Platform

Ecosystems

Aligning Architecture,
Governance,

and

Strategy

Amrit Tiwana

AMSTERDAM

NEW YORK

BOSTON

SAN FRANCISCO

OXFORD

HEIDELBERG

PARIS

SINGAPORE

Morgan Kaufmann is

an

SYDNEY

imprint of

LONDON

SAN DIEGO

Elsevier

TOKYO

Contents
Introduction

xv

PART I THE RISE OF PLATFORMS

CHAPTER 1
1.1

The Rise of Platform

The War of

1.2 Platform

Ecosystems

Ecosystems

Ecosystems

1.2.1 Elements of

1.2.2 What

Software Platform

Ecosystem

1.3 Drivers of the Migration Toward Platforms

Deepening Specialization

Embedding

1.3.4 Driver #4: The Internet of

1.3.5 Driver #5:

Things

Core

16

20

Concepts and Principles

23
23

Introduction

2.2 Core

15

19

1.4 Lessons Learned

2.1

11

17

Ubiquity

1.3.6 The Perfect Storm

CHAPTER 2

13

1.3.2 Driver #2: Packetization

1.3.3 Driver #3: Software

Platform is Not

1.3.1 Driver #1:

23

Concepts

24

2.2.1

The Platform

2.2.2

Multisidedness

31

2.2.3

Network Effects

33

2.2.4

Multihoming

36

2.2.5

Tipping

36

2.2.6

Lock-in

37

2.2.7

Competitive Durability

37

2.2.8

Envelopment

37

2.2.9

Architecture

38

Lifecycle

39

2.2.10 Governance

39

2.3 Guiding Principles

2.3.1 The Red Queen Effect
2.3.2 The

Chicken-or-Egg

2.3.3 The Penguin

2.3.4

Problem

Problem

Emergence

2.3.5 The Seesaw Problem

39
41
41
42

42

ix

Contents

2.3.6 The

Humpty Dumpty

Problem

43

2.3.7 The Mirroring Principle

44

2.3.8 Coevolution

45

2.3.9 The Goldilocks Rule

46
47

2.4 Lessons Learned

CHAPTER 3

Why Platform Businesses Are Unlike Product

or

Service Businesses

49

3.1 Introduction

49

3.1.1 Market Potential Difference's

50

3.1.2 Structural Differences

50

Management Style Differences

Why Platforms Need a Different Mindset

52

3.1.3
3.2

52

3.3 How Products and Services Can Evolve into Platforms

3.3.1 The Four Lenses for

55

Spotting Platform Opportunities

56
58

3.4 Lessons Learned

CHAPTER 4

The Value

Proposition

of Platforms

61
62

4.1 Platform Owners

4.1.1

62

Distributed Innovation

Massively

63

4.1.2 Risk Transfer

4.1.3

the

Capturing

4.1.4

Competitive Sustainability

63

Long-Tail

64
65

4.2 App Developers

4.2.1

Foundations

Technological

65
66

4.2.2 Market Access

4.3 End-Users

67

4.3.1 Mix-and-Match Customization

67

4.3.2 Faster Innovation and Network Benefits

67

4.3.3

68

Competition Among

Rivals

4.3.4 Lower Search and Transaction Costs

68

4.4 Lessons Learned

68

PART II ARCHITECTURE AND GOVERNANCE

CHAPTER 5
5.1
5.2

Platform Architecture
How

Unemployed

Complexity:
5.2.1 Two

Hairdressers Became France's Mathematical

The Achilles Heel of Platforms

Types

of

Complexity

5.3 The Two Functions of Ecosystem Architecture

73

Champions

73

77
78

79

5.3.1

Partitioning

80

5.3.2

Systems Integration

82

5.4 Ecosystem Architecture

5.4.1

84
85

App Microarchitecture

5.5 Four Desirable

Properties

93

of Platform Architectures

5.5.1 Architectural Lessons From Cities

94

5.6 Modularity of Architectures

5.6.1 Software

95

97

Modularity

5.6.2 Platform Architecture: An

5.6.3

5.6.4

Ecosystem's

DNA

97

Precedes Production

98

Design
Design Modularity Enables Production Modularity

99

5.7 Goldilocks Strikes Again

100

5.7.1 Upsides of Modularization

100

5.7.2 Downsides of Modularization

103

5.8 Two Mechanisms for Modularization

5.8.1

106
106

Decoupling

5.8.2 Interface Standardization

110
115

Chapter Summary
CHAPTER 6

Platform Governance

6.1 Platform Governance

as

117

the

Blueprint

for

Ecosystem

Orchestration

6.2 Three Dimensions of Platform Governance

6.2.1 Decision

6.2.3

118
119

Rights Partitioning

6.2.2 Control Portfolio

117

122

Design

126

Pricing

6.3 Aligning Governance

131

6.3.1

Aligning Decision Rights Partitioning

6.3.2

Aligning

131

Control Portfolios

137

6.3.3 Aligning Platform Pricing Policies

144

150

Chapter Summary

PART III DYNAMICS AND METRICS OF ECOSYSTEM EVOLUTION

CHAPTER 7

Metrics of Evolution

155

7.1 Three Roles of Evolutionary Metrics

156

7.1.1 Metrics Steer Evolution

7.1.2 Metrics
7.1.3 Metrics
7.2 Three

Separate Signal
Help Manage

156

from Noise

156

Tradeoffs

157
157

Guiding Principles

7.2.1 Look from Outside in

7.2.2 Focus Attention

Long

on

158

the Short Term Without

Losing Sight

of the

Term

7.2.3 The Cost of Tracking

Tracking it

158
a

Metric Should Never Exceed the Value of

159

xii

Contents

7.3 An Overview of Metrics of Evolution in Platform

