Optimization and Visualization of Strategies for Platforms
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Optimization and Visualization of Strategies for Platforms, Complements, and Services. by Richard B. LeVine BA, Psychology, State University of New York at Albany, 1980 MS, Computer Science, Union College, Schenectady New York, 1986 SUBMITTED TO THE ALFRED P. SLOAN SCHOOL OF MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTERS OF SCIENCE at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 2003 ©2003 Richard B. LeVine. All rights reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part. Signature of Author: Alfred P. Sloan School of Management May 8, 2003 Certified by: Professor James Utterback, Chair, Management of Technology Program Reader Certified by: Professor Michael Cusumano, Sloan Management Review Distinguished Professor of Management Thesis Supervisor Accepted by: David Weber Director, Management of Technology Program 1 of 160 Optimization and Visualization of Strategies for Platforms, Complements, and Services by Richard B. LeVine Submitted to the Alfred P. Sloan School of Management on May 8, 2003, in Partial Fulfillment of the Requirement for the Degree of Masters of Science. Abstract This thesis probes the causal elements of product platform strategies and the effects of platform strategy on a firm. Platform strategies may be driven by internal or external forces, and the lifecycle of a firm and of a platform strategy evolve over time in response to both the needs of the firm and the changes in the external environment. This external environment may consist of a “platform ecology,” in which the platform strategies of firms affect one another. These effects may be positive, buoying revenues, or negative, eliminating markets and appropriating value. The thesis assumes that a company whose strategy is to produce complements or services for another firm’s platform may be said to have a platform strategy, and further assumes that a company with a modular platform strategy built primarily for its own internal use may also be said to have a platform strategy. Finally, this thesis will demonstrate example visualization techniques that make the nature of such platform strategies more apparent. This thesis asks and tries to answer a few key questions: • What comprises the elements of a platform strategy? • What kinds of companies adopt these strategies? • What circumstances drive adoption? • What outcomes can be expected? • What happens to such a strategy over time? The thesis asserts and attempts to prove these hypotheses: • Platform Strategies of one firm can influence those of many other firms, by direct effect on the other firms, or by simple economic benefit example. • Return on Investment (ROI) is influenced by these strategies. • Beyond ROI and thus Profit fluctuations, company survival, in an evolutionary Darwinian sense, may depend on these strategic choices. Thesis Supervisor: Dr. Michael A. Cusumano Title: Professor Sloan School of Management 2 of 160 Acknowledgements My thanks go to everyone who motivated me and supported me throughout this process, especially my children, Celeste and Vivian. I did not see them very often during this challenging year at the MIT Sloan School, but they were never far from my mind and heart. While I was learning about frameworks, innovation, and modularity, Celeste, two years old, learned to walk and talk, and Vivian, age four, learned the rudiments of dance. On Sunday nights when I’d get ready to go away for a full week of school, Vivian would often get solemn and say “It will be ok daddy, I know you have to go to school. I’m going to school someday too.” To Professor Michael Cusumano, for supervising my thesis, and for authoring Microsoft Secrets and Platform Leadership. Those two books motivated me to choose this strategic direction, and have put me on a path that may change my career and my life. To Dave Weber, Professor James Utterback, Jennifer Mapes, and Marc O’Mansky, who put a face of warmth and understanding on this incredibly intense academic program. I also want to thank the following senior industry executives who lent hours of their time to providing data and insights for the case research presented in this thesis: • Mr. John Schwarz, Chief Operating Officer and President, Symantec Corporation • Mr. Marvin Keshner, Director, Printing Systems and Solutions for IPG CTO office, Hewlett Packard Corporation • Mr. Jon Otterstatter, Chief Technology Officer of SPSS Incorporated • Dr. Steve Chaput, Vice President of Strategy, SPSS Incorporated • Mr. Leland Wilkinson, Vice President, SPSS Incorporated • Mr. Rimas Buinevicius, Chairman of the Board and CEO, Sonic Foundry Corporation • Mr. Robert Zitter, Senior Vice President of Technology Strategy, Home Box Office Incorporated 3 of 160 Table of Contents ABSTRACT...................................................................................................................................................2 CHAPTER 1: INTRODUCTION AND MOTIVATION..........................................................................8 INTRODUCTION............................................................................................................................................8 MOTIVATIONS .............................................................................................................................................9 ASSUMPTIONS AND DEFINITIONS ..............................................................................................................10 STRATEGY QUESTIONS..............................................................................................................................13 CHAPTER 2: THESIS STRUCTURE .....................................................................................................15 AUDIENCE .................................................................................................................................................15 STRUCTURE OF THESIS ..............................................................................................................................15 METHODOLOGY ........................................................................................................................................16 Research via Publications ...................................................................................................................16 Research via Interviews.......................................................................................................................16 Director, Printing Systems and Solution for IPG CTO office..............................................................16 CHAPTER 3: HISTORICAL AND PRIOR LITERATURE PERSPECTIVES..................................18 INTRODUCTION..........................................................................................................................................18 COMPETITION AND INNOVATION ...............................................................................................................18 SOFTWARE INDUSTRY INSIGHT .................................................................................................................20 “Microsoft Secrets”.............................................................................................................................20 “Platform Leadership”........................................................................................................................23 Winners and Losers .............................................................................................................................24 “Opening the Xbox”............................................................................................................................24 Hardware Complements Books............................................................................................................25 Modularity ...........................................................................................................................................26 CHAPTER 4: SPSS INCORPORATED CASE.......................................................................................32 COMPANY HISTORY ..................................................................................................................................32 Leadership ...........................................................................................................................................33 PRODUCT DIRECTION ................................................................................................................................34 COMPETITORS ...........................................................................................................................................36 STRATEGIC CHOICES .................................................................................................................................36 Strategy, Policy, and Influence ............................................................................................................36 The SPSS Internal Platform Effort.......................................................................................................38 Internal Platform to Drive Competitiveness ........................................................................................39 FINANCIAL TRENDS...................................................................................................................................42 4 of 160 THE