The Role Of Technological Platforms In Business Innovation And Competition

Platform as a facilitator of exchanges between consumers and developers

The concept of the technological platform (as per Gawer, 2014)

In the contemporary business world, competition and innovation are taking center stage in ways of doing business and especially in the development of new products. In fact, innovation and competition are the keys to which platforms exist. There also exist interactions between the two on the various technological platforms. The modern business architecture is built on the platform from which competition and innovation decisions are made based on their interaction with the platform (Baldwin and Woodard, 2008). The widely known technological platforms are Amazon, Apple, Google, and Facebook. On these platforms, different end uses transact and make innovations which could not have happened were it not for the platform. According to Gawer (2014), a platform is a special kind of market that facilitates exchanges between different consumers or developers in absence of which the transaction would not take place. For example, when Google started operation in 1998 I was not a platform but just a search engine. Later on, Google added more features like Gmail, Docs, Voice, Youtube, and other thus becoming a platform.

To compare the way traditional business model in the 20^th century produced two or more closely related products or services and only applied marketing to reach out to the customers, with the 21^st-century business model, we can say that it can no longer apply in the modern business world (Chesbrough, 2007). Modern business models use platforms to integrate the ever-changing world of customers and partners into their ecosystem. Today, consumers are driving the economy but not the enterprises thus consumer-driven platforms area created. Businesses are working with one another complementarity and competition exist when the forces of innovations and competition interact in the platform. Through research and development, businesses and developers are re-using components in a uniform platform because it cost less.

What is the technology platform?

Technological platforms are conceptualized in both economic and engineering design perspectives for the development of businesses and new products (Gawer 2014). In this regard, the economic perspectives explain the platform as a market that mediates between the customers and partners and how the whole system fuel competition through innovation while engineering perspective view products platforms as technological architecture (Baldwin and Woodard, 2008) on which modulation for innovation is applicable. Technology platforms are industry and economic led and seek to provide interaction between innovation and competition in the platforms. These platforms range from loose networks to committed partnership of the stakeholders. The major objective in technology platforms is to create the basis to do research and development for the organizations and developers in the platforms. The platform enables coordinate research on innovation and competition in the platform for the purpose of technological development (Björkdahl, 2009).

The importance of platforms in creating value through network effects

The economics perspective of the technology platform

This is kind of a market platform that brings customers and partners together for transactions which will not have otherwise taken place. This perspective focuses on the network effect created by the platform stakeholders. The network effect results to competition between the participants as well as cross platforms. The network effect constitutes two kinds of effects which include direct and indirect network effects. The kind of direct network effect arises when the user benefit from the technology is dependent on other users of the technology. On the other hand, the indirect network effect occurs if the benefit to users in one group is dependent on the number of users in other groups (Hagiu and Wright 2015). In this case, while direct network effects constitute demand sides economies of scale (Parker and Van Alstyne, 2005, p.149), indirect network effect constitutes demand-side economies of scope.

The economic perspective creates value by acting as a medium between the different consumers who are not close together except through the platform. The value is created when the platform is able to coordinate the groups of consumers which are affected by the use of pricing. The value created increase with an increase in customer base and indirect network effects with direct network effects being the essential character of the platform. As a result, in the platform the stakeholders are interdependent and competitiveness is created.

Assumptions of the economic perspective

Gawer, (2014) also provide for the limitations of this technology platform which include:

1. Fails to provide enough insight into the markets because the platform is fixed.
2. The assumption of taking both sides of the platform as simple consumers including the innovators. Reducing developer to passive consumers in this platform is self-inhibiting in the explanation of competitive interactions that exist.

The engineering design perspective on technology platforms

This perspective views platforms as technological architectures. Under this perspective, the platform is defined as a common structure from which various products can be produced (Muffato and Roveda, 2002). This commonality creates economies of scope in the platform where the joint production cost is less than when producing each product separately. This advantage occurs in various industrial contexts and organizations in which manufacturing platforms are shared across firms with the similar supply chain. These platforms design share common features across the organization.

