Nice article
by Umair Hacque on the shift in platform economics as the underlying technology moves from closed to open, and as the convergence / consolidation increases:
Today, platform wars ain't what they used to be. On the one hand, there's Facebook - playing a textbook game of platform strategy, but slowly suffocating the utility of its own network. On the other, there's Apple - ignoring many of the rules of platform strategy, but radically redesigning the long-suffering mobile value chain with the iPhone App Store.
I think calling Apple an "open" market is a misnomer - the iTunes end to end value chain is pretty locked down, which is Apple's traditional approach - an iConic consumer device with a locked down supply chain behind it. Nonetheless, I think Umair is directionally correct when he notes that:
Let me advance a simplifying proposition: platforms are markets. The most useful way to think about platforms today is simply as markets.
The App Store's name is revealing: it tells us that Apple doesn't see a platform to be manipulated, but a market to be made. It is that understanding that's at the heart of Apple's furious domination of the mediascape.
We have done quite a lot of work with various clients in the last year or so on how platforms can best be operated as market ecosystems, but (frustratingly) are bound by NDA's in various areas - but one can always nod vigorously (albeit raising the eyebrow to temper the Apple-o-philia) when Umair notes that:
- Markets alter the basis of competition. Apple took something terminally closed - the mobile value chain -and pried it radically open. Facebook - still thinking in yesterday's terms - took something radically open - the www - and is trying to make it a little bit more closed.
- Markets cause strategic domino effects. Markets are strategically radical: once the basis of competition has been altered, an economic tsunami is unleashed, often unstoppable. The dynamics of competition shift irrevocably.
- Markets atomize the value chain. The App Store is radical, ultimately, because it atomizes the value chain: where once a handful of scale-driven players could produce and distribute mobile apps, today, any number of players can enter. What was once monolithic is shattered into a million pieces. If the market can coordinate those millions of pieces effectively, the new value chain is hyperefficient.
(As an aside, this is also our view with approaches such as VRM - until they create new market forms, we think it will be hard for it to get traction).
[ Update - I think its necessary to make clear that market here - in my view - does not imply just a simple buy/sell relationship. More that it is open to trading, in a range of models, from a variety of players. I think the word ecosystem - where eco is also for economy - is possibly the better word, which is what I tend to use - but Umairs' phrase is more pithy]
As we also showed in our work 2 years ago on Advertising models for Telcos, the convergence also forces different business models onto hitherto safe platforms - so media ad -based models start to impinge on Telco rental models (hence Blyk, for example).
I'll let Umair end off this post with another point, which I will discuss in more detail in a later post and at the O'Reilly Web 2.0 Expo in Berlin.
This conclusion also helps us answer another critical question on the minds of today's investors, entrepreneurs, and would-be revolutionaries: when will today's crop of startups start making serious cash? The answer: when they shift from platform logic to market logic.
Quite - ending FreeConomics and charging money will create an
Akerlofian revolution, and allow quality to chase crap out of so many of the digital 2.0 markets.
