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SB Program PLATFORM LEADERSHIP How Intel, Microsoft and Cisco Drive Industry Innovation Authors: Annabelle Gawer & Michael A.Cusumano Software Business Program 26.02.2003 Presentation prepared by: Yumin Dong, Lulu Zhang, Arto Ojala & Mark Dagnall University of Jyväskylä SB Program Presentation Outline General Introduction to Platform Leadership Case Study: Intel Case Study: Microsoft & Cisco Case Study: Palm & NTT DoCoMo Case Study: Linux (Open Source Platforms) Conclusions Views of the book and topic area University of Jyväskylä SB Program What is a Platform Leader? A Platform Leader is an organisation which has an objective to develop a network of complementor’s which can add value to one of its own products by developing innovative ‘add on’s’ which add value to the core product. For a simple example think of a bakery, the core product may be a cake but to add value to it an external firm may supply chocolate or fruits to add value to the initial product. The bakery would be the Platform Leader as they are the ones driving the partners to provide added value products. University of Jyväskylä SB Program Platform Leadership: An Overview Complementors Complementors Complementors University of Jyväskylä Consumers SB Program Platform Leader Example: Microsoft – IBM / Sun - Microsoft Microsoft’s MS-Dos was facilitated by IBM co-operation. By shipping Ms-Dos with IBM compatible pc’s Microsoft entered the market in a big way but continued to develop their platform to ensure they were always too far ahead for competitors to catch up. This initial strategy has lead to Microsoft’s sustained leadership with nearly all software products being compatible with Windows. Sun’s Star office complies with Microsoft file extensions to ensure it is viable in the market because with no support for the platform leader i.e. Microsoft Office formats, Sun know they have no chance to gain any market share. University of Jyväskylä SB Program Platform Leadership Framework The framework consists of four levers 1. 2. 3. 4. Scope Product Technology External Relationships Internal organisation The levers are designed to enable managers to make an effective strategy for platform leadership or to enable a re-evaluation of an existing framework. The framework is designed to take into account the circumstances of individual industries and the specific skills of an organisation. University of Jyväskylä SB Program Platform Leadership Framework: Lever 1 Lever 1: Scope of the firm Deals with what the firm does internally, and what it encourages others to do externally. Is it better to concentrate efforts to internally develop complementary products or alternatively to rely on the market to produce them? Can a balance be easily be achieved and what is the best approach? University of Jyväskylä SB Program Platform Leadership Framework: Lever 2 Lever 2: Product Technology (architecture, interfaces, intellectual property) Handles decision making of platform leaders and wannabes concerning the architecture of the product. Decisions should be made as to the degree of modularity and the degree of openness the product will have as potential complementor’s can also easily become competitors. University of Jyväskylä SB Program Platform Leadership Framework: Lever 3 Lever 3: Relationships with External Competitors Concerned with defining the balance of collaboration in a relationship, i.e. how will the relationship be balanced, towards competition or collaboration? Resolution of potential conflict should also be considered with this stage e.g. moving into a complementors core markets. University of Jyväskylä SB Program Platform Leadership Framework: Lever 4 Lever 4: Internal Organisation This lever allows platform leaders and wannabes to use internal structures for resolution of conflict. – Organisation of teams with similar goals into related groups regulated by one body. – Separate groups into distinct bodies in order to address potential conflict. Effective communication is seen as an important facilitator of this lever. University of Jyväskylä SB Program Presentation Outline General Introduction to Platform Leadership >>Case Study: Intel<< Case Study: Microsoft & Cisco Case Study: Palm & NTT DoCoMo Case Study: Linux (Open Source Platforms) Conclusions Views of the book and topic area University of Jyväskylä SB Program Intel Case Key Points Intel’s Rise to Platform Leadership The story Intel’s Strategic Principles for Platform Leadership The Four Levers Platform Leaders and Complementors How Intel Manages Conflicts of Interest Discussing University of Jyväskylä SB Program Key Points Intel’s position and situation in the PC industry: Intel is in the business of providing the engine for the PC…. That engine is doubling in capacity every 18 to 24 months, according to Moore’s law….What Intel really want is to ensure that the rest of platform goes with it…, everything around the microprocessor to be keeping pace and improving and scaling, so that the microprocessor can deliver its potential. The strength of growing: Intel grows by growing the entire pie, growing by getting new applications, by finding new users for the PC. Vividly: “That use or application is important to me, and to do that well, I need to buy a new processor” The key strategy issue: How to encourage and direct the vast array of interrelated innovations that will make the PC system work better? University of Jyväskylä SB Program Key Points(cont.) The characteristics and huge benefits of being a leader in the industry: In some terms, industry leadership is often concreted by the industry standards and intellectual property You can determine, or at least heavily influence the evolution of the industry. Act as the first-mover in the markets, obtain the advantages of speed and timing University of Jyväskylä SB Program Key Points(cont.) To achieve the leadership of platform, there are some strategic requirements of the company which we can get through the case of Intel: A: Events and circumstances, as well as a keen understanding of what the firm can do, allow managers to develop a vision that they then try to make real by taking strategic actions. Constant awareness about industry environment B: Strategy development is an iterative, even messy process. This understanding preserves a role for visionary leaders circumscribe the nature and the impact of their actions in an environment where strategy is emerging from the interaction between the firm’s external and internal opportunities and actions to influence their environment. Mediation and adjustment are vital regarding dynamic environment University of Jyväskylä SB Program Key Points(cont.) Ecosystem, orchestrate, complementor, competition, collaboration, balanced strategy Capability stack of PC industry: Pull End-user awareness Content Application Network Add-in Operating Sytem Base Platform (Hardware----microprocessor) University of Jyväskylä Push SB Program Intel’s Rise to Platform Leader Intel’s problems: ( in the early 1990) It was becoming increasingly difficult to grow demand for PCs. At least two root causes to this problem: (background) An increasingly obsolete PC architecture ISA bus was very slow, which prevented other components of PC to deliver their potential, especially microprocessor, which was the key product of Intel. The lack of industry leadership to advance the PC system (hardware and software) The bus struggle between IBM and Compaq delayed the progress of developing the PC platform University of Jyväskylä SB Program Intel’s Rise to Platform Leader Many companies had a stake in the PC design. No single supplier could evolve the overall system by itself, let alone overthrow overall system. Intel’s primary business of developing microprocessor was a big growth industry. A solution to the problem of the PC architecture was required to accommodate Intel’s future vision. At that time, as the No.1 microprocessor maker, Intel had strength to do some changes of PC system that benefiting itself as well as the PC industry. University of Jyväskylä SB Program Intel’s Rise to Platform Leader The Creation of IAL---Intel Architecture Lab Goal: Architecture for the open computer industry In detail: Success depends on cooperation among key industry players. Common understanding: PC industry needs to create new uses and thus new users for the PC. Modular architectures with open interfaces between computers make it possible for many companies to participate in the innovation process. Look at what people would want to do with the PC if it was as good as it could be; what was preventing the industry from delivering on that goal; not what Intel was doing, but what the industry limitations were. University of Jyväskylä SB Program Intel’s Rise to Platform Leader A lesson and warning from the huge success of Compaq In 1987, Intel tried to move the industry in a direction favorable to one of its new products: 80386 chip, with 32-bit flat address space. IBM and Microsoft were unwilling to adopt it by their own reasons. Compaq first commercialized the 386 chip with its Compaq 386 Consumers came to believe that 386 was a Compaq brand Conclusion: Intel could not be insensitive to the dynamics of the industry. 