How Digital Platforms Transform Competitive Strategy

THE NEW NEW
COMPETITION
Marshall Van Alstyne | Sangeet Paul Choudary | Geoffrey G Parker
How digital platforms
transform competitive strategy
platformrevolution.com

Based on the book
Platform Revolution

TODAY: Welcome to the platform revolution
NETWORK EFFECTS: The power of the platform
ARCHITECTURE: Designing a platform
DISRUPTION: How platforms conquer industries
LAUNCH: Launching a successful platform
MONETIZATION: Capturing the value
OPENNESS: Deﬁning user and partner rights
GOVERNANCE: Policies to manage value creation
METRICS: Measuring what really matters
STRATEGY: How platforms change competition
POLICY: Regulating platforms
TOMORROW: The future of the platform revolution
A comprehensive and practical guide to the new platform economy
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All pre-orders unlock access to exclusive bonus frameworks. Details here.

The new competitor looks  
nothing like the old one

Marriotts
Airbnb Intercontinental Group
The new
competitor
the old
competitorlooks nothing like

Houghton Miffin Harcourt
Amazon McGraw Hill
The new
competitor
the old

NBC Network
Netflix ABC Network
The new
competitor
the old

Lexis
Google & Legalzoom West law
The new
competitor
the old

Whirlpool
Nest Siemens
The new
competitor
the old

Facebook
Instagram, WhatsApp
& Snapchat
MySpace
The new
competitor
the old

Competition is
changing dramatically

The WHO of competition
is changing
The new
competitor
the old

But the HOW of competition is
changing even more dramatically
?

Firms are
competing and
achieving global
dominance
much faster

American businesses in
steel and heavy machinery
took decades to overtake
once-dominant rivals in
Britain and Germany

After World War Two, Japanese
upstarts required three decades
to seize leadership roles in auto
making and electronics from
industry leaders in the U.S.

In contrast, Uber,
a little over 5 years old,
competes around the world

Alibaba, relatively unknown in
the US before its IPO, may
pose significant threat to
Ebay and Amazon globally

We’ve understood traditional competition well so far

But the new competition
works on different rules

This deck is about
the new rules!

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Let’s
dig deeper

To understand the new
competition, let’s start by
revisiting the old

Strategy in the twentieth
century: a capsule history

The simplest and most compelling representation  
of competitive strategy as we’ve known it

The goal of strategy: control these five forces in such a way as to build  
a moat around the business and thereby render it unassailable.

Firms win through
creation of moats

A particularly effective
barrier to entry is control
of an indispensable and
inimitable resource

DeBeers’ control of a diamond
cartel enabled it to maintain a near-
monopoly over the diamond
industry for the entire 20th century

But these control-driven
rules of competition are
changing today

Nimble firms are using new technologies
to navigate the moats established by
control of scarce resources

Today, flexibility
provides the crucial
competitive edge,
competition is
perpetual motion,
and advantage is
evanescent

▪ The purpose of strategy is to avoid competition
The Porter View

▪ The purpose of business is  
“to create and keep a customer”.
The Drucker View

In a world where
sustainable advantage is  
an illusion, the Drucker
view trumps the Porter view

Or as Peter Thiel would put it
▪ “Competition is for losers”

“A company’s relationships
with its users are its only
lasting source of value.”
- Denning

So how does this
change competition?

Enter
platforms

Two new realities are shaking
up the world of strategy

Firms are using network effects
to create and remake markets,
not just respond to them

Uber creates a
new market for
transportation
from scratch
instead of playing
within the
boundaries of the
existing one

Network effects
build the new moats

In the world of platforms,
competition is no longer
a zero-sum game

Traditional firms
re-divide a pie

Platform businesses
often grow the pie

Amazon grew the
publishing pie instead
of competing for
author control

Platforms bake
a new pie

Airbnb unlocks new
supply that never existed

Platforms turn
businesses
inside out

Competitive
strategy involves
factors in the
ecosystem and
beyond the firm’s
internal control

▪ Platform against platform,
▪ Platform against partner,
▪ Partner against partner
Competition today emerges
at three different levels:

Platform competition
is a lot like 3D chess

Competitors
can hit you
from any side

Platforms change more than just competitive strategy
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Level 1:  
Platform vs. Platform

Strategic advantage
is based on the
power of entire
ecosystems

Uber,
a little over 5 years old,
competes around the world

The Sony PlayStation
Portable was a
stronger gaming
device than the iPhone

But the iPhone
ecosystem vastly
out-stripped that
of the PSP

Ecosystems are the new
competitive advantage

Level 2:  
Platform vs. Partners

Microsoft
appropriated partner
innovations like
browsers,
multithreading,
streaming media, and
instant messaging
into its operating
system

Amazon  
is notorious for
competing with
partner merchants
that perform well

Level 3:
Competition between
ecosystem partners

How is platform
competition different?
?

The resource-based view
▪ A firm must own/control the inimitable resource

On platforms,
the inimitable
resource shifts
from physical
assets to
access to
community
interactions

How platforms win

Model 1:  
Own the ecosystem

Platforms win by seeking exclusive
access to their ecosystem

Uber vs. Lyft
▪ No clear winner yet because they do not have
exclusive access to the ecosystem

Both drivers and riders may
participate simultaneously on
both platforms

Model 2:  
Monitor ecosystem activity and
own the most important
resources that emerge

Alibaba owns the search
functionality on its platform,
refusing to partner with Baidu

Twitter acquired Periscope
and closed access for Meerkat
▪ It realized the value of live streaming
on the platform

The best way to
identify what’s
important is to
foster greater
innovation
within the
ecosystem

Meerkat and
Periscope were
outcomes of
innovation
outside of
Twitter, the
company

Watch out for new
features or apps that
appear on the platform

Model 3:  
Leverage the value of data

Data is the new oil
▪ A cliche but certainly true on platforms

Platforms use data analysis
to detect spurious activity
among users

They also use data to
identify ways to grow faster
and stay competitive

Platforms may
also win through
ownership of
superior data

Monster has long reigned on
the online recruitment market
▪ But LinkedIn captured a much
richer data set

LinkedIn knows more about
the profiles of professionals
▪ More importantly, LinkedIn helps recruiters
access professionals not actively looking
for a job

Model 4:  
The new M&A

Buy someone who’s already
built on your platform

Increasingly,
incumbents are
opening their data
encouraging startups
to build on their
platform

Model 5:  
Monitor adjacent and
indirect competition

Competitors who look
different but serve the
same user base

Instagram vs. Facebook
▪ Started out as a photo sharing app

Whatsapp vs. Facebook
▪ Started out as an alternate to SMS

Model 6:  
Superior technological design

Vimeo coexists
with YouTube…
… by providing a superior
offering for discerning producers.

Airbnb competed
with Craigslist
…through a superior management
of the end-to-end interaction

Better trust
mechanisms,
transaction
capabilities and
superior governance
of the ecosystem
encouraged
interactions on
Airbnb

Winner take all markets
A final note on platform competition

“Being second is to be
the first of the ones
who lose.”
- Ayrton Senna

A winner-take-all market
▪ A market in which specific forces conspire to
encourage users to gravitate toward one
platform and to abandon others

Traditional
industries created
winner-take-all
through supply
side economies
of scale

Platforms create winner take
all through demand side
economies of scale

Understanding the
dynamics of
platform competition
will be important for
those pursuing a
platform strategy as
well as those
participating in a
platform’s
ecosystem

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How Digital Platforms Transform Competitive Strategy

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