The Dynamics of Digital Platform Innovation
Mobile platforms provide numerous actors with a location for developing new revenue streams. Strategies currently used in digital platforms such as mobile operating systems and app stores can have a profound effect on value appropriation in the ecosystem. Describe three platform strategies that are prevalent in the current industry, and the effect these have on value appropriation for sellers.
How do you define a platform?
What kind of platforms are there?
What types of strategies are there?
What do we mean by value appropriation?
How or who is value for?
What level of analysis are we discussing?
What happens if you have a closed / open platform?
The mobile platforms refer to hardware and software environments through which laptops, smart phones, tablets and other portable devices are used. For example, windows and Mac have been dominating the laptop world. Conversely, Android and Apple have been dominating smart phones and tablets. More so, the Window Phone have been gaining market share while Blackberry continues to strive in making its mark. Ultimately, mobile platforms have been allowing businesses to rapidly build, test, and deploy mobile applications for tablets, laptops, and smart phones. Providers of mobile platforms often strive to develop practices for mobile application delivery and management in order to assist in dealing with the flooding of mobile devices, data security demands, and new applications. Businesses have been either buying or building mobile application development platforms. They buy the mobile platforms from various third party products readily available in the market. Third party vendors however sell mobile platforms with features including Backend as a Service (BaaS) an Application Programming Interfaces (APIs). Other mobile platforms offer Hybrid Applications, Native, and Web development capabilities and Mobile Application Management (MAM) tools crucial in deploying and securing applications (Carliss, & Jason, 2008).
The mobile ecosystem has been experiencing transitions in platform leadership from network operators to suppliers of operating systems. This has ensured platform providers in each system exert effort in order to attract partners and shareholders for generativity and profitability. Consequently, middlemen have been arising in various economic and social situations relating to the nature of supply chains in the networked global economy. Individuals within a trade network occupying middlemen positions often interrupt operations and information flows. As a result, they have the power due to their positions implying that they can command a larger share of the gains from trade under their control. Retreating from a trade chain and immobilizing platforms they provide allows middlemen to disrupt relations between consumers under consideration. This also gives them a high bargaining power in comparison with other users (Benjamin, 2012).
Middlemen therefore occupy a position in the network giving them the ability to levy high access and trading fees in the market. This has been observed in various high profits including Google and Facebook. The two platforms are regarded as potentially extremely profitable as they control vast amounts of information about people participating in their online environments. Ultimately, mobile platforms are provided by people and firms facilitating development of value generating interaction environments by targeting the users (Ghazawneh, & Mansour, 2015).
There are three major types of mobile platforms to be compared. They are namely, software, application, and communication software. Distinguishing them based on their origins and purposes is vital as it provides valuable insights into competitive dynamics. They can also be compared based on the terms of adoption. Software platforms such as Symbian Brew purpose at sharing software development costs and risks. The device makers are their primary audience.
Define what a seller / buyer is. Application platforms such as Android, iOS, and Windows Phones purpose at connecting application developers and users hence, developers being their primary targets. Their network effects are developed by users to developers as well as users to users and developers to developers. Lastly communication platforms such as telephones, faxes, and Blackberry Messenger purpose to facilitate communication among users. Their main targets are therefore users with network effects being developed by users to users (Markus, 2014).
There are diverse kinds of mobile platforms which can be either two-sided interaction platforms or multisided platforms. Mobile platforms are also either open or closed. Open platforms give computers a relatively opportunity to achieve dominance as they can be licensed and run on hardware. Thus, they provide software vendors with an opportunity to offer codes to a variety of hardware makers. Conversely, closed platforms strive to demolish and gain grounds as they are mainly companies allowing the software only on their own hardware. Open platforms include Windows 8, Windows RT, Windows Phone 8 and Android while closed platforms include Blackberry, IBM BIOS, and iPhones (West, 2003).
They mainly refer to mobile platforms considered to be market organizations facilitating confrontations of marketplace demand and supply. It is assumed that, the providers of two sided platforms charge usage fees for market auctioneering services they offer. Mobile platforms being organizations primarily creating value therefore enable two sided platforms to directly interact with distinct types of affiliated customers. For example, a middleman can be appointed to provide a platform mutually benefitting two users. This example however, assumes the users cannot interact directly as they have to rely on intermediation of middlemen. As a result, middlemen exert power by controlling virtue of the network position. It has often resulted in middlemen exploiting control of the platforms in order to achieve personalized or individual benefits (Holzer, & Ondrus, 2011).
