Apr 9th 2016

Here’s the advantage that keeps Silicon Valley ahead of the world

A trait shared by the fastest growing and most disruptive companies in history — Google, Amazon, Uber, AirBnb, and eBay—is that they aren’t focused on selling products, they are building platforms. The ability to leverage the network effects of a platform is something that the technology industry learned long ago — and perfected. It is what gives Silicon Valley an unfair advantage over competitors in every industry; something that is becoming increasingly important as all information becomes digitized.

A platform isn’t a new concept, it is simply a way of building something that is open, inclusive, and has a strategic focus. Think of the difference between a roadside store and a shopping center. The mall has many advantages in size and scale and every store benefits from the marketing and promotion done by others. They share infrastructure and costs. The mall owner could have tried to have it all by building one big store, but it would have missed out on the opportunities to collect rent from everyone and benefit from the diverse crowds that the tenants attract.

Apple learned this the hard way in the 1980s when it created the first versions of the Macintosh. It built its own proprietary, closed, hardware, operating system, and applications. Bill Gates, on the other hand, realized that key to power and profit was the operating system and a thriving ecosystem. He designed Microsoft Windows as an open system in which other players could provide the hardware and software. The more programs that ran on Windows, the more users wanted it, and therefore more developers created applications. Windows became a near monopoly the 90s—while Apple came close to bankruptcy.

Fortunately for Apple, by 2007, Steve Jobs had figured out Microsoft’s advantage. He built the iPhone App Store and iTunes as open platforms on which other players could provide content. The top five mobile phone carriers—Nokia, Samsung, Motorola, Sony Ericsson, and LG—had owned 90 percent of the industry’s profits. Yet Apple was able to leap ahead and capture literally all of this.

The power of platforms is explained in a new book, Platform Revolution: How Networked Markets are Transforming the Economy and How to Make Them Work for You, by Geoffrey Parker, Marshall Van Alstyne, and Sangeet Choudary. The authors show how platform businesses bring together producers and consumers in high-value exchanges in which the chief assets are information and interactions. These interactions are the creators of value, the sources of competitive advantage.

Apple was able to connect app developers with app users in a market in which both sides gained value and paid it a tax. As the number of developers increased so did the number of users. This created the “network effect” — a process in which the value snowballs as more production attracts more consumption and more consumption leads to more production.

Just as malls have linked consumers and merchants, newspapers have long linked subscribers and advertisers. What has changed is that technology has reduced the need to own infrastructure and assets and made it significantly cheaper to build and scale digital platforms.

Traditional businesses, called “pipelines” by Parker, Van Alstyne, and Choudary, create value by controlling a linear series of processes. The inputs at one end of the value chain, materials provided by suppliers, undergo a series of transformations to make them worth more. Apple’s handset business was a classic pipeline, but when combined with the App Store, the marketplace that connects developers with users, it became a platform. As a platform it grew exponentially because of the network effects.

The authors say that the move from pipeline to platform involves three key shifts:

  1. From resource control to orchestration. In the pipeline world, the key assets are tangible — such as mines and real estate. With platforms, the value is in the intellectual property and community. The network generates the ideas and data — the most valuable of all assets in the digital economy.
  2. From internal optimization to external interaction. Pipeline businesses achieve efficiency by optimizing labor and processes. With platforms, the key is to facilitate greater interactions between producers and consumers. To improve effectiveness and efficiency, you must optimize the ecosystem itself.
  3. Value the ecosystem rather than the individual. Rather than focusing on the value of a single customer as traditional businesses do, in the platform world it is all about expanding the total value of an expanding ecosystem in a circular, iterative, and feedback-driven process. This means that the metrics for measuring success must themselves change.

Companies such as Walmart, Nike, John Deere, and GE are working towards building platforms in their industries. John Deere, for example wants to be a hub for agricultural products. But not every industry is ripe for platforms because the underlying technologies and regulations may not be there yet.

In a paper in Harvard Business Review, Kellogg School of Management professor Robert Wolcott illustrates the problems that Netflix founder Reed Hastings had in 1997 in building a platform. Hastings had always wanted to provide on-demand video, but the technology infrastructure just wasn’t there when he needed it. So he started by building a DVDs-by-mail business — while he plotted a long-term strategy for today’s platform. According to Wolcott, Uber has a strategic intent of providing self-driving cars, but while the technology evolves it is managing with human drivers. It has built a platform that enables rapid evolution as technologies, consumer behaviors, and regulations change.

Building platforms requires a vision, but does not require predicting the future. What you need is to understand the opportunity to build the mall instead of the store and be flexible in how you get there.