Baldwin and Woodard (2008), explains that, platform architectures as having a specific technological architecture that is modular and has a core and a periphery around it. The platform architecture groups products to constitute unchanged core parts and the variable peripheral parts (p.24). The product itself is made of the stable core.

Therefore to create product innovation, the platform becomes a modular system from which the product is partitioned into modules which facilitate innovation. The importance of modularity in the system innovation is to break the complex system into simple modules of parts which can be worked on separated and are easily related to a standardized system.

Importance of system modularity in platforms

1. Reduce interdependencies that exist between the components parts of the system and hence reduce the information that the developer needs to understand while allowing for specialization in innovation
2. Modularity enables manageability of the components by reducing them to discrete components

Similarities and differences across platforms

Literature	Economic perspective	Engineering design perspective
Conceptualization	Platform as a market	Platforms as technological architecture
Perspective	Demand	Supply
Focus	Competition	Innovation
Value created through	Economies of scope in demand	Economies of scope in supply and innovation
Role	Coordinating device among buyers	Coordinating device among innovators
Empirical setting	ICT	Manufacturing and ICT

Economic and engineering perspectives of platforms

Google platform

Google platform is a digital platform. The reason to categorize it in this platform typology is that it constitutes the elements of technology platforms. To expound further on the critical elements that make Google a digital platform I will discuss the two perspectives which relate to the technology platform namely:

1. The economic perspective on the Google platform
2. The engineering design perspective on the Google platform

The economic perspective

In relation to the Google platform, Gawer definition of economic perspective can be framed as a special kind of a market where various consumers and partners transact and without it this transaction could never have happened. In this case, Google is the market where customer and other partners do their transactions, in other words, it is a medium through which these transactions are carried out.

When Google started in 1998, it was just a search engine which provided direct services to the consumers (Vise, 2007). It was not a platform for customers and partners to interact as it was one-sided without network effects that come with a platform. On the basic part of its operations, it was, in fact, dependent on other platforms like IBM and Microsoft which offered host services and operating systems. Later Google growth was exponential and had to transform from an isolated innovation into an integrated platform. Google added more features like Gmail, Docs, Voice, Youtube, and others thus becoming a digital platform. As a big internet and tech player typically build its future offerings as part of an integrated strategy to raise the overall value of its platform. As such, Google had learned from and worked with other digital giants like Amazon and Microsoft.

For the purpose of illustration, for Google to acquire the status of a platform it must have the following elements as per Gawer (2014):

1. Different consumers
2. Different partners, in this case, developers or other platforms which can compete
3. Creates value by harnessing the economies of scope in supply and demand
4. Interaction exists in forms of competition and innovation

When Google came up with various products offering to the market such as Gmail, Youtube, Docs, and more, it aimed to acquire different customers and partners who interact under a platform. It became a special market offering various services under one platform for end-users. The platform has attracted the attention of various digital innovators and developers who create complementary products and services to that of Google. When developers use Google’s Android mobile operating system (Shyam Bhati, 2013) to other complementary products and services to attract more end users, will create more innovations and competition in the platform.

In 2012 Facebook, which is a social networking platform, developed a mobile application for Facebook home based on Android which was developed by Google as a mobile operating system. Android itself is a technological platform. Facebook went ahead and positioned the application as its own innovative product in the mobile devices. Before this development, both Google and Facebook used to have a collaborative relationship. As a result, Facebook became a competitor to Google by starting to compete in one platform. Facebook also invested in other areas like social search which was the initial Google investment. This continued to intensify the competition between them. These arguments show the interactions that exist between the two tech giants through innovation and competition.

Google as a digital platform

The competition in the Google platform comes from the multiple consumer constituencies joining the platform fueled by the network effects. The value created by the Google platform is accessible by both sides of the platform. The presence of various complementary products and service bring the group of end-users and developers together, as a result, a mechanism has to exist to balance or to attract one side of the customer to the other side. Therefore, by the use of the economic approach to this problem, there exist different pricing and business models in various platform markets. From the economic perspective, Google is seen as the way through which different end-users come together and transact and without its existence, they could not have met and transact. It coordinates the consumers by creating value through pricing. The network effects namely direct and indirect network effects are considered the essential features of the platform.