80386 chip case was a good example of the motivations of possible adopters, OEMs, and complementors of the Intel chip. Intel’s response: Launched its famous “Intel Inside” marketing campaign to gain some recognition of consumers and thus increase its own bargaining power in its ecosystem. University of Jyväskylä SB Program Intel’s Rise to Platform Leader PCI bus was a vital event in Intel’s transformation into a platform leader In 1991, IAL’s first project: By sponsoring a change in the bus structure (PCI-peripheral component inter-connector) and providing a chip set that implemented these architectural changes in an actual product, Intel achieved its great transformation---platform leader Process of this event was full of risks, indecisive, iterative and complex Three factors guaranteed the success: – The technology of PCI is beneficial to the majority of PC industry – The coalition of IBM – The strong back by chip set and motherboard Solving a common problem in a manner that will facilitate the realization of one’s future plan is a key part to platform leadership University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership After the success of PCI bus project, Intel strengthened its platform leadership by careful strategic implementation, including three main roles: – Sponsor of systemic architectural innovation – Stimulator of external innovation on complements – Coordinator of industrial innovation that spanned across many firm’s boundaries All these roles involved inevitably with four levers, which are: – – – – Scope of the firm Product technology Relationship with external complementors Internal organisation These four levers are intertwined, they can’t be separated University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Outline: Driving Systemic Architecture Innovation: Intel’s system mindset Building momentum around interface Relinquishing royalties on IP Using public forums to generate momentum and refine standards Compliance workshops Creating and distributing enabling tools Stimulating Innovation on Complementary products organisational structure and evolution Coordinating Role Conclusion University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Driving systemic architectural innovation In the late 1990s, Intel sponsored several new initiatives, including AGP, FireWire, and USB. All these innovations benefited the PC performance, which manifested the progress of microprocessor, the key product of Intel USB has a broader meaning to PCs, and eventually to Intel – The USB was a new interface linking a PC to external devices such as the keyboard, scanner, printer, and any new external device, which can stimulate new experience of PC, thus create new users of PC All innovations lead to a modular architecture with open interfaces, which make it possible for many companies to participate in the innovation process University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Intel’s System Mindset: How to improve the system performance and growth prospects for PC? Sponsor interface standards These interfaces became the technological mechanism for channeling external innovation, ensuring platform integrity through compatibility of complementary products, and creating an industrial consensus on platform technological evolution A company can innovate in one layer and not worry about what is going on in other layers because we have interfaces on either side of them, thus break down the cost of innovation Enable small companies, innovative companies make smaller investments and yet potentially win a large market share in a segment they can own. The most important issue is, the more of these companies that participate, the broader innovation we get. University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership The benefit: If Intel played a key role in designing those interfaces, Intel could help this ecosystem flourish, and position itself more firmly and perhaps permanently at its center Raise the barriers to entry for any company that might want to compete directly with the Intel-sponsored, industry-backed architecture, for example by trying to introduce a new microprocessor standard that use different technical interfaces. The challenges: Vision about the evolution of the PC platform Sense of the business opportunities for potential complementors Involved difficult technical choices, the right place for being enough robust and lasting for a fairly longer time University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership To achieve this goal, Intel adopted several ways, including: Building Momentum around Interfaces Lever 3: managing relationship with external companies Relinquishing Royalties on Intellectual Property Lever 2: product technology Using Public Forums to Generate Momentum and Refine Standards Lever 2 and Lever 3 Compliance Workshops: The PlugFests Lever 2 and Lever 3 Creating and Distributing Enabling Tools Lever 2 and Lever 3 University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Building Momentum around Interfaces Establishing strategic interest groups and gradually building momentum Getting outside firms to support new standards requires time, patience and planning. In early phase, Intel initiated relationships with a small group of outside firms and brought them together in strategic interest groups (SIG) – For PCI, there were five companies: Intel, DEC, Compaq, IBM, and NCR – For USB, there were seven companies: Intel, DEC, Compaq, Microsoft, IBM, Northern Telecom, and NEC Technologies SIG Selection Rules: – Software: Microsoft – Hardware: IBM, HP, Compaq University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Reasons: 1. Have a long-term commitment to the new technology, lend credibility to SIG, and attract other firms to the new technology 2. Small group made fast decisions In collaboration with SIG members, Intel designed the first features of the new standard Even influential firms like Microsoft and Compaq tend to back Intel’s proposals because they had a chance to participate early in the design process and to influence the evolution of the standard University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Relinquishing Royalties on Intellectual Property Intel did not require potential adopters of the interface specifications to pay any fees for use of that technology. But Intel usually required companies to agree to reciprocal licensing, which created a zone of free IPs that covered technological areas in which several companies were involved. Reason: Buses are enabling technologies – Interfaces exist to entice other firms to use them to build products that conform to the defined standards and thus work efficiently with the platform. – Enabling technologies channel and facilitate complementary innovation, reinforcing the architectural leadership of the firm that sponsored them University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Using Public Forums to Generate Momentum and Refine Standards The goal was to create momentum in the industry for whatever standard Intel was trying to promote Open up the discussions to larger public gatherings, including Development Forums and Implementors Forums. Through these forums, Intel brought together thousands of ISVs and IHVs, as well as the press and analysts. In some terms, the latter have a tremendous impacts on momentum. Set up web sites that were used to the exchange of questions and answers about the standards Intel promoted. The same thing done by Cisco, IBM, Microsoft, Sun, Linux, …..All industrial leaders----to GENERATE MOMENTUM University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Compliance workshops Another type of forum that Intel relied on to refine a new standard and help companies develop prototypes was compliance workshops, “PlugFests” The importance of compliance workshops: “PlugFests” are lifeblood in trying to create these standards Successful compliance workshops helped create legitimacy and popularity for a new standard because they demonstrated that companies were already committed to designing compatible products. They are key part of the process through which a new technology supported by one or a small group of firms gradually becomes a standard. University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Creating and distributing enabling tools Another step for IAL to