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Vivek Wadhwa is a Fellow at Arthur & Toni Rembe Rock Center for Corporate Governance, Stanford University; Director of Research at the Center for Entrepreneurship and Research Commercialization at the Pratt School of Engineering,  Duke University; and Distinguished Fellow at Singularity University. He is author of  “The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent”—which was named by The Economist as a Book of the Year of 2012, and ” Innovating Women: The Changing Face of Technology”—which documents the struggles and triumphs of women.  In 2012, the U.S. Government awarded Wadhwa distinguished recognition as an  “Outstanding American by Choice”— for his “commitment to this country and to the common civic values that unite us as Americans”. He was also named by Foreign Policy Magazine as Top 100 Global Thinker in 2012. In 2013, TIME Magazine listed him as one of The 40 Most Influential Minds in Tech.

Wadhwa oversees research at Singularity University, which educates a select group of leaders about the exponentially advancing technologies that are soon going to change our world.  These advances—in fields such as robotics, A.I., computing, synthetic biology, 3D printing, medicine, and nanomaterials—are making it possible for small teams to do what was once possible only for governments and large corporations to do: solve the grand challenges in education, water, food, shelter, health, and security.

In his roles at Stanford and  Duke, Wadhwa lectures in class on subjects such as entrepreneurship and public policy, helps prepare students for the real world, and leads groundbreaking research projects.  He is an advisor to several governments; mentors entrepreneurs; and is a regular columnist for The Washington Post, Wall Street Journal Accelerators, LinkedIn Influencers blog, Forbes, and the American Society of Engineering Education’s Prism magazine.  Prior to joining academia in 2005, Wadhwa founded two software companies.




  

