The Elements of Platform Leadership

You would think that a company like Intel, which in 2001 provided nearly 85% of the microprocessors for personal computers, would feel relatively secure. But companies holding the keys to popular technology don’t live in a vacuum. In many cases, they are dependent not only on economic forces in the wider world but also on the research-and-development activities of partners. David Johnson, one of the directors of the Intel Architecture Labs (IAL) in Hillsboro, Oregon, goes so far as to call that reality desperate. “We are tied to innovations by others to make our innovation valuable. If we do innovation in the processor, and Microsoft or independent software parties don’t do a corresponding innovation, our innovation will be worthless. So it really is a desperate situation for us.”1

The Desperation of Being on Top

Although leading companies from all industries know that business in our interconnected world has become too complex for complacency, the issues are particularly clear in the information-technology industry. There, platform leaders (companies that drive industrywide innovation for an evolving system of separately developed pieces of technology) are navigating more frequent challenges from wannabes (companies that want to be platform leaders) and complementors (companies that make ancillary products that expand the platform’s market). To put their organizations in the best competitive position, managers need to master two tricks: coordinating internal units that play one or more of those roles and interacting effectively with outsiders playing those roles.

Intel and its computer on a chip, the microprocessor, illustrate the issues. In 2000, Intel had revenues of nearly $34 billion and net profits of more than $10.5 billion. Even after the economic downturn, with microprocessors still the core hardware component of the personal computer and increasingly in demand for new programmable devices, Intel should feel on top of the world.

But a microprocessor can do little or nothing useful by itself. It’s a component in a broader platform or system. Even the PC has no value without other companies’ products: operating systems, software applications, software-development tools and hardware (monitors, keyboards, storage devices, memory chips and the like). Those complementary products fueled the growth of the PC market. But Intel considers its situation desperate because it cannot be certain that its own key complementors will continue to produce market-expanding innovations as fast as Intel does.

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References

1. D.B. Johnson, interview with authors, Nov. 11, 1997.

2. E. Harris,“Nokia Will Open Up Parts of Its Software,” Wall Street Journal, Tuesday, Nov. 13, 2001, sec. B, p. 11; and “DoCoMo, Nokia Form Link on Standards,” Wall Street Journal, Thursday, Nov. 15, 2001, sec. A, p. 21.

3. B.S. Cadambi, interview with authors, Aug. 4, 1998. Emphasis added.

4. Platform leader Intel counts as complementors every company that has adopted the Windows-Intel platform for the PC and makes or sells PC hardware and peripherals (for example, Dell and Lexmark) as well as 5 million software developers who make applications (for example, Microsoft and Adobe) and networking or systems software (Microsoft, Red Hat and Netscape). NTT DoCoMo’s complementors include every company that provides content to one of the 40,000 Web sites compatible with DoCoMo technology in Japan (for example, Nikkei News and Tokyo Wine News). Palm’s complementors are the 145,000 external software-applications developers and 500 hardware developers (as of March 2001) that create add-on accessories: keyboards, voice recorders, digital cameras and GPS wireless-connection systems.

5. A. Gawer and M.A. Cusumano, “Platform Leadership: How Intel, Microsoft and Cisco Drive Industry Innovation” (Boston: Harvard Business School Press, 2002). Our research consisted of approximately 80 interviews with Intel managers and engineers between 1997 and 2000, as well as interviews and analyses of publicly available materials on Intel and other companies.

6. D. Ryan, interview with the authors, Aug. 4, 1998.

7. Some references we found useful: M. Katz and C. Shapiro, “Product Introduction With Network Externalities,” Journal of Industrial Economics 40 (March 1992): 55–83; M. Cusumano, Y. Mylonadis and R. Rosenbloom, “Strategic Maneuvering and Mass-Market Dynamics: The Triumph of VHS Over Beta,” Business History Review 66 (spring 1992): 51–94; R. Langlois, “External Economies and Economic Progress: The Case of the Microcomputer Industry,” Business History Review 66 (spring 1992): 1–50; R. Langlois and P.L. Robertson, “Networks and Innovation in a Modular System: Lessons From the Microcomputer and Stereo Component Industries,” Research Policy 21 (August 1992): 297–313; C. Shapiro and H. Varian, “Information Rules: A Strategic Guide to the Network Economy” (Boston: Harvard Business School Press, 1998); J. Farrell and G. Saloner, “Installed Base and Compatibility: Innovation, Product Preannouncements and Predation,” American Economic Review 76 (December 1986): 940–955; J. Farrell and C. Shapiro, “Dynamic Competition With Switching Costs,” RAND Journal of Economics 29 (spring 1988): 123–137; J. Farrell, H.K. Monroe and G. Saloner, “The Vertical Organization of Industry: Systems Competition Versus Component Competition,” Journal of Economics & Management Strategy 7 (summer 1998): 143–182; and T. Bresnahan and S. Greenstein, “Technological Competition and the Structure of the Computer Industry,” Journal of Industrial Economics 47 (March 1999): 1–40.