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.

For Vivek Wadhwa's site, please click here.

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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.


Browse articles by author

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May 1st 2021
EXTRACT: " The sad reality is that the Mizrahim (Jews of Middle Eastern and North African descent) were discriminated against from the day of Israel’s inception, whose Ashkenazi (European Jewish) leaders viewed them as intellectually inferior, “backward,” and “too Arab,” and treated them as such, largely because the Ashkenazim agenda was to maintain their upper-class status while controlling the levers of power, which remain prevalent to this day." ..... " The greatest heartbreaking outcome is that for yet another generation of Israelis, growing up in these debilitating conditions has a direct effect on their cognitive development. A 2015 study published in Nature Neuroscience found that “family income is significantly correlated with children’s brain size…increases in income were associated with the greatest increases in brain surface area among the poorest children.” "
Apr 25th 2021
EXTRACT: "We all owe Farah Nabulsi an enormous debt of gratitude. In a short 24-minute film, The Present, she has exposed the oppressive indecency of the Israeli occupation while telling the deeply moving story of a Palestinian family. What is especially exciting is that after winning awards at a number of international film festivals​, Ms. Nabulsi has been nominated for an Academy Award for this remarkable work of art. " 
Apr 25th 2021
EXTRACT: "When I crashed to the floor of my home in Bordeaux recently after two months of Covid-19 dizziness, I was annoyed. The next day I collapsed again. Now I was worried. What I didn’t know was that my brain was sloshing around inside my skull, causing a mild concussion. Nor did I know that I was in for a whole new world of weird and wonderful hallucinations."
Apr 13th 2021
EXTRACT: "Overall, our review has found that there isn’t evidence to back up the claims that veganism is good for your heart. But that is partly because there are few studies ....... But veganism may have other health benefits. Vegans have been found to have a healthier weight and lower blood glucose levels than those who consume meat and dairy. They are also less likely to develop cancer, high blood pressure and diabetes. "
Apr 8th 2021
EXTRACT: "Pollock’s universe, the universe of Mural, cannot be said to be a rational universe. Nor is it simply devoid of all sense. It is not a purely imaginary world, although in it everything is in a constant state of flux. Mural invokes one of the oldest questions of philosophy, a question going back to the Pre-Socratic philosophers Parmenides and Heraclitus – namely, whether the nature of Reality constitutes unchanging permanence or constant movement and flux. For Pollock, the only thing that is truly unchanging is change itself. The only certainty is that all is uncertain."
Apr 8th 2021
EXTRACT: "Many present day politicians appear to have psychopathic and narcissistic traits too. It’s easy to spot such leaders, because they are always authoritarian, following hardline policies. They try to subvert democracy, to reduce the freedom of the press and clamp down on dissent. They are obsessed with national prestige, and often persecute minority groups. And they are always corrupt and lacking in moral principles."
Apr 6th 2021
EXTRACT: "This has led some to claim that not just half, but perhaps nearly all advertising money is wasted, at least online. There are similar results outside of commerce. One review of field experiments in political campaigning argued “the best estimate of the effects of campaign contact and advertising on Americans’ candidates choices in general elections is zero”. Zero!"
Mar 30th 2021
EXTRACT: "The Father is an extraordinary film, from Florian Zeller’s 2012 play entitled Le Père and directed by Zeller. I’m here to tell you why it is a ‘must see’." EDITOR'S NOTE: The official trailer is attached to the review.
Mar 28th 2021
EXTRACT: "Picasso was 26 in 1907, when he completed the Demoiselles; de Kooning was 48 in 1952, when he finished Woman I.  The difference in their ages was not an accident, for studies of hundreds of painters have revealed a striking regularity - the conceptual painters who preconceive their paintings, from Raphael to Warhol, consistently make their greatest contributions earlier in their careers than experimental painters, from Rembrandt to Pollock, who paint directly, without preparatory studies."
Mar 26th 2021
EXTRACT: "Mental toughness levels are influenced by many different factors. While genetics are partly responsible, a person’s environment is also relevant. For example, both positive experiences while you’re young and mental toughness training programmes have been found to make people mentally tougher."
Mar 20th 2021

