to another platform. This is why, for example, cable and telephone companies now compete to offer bundled voice, data, and video services to the home.

Another important insight for managers from the economics research is that platform industries tend to have more than one market “side” to them. 6 We can see this clearly in the personal computer industry. Microsoft and Apple compete not merely to attract end users to their products. They also have to attract software and hardware firms to build applications products and peripheral devices, such as printers and Webcams. In newer “multi-sided” platform markets such as social networking or Internet media, Google, Microsoft, Facebook, and other companies compete not simply for end users and application developers, but also for a third segment of the market— advertisers. Companies that like to sell video clips have an even more complicated market challenge. They have to attract not only end users, application developers, and advertisers, but also producers of content as well as aggregators of other people’s content.

Even in simple two-sided markets, strategy and pricing can get complicated quickly. 7 In 1998, for example, David Yoffie and I wrote a book called Competing on Internet Time: Lessons from Netscape and its Battle with Microsoft that looked at how Netscape and Microsoft used one-sided subsidies, following the mantra of “free, but not free”—give one part of the platform away, such as the browser, but charge for the other part, such as the server or Windows. 8 Adobe has done the same thing by giving away the Acrobat Reader and charging for its servers and edit-

We are still in the
early stages of
understanding
how common and
important industry
platforms really are.

ing tools. Or firms can give one part of the platform away to some users ( students or the general consumer) but charge others (corporate users). We also discussed the strategy of “open, but not open”—make access to the interfaces easily available but keep critical parts of the technology proprietary or very distinctive, such as Netscape did with the Navigator browser and its server, special versions of programming languages, and intranet and ex-tranet combinations. Microsoft has done this with the entire set of Windows technologies, including Office and other applications.

Other researchers have done important theoretical and empirical work on what makes for a “winner-take-all” market. 9 The conclusion seems to be that as long as there is room for companies to differentiate their platform offerings, and consumers can easily buy or use more than one platform, then it is unlikely for one dominant platform to emerge—unless the direct or indirect network effects are overwhelmingly strong. This is why the video game market has not seen one clear platform winner. The platforms (the consoles from Sony, Microsoft, and Nintendo) are different enough, most users can afford to buy more than one console (they are subsidized by the makers, who hope to make money from software fees), and truly hit complements (the games) often become available on all three platforms.

conclusion

We are still in the early stages of understanding how common and important industry platforms really are. Apart from the examples I discussed in this column, new battles keep appearing in technologies ranging from electronic payment systems to electronic displays, automotive power systems, long-life batteries, and even the human genome database (for disease research and new drug discovery). The closer we look at modern technologies, the more likely we are to see platforms, and even platforms embedded within platforms. Who wins and who loses these competitions is not simply a matter of who has the best technology or the first product. It is often who has the best platform strategy and the best ecosystem to back it up.

References and Further Reading

1. M.a. Cusumano, Staying Power: Six Enduring Ideas for Managing Strategy and Innovation in a Changing World (oxford university Press, forthcoming 2010), based on the 2009 oxford Clarendon lectures in Management studies.

2. For managerial perspectives on product platforms, see M.H. Meyer and a.P. lehnerd, The Power of Product Platforms (Free Press, 1997) and s. W. sanderson and M. uzumeri, Managing Product Families (Irwin, 1996). For more academic treatments, see M. H. Meyer and J. M. utterback, “the Product Family and the dynamics of Core Capability,” MIT Sloan Management Review 34, 3 (1993), 29–47; K. ulrich, “the role of Product architecture in the Manufacturing Firm,” Research Policy 24, 3 (1995), 419–440; and C.y. baldwin and K.b. Clark, Design Rules: The Power of Modularity, Volume 1 (MIt Press, 1999).

3. see M.a. Cusumano, Japan’s Software Factories (oxford university Press, 1991); M.a. Cusumano and K. nobeoka, Thinking Beyond Lean (Free Press, 1998); and M.a. Cusumano and r. W. selby, Microsoft Secrets (Free Press, 1995).

4. a. Gawer and M.a. Cusumano, Platform Leadership: How Intel, Microsoft, and Cisco Drive Industry Innovation (Harvard business school Press, 2002). also, a. Gawer and M.a. Cusumano, “How Companies become Platform leaders,” MIT Sloan Management Review 49, 2 (2008), 29–30.

5. see, for example, P. david, “Clio and the economics of Q Werty,” American Economic Review 75, 2 (1985), 332–337; J. Farrell and G. saloner, “Installed base and Compatibility: Innovation, Product Preannouncements and Predation,” American Economic Review 76, 5 (1986), 940–955; W.b. arthur, “Competing technologies, Increasing returns, and lock-in by Historical events,” Economic Journal 99 (Mar. 1989), 116–131; M. Katz and C. shapiro, “Product Introduction with network externalities,” Journal of Industrial Economics 40, 1 (1992), 55–83; C. shapiro and H. Varian, Information Rules: A Strategic Guide to the Network Economy (Harvard business school Press, 1998); and y. bakos and e. brynjolfsson, “bundling Information Goods: Pricing, Profits and efficiency,” Management science 45, 12 (1999), 1613–1630.

6. see t. bresnahan and s. Greenstein, “technological Competition and the structure of the Computer Industry,” Journal of Industrial Economics 47, 1 (1999), 1–40; r. schmalensee, d. evans, and a. Hagiu, Invisible Engines: How Software Platforms Drive Innovation and Transform Industries (MIt Press, 2006); C. rochet and J. tirole, “Platform Competition in two-sided Markets,” Journal of the European Economic Association 1, 4 (2003), 990–1029; and J.C. rochet and J. tirole, “two-sided Markets: a Progress report,” RAND Journal of Economics 37, 3 (2006), 645–667.

7. see d.b. yoffie and M. Kwak, “With Friends like these: the art of Managing Complementors,” Harvard Business Review 84, 9 (2006), 89–98; and r. adner (2006), “Match your Innovation strategy to your Innovation ecosystem,” Harvard Business Review 84, 4 (2006), 98–107.

8. M.a. Cusumano and d.b. yoffie, Competing on Internet Time: Lessons from Netscape and its Battle with Microsoft (Free Press, 1998), 97–100, 133–138.

9. see G. Parker and M. W. Van alstyne, “two-sided network effects: a theory of Information Product design,” Management Science 51, 10 (2005), 1494– 1504; t. eisenmann, “Internet Companies Growth strategies: determinants of Investment Intensity and long-term Performance,” Strategic Management Journal 27, 12 (2006), 1183–1204; t. eisenmann, G. Parker, and M. W. Van alstyne, “strategies for two-sided Markets,” Harvard Business Review 84, 10 (2006), 92–101; and t. eisenmann, G. Parker, and M. W. Van alstyne, “Platform envelopment,” unpublished working paper, 2007. also, for a collection of articles, see a. Gawer, ed., Platforms, Markets and Innovation (edward elgar, 2009).

 

Michael Cusumano ( [e-mail]) is sloan Management review distinguished Professor of Management and engineering systems at the MIt sloan school of Management and school of engineering in Cambridge, Ma.