Invisible Engines: How Software Platforms Drive Innovation and Transform Industries

by David S. Evans, Richard Schmalensee, Andrei Hagiu

Harnessing the power of software what executives and entrepreneurs must know about how to use this technology to transform industries and how to develop the strategies that will create value and drive profits. Software platforms are the invisible engines that have created, touched, or transformed nearly every major industry for the past quarter century. They power everything from mobile phones and automobile navigation systems to search engines and web portals. They have been the source of enormous value to consumers and helped some entrepreneurs build great fortunes. And they are likely to drive change that will dwarf the business and technology revolution we have seen to this point. Invisible Engines examines the business dynamics and strategies used by firms that recognize the transformative power unleashed by this new revolution—a revolution that will change both new and old industries. The authors argue that in order to understand the successes of software platforms, we must first understand their role as a technological meeting ground where application developers and end users converge. Apple, Microsoft, and Google, for example, charge developers little or nothing for using their platforms and make most of their money from end users; Sony PlayStation and other game consoles, by contrast, subsidize users and make more money from developers, who pay royalties for access to the code they need to write games. More applications attract more users, and more users attract more applications. And more applications and more users lead to more profits. Invisible Engines explores this story through the lens of the companies that have mastered this platform-balancing act. It offers detailed studies of the personal computer, video game console, personal digital assistant, smart mobile phone, and digital media software platform industries, focusing on the business decisions made by industry players to drive profits and stay a step ahead of the competition. Shorter discussions of Internet-based software platforms provide an important glimpse into a future in which the way we buy, pay, watch, listen, learn, and communicate will change forever. An electronic version of this book is available under a Creative Commons license.

Genres: Business, Economics, Technology, Nonfiction

395 pages, Paperback

First published January 1, 2006

About the author

Evans is an economist whose work on platform businesses, the digital economy, financial services, and antitrust economics is widely cited. He is the author of nine books and more than 150 articles on those and other economic topics. His most recent book, Matchmakers: The New Economics of Multisided Businesses, won the 2017 Axiom best economics book award, and was featured in the New York Times, Wall Street Journal, and Economist. Evans is frequently asked to speak to global audiences on the digital transformation, platforms business, and antitrust.

Evans uses his research to advise companies, from early-stage firms to the largest global digital businesses and has consulted for many of the prominent digital platform companies based in the US and China. Evans has also applied his expertise for testimony before courts, legislatures, and regulators in the US and abroad. The U.S. Supreme Court cited his work on platform economics and payment cards extensively in its American Express decision.

Evans has had a long career in academia. Between 2004 and 2022 he was a visiting professor at University College London (UCL) where he taught intensive courses on the digital economy and multisided platforms, and their application to competition policies, which were streamed to antitrust authorities globally. He was a Lecturer at the University of Chicago Law School between 2006 and 2016 where he taught an advanced seminar on antitrust economics. Previously he was a professor at the Fordham University Department of Economics and at Fordham Law School.

Reviews

[Kiran Jonnalagadda · Rating 5 out of 5]

This is easily one of the best books I've read in years. I only wish there was a newer edition because so much has happened since 2006. The iPhone debuted and iOS became a two-sided marketplace for apps (but not music), Android trounced iOS with a Wintel-like three-sided model (hardware, apps, customers), Microsoft lost the plot with Windows Mobile, and in ecommerce, Amazon is at war with publishers to avoid becoming a marketplace (preventing publishers from setting prices for Kindle editions).

Despite it being eight years old, you should read this book. It'll help you understand the major trends in economic models of the microprocessor era since the 80s.

[Thomas · Rating 5 out of 5]

This is a must read for understanding how some of today's technologies have developed economic systems that can be understood to consummate multiple transactions among multiple consumers. Fascinating. A brilliant descriptive text that solidifies Roche and Tirole's theories. The only question that begs to be answered is how do you determine the price levels for each customer?

[Olaf Kowalik · Rating 3 out of 5]

Published in 2006, one year before the introduction of the iPhone and two years after the founding of facebook, this book looks at software platforms through an economic lens. The early chapters of the book contain a description of programming languages, operating systems, networks, computers in general, APIs, and Open Source. The next few chapters are dedicated to case histories of 1970’s to early 2000’s computer industry history including programming languages, operating systems, mobile phones, personal computers, digital music players, and digital music platforms. These case studies feature Palm Pilot, iPod, RealNetworks, Microsoft, Apple, and DoCoMo.

The last section of the book discusses key decisions that platform owners need to make. First it the scope and level of integration that the business undertakes. Second is pricing, enticing all parties to participate, and overall business model. Finally, features and functionality for the platform must be selected.

Although the examples are all pre-2006, there's a lot of history to enjoy and compare to today's landscape. If you're looking for a more current book on platforms, try Platform Scale by Sangeet Paul Choudary or Platform Ecosystems by Amrit Tiwana. Platform Scale covers the dynamics of platforms, their underlying models, and how to achieve growth. Platform Ecosystems is a vast textbook that covers all aspects of platforms from technology through governance.

[Natalie · Rating 3 out of 5]

Highly worth the read despite being out-dated. Would love to have seen these guys' faces when iPhone came out. Fun examples and references (including Britney Spears' "Toxic"), skip the last 3 chapters if you've read anything about business, platforms, pricing before.

[Gustavo Tavares · Rating 4 out of 5]

Muito bom para entender a dinâmica das plataformas criadas por software. Mas é importante destacar que o conteúdo é os casos estudados estão um pouco datados, embora suas conclusões permaneçam válidas!!

[Otis Chandler]

Om recommends it: http://gigaom.com/2006/11/30/profit-f...

Ryan Sarver @twitter recommends it highly.

[Semi-Academic Eric]

This shows up as a reference on page 77 of Business Model Generation.

[Morris · Rating 3 out of 5]

Great view of some business concepts in the software industry. A little light on content.