This has prompted the middlemen to be interpreted as market makers without necessarily providing platforms regarded as market places. An example of a two sided mobile platform involves a situation through which the landlord controlling a public house provides a place for social interactions to occur. The social interactions can also be economic in nature as they can facilitate creation of gains. As a result, the landlord expects to gain shares from the interactions through sale of the platform. Providers of two sided platforms therefore exert position powers fully in order to extract monopoly profits from interactions occurring through the platform. The providers however, also acknowledge they have to compete with middlemen. For a long period of time, the competition has resulted to usage fees being reduced to subsidiary price tag levels. The global economy however indicates that usage fees still remain relatively high based on observations from platform competition levels as pricing is affected by how users move between diverse platforms. Currently, mobile platform consumers have been shifting all or some of their usages from one mobile platform to a new or different one. As a result, the two sided interactions have developed the notion of contestability encompassing basic features of platform competition which has been reducing transfer fees to a minimum (Henning, Claus, & Kay, 2012).
2.2 Multisided Platforms
Conversely, multisided platforms refer to software identifying, meeting, and fulfilling the needs of interdependent constituents. These include eBay, Microsoft Windows, PC makers, PC users, Rakuten, Amazon, Alibaba, and Google. Multisided platforms have therefore existed for a long period of time. Their prominence however has been soaring in recent times due to information technologies increasing opportunities to build larger as well as more powerful and valuable platforms. More so, potential scope of the platforms has been expanding allowing technology to increase the number and complexities of economic and technical factors driving strategic designs of multisided platforms. These mobile platforms have to determine or decide relevant groups of users and the essential services to perform. This is critical in settling on the accomplishment of the mobile platforms before they are either launched or/and priced (Holzer, & Ondrus, 2011).
In recent times, the term app store has been applied by mobile markets mediating between mobile application developers and mobile device users in exchanging software. Mobile network operators have therefore been running markets allowing exchange of software. For example, Apple set up a successful market by introducing the iphone App Store. Apple and Google are therefore regarded as parties owning the most successful mobile platforms pursuing different business models. Apple has been offering vertically integrated closed systems selling mobile devices with proprietary operating systems while running the app store. Conversely, Google has not been focusing on selling mobile devices. Instead, it has been offering free to license operating system which is an accessible open source. Apple and Google have been closely cooperating with device manufacturers including Samsung in order to diffuse new versions of the operating systems. For example, Google has recently acquired Motorola indicating that it is changing its strategies by capturing value by offering advertised online services. Conversely, Apple has been generating value through sale of handsets with the app store still operational (Henning, Claus, & Kay, 2012).
Consumers’ valuations of mobile platforms depend on the integer of apps and developers. This is because users often join a mobile platform if the developer provides diverse applications. Conversely, developers join a mobile platform targeting many users. Platform vendors therefore use price levels of each group as a strategic tool to attract developers and users. App stores and mobile platforms are therefore two-sided markets. Materialization of operating system centric platforms has enabled app stores to examine contexts of mobile device ecosystem. The mobile ecosystem comprises of a combination of hardware, app store, and operating system to build up a mobile platform. In order to decide whether to join a mobile ecosystem, a concurrent decision for mobile hardware, operating system, and services to be provided by the app store has to be determined. To ensure the mobile device is beneficial for the user without relying on the app store, smart phones are applied as they can provide more functionalities than standard phones (Cusumano, 2010).
Software can be developed to execute its functions on one operating system. Thus, the software is neither transferable nor usable for other operating system without carrying out substantial changes. The changes however can render the software irrelevant, hence, it cannot be provided in an app store. The process of providing software on more than one app store for the same operating system is therefore possible although it requires developers to decide the specific mobile platform to use. As a result, owners or developers have to determine, join, and reimburse a one-time registration charge to the vendor of the mobile platform (Ghazawneh, & Mansour, 2015). For example, developers who opt to rely on Google have to pay twenty-five dollars as the registration fee. Conversely, they can opt to pay Apple a registration fee amounting to ninety-nine dollars. They however also incur indirect costs in order to become familiar with the platforms’ software development kits. Hardware and software expenses for expansion purposes are also sustained by the developers. Fulfilling these requirements allows developers to offer software in an app store. During such scenarios, the software is uploaded, complemented by a name, description, and price. The price however has to be either equal to or greater than zero in order for a transaction to occur when users buy the app (Henning, Claus, & Kay, 2012).