generate momentum and refine a new standard, with the cooperation of other Intel groups, was to create and disseminate technical tools that enabled companies to use the new technologies in product development. Intel usually distributed tools like SDKs and DDKs (device development kits) by its Implementors Forums and Developers Forums, and trained people to use them. The development and diffusion of these tools is costly. That has a similar economic logic like innovation on interfaces: by facilitating and channeling complementary innovation, these enabling tools reinforce the architecture leadership of the sponsored company. University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Driving Systemic Architecture Innovation: Intel’s system mindset Building momentum around interface Relinquishing royalties on IP Using public forums to generate momentum and refine standards Compliance workshops Creating and distributing enabling tools Stimulating Innovation on Complementary products organisational structure and evolution Coordinating role Conclusion University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Stimulating Innovation On Complementary Products Three main activities: To facilitate complementary innovation, typically discloses private information about the design of its products as well as computers containing prototypes of Intel’s upcoming chips Send skilled engineers and savvy marketers to transfer technical expertise and share knowledge about the market Make equity investment in third parties University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Organisation structure and organisational Evolution Intel Architecture lab (IAL) – Worked as a catalyst, to be whatever it takes so that new applications emerge or new uses of applications emerge taking all of the CPU power Intel can produce Content Group, including Developer Relationship Group (DRG) – Strive to establish good working relationships with external software developers Microprocessor Product Group (MPG) – Not only defines what the microprocessors are, but also defines the market needs that Intel must address, and coordinates the collaterals for each new microprocessor launch Intel management makes modifications to its internal organisation structure almost yearly regarding the changes University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Coordinating role: To deliver some PC capabilities to the end user required coordination among different actors in the industry. Since PC industry is an ecosystem, the nature of innovations required the cooperation of many companies in the PC industry. This required Intel, more precisely IAL, to take on the key role of coordinator and mediator among external companies. This required time and patience. It typically required three to five years for Intel to fully establish a capability in the marketplace. University of Jyväskylä SB Program Intel’s Strategic Principles For Platform Leadership Conclusion: Throughout the review, for being a platform leader, the company needs to think about and implement four levers in a coordinated fashion. Some external constraints or strategic choices on some of the levers create specific options for the other levers. It is the internal consistency of the four levers taken together that can ensure a successful platform leadership strategy. The decisions Intel executives made regarding to how to allocate internal resources to back up the platform leadership strategy belong to lever 4, but they are interdependent with other levers. Like Content Group and Intel Capital, they are also related to lever 1 and lever 3. For example, in the case of USB Intel had to make decision about lever1 ---”what” to do within the company, and also about lever 4---”organisation support” -internal support structure University of Jyväskylä SB Program Platform Leaders and Complementors How Intel Manages Conflicts of Interest? – Through the exploration one can say that the difficulties Intel faced are common obstacles on the path of any company attempting to pursue platform leadership. Key factors: Trust and Tensions The ability to convey a long-term commitment to cooperative relationship is essential for Intel to act effectively as a platform leader. The important role of IAL: IAL has acquired a reputation as a trustworthy and relatively impartial broker of information between Intel and third parties. IAL is looking out for the good of the overall industry. The role of IAL allows Intel to rally consensus among industry players while has a voice regarding how specific PC technologies and standards evolve. University of Jyväskylä SB Program Platform Leaders and Complementors External tensions: Intel managers want other companies to innovate, but they also want to preserve their abilities to diversify and potentially compete in complementary markets themselves. Especially, when Intel start to compete with current and former partners, suppliers, customers. Internal tensions: Job 1 refers to all activities aimed at strengthening Intel’s position as the leading chip maker. IAL is always doing Job 1. Job 2 refers to activities aimed at building successful business in processor related technologies. Product Group often does Job 2 or explores new businesses, unrelated to processor, that might evolve to become new core business for Intel in the future. These two Jobs often cause conflicts within Intel University of Jyväskylä SB Program Platform Leaders and Complementors External conflicts: Platform leader and outside companies have different objectives – Risk is too big or time horizons clash – Platform leaders lead on complementors – Platform leaders compete with complementors The sources of conflicts: Friends or Foes? – Multiple roles, acting as the complementor, consumer and competitor at the same time is the reason of conflicts What to do about conflicts? – – – – Build a reputation for trustworthiness Exert some restraints over scope of activities Take a gradual, low-key approach Keep implementation specifications “open” though not “free” University of Jyväskylä SB Program Platform Leaders and Complementors Internal conflicts: Related to differing strategies or time horizons among the various groups within the company Assisting complementors conflicts with internal-product group – The conflicts between IAL and Product Group New investments detract from the platform business – Intel Capital do Job 1 or Job 2? What to do with conflicts ? – Acknowledge conflicts – Manage conflicts – Create a culture that encourage debates University of Jyväskylä SB Program Platform Leaders and Complementors Economic Analysis of the Job 1 and Job 2 Trade-Off Any company, platform leader or not, needs to be on the lookout for potential new business opportunities because demand may diminish in its own market Counting on external firms to produce all necessary complements is not always feasible Platform leader needs to be concerned about maintaining enough bargaining power with complementors An issue is distribution of overall industry profits that is linked to the issue of bargaining power between the firm and its complementors. University of Jyväskylä SB Program Platform Leaders and Complementors Strategy setting through confrontation and debate Strategic long-range planning meetings Product line business plan meetings Cooperate communications Internal organisation:separate group pursuing Job 1 AND Job 2 – keeping the IAL’s agenda separate from the product group’s agenda has worked internally as well as externally Keep internal tensions alive: keep Job 1 and Job 2 Conclusion: platform leaders need to balance multiple roles University of Jyväskylä SB Program Discussing…… An addition to the book: In the late 1980s, Intel consolidated its Intellectual Property position in microprocessor by terminating cross-licensing agreements with other companies and, more importantly, began extending its firstmover advantage over rivals by accelerating the rate of new products introduction. With 1994 sales of $9.85 billion, 1 billion more than the second largest producer, NEC. (“Sources of Industrial Leadership” by Mowery &Nelson) Bundling sales: in 1999, Intel paid a fine of one anti-trust lawsuit proposed by U.S. Trade Commission; in 2001, EU Anti-Trust organisation conducted an investigation about Intel’s “Intel inside” campaign and ceased in 2002. During the decrease of the desktop market and IT industry recession, Intel has entered the laptop and mobile technologies markets. – Centrino” is the first brand that bundled several products of Intel and will be introduced to the market in March 2003. University of Jyväskylä SB Program Discussing……(cont.) “Centrino” included a new type of microprocessor called ”Bania”, which can longer the time of battery; one Intel’s chip set and several specific