The city of Homs has been ravaged by war, leaving millions of people homeless an

Mar 20th 2021
EXTRACT: "There are two main rival models of ethics: one is based on rights, the other on duties. The rights-based model, which traces its philosophical origins to the work of John Locke in the 17th century, starts from the assumption that individuals have rights ....... According to this approach, duties are related to rights, but only in a subordinate role. My right to health implies a duty on my country to provide some healthcare services, to the best of its abilities. This is arguably the dominant interpretation when philosophers talk about rights, including human rights." ........ "Your right to get sick, or to risk getting sick, could imply a duty on others to look after you during your illness." ..... "The pre-eminence of rights in our moral compass has vindicated unacceptable levels of selfishness. It is imperative to undertake a fundamental duty not to get sick, and to do everything in our means to avoid causing others to get sick. Morally speaking, duties should come first and should not be subordinated to rights." ..... "Putting duties before rights is not a new, revolutionary idea. In fact it is one of the oldest rules in the book of ethics. Primum non nocere, or first do no harm, is the core principle in the Hippocratic Oath historically taken by doctors, widely attributed to the ancient Greek philosopher and physician Hippocrates. It is also a fundamental principle in the moral philosophy of the Roman statesman Marcus Tullius Cicero, who in De Officiis (On Duties) argues that the first task of justice is to prevent men and women from causing harm to others."
Mar 18th 2021
EXTRACT: "Several studies have recently compared the difference between antibodies produced straight after a coronavirus infection and those that can be detected six months later. The findings have been both impressive and reassuring. Although there are fewer coronavirus-specific antibodies detectable in the blood six months after infection, the antibodies that remain have undergone significant changes. …….. the “mature” antibodies were better at recognising the variants."
Mar 15th 2021
EXTRACT: "Like Shakespeare, Goya sees evil as something existing in itself – indeed, the horror of evil arises precisely from its excess. It overflows and refuses to be contained by or integrated into our categories of reason or comprehension. By its very nature, evil refuses to remain within prescribed bounds – to remain fixed, say, within an economy where evil is counterbalanced by good. Evil is always excess of evil." ....... "Nowhere is this more evident than in war. Goya offers us a profound and sustained meditation on the nature of war ........ The image of a Napoleonic soldier gazing indifferently on a man who has been summarily hanged, probably by his own belt, expresses the tragedy of war – its dehumanization of both war’s victims and victors."
Mar 14th 2021
EXTRACT: "A blockchain company has bought a piece of Banksy artwork and burnt it. But instead of destroying the value of the art, they claim to have made it more valuable, because it was sold as a piece of blockchain art. The company behind the stunt, called Injective Protocol, bought the screen print from a New York gallery. They then live-streamed its burning on the Twitter account BurntBanksy. But why would anyone buy a piece of art just to burn it? Understanding the answer requires us to delve into the tricky world of blockchain or “NFT” art."
Mar 14th 2021
EXTRACT: "Exercise is good for your health at every age – and you can reap the benefits no matter how late in life you start. But our latest research has shown another benefit of being physically active throughout life. We found that in the US, people who were more physically active as teenagers and throughout adulthood had lower healthcare costs."
Mar 10th 2021
EXTRACT: "Although around one in 14 people over 65 have Alzheimer’s disease, there’s still no cure, and no way to prevent the disease from progressing. But a recent study may bring us one step closer to preventing Alzheimer’s. The trial, which was conducted on animals, has found a specific molecule can prevent the buildup of a toxic protein known to cause Alzheimer’s in the brain."
Feb 24th 2021
EXTRACT: "The art historian George Kubler observed that scholars in the humanities “pretend to despise measurement because of its ‘scientific’ nature.” As if to illustrate his point Robert Storr, former dean of Yale’s School of Art, declared that artistic success is “completely unquantifiable.” In fact, however, artistic success can be quantified, in several ways. One of these is based on the analysis of texts produced by art scholars, and this measure can give us a systematic understanding of how changes in recent art have produced changes in the canon of art history."
Feb 24th 2021
EXTRACT: "The most politically sensitive option we looked at was the virus escaping from a laboratory. We concluded this was extremely unlikely."
Feb 16th 2021
EXTRACT: ".... these men were completely unaware that they had put their lives in the hands of doctors who not only had no intention of healing them but were committed to observing them until the final autopsy – since it was believed that an autopsy alone could scientifically confirm the study’s findings. As one researcher wrote in a 1933 letter to a colleague, “As I see, we have no further interest in these patients until they die.” ...... The unquestionable ethical failure of Tuskegee is one with which we must grapple, and of which we must never lose sight, lest we allow such moral disasters to repeat themselves. "