Consequently, developers have to decide how to generate money from consumers. Some developers opt to charge for the app which allows users and developers to exchange money directly. The app store however charges a thirty percent fee for the transaction to complete successfully. Others decide to sell additional services within the app. These developers also incur a thirty percent fee charged by the app store in order for them to receive money directly from the users. The thirty percent fee according to Google is utilized in payment of transactional costs such as billing settlement overheads. Lastly, developers can opt to advertise inside the apps. Recently, mobile device users have been spending money for additional services while using an app (Henning, Claus, & Kay, 2012).
Mobile ecosystem has been experiencing transition in platform leadership from network operators to mobile operating system providers. The providers have been exerting effort to attract other firm for generativity and profitability through value appropriation. Value appropriation therefore refers to the pressure to generate and share revenue through mobile ecosystem while offering wide portfolio of services through attractive and innovative revenue sharing models. With regard to application platforms, the value refer is determined by the app developers. The app developers claim they do not receive fair share and press reports as substantial number of disputes in regard to sharing between app developers and platform providers (Ghazawneh, & Mansour, 2015).
Companies starting off with multisided platforms have been striving to expand them. Consequently, mobile platforms have been evolving into duopoly which has led Google and Apple to be identified as the main beneficiaries. The strategy of establishing a duopoly as witnessed in the case of Google and Apple has enabled them to account for over ninety percent of smart phone sales across the globe. For example, Google’s business targets internet and data. As a result, it has been attracting at least fifty percent of unique web users. Consequently, it has been attracting at least sixty-five percent of search queries on a global level. Android has been the most important route to Google’s entry into mobile platforms (Ghazawneh, & Mansour, 2015). As a result, Android has been accounting for almost eighty percent of smart phone sales worldwide. The prices have been ranging between one hundred and fifty and three hundred dollars. Conversely, Apple’s business has been sale of devices including iphones. Currently, Apple’s iphone sales have been accounting for almost fifty percent of the total revenues despite the market share in smart phone sales being lower than Android. This is due to fact that Android has been playing a major role of occupying high end prompting iphone prices to remain at around six hundred dollars over successive versions of the device (Marcus, 2014).
This strategy has also applied in developed markets as it can be challenging to change them given that penetration of smart phones has been advancing. More so, aspects manipulating platform success levels have been largely self-enforcing. The duopoly strategy has therefore been largely built in mature markets especially in United States, Europe, and Asia. Mobile platforms have been occupying diverse assortments of handset value continuum. Their individual success levels have been traced to key factors influencing how the mobile platforms are reached, supported by developers when driving content availability, and locked in mechanisms driving cross-use of diverse services under their control (Martin, & Bryan, 2011).
The diverse cross-use services under control of mobile platforms include internet searches, maps, emails, and music downloads. The distribution, marketing, and subsidy support from mobile operators as well as adoption by handset manufacturers are also factors that have been influencing successes achieved through mobile platforms. In the past five years, people have been speedily adopting smart phones in the mobile platform markets. This has ensured at least fifty percent of people using smart phones penetrate the mobile platforms. A competitive dynamic has developed which has been shifting from acquisition of new smart phone users to retention of those already in existence. Ultimately, this strategy has been applied by drivers of mobile platforms in ensuring they can be reached as it is a self-enforcing approach (Tim, Barbara, Corina, & Byran, 2014).
Mobile platforms consist of core technologies and services ranging in modules and components integrated. The core is often stable with components varying over time based on how the technology is changing and consumer demand levels. When a core technology is opened in order to be built on by other firms, the owner of the mobile platform can enable external innovation. The innovation is vital as it can help in creation of value around the mobile platform itself. External innovation has therefore been applied for the last five years in ensuring mobile ecosystems continue to rise. Mobile platforms have been at the centre of multiple parties utilizing and transacting over mobile ecosystems. Consequently, developers or owners, content providers, mobile operators, device makers, and consumers have emerged. They have been guarantying each mobile platform is viewed as micro-economy. Thus, the centre of gravity has been ranging from consumer-led consumption and supply of apps in addition to content by developers and other service providers (Sun, Shirley, & Byron, 2015).