chips for wireless communications. The laptop manufacturer who adopts the whole Intel's hardware package can use the brand “centrino” and get large amount of agio, those only adopt microprocessor must use the brand of “Pentium M”. HP and Dell sued this unfair proposal but, accepted the whole hardware package “Centrino” is Intel’s first kind of product excluding microprocessor, it has adopted the same business model as “Intel Inside” did One PC manufacturer complained: “ we can get some better unbundled components….Intel is trying to enter system design further and further, and from the perspective of product design and create value for customer, Intel narrowed the free space of innovation.” University of Jyväskylä SB Program Discussing……(cont.) Behind the brand campaign “Intel Inside” and the coming “Centrino”, is the thinking: standards and technologies would change and shift, but brand awareness would not. Behind the collaboration and coalition in the industry is the ambition to try to provide a total solution and make the company transparent in order to provide seamless high-quality service to customer By homogenizing the innovations by open standards and strategic coalitions as well as skillful complementors and partner management Intel aims at strengthen its own competitive capabilities and weaken the comparative strengths of the rivals University of Jyväskylä SB Program Discussing…… New challenge Intel has to face: The aligning of IBM and AMD ……..Better for customer, interesting for industry evolution…… Conclusion: Industry perspective company perspective management Products &Services technologies Products& services organisations University of Jyväskylä markets technologies SB Program Presentation Outline General Introduction to Platform Leadership Case Study: Intel >>Case Study: Microsoft & Cisco<< Case Study: Palm & NTT DoCoMo Case Study: Linux (Open Source Platforms) Conclusions Views of the book and topic area University of Jyväskylä SB Program Outline Microsoft & Cisco Introduction Intel vs. Microsoft vs. Cisco in Four Lever Strategy Microsoft – – – – – – – Microsoft Strategy Platform Evolution Representative Conflicts Leverage of Platform Microsoft’s Application Business New Platform Strategy Future Prospects--- Risks & Endeavors University of Jyväskylä SB Program Microsoft & Cisco Microsoft is the platform leader in PC operating systems and related technologies. Cisco is the platform leader in Internet-based networking technology. Like Intel, Microsoft and Cisco have many similar strategies in building their platform leadership, such as proposing new interface standards or join with other firms and try to create standards. Unlike Intel, Microsoft and Cisco have the different strategy in their manipulation to the four levers of platform leadership. University of Jyväskylä SB Program Intel .Vs. Microsoft .Vs. Cisco in Four Lever Strategy Intel Microsoft 1.scope of firm Relied mainly on outside firms Self-produced & partnered with other firms 2. product technology Relied on open PC Depending on interface proprietary technology Cisco Partnered with other firms & acquire potential ones Relied on open Internet or other industry standards 3. relationship with Establishing TRUST is a key external complementors means to preserve the good relationship Competed with competitors and ward off its technology by all means. Cooperate with complementors and acquire the potential ones meanwhile. 4. internal organisation. Integrated different groups Make separation of many groups University of Jyväskylä Separated all the groups clearly SB Program Microsoft Strategy Make your own complements – No one company could easily change any of the hardware or software standards that made up the PC in order to satisfy the “backward compatibility”. – In order to be compatible with the existing software and applications, Windows OS updated little by little. – Unlike Intel, Microsoft early on in its history moved aggressively into producing its own complements, applications, such as Excel, Word and SQL database system. University of Jyväskylä SB Program Microsoft Strategy (cont.) Microsoft dominated a key part of PC platform (OS) with a mainly proprietary technology (MS-DOS and Windows). Microsoft worked hard to evolve its operating system and shared the interface specifications openly with potential complementors. Microsoft used the monopoly policy to bundle the IE with Windows 95, which finally resulted the Antitrust case in 1998. University of Jyväskylä SB Program Platform Evolution 1975, Bill Gates founded Microsoft holding the business idea to sell the programming languages only. 1980, IBM asked Microsoft to develop an OS for its new PC. DOS was born and this event made Microsoft emerge as the PC software platform leader. After 1990, Windows series was introduced by Microsoft to the market and quickly Microsoft dominated the market. In 2001, Windows XP came out. It was the first stage of Microsoft to dominate the mass-market OS bundled with various Internet-related technologies within the new OS. University of Jyväskylä SB Program Representative Conflicts: Event Microsoft Sun Microsoft Kodak University of Jyväskylä Result 1997, Sun sued Microsoft as Microsoft violated Sun’s licensing terms. The final settlement reached in 2001, Microsoft lost the case, paid Sun $20 million and broke off with Sun. Microsoft worked with Kodak for its printing technology used in XP and then adopted this technology as its default standards and discard Kodak totally. Microsoft relented and changed the feature in a later version of XP. SB Program Leverage of Platform ”Open but Not Open” Platform Interface – – – – Compatibility Technical ”lock-in” Open standard Microsoft controls the DOS and later the Windows design and future evolution To Competitors: – Quickly incremental updating – Quickly release the new products To Users: – ”Force” users to upgrade their applications – ”Force” users to upgrade their machines University of Jyväskylä SB Program Microsoft’s Application Business Early and aggressive movement from OS into Applications DOS core (bought in 1980) Incrementally innovated to Windows First application for PC, Flight Simulator (bought in 1980) Incrementally innovated to other applications Office, spreadsheet and word application (copied from others) Incrementally innovated to Word and Excel. Bundling University of Jyväskylä SB Program Microsoft’s Application Business (cont.) Close integration of application and system groups – Know each other inside Microsoft – Avoid competition with competitors Enabling tools and technologies – Promote standards – Provide enabling technologies to application developers University of Jyväskylä SB Program New Platform Strategy In mid-2000, Microsoft announced a five-year plan to merge Windows, applications and Internet into Microsoft.Net. New product and tools portfolio (three core components) – .Net software platform infrastructure and tool set for building applications – .Net services for users – .Net services or Web-based applications that Microsoft expected partner companies to provide University of Jyväskylä SB Program Future Prospects--- Risks & Endeavors Risks – There is no guarantee that the 4.5 million Windows developers and users around the world would follow Microsoft’s lead. – Many kinds of other alternative technologies could do what Microsoft promised to do using .NET technology. – Microsoft has no reputation to ensure that its complementors have successful business. Endeavors – Restructured and shuffled the executives in 2000. – Set the plan to take a huge investments (around $20 billion solely on .NET development work). – Try to make .NET framework relatively easy for developers and customers to convert in order to gain followers. – Cooperate with Intel to provide the necessary service for .NET technology. University of Jyväskylä SB Program Cisco Outline: Cisco Introduction Strategy Evolution Four Elements in Cisco’s Strategy Cisco’s strategy for platform leadership Cisco’s Acquisitions in 2000 Incremental Platform Evolution Partnership with Complementors and Competitors Cisco’s Internal organisation Future Prospect for Cisco’s Strategy Conclusion University of Jyväskylä SB Program Cisco Introduction Cisco is platform leader as it provides infrastructure hardware and software behind the Internet. Cisco was created in 1984. Originally, it was only a router provider. Later, it became the Internet communication equipment (router, switch, etc.) and the combined software provider. Cisco calls its basic software IOS for “Internetworking Operating System”. Cisco has many competitors, such as Lucent, Nortel, Juniper, etc. University of Jyväskylä SB Program Strategy Evolution Cisco’s founding principle is “customer-oriented”. In early 1990s, Cisco began to acquire