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January 20 - February 8, 2020
interaction conversion rate—that is, the percentage of searches or queries that result in interactions.
The goal: to minimize the distance between Haier and its customers, thereby improving the fit between products and consumer needs, enhancing the company’s innovative capacities, and making its marketing and promotional efforts less costly and more effective.
CEO Zhang pointed out to us, the size of a company’s advertising budget might be viewed as a reflection of the distance between the company and its customers. For example, the annual brand value report issued in 2013 by the consulting firm Interbrand noted that Google’s advertising budget is just a tiny fraction of Coca-Cola’s. The likely reason: Google is deeply integrated into people’s lives through its many productivity and social applications, giving it constant user feedback that Coca-Cola doesn’t receive.
Based on analogies like this, Haier’s leadership team hypothesizes that a reduction in its user distance measure may improve its product design, customer service, and marketing efficiency. Thus, a seemingly abstract metric like user distance may hav...
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incremental innovation and metrics must be closely related to each other.
should drive innovation, have a high signal-to-noise ratio, and facilitate resource allocation.
The metrics dashboard you develop for your platform can be quite complex, allowing you to get a real-time glimpse of activities at a very fine level. However, simplicity is a virtue when developing metrics for your platform business.
I’ve learned is that in the early days, what matters most is having customers who love and use your product.
Vanity metrics fail to indicate accurately whether the business is really achieving critical mass or the liquidity it needs.
where your metrics are actionable, accessible, and auditable.”
the number of happy customers on every side of the network who are repeatedly and increasingly engaged in positive, value-creating interactions.
The real question, which you should never lose sight of, is: are people happy enough with the ecosystem to continue participating in it actively?
track the strength of characteristics that enable core interactions on the platform, including liquidity, matching, and trust.
should focus on metrics that are likely to impact growth and enhanced value creation, such as the relative size of various portions of the user base, the lifetime value of producers
and consumers, and the sales conversion rate.
seismic
upheavals
fluky
After World War Two, Japanese upstarts required three decades to seize leadership roles in auto making and electronics from industry leaders in the U.S.
including the strategic insights of CEO Jack Ma, the explosive growth of China’s middle class, and, yes, government-imposed restrictions on foreign companies operating in China, which gave Alibaba a bit of space to grow without being crushed by American competitors.
Explosive network effects and strong economies of scale enabled this relatively new company to expand so rapidly on the stage of international commerce.
Today, a platform business like Alibaba can assemble the capabilities of dozens of preexisting entities and swiftly become a contender for the title of merchant to the world.
The goal of strategy is to control these five forces in such a way as to build a moat around the business and thereby render it unassailable.
Advantage is found in industry structures that create a protective moat—one that enables the firm to segment markets, differentiate products, control resources, avoid price wars, and defend its profit margins.
guide their decisions about which markets to enter and exit, what mergers or acquisitions to consider, what sorts of product innovation to pursue, and what supply chain strategies to employ.
The resource-based view highlights the fact that a particularly effective barrier to entry is control of an indispensable and inimitable resource. A firm with such a resource is safe from new entrants who lack and cannot acquire means to produce it. A simple example is De Beers, whose control of a worldwide diamond marketing cartel enabled it to maintain a near-monopoly over the diamond industry for the entire twentieth century.
nimble
Drucker’s dictum that the purpose of business is “to create a customer.”
can now intentionally manipulate network effects to remake markets, not just respond to them.
platform businesses often grow the pie
or create an alternative pie that taps new markets and sources of supply
platforms turn businesses inside out, moving managerial influence from inside to outside the firm’s boundaries.
opportunities while helping ecosystem partners seize the others, with all partners sharing the value they jointly create.13
Within the ecosystem, the lead firm negotiates dynamic tradeoffs involving competition at three levels: platform against platform, platform against partner, and partner against partner.
Apple has subsequently enjoyed far great financial success than Sony, thanks in large part to the size and value of its ecosystem.
This is a delicate and dangerous move. It can strengthen the platform, but at the expense of weakening partners—a short-term gain that can lead to painful long-term consequences.
two unrelated platform partners compete for positions within the platform ecosystem, as when two game app developers strive to attract the same consumers on the same console.
The shifting horizons of managerial influence now make competition less significant for strategists than collaboration and co-creation—or, as scholars Barry J. Nalebuff, Adam M. Brandenburger, and Agus Maulana call it, “co-opetition.”
winning strategy blurs the boundaries among market participants, thereby increasing valuable interactions on the platform.
These new factors help determine who participates in a platform ecosystem, the value they help to create, who controls that value, and ultimately the size of the market.
Multihoming occurs when users engage in similar types of interactions on more than one platform.
Platform businesses seek to discourage multihoming, since it facilitates switching—when a user abandons one platform in favor of another. Limiting multihoming is a cardinal competitive tactic for platforms.
Adobe had designed Flash developer tools to allow content and program porting from Apple iOS to Google Android and to web pages more generally.
Apple had supported Flash, it would have granted users access to enormous amounts of Flash content already on the web while giving developers more ways to monetize their investments by multihoming across platforms.18 But it would have been a big loss for Apple.
The company’s “great explosion” in network effects didn’t occur until it devised a policy requiring every employee to find and list 20,000 items for sale by some person or merchant. The resulting increase in product listings generated two-sided demand.
created technological barriers that prevented Baidu from searching their website.
Doing this at a time when Alibaba was desperate for shoppers must have seemed a bit crazy. But Alibaba’s leaders were playing a long-term strategic game. They had their eye not just on the shopping interactions that would take place on their platform but on the potential to monetize the platform by selling advertising.
They were determined to retain control of the community of would-be shoppers that they were gradually building on Alibaba—so that Alibaba alone would be able to sell ads aimed at those shoppers.
Platform managers can build their businesses by, first, giving partners frictionless opportunities to innovate, then capturing some or all of the value created by acquisition or duplication.
This tells developers where they can build, giving them up to two years of lead time before they face competition from SAP itself, and prevents developers from wasting time and resources developing a site for SAP users only to find its work undermined by the arrival of SAP’s own bulldozers.