The engineering design perspective

Looking at this perspective in line with the Google platform, it can be defined as a platform with common structure from which various products can be produced (Muffato and Roveda, 2002). Google is a platform from which various innovative products have been produced. It is considered as a platform where the needs of a core group of customers are met. Under this platform, various products can be produced by utilizing a standard component in the platform. This type of re-using the components creates economies of scope I production. On Google platform, economies of scope are used in innovation which is an essential element in platform-based new product development. In line with this, the economies of scope exist when the cost of producing products jointly is less than producing them separately. For instance, when Facebook own innovation, “Homescreen” for Facebook home (TechCrunch, n.d.), was created by re-using Google’s Android platform jointly, was less costly than having to create the platform itself and the product.

In other words, Google can be viewed as an ecosystem for innovations to take place (Nambisan & Sawhney2011). The network of firms created under the platform not necessarily related through buyer-supplier relationship. The firms can be attached to the platform loosely where they are provided with an ecosystem for innovation of the new product.

Google platform as an organization is view in the lens of technological architecture. The platform offers the stakeholders has structural commonality. In other words, it is viewed to have a kind of technological design that can be modulated into structures of a core and a periphery. The Google platform itself constitutes the stable core which is re-used to facilitate innovation of other products by the developers and other firms like Facebook.

The competition and innovation dynamics within the Google platform

Modularity in Google platform exists when a firm or a developer re-use one component of it as the core, to innovate or develop a new product. The developer abstracts the components which are useful in developing the new system. Today, various firms are using Google’s Android platform which is a mobile phone operating system, to develop software applications for their companies. On this platform, developers are able to get the core functionality of the android and innovate on the peripherals to come up with a new product based on the unchanged android core.

The complexity of the Google platform can be partitioned into the following peripherals and core;

1. There are individual software applications running on the Google platform. This software includes but not limited; Gmail, Youtube, Docs, Drives, and Voice. These can be taken as modules and are peripheral from the core for re-use in other product development. Therefore the developer does not have to create them from start. Individual peripherals of Google platform can further be divided into modules to innovate additional functionalities for use in another platform.
2. The core functionality to which Google platform itself constitute remains unchanged. When Facebook introduced social search which is initially the core function of Google, it manifests the stability of core module of in Google platform. Facebook re-invented the search engine from the core functionality of Google.

In an engineering design perspective, the technology architectural view in the organizational context of Google platform makes it have a modular architecture. This modulation of Google architecture facilitates in reducing complexity by breaking it into discrete components that are simple to analyze, understand and build on. These discrete components interact within Google standardized interface and architecture. For instance, by abstracting the Android operating system from the peripherals on it, the developers have manageable parts to build on for a new product.

When platforms are open for development, complementary innovations and knowledge are drawn together with their external capabilities. The abstraction also comes with independent testing of the new product.

In summary, technology design views Google platform as an organization designed with a technological architecture where developers’ innovations thrive. Through this openness for complementary innovations and reproductions, economies of scope are created. That is, there is a simulation of innovation and production in the platform by allowing users and developers modulate the system.

References

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Chesbrough, H. (2007). Business model innovation: it’s not just about technology anymore. Strategy & Leadership, 35(6), pp.12-17.

Gawer, A. (2014) Bridging differing perspectives on technological platforms: Toward an integrative framework. Research Policy, https://dx.doi.org/10.1016/j.respol.2014.03.006 xxx.

Hagiu, A. and Wright, J. (2015). Multi-sided platforms. International Journal of Industrial Organization, 43, pp.162-174.

Muffatto, M. and Roveda, M. (2002). Product architecture and platforms: a conceptual framework. International Journal of Technology Management, 24(1), p.1.

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