The paper by Dr. Cusunamo and Dr. Gawer on “Industry Platforms and Ecosystem Innovation” is a good resource to understand platform strategies and their impact on innovation in various industry ecosystems. In this post we will use some of the key points of the paper to evaluate Public Cloud Computing Platform strategies of Amazon, Google and Microsoft.
Dr. Cusunamo and Dr. Gawer define external (industry) platforms as products, services or technologies that provide the foundation upon which outside firms (organized as a ‘business ecosystem’) can develop their own complementary products, technologies, or services.
The paper identifies a number of different types of platforms, including internally focused product platforms, supply chain platforms and external platforms. But the focus is on external platforms and their characteristics. This post applies the analysis from the paper to the 3 dominant Public Cloud Computing platforms – Amazon Web Services, Google Cloud Platform and Microsoft Azure – and see which one fares best as an external platform.
Dr. Cusunamo and Dr. Gawer in an earlier paper argue that not all platforms can be industry platforms. To be considered an industry platform, the platform must (1) perform a function that is essential to a broader technological system, and (2) solve a business problem for many firms and users in the industry. Those 2 conditions are not sufficient to ensure industry platform leadership. Platform owners have to navigate a complex landscape of collaboration and competition with ecosystem participants to ensure complementary innovation on the platform. The most powerful feature of an industry platform is its ability to create network effects. As more customers and complementary players join the platform the platform becomes exponentially useful and brings in more participants to the platform to create a positive feedback loop.
Practicing Platform Leadership
The paper also points out that platform leaders play a central role in the ecosystem but are also highly dependent on innovation and investments from other firms. Platform leaders can use a variety of strategic alternatives to influence the direction of complementary innovation. In addition to decisions on design, architecture and openness, platform leaders also should “strive to establish a set of business relationships that are mutually beneficial for ecosystem participants and be able to articulate a set of mutually enhancing business models”.
The paper highlights the example of Intel establishing the “Intel Architecture Lab (IAL)” as a way to lead the architecture of open computing and to help the industry figure out how to evolve the industry. IAL has played a number of roles in the industry, including being the being the “catalyst for innovation in the industry” to “establishing technologies and standards for the extended PC”.
Gawer and Cusumano described strategic options as the “four levers” of platform leadership:
- Firm scope (which, if any, complements to make in-house)
- Technology design (degree of modularity in the platform) and intellectual property strategy
(for example, free and open access to platform interfaces or services versus not free and
- External relations with complementary players (such as initiatives to promote investments
in complementary innovations)
- Internal organization (company structures and
processes that help manage conflicts should they arise, such as when the platform leader
makes complements that compete directly with ecosystem partners)
Several other examples of platform leadership, including those of Microsoft, Apple, IBM, et. al. are described in the paper. The key learning is that platform leaders are trustworthy partners in the ecosystem and do a delicate dance to promote innovation and customer value.
Platform Leadership of Cloud Computing Platforms
We are going to limit analysis of platform leadership to the 3 leading public cloud computing platforms – Amazon Web Services, Google Cloud Platform and Microsoft Azure. The reason we limit analysis to these 3 cloud platforms is because they happen to be the most comprehensive public cloud computing platforms in the market. These 3 pass the first test of industry platform because
- Their cloud computing foundations are essential to broad swaths of IT
- They solve a business problem for many firms and users in the industry
The important test of platform leadership is based on how the 3 cloud computing platforms are using the 4 levers of platform leadership to be a trusted partner of the ecosystem, which looks something like the picture shown below
The 3 companies examined in this post are exceedingly confident, rightfully so, in their capabilities to develop and operate cloud computing services. It’s hard for complementary cloud computing partners not be wary of incursions by the 3 vendors into their spaces with very little effort. The 3 companies are, however, wise to exercise restraint and let a thousand flowers bloom on top of their platforms.
The 3 companies have significant experience in designing technology in a modular fashion as externalized services that ecosystem participants can use as foundational components to build richer services and components. Amazon may be ahead of the pack, but we should expect Google and Microsoft to catch up.
External Relations with Complementary Players
All 3 companies have reasonable outreach, free products/services and evangelism aspects as part of ecosystem development programs. Having a large number of customers on the platform is the best strategy initially to motivate other companies to join the platform ecosystem and invest in developing complementary services and products on the platform. Venture capital and direct investments on the other hand are a more decisive approach to build out the ecosystem.
Internal Organization (Conflict Avoidance and Resolution)
I don’t have much information about how internal groups in these 3 companies are organized to avoid conflicts with partners. The Intel example in the paper provides a good roadmap as well as a guide to organize internal teams to minimize conflicts between the platform leader and ecosystem partners.
In summary, the 3 big cloud computing platform leaders are well positioned to be good stewards of their platform ecosystems. Amazon seems to have successfully used all the 4 levers of platform leadership to make Amazon Web Services the dominant Cloud Computing platform. That does not mean we can write off Microsoft and Google yet. It is still early in the game and much of the IT landscape is up for grabs and will very likely move to the public cloud computing platforms over the next 2 decades. The market for Enterprise IT is worth from several hundred billions of dollars and how of much of it moves to public cloud platforms over the next decade will depend on the platform stewardship of Amazon, Google and Microsoft. It’s their landscape to claim, or not.
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