Platform & ArchitectureSung Joo Bae

Associate Professor

Management of Technology

School of BusinessYonsei University

Platform Strategy

• Platform can also be defined as a structural or technological form from which various products can emerge without the expense of a new process/technology introduction. (wikipedia)

– Made possible by

1) increasing interdependency of products and services &

2) increasing ability to innovate by more actors in the high-tech world (cost of communication & tools)

• Main strategic issues

– Managing the evolution and integrity of the platform

– Market leadership in platform environments

Four Levers of Platform Leadership

• Scope of the firm: What to do inside the firm, and what to let external firms do

• Product technology: Make decisions on system architecture (the degree of modularity), interfaces (the degree of platform openness), intellectual property (what information on architecture to close or open)

• Relationship with external complementors: How collaborative or competitive should relationship with the complementors. Reward scheme for complementors.

• Internal organization: How to organize the firm to support the above three levers

Architecture

• Arrangement of functional elements

• The specification of the interfaces among interacting physical components

(Source: Ulrich, 1995)

Design Structure Matrix (DSM)

Source: Design rules (2000)

Design Parameters & Tasks

Source: Design rules (2000)

Possible relationships between design parameters & tasks

Source: Design rules (2000)

Simplified TSM for IBM Laptop design

Source: Design rules (2000)

Modularization of IBM Laptop design

Source: Design rules (2000)

Taxonomy of DSM

Source: Design rules (2000)

iPod and iTunes Store on iPhone

iPod and iTunes Store on iPhone

iPod iTunes iTunes Store

Play songs Play songs Purchase songs

Browse by a category (genre, artist, etc)

Get album artwork Access to top tens

Browse recently played songs

Browse album photo of music collection (Coverflow)

Listen for free

Check recommended songs (Genius)

Recommend relevant songs (Genius)

Check ratings

Write a review

Recommend songs

iPod and iTunes Store on iPhone

iPod and iTunes Store on iPhone

Harnessing the Capability of Users through Platform Strategy

Toolkits – the basic idea

The standard, “find a need and fill it” product

development model

Solution

Information

(“What is

possible?”)

Need Information

(“What do I want”)

CustomersSupplier

The toolkits development model

Solution

Information

(“What is

possible?”)

Need Information

(“What do I want”)

Supplier Customers

Toolkits make sense because collecting accurate Information about customers needs is costly

Source: Eric von Hippel’s class – “How to create breakthrough products and services”

Toolkits – the basic idea

Do network effects matter?

• What is network effects?• Tipping dynamics differ with the strength

of network effects

Actual share of firm A’s installed base

Probability

the next

customer

chooses to

buy from

firm A

Conventional

product

Threshold N.E.

Extensive N.E.

20

Platform A(Incumbent)

supplier

User

Platform B(Newcomer)

supplier

User

IPNE

IPNE

Interplatform Network Effect (IPNE) – No More WTA Assumption!

-600000

-400000

-200000

0

200000

400000

600000

800000

1000000

1200000

1400000

# o

f A

pp

s

Time

Apple Google

Vertical deployment Horizontal deployment

Various domain specific platforms

An open integrated IoT platform

Reduced development costs and Improved time to market of IoT

devices and services.

Leads to an ecosystem for IoT service developers21

IoT device

Network

Server

Access authentication

charging

Application

IoT device

Network

Server

Access authentication

charging

Application

IoT device

Network

Server

Access authentication

charging

Application Application

Open IoT platform(Integrated management of IoT

devices)

Application Application

IoT device IoT device IoT device

Thing Management:

Registration/save/search/management

Combination

Monitoring, status management

User Management

Registration/save/search/management

IoT App/Service management

Service user/developer interface

Mesh up function

Registration/save/search/management

IoT Network Management

Object Network management-error/security/performance

IoT Access Network registration/management

Authentication and Billing server

Object/user/network authentication/security/billing

IoT Data Server (Application Server)

Data collect, control

Mash-up Service

Connection to Cloud/Big Data server22

23

SK Telecom as a smart-home platform provider

SK Telecom is a #1 mobile telecommunication firm in South Korea with technologies,

facilities, organization and marketing abilities. It has a potential to execute innovative

platform business.

Market share of Network Svc.

Customer satisfaction

• #1 in customer satisfaction

17 years in a row.

• Customer-centered

management

Technological competence

• Ability in wireless data collection b

ased on the largest customers in

South Korea.

• Server management capability an

d know-how of home business ba

sed on SK broadband business.

Organizational culture

• Horizontal organizational culture :

focus on task rather than rank

• #1 in ‘firm culture and value’ amo

ng 40 large firms in South Korea

(4.1/5.0) - Glassdoor

Brand power of #1

telecommunication

firm

Accumulated

technological

competence

Horizontal

organizational

culture

SKT Smart-home platform

Monthly fee by designating

host per households.• SKT-controlled platform (internet inform

ation saving & management)

• Creation of new user value by analyzing

user pattern of smart-home service

Smart home app. Internet web

SKT service server(processing & DB)

In-house telecommunication

hub (WIFI AP)

Collaboration with manufacturers

who lead each product category.

Developing products with embedded

telecommunication chip in order to

realize smart-home.

Strategic direction – directing point of SKT smart-home platform

“Providing safety, fun and convenience to customers through

smart-home platform as well as suggesting new values via

mash up and customizing of products.”

Home appliances

• TV

• Air conditioner

• Robot cleaning machine

Characteristics

Customers

Customers using KT, LGU+ can

use SKT smart-home platform.

