Dethroning an Established Platform
What can you do when a competitor has already established a leading platform? Learn from Apple’s iPhone, Google’s Gmail and Facebook — and how they overtook earlier market leaders.
The newest era of the Information Age could very well be called the Age of Platforms, given the explosion of markets defined by platform competition. Increasing numbers of companies big and small, whether providing hardware devices, traditional software or software in the cloud, are attempting to become platform masters by releasing application programming interfaces that allow others to build software and hardware products or complementary services on top of their technology offerings. Platform competition is expanding into many markets and can be found today in a variety of industries and on different scales: from the nearly universal platforms of the Internet, credit cards and the telephone to newer Internet-enabled platforms such as Facebook, Skype, Google Maps and PayPal.
During the last decade, several key elements that constitute a “platform theory” have emerged.1 These are now being taught in business schools and discussed by technology managers across the globe. But the existing theory does not fully explain the rise of some key players, such as Apple’s iPhone, that have entered their industries relatively late and have succeeded in dethroning powerful incumbent platforms. The experiences of these “platform dethroners” offer several important lessons for companies entering or competing in platform markets. (See “About the Research.”)
1. See, for instance, K. Boudreau, “Open Platform Strategies and Innovation: Granting Access vs. Devolving Control,” Management Science 56, no. 10 (October 2010): 1849-1872; T.R. Eisenmann, “Managing Proprietary and Shared Platforms,” California Management Review 50, no. 4 (Summer 2008): 31-53; M. Cusumano and A. Gawer, “The Elements of Platform Leadership,” MIT Sloan Management Review 43, no. 3 (spring 2002): 51-58; N. Economides and E. Katsamakas, “Two-Sided Competition of Proprietary vs. Open Source Technology Platforms and the Implications for the Software Industry,” Management Science 52, no. 7 (July 2006): 1057-1071; and A. Gawer, ed., “Platform, Markets and Innovation” (Cheltenham, U.K. and Northampton, Massachusetts: Edward Elgar Publishing, 2010).
2. Network externalities are also known as “network effects.” See Eisenmann, “Managing Proprietary and Shared Platforms.”
3. Cusumano and Gawer, “Elements of Platform Leadership.”
4. T. Eisenmann, G. Parker and M.W. Van Alstyne, “Strategies for Two-Sided Markets,” Harvard Business Review 84, no. 10 (October 2006): 92-101.
5. Quote from Steve Jobs’ keynote address at the MacWorld Conference and Expo 2007, when he introduced the iPhone for the first time. He used the same sentence in many interviews he gave about the iPhone introduction in months after the launch.
6. ChangeWave Research, “ChangeWave Corporate Buying & Business Trends Series, 2007” (Bethesda, Maryland: ChangeWave, 2007).
7. T.R. Eisenmann, M.J. Piskorski, D. Chen and B. Feinstein, “Facebook,” Harvard Business School case no. 9-808-128 (Boston: Harvard Business School Publishing, 2008).
8. W.C. Kim and R. Mauborgne, “Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant” (Boston: Harvard Business Review Press, 2005).
9. S. Segan, “Great i, Lousy Phone,” May 1, 2008, www.pcmag.com.
10. Cusumano and Gawer, “Elements of Platform Leadership.”
11. A. Gawer and R. Henderson, “Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel,” Journal of Economics and Management Strategy 16, no. 1 (2007): 1-34.
12. This statement is based on primary data collected by one of the authors as part of an ongoing study of entry and survival in the iPhone apps space.
13. Piskorski, Eisenmann, Chen and Feinstein, “Facebook.”