Platform Leadership

1. Platform Leadership T-109.5410 Technology Management 15.11.2005 Eino Kivisaari Researcher, M.Sc. TML / SimLab / Technology Management

2. ”We are tied to innovations by others to make our innovation valuable. If we do an innovation in the processor, and Microsoft or independent software parties don’t do a corresponding innovation, our innovation will be worthless. So, it really is a desperate situation for us.” David B. Johnson, Intel Architecture Lab

3. Product Platform Strategy • Platform is an architecture of the common elements implemented across a range of products • Defining technology = Key element(s) of the platform • Dictates life cycle, capabilities, limitations • Is based on company’s core competence • Difficult to copy by competitors • The choice of defining technology is perhaps the most critical strategic decision that a hi-tech company makes • What if platform elements are provided by different companies?

4. Product 1C Product 1 Product 2 Product 3 Product 1B Product 5 Product 1A Platforms, Segments, Products Unique product elements and common platform elements of a product line Segment A Segment B Segment C Element A Common Platform Elements Element B Element C (McGrath 2001)

5. Benefits of Platform Strategy • Enables rapid and consistent product development • Encourages a long-term view on product strategy • Operational efficiencies • Reduced manufacturing costs • Reduced design costs • Easier Marketingand Support Are these valid also when elements are provided by different (competing & collaborating) companies?

6. Annabelle Gawer and Michael A. CusumanoPlatform Leadership How Intel, Microsoft and Cisco Drive Industry Innovation Harvard Business School Press 2002 Available at HUT library 20-30 € in various webstores

7. Platform Leadership • Core Products vs. Complements • Cars / Tires • Computers / Software etc... • Modularity of Complex Products • More modularity in developed industries • This is the direction where mankind is going: specialization • Balance of Power? • Who conducts the orchestra?

8. Platformed High-Tech World • Increasing interdependency of products and services • Ability to innovate by more actors than ever  Platform leaders must solve three problems: • Maintenance of the integrity of the platform • With regard to future technological innovation and the independent product strategies of other companies • Platform evolution • How to permit platforms evolve technologically while maintaining compatibility with older components • Gaining and sustaining platform leadership

9. Four Levers of Platform Leadership • The authors analyzed a variety of organizations (Intel, Microsoft, Cisco, for example) and discovered four distinct but related levers of platform leadership • These four levers can help managers in both strategic formulation and implementation

10. Lever One: Scope • Deciding the scope of the company is the most important decision: Which complements to make in-house and what to leave to outsiders? • Companies that desire to become platform leaders need to determine how dependent they are on complements • Platform producers should avoid developing their own complements if they lack financial or technical capacity to compete in the relevant markets • However, as a rule of thumb, platform producers should have in-house capability, not only for complement production, but to serve as healthy competition for outsiders

11. Lever Two: Product Technology • Degrees of modularity and openness • Product architecture can have a large impact on the structure of an industry and the types of follow-on innovation • Product architecture determines who does what kind of innovation and how much investment in complementary products will occur outside the platform-leader organization • Leading companies guard their core technology but utilize tools such as modular architectures and disclosure of interfaces to ensure the supply of complementary products

12. Lever Three: External Relationships • Collaborative vs. competitive • For long-term effectiveness, platform leaders must follow two goals simultaneously: • Search for consensus with complementors about technical standards and how they interface with products • Show the way by providing new complements (produced in-house), if this is seen to be necessary • Consensus needs to be forged by one company driving the process • Platform leaders should be industry enablers. They should help others innovate in better ways around the platform. • Platform leaders should not unnecessarily step out of their product boundaries into that of their complementors • Leaders can reduce external tensions with a humble approach and by acting on behalf of the entire industry

13. Level Four: Internal Organization • Coping with internal & external conflicts • Platform producer must generate an internal organization that enables it to manage complementor relationships with ease • Therein lies the challenge, as sometimes groups within a firm compete with complementors • It is crucial to communicate the multiple goals to the whole firm and generate a process that helps resolve conflicts • Separation of competing groups  outsider companies become more willing to entrust personnel with information • Platform leaders can appear neutral if they establish different groups maintaining different roles

14. Case: Intel • Basic problem: People don’t buy processors, but PCs • Well... some people do…  • Multibillion-dollar investments in processor design… …How to make sure that demand for the processors stays & grows?

15. Case Intel — History • In 1979 IBM decided to develop a new PC to compete with Apple • Intel 8088 Processor • Microsoft DOS (Disk Operating System) Soon after, PC-Compatibles emerged • No exclusive contracts were made • IBM allowed this, which speeded up production, commerialization and adoption of PCs worldwide • PC-AT in 1984  demand exploded for IBM PC-AT and clones

16. PC Industry Evolution • Decline in vertical integration • IBM, DEC, Univac, Wang started to lose leadership • Specialists started to take over • Microsoft, Intel, Motorola…

17. Case Intel • Intel’s big entry thanks to IBM, but… • PC-AT architecture started to feel like a tight shirt • Intel’s processors developed at a fast pace • Biggest problem: ISA data bus (Industry Standard Architecure) • Very slow internal data bus for graphics, storage etc.

18. The Rush Hour of Buses:ISA / MCA / EISA / VESA / PCI… • In 1980, MCA bus by IBM (MicroChannel Architecture) • Compaq: EISA (Extended ISA) • No real performance improvements, industry stayed with ISA for years

19. Lack of Platform Leadership • Intel was disturbed by the lack of leadership • No one was able to advance the overall platform • Unclarity of mandate – how shoulddo it? • Standards Committees (a VESA graphics bus was actually developed) • Old Leaders • …or Intel? • The PC platform was not moving fast enough for Intel

20. Intel Architecture Lab (IAL) • Created in 1991 • ”Architects for the open computer industry” • 550 engineers in 2001 (noneof which work on designing new microprocessors) The mission of Intel Architecture Lab: To grow the overall market

21. PCI Initiative • The PCI bus, IAL’s first project in 1991 • Transformation of the internal architecture of the PC • Goals: Speed, Modularity, Openness, Space for growth • Advancing the whole PC industry • What could a PC become, if the best was made out of it?