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Jul 31st 2020
EXTRACT: "From a Kantian standpoint discrimination based on race – or religion, or gender – is fundamentally wrong. It is wrong, first of all, because it is dehumanizing, a denial of human dignity. When I racially discriminate, I am denying the person’s intrinsic self-worth, I am, in fact, denying their very right to exist, whether I know it or not. The moral law demands that I treat every individual as a free person equal to everyone else. If the moral law grants each of us a kind of infinite worth, it does not grant someone greater worth than anyone else."
Jul 12th 2020
EXTRACT: "Remember, your wellbeing is extremely important when supporting someone with depression. Take time for self-care so you can model positive behaviours and be replenished enough to provide this crucial support."
Jul 4th 2020
EXTRACT: "--- Nobody is more dangerous than he who imagines himself pure in heart, for his purity, by definition, is unassailable. --- Author James Baldwin’s words, written in the America of the late 1950s."
Jun 29th 2020
EXTRACT: "Numerous studies have shown that children who grow up in more deprived neighbourhoods tend to have worse physical health as adults compared to those raised in more affluent areas. This is the case even when researchers take into account family income and education, and whether or not parents have major illnesses. In order to address this health disparity, researchers need to understand how those living in disadvantaged neighbourhoods end up with worse health outcomes. Our team’s latest study has highlighted one potential way your childhood neighbourhood may influence your health for years to come. It might do so through changing how the activity of your genes is regulated."
Jun 29th 2020
EXTRACT: "Ruth Poniarski is a painter and the author of Journey of the Self: Memoir of an Artist (Warren Publishing, 2020), in which she tells the story of her decade long struggle with mental illness, a “spiraling malady” which led her into a “pattern of psychosis”. I recently had the opportunity to talk with Poniarski about her life and work, and how she eventually overcame her demons."
Jun 27th 2020
EXTRACT: "I know I’m good in a couple of things, really good in a few things, and that’s enough. My confidence is big enough that I can really let people grow next to me, it’s no problem. I need experts around me. It’s really very important that you are empathetic, that you try to understand the people around you, and that you give real support to the people around you."
Jun 27th 2020
An essay about the "the enormously influential 1940 'Head of Christ' painting by evangelical Warner E. Sallman" pictured below.
Jun 17th 2020
EXTRACT: "The diverse, non-human life forms that live in our guts – known as our microbiome – are crucial to our health. A disrupted balance of these contribute to a range of disorders and diseases, including obesity, diabetes, inflammatory bowel disease. It could even affect our mental health..... It’s well known that the microbes living in our guts are altered through diet. For example, including dietary fibre and dairy products in our diets encourages the growth of beneficial bacteria. But mounting evidence suggests that exercise can also modify the types of bacteria that reside within our guts."
Jun 13th 2020
EXTRACT: "Bonhoeffer’s life holds an important lesson for us today, regardless of our religious affiliation or lack thereof. And simply put it is this: you are called upon; you are called on behalf of your neighbor. When you are called to be responsible that is not an obligation which you can decline, discharge or acquit yourself of – it is an infinite responsibility, a “forever commitment” as Charles Blow recently put it. And we all must be prepared to make any sacrifice necessary when we are called."
Jun 11th 2020
EXTRACT: "People differ substantially in how much they’re affected by experiences in their lives. Some people seem to be more affected by daily stress, or the loss of someone close to them. On the other hand, some people seem to get through the same experiences relatively unscathed. Similarly, some people benefit strongly from counselling, or having a support system of close family and friends. Others seem better able to manage on their own. But understanding why some people are more sensitive than others isn’t just a question of how they were raised, and the experiences they’ve been through. In fact, previous research has found that some people in general seem more sensitive to what they experience – and some are generally less sensitive."
Jun 7th 2020
EXTRACT: " The root causes of anthropogenic climate change – which has led to the endangering of countless species across the globe – cannot be adequately grasped in isolation from the technological application of modern science. While Swedish activist Greta Thunberg was certainly justified in calling upon American legislators to “unite behind the science,” neither can we overlook the culpability of science in bringing about the environmental crisis. "
May 23rd 2020
EXTRACT: "The QAnon movement began in 2017 after someone known only as Q posted a series of conspiracy theories about Trump on the internet forum 4chan. QAnon followers believe global elites are seeking to bring down Trump, whom they see as the world’s only hope to defeat the “deep state.” OKM is part of a network of independent congregations (or ekklesia) called Home Congregations Worldwide (HCW). The organization’s spiritual adviser is Mark Taylor, a self-proclaimed “Trump Prophet” and QAnon influencer with a large social media following on Twitter and YouTube."
May 23rd 2020
EXTRACT: "The aim of my research for the Understanding Unbelief programme was to investigate the worldviews of non-believers, since little is known about the diversity of these non-religious beliefs, and what psychological functions they serve. I wanted to explore the idea that while non-believers may not hold religious beliefs, they still hold distinct ontological, epistemological and ethical beliefs about reality, and the idea that these secular beliefs and worldviews provide the non-religious with equivalent sources of meaning, or similar coping mechanisms, as the supernatural beliefs of religious individuals."
May 22nd 2020
EXTRACT: "Psalm 91, for example, reassures believers that God will protect them from “the pestilence that walketh in darkness… A thousand shall fall at thy side, and ten thousand at thy right hand; but it shall not come nigh thee”.............Luther was a devout believer but insisted that religious faith had to be joined with practical, physical defences against sickness. It was a good Christian’s duty to work to keep themselves and others safe, rather than relying solely on the protection of God. "
May 22nd 2020
EXTRACT: "Evidence from this study shows clearly that eating foods rich in flavonoids over your lifetime is significantly linked to reducing Alzheimer’s disease risk. However, their consumption will be even more beneficial alongside other lifestyle changes, such as quitting smoking, managing a healthy weight and exercising."
May 5th 2020
EXTRACT: "It’s possible that the answers to questions like, “how do I live a virtuous life?” or “how do we build a good society?” are not the same as they were a few weeks ago."
May 2nd 2020
EXTRACT: "Strangely, those with strong beliefs tend to be admired. The human mind hates uncertainty, so it is comforting to be told what to think, and to form settled opinions. But it is not rational. As the philosopher Bertrand Russell wrote: “The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.”
Apr 21st 2020
Extract: "Humans, Boccaccio seems to be saying, can think of themselves as upstanding and moral – but unawares, they may show indifference to others. We see this in the 10 storytellers themselves: They make a pact to live virtuously in their well-appointed retreats. Yet while they pamper themselves, they indulge in some stories that illustrate brutality, betrayal and exploitation. Boccaccio wanted to challenge his readers, and make them think about their responsibilities to others. “The Decameron” raises the questions: How do the rich relate to the poor during times of widespread suffering? What is the value of a life? In our own pandemic, with millions unemployed due to a virus that has killed thousands, these issues are strikingly relevant.
Apr 20th 2020
Extract: "If we do not seize this crisis as a moment for transformation, then we will have lost the war. If doing so requires reviving notions of collective guilt and responsibility – including the admittedly uncomfortable view that every one of us is infinitely responsible, then so be it; as long we do not morally cop out by blaming some group as the true bearers of sin, guilt, and God’s heavy judgment. A pandemic clarifies the nature of action: that with our every act we answer to each other. In that light, we have a duty to seize this public crisis as an opportunity to reframe our mutual responsibility to one another and the world."
Apr 16th 2020
EXTRACT: "Death is the common experience which can make all members of the human race feel their common bonds and their common humanity."