complementary technologies to enrich its insufficient resources of developing full network technology. University of Jyväskylä SB Program Four Elements in Cisco’s Strategy Provide the complete technology for customers Form the alliance with the firms that has the needed technology Consider to acquire the firm if the technology has the potential market value Define and drive the industry standards for networking protocols. University of Jyväskylä SB Program Cisco’s strategy for platform leadership --- Enclosure movement In 1993, Cisco acquired Crescendo and entered the switch market successfully. “Acquisition Teams” in Cisco are in charge of evaluating the target acquisition through a set of criteria. After 1996, Cisco shifted focus to cable boxes, modems and even wireless LANs in 2000 through acquisition. Between 1993 and 2000, Cisco acquired more than 71 companies spending more than $20 billion. Each acquisition usually makes a new product line in Cisco. University of Jyväskylä SB Program Cisco’s Acquitions in 2000 Company Month Price (in millions of dollars) Technology ArrowPoint Communication May $5700 Content networking SightPath March $800 Software management of web content Qeyton Systems May $800 Optical networking software Altiga Networks Jan $567 Consulting service, virtual private networks University of Jyväskylä SB Program Incremental Platform Evolution --- IOS Software as ”Glue” IOS benefits – IOS glues different networking technologies together – IOS is the de facto Cisco platform rather than the Internet router – IOS software could seamlessly link heterogeneous media and devices across the broadest set of protocols IOS limitations – IOS is the hodgepodge of code from different products and networking protocols – IOS is “open but not open” platform technology University of Jyväskylä SB Program Partnership with Complementors and Competitors In 1990s, Cisco allied with manufacturers of Hub devices, such as DEC. In 1994, Cisco allied with HP of the ATM products. In 1998, Cisco allied with Compaq to devise standards for allowing network administrators to use any Web browser to manage different networks. In 1999, Cisco allied with Motorola to develop wireless Internet access. In 2000, Cisco allied with Oracle to develop e-business infrastructure. … University of Jyväskylä SB Program Cisco’s Internal organisation 1994, Cisco was decentralized into five different units according to the main product line. 1996, Cisco reorganized around three lines of business: enterprise, small/medium businesses and service providers. In 2001, Cisco reorganized again into eleven new groups based on key technologies, led by Internet switching, optical networking and wireless products. … University of Jyväskylä SB Program Future Prospect for Cisco’s Strategy Problem 1: vast number of acquisitions had not been enough to keep the company at the leading edge of key networking technology. Problem 2: how far could Cisco continue to push its acquisitions strategy? Problem 3: internal tension may baffle its acquisition or partnership strategy. Problem 4: too many segments of products may decrease its influence as the platform leader in market. Problem 5: IOS technology University of Jyväskylä SB Program Postscript (Cisco’s acquisition in 2003) In Jan. 2003, Cisco spent $154 million to acquire Okena company, entering the network security market. In Jan. 2003, Cisco Asian area spokesman announced Cisco will provide wireless LAN solution this year through allying with the partners. University of Jyväskylä SB Program Conclusion From Intel, Microsoft and Cisco examples we know that there is no one formula for platform leadership to follow. Intel relied on the complementors for its microprocessor platform leadership, Microsoft relied on proprietary technology for its software platform, whereas Cisco relied much on acquisition and partnership on its networking technology platform leadership. But, it is true that every industry and technology has its own characteristics, we will see again in the following cases companies that what those platform wannabes do to learn from them. University of Jyväskylä SB Program Presentation Outline General Introduction to Platform Leadership Outline of the book structure and contents Case Study: Intel Case Study: Microsoft & Cisco >>Case Study: Palm & NTT DoCoMo<< Case Study: Linux (Open Source Platforms) Conclusions Views of the book and topic area University of Jyväskylä SB Program The Palm Outline: The Palm Strategy Establishing a market for the Palm Pilot Emerges in the PDA segment Palm’s response Facilitating external innovations Future prospects for Palm’s platform strategy University of Jyväskylä SB Program The Palm Strategy 12 million handhelds sold 2001, expected to grow to near 34 million by 2004. Palm had more than 70 % of global share for its hardware services. The PDA device and its operating system Palm OS made up the platform. The platform needs the following complements: – Software applications – Wireless services University of Jyväskylä SB Program The Palm Strategy (Cont.) Palm executives pursued two related activities: – Facilitate complementary innovations at outside firms by providing: • Interface information • Technical assistance • Financial assistance • Goal was to help thousands of external software developers write applications that enhance the value of Palm’s hardware and operating system software. – Increase the market for devices running Palm OS. • Licensing the operating system to competitors as well as partners. University of Jyväskylä SB Program Establishing a market for the Palm Pilot Founded by Jeff Hawkin & Donna Dubinsky 1992. Goal: Develop software applications for the fledgling handheld device market. Handheld market had started with resounding flop: – In 1993 Apple failed in its attempt to sell its own handheld, the Newton. – In the same year Palm introduced a product called the Zoomer, which was built in collaboration with Casio, GeoWorks and Tandy. – The Zoomer sold only 15 000 units, but Palm learned much from that experience. University of Jyväskylä SB Program Establishing a market for the Palm Pilot (Cont.) The essentials of the PDA platform – – – – Simpler features Lower price Better handwriting recognition Connection with the PC through a one-button synchronization Palm made its brilliant “second debut” in 1996 with the launch of the Palm Pilot 1000 and Palm Pilot 5000. In the end of 1996 the Palm owned 51 percent of the nascent PDA market University of Jyväskylä SB Program Establishing a market for the Palm Pilot (Cont.) The Palm Pilot certainly was not a substitute for the PC. – This position allowed Palm to avoid attracting too much of Microsoft’s attention in the handheld space. The philosophy was to keep a low profile so that Microsoft would not see Palm as a dangerous competitor. Palm managers did not advertise capabilities of their product before a PDA mass market emerged. But Palm engineers must have viewed their operating system as a potential platform from the beginning and expected outside developers and partners to help it evolve. The Palm Pilot sold some million units in 1996 and 1997. – The PDA mass market was a reality – Potentially large profits in this business University of Jyväskylä SB Program Emerges in the PDA segment Profitable businesses attract attention and real competition entered the PDA arena. Microsoft noticed Palm’s success and renewed their efforts to improve the cut-down version of Windows. Microsoft developed relationships with various hardware makers, like HP and Compaq. Pocket PC operating system ran a version of Windows and therefore could use modified Windows application as well as offer the familiar Windows user interface. Application developers could use many of same user interface code and programming techniques as they did for Windows applications. Pocket PC also included many popular applications, like media player and games. University of Jyväskylä SB Program Emerges in the PDA segment (Cont.) Handspring’s Visor – A low priced version of the Palm Pilot that used Palm OS. – Included: • Digital camera, radio, data synchronize via a USB connection (Palm Pilot used a serial port) Palm cut prices on its products, suggesting that Handspring had taken the lead in defining price points for PDAs as well as hardware design. Platform leadership is weakened if external innovations do not reinforce demand for the product or if the product loses its edge over a competing product. University of Jyväskylä SB Program Emerges in the PDA segment (Cont.) Symbian from UK was trying to make Psion’s operating system (EPOC) a platform for Web-surfing handheld computers and cell phones. Symbian members licensed EPOC from Psion. More than any other PDA operating system, EPOC seems well positioned to be the