Applico at the 2014 MIT Platform Strategy Summit

Applico was out in full force this Friday at the MIT Platform Strategy Summit. The event featured a collection of the leading academic and business minds on platform strategy, including Android founder Rich Miner and Alibaba’s Chief Strategy Officer, Ming Zeng.

The day kicked off with a presentation from John Hagel, author of the The Power of Pull, on how old “push” based business models are being over taken platforms that harness the power of pull.

Push businesses focus on efficient planning in order to forecast what resources they will need in the future. These businesses have progressed by trying to squeeze their supply chains for every last drop of efficiency, but even the best-laid plans won’t be able to predict an unknowable future. Enter the platform, John Hagel says, which creates systems that harness the power of pull to offer on-demand goods and services. Say goodbye to deadweight inventory and say hello to scalable, on-demand ecosystems.

Next up, Jose Fuentes, cofounder of language learning and translation platform Duolingo, talked about how platforms are changing education. One of the biggest changes was mobile, Fuentes said. While Duolingo had originally expected to be primarily a web app, once it released an iOS app Duolingo was getting 50% of its traffic from mobile within a few weeks.

Asked about the future of education, Fuentes said that it wasn’t so much in video and online lectures as many have suggested. Instead, the future of digital education is in platforms that build systems that you can interact with and that motivate you to keep learning.

Finishing up the morning, we heard from Eileen Gittins, Founder, President and CEO of publishing platform Blurb. Gittins talked about the changing publishing landscape, where platforms from Blurb to iTunes and Amazon are rapidly changing a long-stagnant industry. Even up against these tech-industry giants, Blurb is holding it’s own, as it now does nearly $100m in annual revenue with 3mm authors worldwide.

“If you’re not going to play like a platform, then you deserve to be shoved off the field.”

After a brief lunch break, the afternoon session kicked off with a presentation from Peter Coffee, VP for Strategic Research at Salesforce. Coffee started off talking about the impact of the cloud. When asked about “how to monetize the cloud,” his response was, “Do you think of Hilton as monetizing toilets?” The cloud wasn’t something you monetized – it was just a piece of the puzzle in solving a problem as effectively as possible.

Next Coffee turned his attention to mobile, speaking to the impacts of always-on connectivity. “People who are connected all the time behave differently than people are connected only episodically,” he said. And today the Internet is no longer something you turn on or off. Instead it’s just the context we live in – today, “saying you do something on the Internet is just like saying you’re doing something on planet Earth,” he said.

Moving on to platforms, Coffee was clear: “if you’re not going to play like a platform, then you deserve to be shoved off the field.” Still, you need to keep your platform in the proper context in order to succeed. “It’s not what products or services you sell but what problem you solve” that determines success, he said.

The conference then shifted to wearables with a presentation from Jawbone’s Andrew Rosenthal. Rosenthal talked about how to create behavior change – the holy grail for successful companies. “Platforms always win at behavior change,” Rosenthal said. Platforms can bring together the combination of people, data and technology that can deliver the right information at the right time in order to influence behavior. And for Jawbone, the goal is to encourage healthy behavior through its platform by enabling solutions in everything from getting better sleep to figuring out when to walk your dog. “Health is what happens between doctors visits,” Rosenthal said.

Capping off the afternoon session, we heard from Android co-founder Rich Miner in conversation with economist and conference organizer Marshall Van Alstyne. Miner talked about the tradeoffs between a platform being open or closed, using smartphones as context. Despite Android’s reputed openness, Miner noted that certain things are very hard to do in an open manner. Google still controls each release of Android, for example, and it has reasserted control over some of the core components of Android by bringing them into Google Play Services.

“There’s no openness between two competing platforms.”

Finally, we had the keynote presentation of the day from Ming Zeng, Chief Strategy Officer at Chinese platform giant Alibaba. Zeng started off by warning about the difficulty of trying to create a platform from scratch. “Most successful platforms evolved from a very strong product that has profound customer value,” Zeng said. And even then building a platform was difficult. “It takes three years for a platform to take shape, five years to get initial traction and eight years to hit critical mass at scale”, he said.

There’s danger in the shift from product to platform as well, since moving toward a platform means shifting your focus form running a tangible business to running an intangible virtual ecosystem. In order to succeed, Zeng said, “your whole organization has to change, in mindset, in culture and in core competencies.” The key thing is to not lose the focus on the customer while doing this, as your ecosystem will only prosper if it delivers more value to customers than existing solutions.

Zeng also noted that the challenge of building a platform came from having to try to manage systems that were beyond your control. Unlike an industrial-age business with systems that were usually well defined and carefully planned, platforms deal with social ecosystems that take on a life of their own. This challenge meant that contrary to what had been said in an earlier panel, open platforms don’t always win. “The more open you go the more difficult it is to manage the platform, and value may become too thin,” Zeng said.

As a result, openness isn’t something a platform should take for granted but a capability it has to build toward. And in some cases, openness is the wrong way to go. “There’s no openness between two competing platforms,” Zeng said, comparing inter-platform competition to a fight between warring nations.

As an example, he cited Alibaba’s choice not to allow Baidu, the largest Chinese search engine, to crawl Alibaba’s product pages. At the time, Baidu was much larger than Alibaba was, so the choice was very risky. But it paid off big time.

As a result of this decision, Alibaba – and not Baidu – became the place where consumers go to shop online in China. Contrast this situation with what we have in the U.S., for example, where many people still search for products on Google instead of looking for it directly on a site like Amazon. And since product search is by far one of the most valuable search verticals, the move has paid huge dividends for Alibaba. “That’s why our valuation is much higher than Baidu’s now,” Zheng said.

The last question of the day went to our very own CEO Alex Moazed, who asked Zeng how a platform that controlled a market differed from traditional industrial monopolies. Zeng responded that the question still required more research to be answered conclusively. However, he noted that a fundamental difference between a platform and an industrial monopoly is that a platform coevolves with its ecosystem and has a symbiotic relationship with its members. “You can’t cull out something called a platform from the ecosystem itself,” Zheng said – without one the other doesn’t exist.

Filed under: Applico in the Press, Platform Innovation | Topics: Alibaba, android, platform economics, Platform Startup Advisory, platforms, Wearables