22. Intel takes lead with PCI • A big conceptual step for Intel • from providing processors… …to architecting the whole platform • Indecision within Intel • Big investment… • Mandate was unclear, a too presumptuous move? • Success factors • PCI was free and open to everyone • IBM’s failure with MCA, an attempt towards verticality • Winning over other firms, rallying collaborators • Thinking ahead – avoiding lock-in to certain processor generations

23. PCI Chipsets • Chip sets had to be redesigned with every new processor  expensive & slow for OEMs • To convince everybody, Intel put its own skin in the game • Mass production of PCI chipsets • Big players went along because they wanted to take advantage of latest Intel chips quickly • Intel starts making motherboards • Big OEMs’ problem: How to differentiate?

24. ”To a large extent, PCI set the tone for other initiatives… Intel realized through this experience that, when we set out to do so, we can move the industry in some useful direction.” Dave Carson, Intel Architecture Lab

25. USB • USB initiative began in mid-1990’s • Serial connectors for peripherals had become a serious bottleneck • Intel had the vision and the technology, and this time also the courage from the start • Goal: making the best out of PC computers …and growing the demand for Intel processors, of course…

26. Intel’s USB Strategy • To avoid confusion in the market • Add-on cards • Ethernet-connectivity • Parallel port • Different kinds of software • Intel wanted a better way to hook to a PC • Hardware specification for USB • Software specification • Operating system support • Open interface, everybody competing, let the best innovation win

27. Building Momentum & Speed • Consortiums • ”Rabbits” (USB: Logitech, Microsoft) • SIG (Special Interest Group) • PCI, 5 members: Intel, DEC, Compaq, IBM, NCR • USB, 7 members: Intel, DEC, Compaq, Microsoft, IBM, Nortel, and NEC • Only a few participants  fast decisions

28. Intel IPR Strategy • PCI, AGP, USB: No fees whatsoever • However, Intel required that anyone who used their IP had to make their related IP open as well

29. Intel ”PlugFests” • Compliancy Workshops • 100-200 companies attended • Vendors could test interoperability of their products (in a conference hotel somewhere in the US…) • Helped in creating good PR for the platform • Goodwill Agreement: participants should not use information gathered in PlugFests against their competitors

30. Enabling Tools • Software Development Kits (SDK) • Device Development Kits (DDK) • Software Libraries etc. Benefits: • Faster product development • Helped in creating momentum • Lowered entry barriers for complementors • Fostered innovation • Made the overall cake bigger for everyone

31. ”We think one of our core compentencies is that we are a trusted partner for almost everybody in the industry. We can talk to the graphics group’s competitors openly about their products and about our specification, and they trust that we honor that. But you can’t just mandate trust. You have to earn it.” Craig Kinnie, Director, Intel Architecture Lab

32. Conflicts, Roles, Policy • Intel played on many fields at the same time • Intel’s roles: • Industry enabler (expanding the whole pie) • Neutral-broker (IAL promotes ”public interest”) • Profit-seeking (eg. processor manufacturing) • competition with complementor that IAL is supporting • Many roles  Separate internal groups • a powerful strategy, when conflicting agendas exist • internal & external debate (can be fruitful)

33. Alternative Strategies • Cisco • Aquire and Assimilate Complements and Substitutes

34. Case Cisco Strategy: Aquire & Assimilate Complements and Substitutes • Internet Router Company • Defining Technology:IOS (Internetworking Operating System)

35. Case Cisco • Huge growth in annual sales • 1991: $70 million • 1994: $1 billion • 2001: $22 billion • This was not done alone: • Internet browsers by Netscape & Microsoft • High-performance servers by Sun • All applications developed for the Internet

36. Case Cisco • A platform leader with 80% market share in core router products • Technology was based on open industry standards, distinction came from enabling interoperable networking between routers and a wide variety of other types of networking and communications technologies

37. Case Cisco • Cisco faced more competitors • 3Com, Lucent, Nortel, Siemens, Fujitsu • In early 2000 Cisco started losing sales to Juniper Networks • Competitors started being strong in niche markets with advanced products

38. Case Cisco • Cisco strategy • Providing complete solutions, a one-stop-shop for networking • Structured aquisition of pieces needed for the puzzle • Driving industry standards  overall growth • Form alliances and partnerships

39. Cisco Product Debuts 1986 Routers • Dial-in access servers • LAN Switches • WAN Swithces • Hubs, Firewalls, Caching engines • Cable boxes, cable head-ends • DSL Head-ends • Internet Phones • Home modems • Wireless LANs IOS + all these products = one-stop-shop

40. Platform Leader Wannabes • Palm: Handheld Computing • Fighting a giant (Microsoft / PocketPC) • NTT DoCoMo: Wireless Content • Internationalizing a successful domestic platform (iMode) • Linux: Open Source Software • Relying exclusively on external development and open standards

41. Summary • Companies that possess keys to popular technology cannot afford to live in a vacuum • Companies that fail to innovate or have others innovate will quickly find them themselves outmoded and obsolete • Platform thinking forces managers to consider entire industry • Platform leaders must maintain incentives for third parties to produce complements …and help them do so • Platform leadership is a strategy of interdependence • A vision of a business ecosystem • Platform leadership does not happen by accident

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