Ecosystems

162

7.4 Short-Term Metrics of Evolution

7.4.1 Resilience

162

Scalability

164

7.4.2

167

7.4.3 Composability

169

7.5 Medium-Term Metrics of Evolution

7.5.1

169

Stickiness

170

7.5.2 Platform Synergy

7.5.3
7.6

172

Plasticity

172

Metrics of Evolution

Long-Term

172

7.6.1 Envelopment
7.6.2

175

Durability

176

7.6.3 Mutation

177

7.7 Lessons Learned

CHAPTER 8

Real Options Thinking in Ecosystem Evolution

8.1 An Introduction
8.2

Volatility

in

to

Real Options Thinking

Technologies

8.3 Types

of Real

8.4.1

180
183

Options

Options Thinking in Practice

Decomposing a Project into Smaller Subprojects

Applying

Real

Sequencing Subprojects
Exercising Real Options: The
8.5.1 Cost of

an

8.5.2 Value of
8.5.3

Exercising
When

Devil is in the Details

Embedded

Option:

When to Hold and

to Fold

8.6 Lessons Learned

CHAPTER 9

Modular

188

189

Option

an

186

188

Option

an

185

187

8.4.2

8.5

179

180

Volatility

8.2.2 Market

179

180

and Markets

8.2.1 Technical Volatility

8.4

160

189
190

Operators: Platform Ecosystems' Evolutionary

Baby Steps
9.1 An Overview of Modular Operators

191
191

9.1.1 Split

192

9.1.2 Subtract

192

9.1.3 Substitute

192

9.1.4

194

Augment

9.1.5 Mutate

195

9.2 Lessons Learned

197

Contents

xiii

PART IV ORCHESTRATING EVOLUTION

CHAPTER 10
10.1

Evolving

Platform

The Bathtub Model:

201
Innovation

Ecosystem

as

Stocks and Flows

10.1.1 Growing the Stock

10.1.2

10.2

204

Creating and Sustaining

Competitive Advantage

207

Orchestrating

211

Platform Evolution: A Preview

212

10.3.1

Orchestrating

Platform Resilience

212

10.3.2

Orchestrating

Platform

215

Scalability

10.3.3

10.5

Orchestrating Platform Composability

Orchestrating Medium-Term Platform Evolution

218

10.4.1

Growing

220

10.4.2

Growing Platform Synergy

220

Platform Stickiness
Across the

Ecosystem

228

Orchestrating Long-Term

232

Platform Evolution

10.5.2

Orchestrating Platform Envelopment

Rebuffing Envelopment Attacks on a

10.5.3

Orchestrating Platform Durability

10.5.4

Consistently Contributing

232
Platform

234
237

Valuable Resources to the

Ecosystem

238

10.5.5

Accumulating Nonsubstitutable Assets

241

10.5.6

Orchestrating Platform

244

Mutation

10.6 Lessons Learned

11.1

227

10.4.3 Orchestrating Platform Plasticity

10.5.1

CHAPTER 11

206

10.1.3 Evolution Speed: Lessons from American Military Doctrine

10.3 Orchestrating Short-Term Platform Evolution

10.4

203

246

Evolving

an

Dynamics

of Platform Markets

11.1.1 A

App

Rising

247
248

Tide Floats all Boats

11.2 The Eureka Moment and the

Origin

11.2.1 Who is the Incumbent? Think

11.3 How App Microarchitecture

11.4 Evolving

an

11.5

an

Evolving
11.5.1

App:
App

249

of

Apps

249
250

Again

Shapes App Evolvability

A Preview

253

in the Short Term

Managing App

253

Resilience

253

11.5.2

Improving App Scalability

11.5.3 Enhancing App Composability
11.6 Evolving
11.6.1

256
258

Stickiness

11.6.2 Tradeoffs in Managing

11.6.3

255

in the Medium Term

an App
Growing App

251

an

Enhancing App Plasticity

258

App's

Platform

Synergy

261

262

xiv

Contents

11.7

Evolving
11.7.1

an

App in the Long Term

App Envelopment:

How

262

Apps

Evolve into Platforms

262

11.7.2 Enhancing

266

11.7.3

267

App Durability
Orchestrating App Mutation

11.8 Lessons Learned

267

PART V THE ROAD AHEAD

CHAPTER 12
12.1

Every Product Is
Idea 1:

Platform

Waiting

to

Happen

271

Ecosystem Competition
12.1.1 Business Ecosystems in Nontechnology Industries

272

12.1.2

276

Migration

to

Properties Unique

to Business

12.1.3 The Three Stooges of

273

Ecosystems

Business Ecosystem

276

12.2 Idea 2: Ecosystem Orchestration Drives Evolutionary Survival

12.2.1 The Red

12.2.2 Business

Queen

Ecosystems

Thrive

on

277

Orchestration

12.2.3 You Cannot Win the Grand Prix

12.2.4

Challenges

277

Race to Survive

in Business

by Watching

Ecosystems

277
the Fuel

Evolve Over Their

Gauge

278

Lifecycle

278

12.3 Idea 3: Orchestration Requires Interlocking of Ecosystem Architecture

and Governance

278

12.3.1 Architecture is
12.3.2

Ecosystem

an

Ecosystem's DNA

Governance is the

12.3.3 Architecture and Governance

Ecosystems' Evolutionary

Catalyst
as

the

Motor

278
for Evolution

Interlocking Gears

279
of

an

280

About the Author

281

References

283

Glossary

289

Index

295