PLATFORM BASED COMPETION

DIGITAL BUSINESS ECOSYSTEMS

PUNCTUATED EQUILIBRIUM (GOULD S, 1982)
(MODEL OF INNOVATION)
DIGITAL
PLATFORM
4th industrial revolution

7
 Technology behind
1 2 3 4
Computing Communica- Storage
Sensor
Power tion Speed Capacity

5 6 7 8
Neuro, Bio- Nano-
3D Printing AI
technology technology

…ETC
 1 Exponential growth of computing power

Source Time Magazine 12

2 Functionality has been expanding
2 Functionality has
been expanding
3 Data storage costs become near free
4 Sensor technologies are improving fast
4 Sensors play critical roles in IoT
5 3D printing change transformation costs
Mass customization

Lead time / speed

New capabilities

Supply chain simplification

Waste reduction
3D super car by Divergent Micro Factories

3D printing = Dematerialization + Democratization = Hardware + Software

5 3D printing house < 1 day, < $10,000
6. Multi Cognitive solutions

Natural
Machine
language
learning
processing

Speech Computer
recognition vision
6 Artificial intelligence replaces humans

http://lesswrong.com/lw/hh4/the_
robots_ai_and_unemployment_ant
ifaq/

Rethink Robotics invented a $22,000 humanoid robot that competes with low-wage workers.
30
 Analyst reports are written by AIs
Automated analyst Human analyst
…The energy sector was the main contributor to …Strength in core eCommerce markets alone
relative performance, led by stock selection in justifies higher valuation and we believe several
energy equipment and services companies. In aspects of the core business are not fully
terms of individual contributors, a position in appreciated by investors. Improved mix and scale
energy equipment and services company in core eCommerce markets (US, Germany, UK,
Oceaneering International was the largest Japan) where it holds strong share positions and
contributor to returns. enjoys high customer loyalty due to Prime
Stock selection also contributed to relative results membership, a sustainable differentiator, drove
in the health care sector. Positioning in health care the company’s highest ever incremental
equipment and supplies industry helped most… eCommerce gross margin this year. We believe
top global consumer brands

Can you distinguish which one is written by human vs. AI?

Source: Wall Street Journal, Financial Times, Morgan Stanley equity research, Press release, MIT Technology Review
 Exponential growth everywhere
Curve show transistor
2,600
count doubling every two
16-Core SPARC T3
Dual-Core Itanium 2
Core i7(Quad)
Industries Past Current Change
1,000 years
Transistor count (millions)

AMD K10
Pentium IV Prescott 3D Printing $40,000 $100 400x in 7 years
100 Pentium IV
Pentium III Drones $100,000 $700 140x in 6 years
10 Pentium II
Pentium Sensors $20,000 $79 250x in 5 years
1 486
386 Neurotech $4,000 $90 44x in 5 years
0.1 286
8086
Biotech $10 million $1,000 10,000x in 7 years
0.01 8008 Solar Energy $30/kWh $0.16/kWh 200x in 30 years

1970 1980 1990 2000 2010 2015

Date of introduction

“When an industry becomes software (platform) 1 it is subject to Moore’s law, and it goes exponential.
Then everything gets disrupted.” - Jonathan Anscombe2
1. Reference to Marc Andreessen’s quote “Software is eating the world”
2. A.T. Kearney Partner in Global Health Practice
Source: Exponential Organizations (by Salim Ismail, Yuri van Geest, Michael S Malone)
31
 Almost every industry affected (1/2)
Industry Positive Impact Negative Impact
•Integration of drones – revolution in
•Autonomous weapons might have a
Aerospace & delivery, $82bn, 100K jobs by 2025 in US
lethal impact; Terrorist groups might
Defense •Aerospace industry reduction in fuel,
also access them
cost and airport congestions
•Economic impact of $200 billion in the •Reduction of car insurance
Automotive & US by 2025 •Lost jobs in transportation (6~11% by
Transportation •Reduction in accidents, vehicle weight, countries): taxi, bus, metro, subway,
energy demand and parking area truck, airplane
•Replacement of human workers with
•Reduction in labor and operational cost
Consumer automated systems in inventories and
•Supply chain automation
markets and logistics
•Enhanced efficiency due to better
retail •Loss sales people and shop workers off
customer insights
line shops

•Automation leading to 15% savings

Financial •25% reduction in FTE expected in 3-5
•Targeting new categories, such as
services years
32
 Almost every industry affected (2/2)
Industry Positive Impact Negative Impact
Education •Help learners gain 21st century skills and •Online courses from elite colleges will
provide one-on-one tutoring replace non-elite colleges
•New curriculum and high cost
Healthcare •Better and more accurate outcomes •Various new startups giving tough
•Cost reduction and greater efficiency competition to tech giants
• Loss of low end medical doctors
Energy •Savings of $8.6 trillion expected in •Automation will cut half the number of
industrial sector workers needed in offshore rig
•Cost reduction and revenue maximization

Manufacturing •Improved productivity and safety •Automation will replace jobs involving
•Savings - lower cost of robots compared repetitive tasks
to men
Entertainment •Authors don’t have to worry about •Need to learn new tech
royalties and copyright issues •AI can compose music and painting
•Algorithm based creation
33
CASE STUDY
DIGITAL TRANSFORMATION IN RETAIL INDUSTRY
 E-Commerce and reduction of physical shops
§ Closing 14 stores in 2015
§ 2% drop in store sales; 7%
increase in mail
order/eCommerce
§ Closing 50 stores in 2015
To close up to 400
Annual growth: § Double digit increase in
online sales for past 3 years stores by 2016
eCommerce (10%) vs.
total retail (3-4%)