operating system of choice for the converging worlds of handhelds and wireless phones. – Major investors are Nokia, Motorola, Ericsson and Matsushita. University of Jyväskylä SB Program Palm’s response Palm reacted to Microsoft’s new entry by not reacting. – Executives continued to act as if they would sustain their position as the industry leader. – Set the agenda and drive the industry. How can the Palm do that ? – Large market share – Successful product: • Architecture • Features • Technology University of Jyväskylä SB Program Palm’s response (Cont.) Palm’s leaders understood that attractive software applications would augment the value of the Palm Pilot. Palm began to provide developers with software tools useful in creating complementary software applications that ran on Palm OS. Palm published the source code for the bundled applications with the SDK (released in 1996). An open architecture that allows external, complementary innovation. Relationships with external developers to stimulate these innovations. Mobilize complementors and to suggest new users for its platforms. Palm.net Wireless Internet connections available. Getting functionally closer to wireless phones. – At the same time wireless phones were evolving to resemble PDA’s. University of Jyväskylä SB Program Facilitating external innovations Palm provided a full set of software development tools to outside companies to help them build applications. Goal was to provide a programming interface (API) for the key technologies in Palm OS. Applications would work with PC as well as Macintosh. Palm created formal and informal mechanisms to stabilize its interface standards and facilitate technical exchanges and business dealings. ”Community of users” – Where developers and end users exchanged information. University of Jyväskylä SB Program Facilitating external innovations (Cont.) Outside companies do most of innovations. – In 2001 Palm had: • 145 000 external software developers. • A dozen of e-reading programs. • Thousands of e-books. • Programs that can read and edit Microsoft Word and Excel files. • Database programs • Hundreds of games • Financial management programs. • Tools that allow users to customize their own Palm OS programs. • and so on.. University of Jyväskylä SB Program Facilitating external innovations (Cont.) – Over 500 hardware developers. • Keyboards • Voice recorders • Digital cameras • Global positioning programs (GPS) • Wireless connection systems. Palm’s goal was to convince outside companies to invest their skills, talents and energy into creating products optimized to the Palm OS platform. Palm sought out agreements with potential complementors and made alliance with: – Nokia, Sony, Motorola, IBM University of Jyväskylä SB Program Future prospects for Palm’s platform strategy 1. How to maximize chances of success: – Be patient, don’t try to be a platform leader before your product has gained mass-market acceptance. – Effort and public relations to attract: • License, Support, Subsidize partners and Complementors – Maintain a low profile in the early days of market development and focus on designing a product that people want to buy. – It takes time to earn the trust of applications developers. – A platform strategy is not substitute for a product strategy. – For a platform strategy to work, the mass market has to adopt the product in large numbers. – Depends on having features and prices suitable for the mass market. University of Jyväskylä SB Program Future prospects for Palm’s platform strategy (Cont.) 2. It is possible to evolve from leadership in hardware or product design to leadership in software. – Palm decided to license its operating system to competitors in the hardware space such as Handspring and Sony. – Palm could make more money from software and services, rather than from hardware. – Palm did not yet have such a strong position with its operating system. • Microsoft’s Pocket PC and Symbian’s EPOC remained viable competitors, particularly because the market for PDAs was still in an early stage. University of Jyväskylä SB Program Future prospects for Palm’s platform strategy (Cont.) 3. A platform leader should maintain architectural control over its platform. – Handspring seemed to be the leader in hardware architecture. – Despite aggressive policy of licensing Palm OS even to competitors, Palm might not have created enough barriers to entry in its own core business. – Challenges were coming both from within Palm’s ecosystem and from other software platform producers: • Competing devices (Handspring and Sony) • Operating systems and hardware (Microsoft and Symbian) • Nokia and other cell-phone giants were also entering the PDA battlefield with hybrid cell phones. University of Jyväskylä SB Program Future prospects for Palm’s platform strategy (Cont.) 4. Managers need to prepare for multiple scenarios and develop an aggressive strategy to promote the outcome they favor. Three possible scenarios: 1. A convergent device would win out over a single-purpose device. • The operating system that best handled Web phones functionality would probably become the dominant software platform. • Symbian EPOC software seemed to have a technical and strategy edge here, given the support it had from cell-phone giants such as Nokia and Motorola. University of Jyväskylä SB Program Future prospects for Palm’s platform strategy (Cont.) 2. Users would prefer handheld devices that substitute for their PCs and performed other functions, such as wireless telephony and PDA-Tasks. • Microsoft’s Pocket PC, the software acts like a small PC. 3. Users would prefer specialized devices. • Continue to carry separate cell phones, PDA’s and small PCs. • Multiple platform leaders. University of Jyväskylä SB Program The NTT DoCoMo Outline: The NTT DoCoMo Strategy The i-mode Technology platform i-mode Structure Standards battles in Wireless Transmission Technologies The i-mode Business Model The i-mode Content and Delivery Process Attracting Third-Party Complementors DoCoMo’s Globalization Strategy Future Prospects for DoCoMo’s Platform Strategy University of Jyväskylä SB Program The NTT DoCoMo Strategy In 2001, DoCoMo was: – The world’s largest provider of internet-based mobile wireless services . – Japan’s largest company in terms of market capitalization. – And they have 21 million users and another 300,000 new users signing up each week. NTT DoCoMo became a market leader in Japan by focusing on three areas: – The technology platform – A new business model – Unique content DoCoMo was a platform leader in Japan and platform leader wannabe in the rest of the world. University of Jyväskylä SB Program The NTT DoCoMo Strategy (Cont.) i-mode Internet service: – An instantly accessible – Always-on Japanese used their i-mode phones to: – Surf Websites – Exchange e-mails or photographs (now also video files) – Download their horoscopes – Play popular Japanese cartoon characters University of Jyväskylä SB Program The i-mode Technology platform Consisted of two standards for creating content and for transmitting data wirelessly: – An application programming language for small-screen Web device (c-HTML). – A data transmission standard (PDC – PHS – W-CDMA). c-HTML ”compact HTML”: – Content providers had to use c-HTML. – Similarly to HTML, it is easy for developers to write applications. University of Jyväskylä SB Program The i-mode Technology platform (Cont.) Data transmission standard: – PDC/PHS –packet-switching technology, sends data 9.6 kilobytes per second. • W-CDMA (3G) data transmission standard – 2 megabytes per second (will be the future standard). Packet-based transmission allowed to offer: – 24 hours online a day – Paid only for each packet of data what user sent or received. GSM phones required a dedicated-line connection or circuit each time a user wanted to access to a service. University of Jyväskylä SB Program i-mode Structure http://www.nttdocomo.co.jp/english/p_s/imode/ University of Jyväskylä SB Program Standards battles in Wireless Transmission Technologies The late 1990s and early 2000s was ”battle of the standards” The standard that emerged would be global. – Operators want their customers to be able to use their phones around the world. – Equipment and content vendors had to choose one standard or set up to handle multiple standards. – Which standard would win, was by no means clear in 2001. Three optional modes: • W-CDMA • cdma2000 • TDMA University of Jyväskylä SB Program The i-mode Business Model Business model began with the company’s strategy for content. – DoCoMo maintained a complete control over which devices imode subscribers could use. – Developers designed applications only for one, rather than for the larger number of screen forms possible with WAP devices. – WAP developers had to support the