How Companies Become Platform Leaders

Under the right circumstances, companies of any size can grow to become platform leaders. And particular business and technology decisions can help platform-leader wannabes achieve their goals.

In recent years, many high-technology industries, ranging from “smart” cell phones to social networking Web sites such as Facebook Inc. and MySpace.com, have become platform battlegrounds. These markets require distinctive competitive strategies because the products are parts of systems that combine core components made by one company with complements usually made by a variety of companies. If a platform leader emerges and works with the companies supplying complementary products and services, they can together form an “ecosystem” of innovation that can greatly increase the value of their innovations as more users adopt the platform and its complements. However, companies often fail to turn their products into industry platforms. Our previous research focused on understanding the levers or strategic mechanisms that existing platform leaders use to maintain their positions. (See “About the Research,”) This article focuses on the special problems of companies that want to become platform leaders — “platform-leader wannabes.” Many companies do not succeed in becoming platform leaders because their strategies fail to tackle adequately both the technology and business aspects of platform leadership. The technological challenges involve designing the right architecture, designing the right interfaces/connectors and disclosing intellectual property selectively, in order to facilitate third-parties’ provision of complements. The business challenges include either making key complements or introducing incentives for third-party companies to create the complementary innovations necessary to build market momentum and defeat competing platforms.

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References

1. Since we published our work on platform leadership in 2002, a number of students at MIT and elsewhere have inspired us to continue this research and, in particular, to investigate market or business factors that help platform-leader wannabes succeed. In particular, we would like to thank Ray Fung for his master’s thesis, “Networking Vendor Strategy and Competition and Their Impact on Enterprise Network Design and Implementation” (MIT System Design and Management Program, 2006) and Makoto Ishii for his master’s thesis, “A Strategic Method to Establish Sustainable Platform Businesses for Next-Generation Home-Network Environments” (MIT Sloan Fellows Program, 2006).

2. For an insightful exposition of drivers of platform emergence in the context of computing, see S. Greenstein, “Industrial Economics and Strategy: Computing Platforms,” IEEE Micro 18, no. 3 (May–June 1998): 43–53; and T. Eisenmann, G. Parker and M. Van Alstyne, “Strategies for Two-Sided Markets,” Harvard Business Review 84 (October 2006): 92–101.

3. We thus disagree with J. Sviokla and A. Paoni, “Every Product’s a Platform,” Harvard Business Review 83 (October 2005): 17–18.

4. “Search Market Share Update: Google Rises, MSN Falls, Yahoo Hovers,” May 24, 2007, www.seroundtable.com/archives/013595.html.

5. This discussion of Qualcomm is based primarily on D. Yoffie, P. Yin and L. Kind, “Qualcomm Inc. 2004,” Harvard Business School case no. 9-705-401 (Boston: Harvard Business School Publishing, 2005). See also Qualcomm Inc., “Qualcomm Business Model: A Formula for Innovation and Choice” (San Diego, California: Qualcomm, 2007).

6. Qualcomm Inc., “Annual Report 2006” (San Diego, California: Qualcomm, 2006).

7. See J. Saghbini, “Standards in the Data Storage Industry: Emergence, Sustainability, and the Battle for Platform Leadership” (Master’s thesis, MIT System Design and Management, June 2005).

8. See C. Shapiro and H. Varian, “Information Rules: A Strategic Guide to the Network Economy” (Boston: Harvard Business School Press, 1998).

9. See A. Gawer and M. Cusumano, “Platform Leadership: How Intel, Microsoft, and Cisco Drive Industry Innovation” (Boston: Harvard Business School Press, 2002).

10. See Eisenmann, “Strategies.”

11. DM Review Editorial Staff, “Industry Research: Linux Vs. Windows — Is the Gap Narrowing?,” June 2005, www.dmreview.com/article_sub.cfm?articleId=1030321; and “Comparison of Windows and Linux,” May 29, 2007, www.wikipedia.com.

12. See, for example, G. Moody, “Rebel Code: Inside Linux and the Open Source Revolution” (Cambridge, Massachusetts: Perseus, 2001); and Gawer, “Platform Leadership.”

13. See M. Cusumano and D. Yoffie, “Competing on Internet Time: Lessons From Netscape and Its Battle with Microsoft” (New York: Free Press, 1998).

14. Cusumano, “Competing.”