Category Archives: platform

What distinguishes a platform strategy?

by Philip Boxer PhD

What distinguishes a platform strategy is the way it extracts value from the relationship to demand, not the characteristics of the platform itself.1

Richard Veryard asks does everyone (except Google) have a platform strategy?  The consensus appears to be that it does not, because as Richard argues in Google as a Platform (not), while it ‘gets ecosystems’, its approach to it is  ‘closed source’2, contrasting with the open source approaches of an Amazon or an Apple.

If we follow Haydn Shaughnessy’s argument for why Amazon succeeds, a platform strategy succeeds because it enables businesses within its ecosystem to create shared value; its use makes possible the development of complex option portfolios for pursuing business opportunities, assuming it has cloud characteristics and can minimise friction in establishing new connectivities; and its owners know how to use the platform to pursue radical adjacency:3

The ability to go beyond normal business practice and to seize opportunity in widely adjacent markets – think Apple in music, smartphones and, soon, TV.

This does not appear to be what Google is doing, with its continuing reliance on its advertising revenues, and with everything else it does being seen as a means of building traffic on which its revenues depend.

But what about a different perspective on this?  Amazon and Apple are pursuing direct value4 from their products and services that are in turn dependent on building  indirect benefits for the customers and businesses within their respective ecosystems.  But Google’s strategy is to pursue indirect value5 – the value it extracts  from the indirect relationships within the web-sphere from enabling advertising, explicitly subordinating the direct value of its products and services.  This is a strategy for pursuing asymmetric demand. This suggests that we need to think about two things:

  • firstly what constitutes a platform strategy (enabling the creation of shared value within an ecosystem); and
  • secondly whether or not the platform is used primarily for capturing direct (one-sided) or indirect (multi-sided) value.

I propose that it is this second thing that distinguishes the platform strategy.6 What about shared value? This is still being created because of the focus on the performance of the ecosystem rather than just on that of the supplier, whether the platform is being used to pursue direct or indirect value itself…

Looked at in this way, we can draw a parallel with the difference between acute and primary health care: both forms of care depend upon playing a valued part within larger ecosystems, but while the former aim to capture direct value from acute episodes of care, the latter aim to capture indirect value through the way they enable patients to manage their long-term risks of becoming unwell.7

Notes
[1] Note that the platform strategies described here use network-based architectures. See ideologies of architecture
[2] ‘Closed source’ is contrasted with ‘open source’ in Architectures that integrate differentiated behaviors, in which the platform supports indirect value for the customer, but does so through providing its own portfolio of complementary products and services.
[3] Real options are used in Evaluating platform architectures within ecosystems: modeling the supplier’s relation to indirect value. To be effective, these valuations have to be defined using a structural model of the supplier’s ecosystem and its relation to demand.
[4] Direct value is value captured from the direct relationship with a customer, the direct value being a cost to the customer of the direct benefit they derive from the direct relationship. From the supplier’s perspective, this is referred to as a ‘one-sided’ relationship because there is only one relationship to consider.  In Amazon’s case for example, I end up paying money to Amazon for the book.
[5] Indirect value is value captured from the direct customer’s relationship with other customers and complementors – relationships that are indirect from the perspective of the supplier, making the supplier’s relationship with the customer ‘multi-sided’.  This indirect value is a cost to the parties to an indirect relationship of the indirect benefit they derive from using the supplier’s service.  In Google’s case for example, the advertiser pays Google for being linked to the customer’s situation in which the customer is searching for something.  The advertiser gets linked and the customer gets to use a Google ‘product’.  (More on complementors etc can be found in asymmetric demand is multi-sided demand.)
[6] Richard’s use of ‘positional’ to describe Google’s strategy only works if we define their business model as extracting ‘rent’ from their proprietary search capability. And it is true that Google pursues the first two of the three asymmetries in the way its uses its technologies and market channels in delivering its services. But here I am arguing that their pursuit of the third asymmetry through the capture of indirect value makes their strategy ‘relational’ – Google is  endlessly trying to find ways of being indirectly useful within the context of the customer’s working/searching situation.
[7] This brings us to the world of edge-driven collaboration and many of the challenges facing government in how it evaluates services for its citizens (for exampling investing in e-Government).