lowest common dominator among screen form factors because they were never sure which device a customer might be using. – i-mode content developers followed one standard, which offered a relatively rich user experience. University of Jyväskylä SB Program The i-mode Business Model (Cont.) DoCoMo encouraged third parties to create complements for its platform. – Application partnerships with some 800 companies that had official Web sites. – DoCoMo also made it simple for third parties to set up unofficial sites. – More interesting content would draw more users. – In total, i-mode network contained nearly 40,000 Web sites. DoCoMo also offered an attractive pricing model for its partners. The revenues came from: – – – – Subscriptions Data packets E-commerce Collecting commission on transaction University of Jyväskylä SB Program The i-mode Content and Delivery Process Internet penetration in Japan remained lower than in the USA or Europe, which made i-mode a cheap way to get onto the Internet. DoCoMo did not offer a general Internet-access: – Users could only view Web sites specially designed to be compatible with the i-mode service. i-mode attracted both users and content providers. Quality of content was a major factor in DoCoMo success. – – – – Content should be fresh. Content should be ”deep”. Content should encourage repeat visits. User should be able to see the benefits. University of Jyväskylä SB Program Attracting Third-Party Complementors ”Total package” of content and services that management thought would be valuable to consumers. Good content attracts users, which in turn attract more content. – Positive feedback loop essential to platform leadership: • Good content -> subscribers -> more content University of Jyväskylä SB Program DoCoMo’s Globalization Strategy DoCoMo would like its platform to become the global platform: – Enable its customers and its partners’ customers to access the same services anywhere in the world. – Gain even more economies of scale of its operations. A majority of service providers around the world had to: – Adopt a compatible configuration of technologies for data and voice transmission and for an access to Web content. Forming partnerships and making investments in overseas service providers. University of Jyväskylä SB Program Future Prospects for DoCoMo’s Platform Strategy 1. Problem of profitability throughout the value chain. – Content providers in Japan were making little or any profit. – Third-party providers need adequate incentives to innovate and continue participating in the network of suppliers. – Increase usage of system would lead to higher revenues and more profits for content providers. – Share more revenues or raise prices. Overseas, DoCoMo needed to make sure that the business model worked for complementors as well as for itself. University of Jyväskylä SB Program Future Prospects for DoCoMo’s Platform Strategy (Cont.) 2. Could DoCoMo duplicate its success with i-mode outside Japan? – The USA in particular was a much different and more competitive market. – When i-mode initially appeared, the penetration of the Internet in Japan was low, thus i-mode was the first introduction to the Internet for many Japanese – The price of telephone communications in Japan was much higher than in the USA. – NTT had a near-monopoly over wireless phone services in Japan and used this base as a marketing tool. University of Jyväskylä SB Program Future Prospects for DoCoMo’s Platform Strategy (Cont.) 3. Would the c-HTML programming language be a boon or a barrier for DoCoMo? – WAP was the most popular format in the USA and Europe. – Lack of compatibility between c-HTML and WAP. – Lack of compatibility could delay moving Web content to the i-mode networks outside Japan. – If standards converged (xHTML), then DoCoMo would gain easier access to content but lose its proprietary edge. University of Jyväskylä SB Program Presentation Outline General Introduction to Platform Leadership Case Study: Intel Case Study: Microsoft & Cisco Case Study: Palm & NTT DoCoMo >>Case Study: Linux (Open Source Platforms)<< Conclusions Views of the book and topic area University of Jyväskylä SB Program Linux Linux and Open Source Software Some Background The More Users, the More Innovators and Testers Coordination Mechanisms and Modular Architecture Motivations of Open Source Developers Open Source and For-Profit Companies University of Jyväskylä SB Program Linux and Open Source Software Linux is freely available, open source operating system modeled after UNIX and developed by Linus Torvalds, with assistance of thousands of individual volunteers. For the first time in history, several thousands of individuals from around the world successfully created a sophisticated and complex product. – In 2001 ten million users worldwide. Linux is commonly used as an operating system for servers running Web sites. – – They have good ideas for new features and complements. More reliable than Windows NT/2000 Much less costly than Windows or Unix Commercial companies such as Red Hat and VA Linux also distributed Linux with a variety of complementary products and services. University of Jyväskylä SB Program Linux and Open Source Software (Cont.) The successful evolution of Linux into a rock-solid operating system was itself improbable due to the large number of seemingly uncoordinated independent software developers. Linux and other open source developers did not seem to respond to common economic incentives such as the profit motive. – A lot of people spent countless hours for no pay and charged no fees for their work. Platform leaders and wannabes would do well to have this level of user activity and innovation tied to their platforms. University of Jyväskylä SB Program Some Background Richard Stallman wanted to design an operating system that worked like UNIX, would be free, and would be usable on different kinds of computers. Stallman designed, with the help of lawyer, a new kind of license that he called the GNU General Public License. He wanted to protect a particular kind of right for users of his products: – The right to use, copy and modify the software. – It also allowed users to sell original or the modified version, but they had to be ”copylefted” as well. – Any modification to a copylefted program had to be copylefted. University of Jyväskylä SB Program Some Background (Cont.) Linus Torvalds was using a program called Minix, what was educational ”UNIX-like” operating system. Minix was a commercial product and did not evolve the system as fast as some users wanted. In August 1991, Torvalds posted in the Minix Usenet group an e-mail announcing that he was working on a free operating system. His posting drew immediate interest. He put together a list of the ten to fifteen people who had to responded his e-mail, posted his first version and solicited their comments and feedback. University of Jyväskylä SB Program The More Users, the More Innovators and Testers In 1991 and 1992, more and more software developers became involved with Linux. The possibility of a stable operating system that would enable: – The users add new features themselves – Learn more about operating system – Learn more how to work in the process. Torvalds used the Usenet posting to receive information from many Usernet members all over the world. Torvals asked for all members to try it out and send comments/bugs reports to the appropriate place. – The more testers that try it out, the faster members can try to fix any possible problems. University of Jyväskylä SB Program Coordination Mechanisms and Modular Architecture Torvalds usually communicated with users by e-mail and got to know many of them. – Personal control over the platform as it evolved. Responding to hundreds and then thousands of users who wanted to add different features to Linux and build special programs became a logistical problem. Important ability of Linux was a modular architecture: – Facilitated distributed development through separate, well-defined and partitioned tasks and subtasks. Thousands of users could build complementary features and have Torvalds or his colleagues incorporate them into the platform. University of Jyväskylä SB Program Coordination Mechanisms and Modular Architecture (Cont.) Torvalds was able to exert leadership based on his legitimacy as a programmer. In addition, ”lieutenants” appeared in the form of volunteers who specialized in particular areas: – Were willing to answer users’ questions in their areas – Help guide the design. With this partitioning of authority among a selected group of users and the originator of the system, Linux continued to evolve as a programming platform and take on additional functionality. In this evolution, the development of reputation among one’s peers was essential to the assignment