For example, two sided mobile platforms have been facing challenges associated with lack of enough value on one side of the equation in order to attract the other side. As a result, mobile platform owners have had to commence designing platform structures and rules attracting necessary user groups participating in the market. Thus, mobile platform owners have had to either subsidise or increase the incentives on one side of the market to participate and attract the other side. This process however has prompted mobile platform owners to monetise them. For example, Apple has been charging mobile platform developers a thirty percent commission on apps and content available on its app store. It has also been consenting end users to access the app store for free. Conversely, Google and Microsoft have been adopting approaches such as those applied by eBay in successfully running e-commerce in order to allow consumers to use services for free. They however have been charging sellers for subscription and listing among other fees (Eisenmann, Parker, & Van-Alstyne, 2006).
Reliance of external innovation has therefore been forcing mobile platform owners to determine how they should be open. They have had to maintain key intellectual property assets allowing them to extract acceptable share of profits from the mobile platform ecosystem. The owners however have to balance the profit motive with the need to identify, draw, and attract firms that can benefit from the platform hence, incentivise them to participate. The strategy of monetising mobile platforms has also developed constant tension in determining what to make open and available. For example, source code, APIs, and SDKs. The owners of the mobile platforms also have to determine what to keep proprietary and closed (Henning, Claus, & Kay, 2012).
For instance, Google has been pursuing a strategy of relative ingenuousness with Android. This has been attracting developers with large audience reach through the proprietary app store known as Google Play. It has also been attracting developers as it is considered to be relatively clean with a standardised development environment. Google’s business model is therefore based on digital advertising without necessarily relying on the monetising Android. Apple’s integrated platform of operating system, hardware, and app store on the other hand has continued to be closed and under tight control. This has led Apple to achieve a lower reach with a higher end consumer base hence, enabling developers and suppliers of content to easily monetise its products and services (Tim, Barbara, Corina, & Byran, 2014).
The context of up-and-coming markets has resulted to mobile platform wars. Across United States, Asia, and Europe, penetration of smart phones has been rated above fifty percent. The process is unremitting hence; it is expected to augment inexorably. The increase will be accompanied with evolution from voice to data centric communications. Heavy operator subsidies and lock in mechanisms have been employed by mobile platform owners during transition from voice to data centric communications. This strategy has also been deployed by emerging markets allowing penetration of smart phones as the devices are firmly owned by minorities despite their prices declining. The share of handset sales with regards to smart phones across emerging markets is rated above forty percent. There is a twenty percent increase since 2008 as it was rated at ten percent. The sales however can take time to distil down into actual human user base due to the one to three years taken to complete a handset replacement cycle (Tim, Barbara, Corina, & Byran, 2014).
More so, the sales have been failing to capture the large number of handsets located across developing nations. Most of the handsets are acquired through second hand and hand me down markets. The actual human user base therefore has been the more indicative measure in determining how the devices are currently being circulated coupled with range of functionality consumers have at their disposal. The sales of smart phones are expected to continue rise surpassing sales recorded in 2014 among developing nations. They are however not expected to reach parity in number of persons owning them for several years in the future. Mobile platform owners are therefore determined in ensuring consumers are not deterred from accessing mobile data and mobile internet. They are striving to ensure producers of smart phones to enhance the devices range of functionality, quality of user interface, route to a content ecosystem, and range of apps. This will guarantee penetration of mobile data exceeds that of smart phones to underline the latent demand for access to mobile internet (Tim, Barbara, Corina, & Byran, 2014).