(high accessibility)

Platform capability

Leverage business know-how

obtaining from operating Korean

platform business.

Competitive advantage

Can be applied to all

manufacturers regardless of

their brands.

Business model

Minimize costs paid by

customers in order to increase

user penetration and dominate

market.

Home Firm Institution Construction company

Security firms

• Door-lock

• Lighting

• Home CCTV

Change of IoT environment with less cost.

Increase in revenue by providing new value.

New value/experience + personalization

+ reduction of energy

Elimination of continuous

service after parceling out.

Open/Private Architecture with user design/development

Mash-up function

mixing extant

product functions

in IoT-based smart

home environment

“Facilitation of User innovation as a way of

open collaboration”

SK Telecom should satisfy needs of each complementor and form an environment

where networking effect is enlarged among them.

SKT Smart Home Platform Ecosystem

Scope of the firm

“Neutral manager of ecosystem”

•SKT only form and manage platform

environment.

•There could be a conflict of interest if SKT

becomes a complementor.

Platform Leadership

Product technology

“Anyone can enter if they meet standards”

•Architecture/degree of openness: any

manufacturers can enter if they meet standards

of telecommunication and open API.

Relationship w/ external complementors

“Symbiosis relationship and entry barrier”

•Positive relationship with other

telecommunication companies while forming

entry barrier of platform business.

Inducing Network Effect by providing incentive to each complementor.

External complementors

Internal complementors

SKT smart home

platform

B2C, B2B customer

B2B2C customer

(construction company)

Home-appliance

manufacturer

KT, LGU+

SW company Google, Apple

Architecture knowledge building process

Architectural knowledge perspective vs. existing theories

Composition of architecture knowledge

Core component & interface related knowledge

Baldwin & Clark (2000): only after designers have accumulated sufficient knowledge about

the internal structure of a technical system is it advantageous to modularize the system

by specifying design rules and interfaces that all subsystems have to follow.

Platform-based product: internal & external interface/periphery

Architecture knowledge: The case of smartphone

External interface change

example

- Screen mirroring interface

change

Internal interface change

example

- AP + Modem -> One chip

Application

Processor

Power

Management

Modem

(baseband)

Wireless unit

Camera

Touch screen

Display

DRAM

NAND Flash

Peripherals

Exte

rnal In

terfa

ce

TV

VR Cam

HMD

Memory

Music Amp

Etc.

Platform controllability

Platform controllability: ownership of core components and peripheral components in the platform as the ownership increases, controllability of the platform increases as well

Platform controllability increased in the case of Samsung Electronics

Accumulation of architecture knowledge increases platform controllability,

thereby improving the performance of NPD

Components GS3 (HSPA Ver.) GS4 (HSPA Ver.) GS4 (LTE Ver.) GS5

NAND Flash + DRAM) Samsung (14.13%) Samsung (11.88%) Samsung (12.02%) Samsung (11.93%)

Display & Touchscreen Corning (31.68%) Corning (31.83%) Corning (32.21%) Corning (25.05%)

Processor Samsung (8.53%) Samsung (12.73%) Qualcomm (8.59%) Qualcomm (11.93%)

Camera(s) Samsung (9.26%) Samsung (8.49%) Samsung (8.59%) Samsung (7.43%)

Wireless Section –

BB/RF/PA

Intel (7.01%) Intel (6.79%) Qualcomm (10.74%) Intel (9.94%)

User Interface &

Sensors

Capella, ST Micro,

AKM (6.19%)

STMicro, InvenSense,

Yamaha (6.79%)

ST Micro, InvenSense,

Yamaha (6.87%)

InvenSense, ST Micro,

Asahi Kasei (9.67%)

WLAN / BT / FM / GPS Broadcom (4%) Broadcom (3.82%) Qualcomm (2.47%) Broadcom (3.58%)

Power Management Maxim (3.41%) Samsung (3.4%) Qualcomm (4.08%) Qualcomm (3.78%)

Battery Samsung (2.39%) Samsung (2.38%) Samsung (2.4%) Samsung (4.37%)

Mechanical /

Electro-Mechanical

n/a (10.43%) n/a (9.38%) n/a (9.45%) n/a (9.94%)

Box Contents n/a (2.92%) n/a (2.55%) n/a (2.58%) n/a (2.39%)

Component integration increases as the architectural knowledge increases

NPD/Product performance comparison

Architecture knowledge building process in smartphone case

Technical Change

IncrementalInnovation

ModularInnovation

RadicalInnovation

ArchitecturalInnovation

Components

Linkages betweenCore Concepts &

Components

Unchanged

Changed

Reinforced Overturned

(Henderson & Clark, 1990)

innovations that change the way in which the components of a product are

linked together, while leaving the core design concepts (and thus the basic

knowledge underlying the components) untouched

Transitions often challenge existing organizations severely

Cumulate share of sales of photolithographic alignment equipment, 1962-1986, by generation

Contact Proximity Scanner S&R (1) S&R (2)

Cobilt 44 <1

Kasper 17 8 7

Canon 67 21 9

P-Elmer 78 10 <1

GCA 55 12

Nikon 70

Total 61 75 99+ 81 82+

(Source: Henderson & Clark, 1990)

Inertia in Organizational Mechanisms

• Filters (Cognitive Framework)

• Channels (Information Flow)

• Problem-Solving Strategies (Learning Trajectory)

• Structures, culture, disciplined processes, control mechanism, individual knowledge?

• Anything else?