of responsibilities. University of Jyväskylä SB Program Motivations of Open Source Developers Individual contribution and collective experience are intricately linked in the process of software development. Individual rewards to the developers included: – A sense of belonging to a community, – Satisfaction that comes with participating in a project, – Value of society. Persons can derive benefits from building a good reputation such as by getting well-paid job to keep producing the same kind of highquality software in a profit-oriented venture. Contributors to open source software seemed to truly enjoy programming. – They have fun and learn new things. They have usually personal motivation, such as the desire to rebel and do things differently. University of Jyväskylä SB Program Open Source and For-Profit Companies Several entrepreneurs were interested in making a profit from Linux. – Red Hat, VA Linux, Caldera, TurboLinux Companies sold special versions of Linux that packaged the free software with a bundle of utilities and applications, as well as service and support. There were difficulties in business models that tried to combine free software with for-charge products and services. – Major problem: • Most Linux users were sophisticated enough not to need the services or bundles of complements that the commercial Linux companies offered. University of Jyväskylä SB Program Open Source and For-Profit Companies (Cont.) There were companies that explored different ways to take advantage of the open source movement to enhance their platforms or generate complements NETSCAPE’S MOZILLA: Netscape decided to give the source code away for its browser and make this an open source project – Combining efforts of Netscape programmers with open source developers. The results were disappointing. – Code was a 3-million-line pile of ”spaghetti” – Netscape had licensed a lot of proprietary code from other companies and these companies were not willing to give away the source code. – Mozilla team had to write these components from scratch or find substitutes. University of Jyväskylä SB Program Open Source and For-Profit Companies (Cont.) – Difficulties to manage the Mozilla project without allocating a large number of its own engineers. – Difficulties to motivate hundreds and thousands of individuals to contribute to the effort. – Project took about two years and not the several months that Netscape had expected. Positive side: – Mozilla project gave Netscape a much better browser. – The project demonstrated that it is possible to evolve a commercial platform product with the assistance of open source developers. University of Jyväskylä SB Program Open Source and For-Profit Companies (Cont.) IBM’S APACHE: IBM found another way to take advantage of open source movement to enhance one of its major platform products. Apache was the most popular Web server software, which is used to host Web sites and run small Web applications. – IBM had a Web server product of its own, but had a minuscule market share. The company decided to drop its in-house product and to adopt and enhance Apache, adding any new code to the open source pool. The purpose was to sell more servers by treating Apache as a complement to its hardware platform. IBM later decided to adapt Linux to work on its servers and that was another move that made the IBM server hardware more popular. University of Jyväskylä SB Program Presentation Outline General Introduction to Platform Leadership Case Study: Intel Case Study: Microsoft & Cisco Case Study: Palm & NTT DoCoMo Case Study: Linux (Open Source Platforms) >>Conclusions<< Views of the book and topic area University of Jyväskylä SB Program Conclusion: Success Factors and Indicators in Platform Leadership Successful Platform leaders can have a strong influence over their industries in terms of innovation Not all industries are suitable for a platform leadership strategy Becoming a platform leader requires that the product is of limited use when used alone, it gains value when used in conjunction with complementary products Encouraging complimentary innovation in order to advance the platform is a critical factor to success University of Jyväskylä SB Program Conclusion: Lever 1 Scope of the Firm Platform leaders depend on the network of complementor’s around them, without this the product is less likely to be a success Some innovation should still be carried out in-house to the core platform product Assessment should be carried out into what sort of complement would add most value to the platform e.g. having many continuously developing complements or a core of stable applications University of Jyväskylä SB Program Conclusion: Lever 1 Scope of the Firm Wannabe platform leaders should appreciate their own capabilities in terms or resources e.g. concentrating efforts to maximise levels of core business Developing links with companies who have deep industry knowledge is beneficial to make use of their market advantage rather than trying to develop a market base of your own A successful platform will have a base which is hard for competitors to imitate A focus on future plans can ensure a platform stays in front of competition, University of Jyväskylä SB Program Conclusion: Lever 2 Product Technology - Architecture Technology in platform terms is defined as three sections: Architecture, Interfaces & Intellectual Property Decisions made at the architecture level can have long lasting impact on a platform in terms of future compatibility issues A modular architecture is desirable for a platform to be easily integrated with complementary products Modular design can encourage external companies to develop applications as they encounter less problems in integrating the two products University of Jyväskylä SB Program Conclusion: Lever 2 Product Technology - Interface Interface architecture to be conductive to outside innovation must be open, that is publicly available so complementors can see how to link their product to the platform This open architecture can be risky though as complementors can quickly become competitors when they have access to a companies technology Continuous improvement of architecture is the only way to keep ahead of competitors when the source code is open to all, this is why companies such as Microsoft guard their core code to avoid imitators University of Jyväskylä SB Program Conclusion: Lever 2 Product Technology - Intellectual Property (IP) The intellectual property of a platform is a sensitive issue as many companies don’t want to reveal their technology other than essential aspects like interface methods. The open architecture can decrease development costs for complementor’s and increase numbers of innovators Benefits of open source IP can be seen in examples such as Linux University of Jyväskylä SB Program Conclusion: Lever 3 External Relationships A platform leader is highly dependant on the quality of its external relationships Long term effectiveness is seen to be achieved by simultaneously following objectives Through an effective relationship a platform leader can remain in control and direct innovation A platform leader should not alter strategy just to avoid conflict with a complementor University of Jyväskylä SB Program Conclusion: Lever 3 External Relationships Different platform leaders should use different strategies when it comes to complementor’s e.g. Intel were careful not to encroach into partners operations, while Microsoft are willing to move into markets already populated by their own partner firms Effective management of the ‘cross over’ is crucial to future relationships and balance of the platform The benefit’s a partner brings to a platform can also be seen as a key factor in how a platform leader will go about moving into the new sector University of Jyväskylä SB Program Conclusion: Lever 4 Internal Organisation Internal organisation specific to platform leadership has to take into account external partners e.g. Intel set up specific teams to deal with partners Goal definition is important for a platform leader so as to define what each business unit should aim to achieve e.g to drive complementary innovation or to look at other market opportunities Viewing the platform as a means to an end process can aid platform leaders, while brokering external complementor’s relationships provides a focus University of Jyväskylä SB Program Conclusion: Limitations of Platform Leadership Strategy Complicated process is open to many conflicting factors Generating interest in the platform by external partners can be a long and resource intensive process Technological dependency can develop leaving the platform leader stuck with a certain back bone thus hampering the evolution of the platform Fragile model dependant on third parties University of Jyväskylä