The last strategy being applied by owners of mobile platforms involves the fact that relevance of local content has been on the rise. Internet is international although the process of utilizing the content is locally based. In the past, user generated content has come from North America and Europe which has ensured the markets have the highest internet penetration. Use of mobile data mainly with social media in budding markets is on the rise. Demand for localized content taking into account of language, culture and dialect has also been increasing. Digital inclusion initiatives have been surveying operator groups on barriers to take up mobile data across Asia, Africa, and Latin America. The initial feedback aggregated among twenty-three operators. This suggested availability of local content is among the highest when compared to the total cost of access and literacy. This has raised an obvious challenge around fragmentation as nations with large populations, ethnic affiliations, and multiple languages have had to create niche markets lying outside mass market appeal. They have also had to condense enticements for apps and content developers to innovate. Thus, mobile operators and internet players have had to be mindful in order to balance the aim of scale with the need to develop content relevant and applicable to local consumers (Markus, 2014).
The mobile telecommunications business has been undergoing significant changes in latest years. People, organizations, and stakeholders have therefore had to adjust strategies to suit the ever changing market environments. Consequently, business models have had to be kept flexible in order to avoid missing out on opportunities. For example, Nokia had the leading and blooming in the mobile phone industry in terms of sales, market share, and technical as well as marketing innovation. It however lost dominance in the fastest budding and most lucrative fragment of smart phones. Microsoft currently owns Nokia devices and services commerce elements. It announced massive changes in existing business models with regards to Windows phones and tablet licences in attempts to increase the market share in mobile devices. As a result, available operating system is expected to be free of charge for smart phones and tablets with less than nine-inch screen sizes. This has impelled consumers to shift to the service model. This has resulted to other major operating systems available in the industry such as Android and iOS belonging to Google and Apple respectively to acknowledge the tough antagonism. The mobile industry is therefore keen in ensuring it will not stop developing new business models and identifying strategies changing the mobile ecosystem that can be pre-programmed for the future (Ghazawneh, & Mansour, 2015).
In conclusion, the research has described mobile platforms as two sided markets. It has also identified characteristics of mobile platforms and discussed the various strategies being applied currently in the industry. Mobile operators, manufacturers of handsets, enablers and service providers should therefore ensure penetration rates of mobile platforms are relevant to pricing and service levels. Thus, mobile platform owners and developers should ensure their applications and features are relevant to users’ languages, age and gender differences, cultural norms, and geographical aspects (West, 2003).
Benjamin, D. E. (2012). The Dynamics of Digital Platform Innovation: Unfolding the Paradox of Control and Generativity in Apple’s iOS. The London School of Economics and Political Science.
Carliss, Y. B., & Jason, W. C. (2008). The Architecture of Platforms: A Unified View. Harvard Business Review.
Cusumano, M. A. (2010). Platforms and Services: Understanding the Resurgence of Apple. Communications of the ACM, 53(10), 22-24.
Eisenmann, T., Parker, G., & Van-Alstyne, M. W. (2006). Strategies for Two-sided Markets. Harvard Business Review, 84(10), 92.
Ghazawneh, A., & Mansour, O. (2015). Value Creation in Digital Application Marketplaces: A Developers’ Perspective. ICIS 2015 Proceedings, AIS Electronic Library (AISeL).
Henning, H., Claus, U., & Kay, H. (2012). Mobile Platforms as Two-sided Markets. AMCIS 2012 Proceedings Paper.
Holzer, A., & Ondrus, J. (2011). Mobile Application Market: A Developer’s Perspective. Telematics and Informatics, 28(1), 22-31.
Marcus, S. (2014). From Supply and Value Chain to Smartphone Ecosystems as Success Factors in the Mobile Telecommunications Industry. Szent István University, PhD School of Management and Business Administration Sciences.
Markus, W. J. (2014). Success Factors of Mobile Business Ecosystems From Hardware-Centric to Content and Advertising Based Business Models. Doctoral Programme in Science, Aalto University.
Martin, K., & Bryan, P. (2011). Structuring the Smartphone Industry: Is the Mobile Internet OS Platform the Key? Keskusteluaiheita Discussion Paper, 1238 (194), 1-30.
Sun, G., Shirley, G., & Byron, K. (2015). Information Technology Platform: Conceptualization and a Review of Emerging Research in the IS Discipline. Australasian Conference on Information Systems, IT-Platforms, Concept & Review.
Tim, H., Barbara, A., Corina, G., & Byran, P. (2014). Analysis: Mobile Platform Wars. GSMA Intelligence.
West, J. (2003). How Open is Open Enough? Melding Proprietary and Open Source Platform Strategies. Research Policy, 32(7), 1259-1285.