The ‘wickedness’ of socio-technical ecosystems

by Philip Boxer

Software-intensive ecosystems—systems with large numbers of independent software-intensive and human agents and adaptive behavior—are an increasingly important social, financial, and political force in the world. These systems are different from traditional “closed-world” systems: they are constantly evolving, they have no centralized control, they have many heterogeneous elements, their requirements are inherently conflicting and unknowable, failures are normal, and the boundary between people and systems is blurred. [1]

Such ecosystems have emergent properties – properties which their original designers could not predict – and present a kind of “wicked” problem.[2] Wicked problems have the following characteristics:

  • There is no definitive formulation.
  • They have no stopping rule.
  • Solutions are not true-or-false, but good-or-bad.
  • There is no immediate or ultimate test of a solution.
  • They do not have a well-described set of potential solutions.
  • Every implemented solution has consequences.
  • Every wicked problem is essentially unique.
  • Every wicked problem can be considered to be a symptom of another problem.
  • The causes of a wicked problem can be explained in numerous ways.
  • The planner (designer) has no right to be wrong.

Wicked problems are thus not amenable to traditional reductionist analysis. As Rittel and Webber say: “As we seek to improve the effectiveness of actions in pursuit of valued outcomes, as system boundaries get stretched, and as we become more sophisticated about the complex workings of open societal systems, it becomes ever more difficult to make the planning idea operational”. We simply cannot draw a box around the “system” and analyze it. This presents us with a challenge not just at the level of the software ecosystem, but also at the level of the socio-technical ecosystems that they support. While this challenge appears to undermine our ability to do any meaningful analysis, simply not analyzing such ecosystems is not an acceptable option given that society is increasingly dependent on them – for example, the ecosystems supported by the internet and the “smart grid” for energy production and distribution.

The US Army considered the impact of these wicked problems on the Commander’s Appreciation and Campaign Design, which it defined as “ill-structured”. It concluded that a different approach to problem solving was needed that was inductive in nature, concerned with producing “a well-framed problem hypothesis and an associated campaign design—a conceptual approach for the problem.” [3] Thus as much attention had to be paid to the way the problem was framed (i.e. to the way the boxes were defined), as to the subsequent analysis of what was placed within those boxes. The conclusion reached was as follows:

“The issue is whether a commander should begin by analyzing the mission, or whether complexity compels the commander to first understand the operational problem, and then—based upon that understanding—design a broad approach to problem solving. The answer to this question depends upon the problem and the mission. If the problem is structured so that professionals can agree on how to solve it, and the mission received from higher headquarters is properly framed and complete, then it makes sense to begin with the analysis of the mission (breaking it down into specified, implied, and essential tasks). However, if the problem is unstructured (professionals cannot agree on how to solve the problem), or the mission received from higher headquarters is not properly framed (it is inappropriate for this problem), or higher headquarters provided no clear guidance (permissive orders), then it is crucial to begin by starting to identify and understand the operational problem systemically. This is one of the functions of operational art.”

Another way of stating the challenge, therefore, is to analyze our understanding of the contexts-of-use into which our systems are being deployed before analyzing any proposed architectures for such systems, or proposed architectural changes, to ensure that they are as suitable as possible given our understanding of those contexts-of-use. In this way, architecture analysis becomes an alignment mechanism, ensuring that the software infrastructure that we build is as appropriate as possible for the needs of the contexts-of-use, which collectively form a socio-technical ecosystem.

These socio-technical ecosystems are distinguished by the presence of both task systems and the social systems of meaning that they support. [4] In order to examine the architectural characteristics of both software-intensive and socio-technical ecosystems, traditional architectural analysis must be extended to account for how alignment impacts on the wicked (ill-structured) nature of ecosystems. Such an analysis can give us insight into the properties of an ecosystem and can help us reason about the alignment of the ecosystem with the goals of its many stakeholders.

Notes
[1] This perspective on complex adaptive systems exhibiting organized complexity is to be found in Northrop, L., et al., Ultra-Large-Scale Systems: The Software Challenge of the Future. June, 2006, Pittsburgh: Software Engineering Institute, Carnegie Mellon University.
[2] The original use of this term is to be found in Rittel, H. and M. Webber, Dilemmas in the General Theory of Planning. Policy Sciences, 1973.
[3] TRADOC, Commander’s Appreciation and Campaign Design. 2008.
[4] The original work on this emphasized that while sentient and task groups might correspond, the nature of task systems and snetient systems were essentially incommensurable. Quoting from Miller, E. J. and A. K. Rice (1967), Systems of Organization: The Control of Task and Sentient Boundaries. London, Tavistock: “We have considered many different words – commitment, identity, affiliation, cathexis – to denote the groups with which human beings identify themselves, as distinct from task groups, with which they may or may not become identified. We have chosen sentient – ‘that feels or is capable of feeling; having the power or function of sensation or of perception by the senses, 1632’ (Shorter Oxford English Dictionary) – as expressing most clearly what we mean. We shall therefore talk of sentient system and sentient group to refer to that system or group that demands and receives loyalty from its members; and we shall talk of a sentient boundary to refer to the boundary round a sentient group or sentient system. We shall use sentience to mean ‘the condition or quality of being sentient’ (Shorter Oxford English Dictionary)”.