Gainers Impact of e-Commerce Losers

§ ~20% growth on Closing 20 stores

e-Commerce in 2015
sales
§ Continue to
Closing 60 stores
invest in online
in 2015
capabilities
48
Source: Financial times, Forbes, 24/7 Wall St., Press release, Web sources
 Department stores are closing down in US (1/2)

§ Closed 30 Kmart and 16 Sears stores § Closed 100 stores in June2016

in December 2016 § Plans to close 68 stores, cut more than
§ Will shutter 78 Kmart stores and 10,000 employees in 2017
26 Sears stores, most by the end of § They said they will mainly focus on e-
March 2017 Commerce
Confidential Do not circulate outside of Group 49
 Department stores are closing down in US (2/2)

JC Penney could close up to 30% of its Sears and Kmart, for example, have
stores, or roughly 300 of its more than closed nearly 200 stores within the last
1,000 locations, within the next two years, year and plan to close another 150 this
according to Cowen & Co.
spring. Macy’s plans to close 100 stores
this year.
50
 In Japan, department stores are closing down fast
Japanese Department
Store Yen

Stores Reve-
nue
Stores
Sales
Tr

Tr

Tr

Tr

Tr
§ Mitsukoshi closed 4 stores
and Sogo Seibu closed 2
stores in late 2016
52
Personalization – Stitch Fix

Confidential Do not circulate outside of Group 62

§ 10,000 clothes per month
§ 100,000+ members
§ $250M sales
§ Market Cap $300M+ within 5 years of AI algorithm (Netflix AI machine
Begin with style profile
establishment § Height, weight, birthdate, job, method of learning) + stylist (1,000 select 5
commuting, children, etc. fashion matches with style
§ Measurement, fitting style (slim, tight, relaxed) coordination hits sent
§ Style types: leisure, casual, business casual, § Select ones you like
business formal, dress code at work § Return ones you do not like
§ Actual fashion examples to choose from § AI continues to learn from your
§ Budget range to choose from for different choice and your social media
types of clothing
§ Style examples to choose from: yes, maybe, § 80% customers choose at least one
never out of five
§ Adventure level to choose from § 80% of customers re-order within
§ Social media link 90 days
Disintermediation
Reintermediation
PIPELINE & PLATFORM BUSINESS MODELS
PIPELINE & PLATFORM BUSINESS MODELS
THE 10 CHALLENGES A PLATFORM BUILDING
THE CHICKEN AND EGG PROBLEM IN PLATFORM BUSINESS
MODELS
 PLATFORM TYPPOLOGIES BASED ON VALUE PROPOSITION TO BUYERS
AND SELLERS RESPECTIVELY

( RASK & KRAGH)

PLATFORM STRATEGIES BASED ON VALUE PROPOSITION
PLATFORM STRATEGIES BASED ON VALUE PROPOSITION

ECOSYTEMS ECOSYTEMS
VS
 VS

Founded 1927 Founded 2008

200,000 employees 5,000 employees
$26.4B market cap Est. $24B market cap
Same valuation in one-
tenth the time
30
VA L U AT I O N I N B I L L I O N $

22.5

15

7.5

0
5 10 20 40 60 90
 Leveragedassets ( It’s not about owning the resources,
it’s about having access to them. )
[email protected] @PraxentSoftware

VS
Owns 5,700 properties Owns 0 properties
in over 110 countries
THEIR FOCUS: THEIR FOCUS:

Scouting, acquiring, building, Building a platform that enables hosts

marketing and managing resort properties to list their unused guest rooms for rent
VS
 VS

Founded 1916 Founded 2009

116,000 employees 7,000 employees
$53B market cap $66B market cap
Same valuation in one-
tenth the time
70
VA L U AT I O N I N B I L L I O N $

52.5

35

17.5

0
3 6 12 24 48 100
TIME (IN YEARS)
 Leveragedtalents ( It’s not about owning the resources,
it’s about having access to them. )
T H E AV E R A G E C A R S I T S I D L E 9 5 % O F I T ' S L I F E

51%of Uber driverswere not

drivingprofessionally
[email protected] @PraxentSoftware
18% Pros - been on the Uber platform for more than
6 months

18% Crossovers - previously drove taxis or black

cars, but have been active on the Uber platform for
Good for rider +driver +economy
less than 6 months
B E N E F I TS FOR DRIVER: B E N E F I TS FOR ECONOMY:
12% New Enthusiasts - New to the platform, and
have taken up driving with uberX consistently • Get to be own boss • Supply of rides increases
52% Part-timers - The largest group of partners on • Manage own schedule • Availability increases
the uberX platform and most likely to be seeking a • Supplement income • Wait time decreases
flexible earning opportunity. 75% of this group hold • Earn more money • Price decreases
other jobs besides Uber.
 Takeaways from digital (platform) trends
1. A platform’s overarching purpose is to consummate matches among users and
facilitates the exchange of goods, services, information, or social currency,
thereby enabling value creation for all participants.
2. The rise of the platform has already transformed many major industries and more ,
equally important transformation are on the way.
3. The design of a platform should begin with its core interaction (participants, the
value unit, and filter). The value unit is the most critical and the most difficult to
control.
4. In order to make the core interaction easy and even inevitable, a platform must
perform: pull, facilitate, and match.
5. The rise of platform is also causing structural changes in many industries,
through re-intermediation, separation of ownership and control and market
aggregation.