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IS > Session 7 > Flashcards

Session 7 Flashcards

1
Q

When is a system called a platform?

A

● The system must provide a useful function / service & allow 3rd party access.
● Products have features, platforms have communities.

Examples:
○ iTunes: get music onto iPod
○ SAP: execute ERP systems
○ Facebook: connect family, friends & acquaintances
○ Cisco Smart Grids: capture AC/DC sources, route power
○ Nike Fuel: motion capture and social benchmarking

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2
Q

A platform:

A

● Is a nexus of rules and architecture
● Is open (or closed), allowing regulated participation
● Actively promotes (positive) interactions among different partners in a multi-sided market
● Scales much faster than a pipeline business because it does not necessarily bear the costs of external production

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3
Q

Platform vs product based business model

Examples

A

● Examples of platform-based business
Facebook, Google, Spotify,​ ​Bol.com

● Examples of product based business
○ Kruidvat, L’oreal, Coca cola,
○ Linear value chain

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4
Q

Network Effects Definition

A

Network’s value to a user depends on the number of other network users

(Demand-side Economy of scale)

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5
Q

Network Effects “Value”

A

“Value” = willingness-to-pay for network participation = WTP for platform affiliation = cap on platform fees

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6
Q

Network Effects is also called:

A

Network externalities

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7
Q

Direct network effects

A

value to me depends directly on number of users (e.g., Fax machine, telephone, email, Facebook)

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8
Q

Indirect network effects

A

value to me depends on adoption of some complementary products (e.g., DVD players / DVD disks, eBook reader / content, Payment system, eBay and online auctions)

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9
Q

Supply Economy of Scale

A
  • Falling average costs
  • Monopolistic supply
  • Utilities, Semiconductors
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10
Q

Demand Economy of Scale

A
  • Value grows with volume
  • Monopolistic Demand
  • Often falling average cost
  • Operating Systems, Instant Messaging, Social Networks
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11
Q

Network effects are …

A

demand-side scale economies.

Rising network effects increase existing and prospective users’ willingness-to-pay (willingness-to-participate)

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12
Q

Supply-side scale economies are realized when…

A

firms reduce unit costs by leveraging fixed costs or experience effects.

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13
Q

demand-side and supply-side economies are conceptually distinct:

A

unit cost reductions that result from network growth should not be labeled network effects

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14
Q

Different price arrangements for platforms

Platform flows

A
  1. Transaction cut
  2. Pay for access
  3. Attention
  4. Pay for tools
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15
Q

Transaction Cut

A

● Charge a fee for facilitating transaction
● Don’t take too much (e.g. Amazon tried publisher’s rake of 70%)
● Examples: Airbnb, Etsy, eBay , iTunes, Uber

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16
Q

Pay for access

A

● Charge fee for facilitating lead generation
● Charge side that needs the other more
● Examples: OpenTable, Match.com, LinkedIn

17
Q

Attention

A

● Charge fee for similar match
● Do not clutter the transaction
● Examples: YouTube, AdWords, Facebook

18
Q

Pay for tools

A

● Charge fee for better / upgraded tools
● Basic versions often free
● Examples: Flikr, Vimeo, Pinterest, SAP, LinkedIn

19
Q

To price a platform with network effects, who gets the subsidy?

A

The side that is the stronger attractant (or that creates more value)

20
Q

Choose a price for each side, factoring in the impact on the other side’s growth and WTP

A

Subsidy side​: attract users and grow network size

Money side​: pay for the privilege of gaining access

Price-sensitivity vs. quality-sensitivity

21
Q

Goal of the right pricing

A

generate cross-side network effects

22
Q

Adjacent platforms:

A

platforms serving similar or overlapping user bases.

23
Q

Platform envelopment:

A

entry by one platform provider into another’s market

24
Q

Threats of envelopment

A
  • can afford aggressive pricing
  • installed customer base, cross-marketing
  • customer retention
25
Q

Mechanism Bundling | Efficiency Gains

A
  • Transaction and production cost savings

- Improved user experience

26
Q

Mechanism Bundling | Price Discrimination

A

Reduces heterogeneity in consumers’ aggregate valuations

27
Q

Mechanism Bundling | Strategic Advantages

A
  • Extend market power into complement market

- Protect core market by foreclosing rivals’ access to key complement

28
Q

Platform envelopment attack types

A
  1. Foreclosure attack (complements)
  2. Intermodal attack (weak substitute)
  3. Conglomeration attack (functionally unrelated)
29
Q

Foreclosure attack (complements)

A

● With a foreclosure attack, the platforms are complements. If envelopment reduces the appeal of a standalone provider’s crucial complement, the attacker may strengthen its position vis-à-vis rivals in its core market.
● Example: Microsoft bundling Media Player with its Windows operating system.

30
Q

Intermodal attack (weak substitute)

A

● With an intermodal attack, the platforms are weak substitutes, and the attacker may neutralize an emerging competitive threat.
● Example: Blockbuster bundling DVD-by-mail service with store rentals.

31
Q

Conglomeration attack (functionally unrelated)

A

● A conglomeration attack means that platforms are functionally unrelated but may share common users and components. In such an attack, bundling can yield significant economies of scope.
● Example: Apple iPhone bundling smartphone with iPod.

32
Q

Defence against platform envelopment

A
  • Match bundle
  • Find a “big brother” via merger or alliance
  • Cede and redeploy
  • Sue
33
Q

Effects of Mechanism Bundling

A
  1. Efficieny Gains
  2. Price Discrimination
  3. Strategic Advantages
34
Q

Foreclosure attack

A

The platforms are complements

35
Q

Intermodal attack

A

The platforms are weak compliments

36
Q

Conglomeration attack

A

The platforms are functionally unrelated

IS (12 decks)

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