methods effectively is to provide SMBs with relevant, actionable and easy-to-access information and advice. Whatever format marketers choose to roll out, they should test it on a limited basis, and manage expectations for adoption. In the meantime, the research shows that they should consider reaching SMBs through email newsletters and interactive tools if they do not already.”

Among other key findings from BBI’s report on SMBs and Web 2.0:

  • SMBs don’t yet see the value of many Web 2.0 tools. When asked why they don’t use blogs, 57% said they don’t see the value, and 54% don’t see the value of social networking sites.
  • Regardless of the information format, SMBs most commonly look for information on accounting and finance (63%), technology/software (50%) and industry trends (46%). The least-sought topics were international business (20%), entrepreneurship/innovation (30%) and law (32%).
  • SMBs look to their vendors first for tools and information to help run their businesses. 31 percent said they would be very likely to seek this information from their vendors’ websites, as opposed to the sites of trade associations (20%), government/non-profits (18%), colleges/universities (15%) and the media (13%).
  • Nearly half of SMBs (48%) begin their search for business help on a search engine. 33 percent go to sites they know have good resources, and 19% go straight to the sites of their current vendors.

Source: Bredin Business Information