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Wealth of Networks

Platform Wars II:
The Great Game

Tim Oren

Last time I wrote about platforms in general, and how they can create great value for society and businesses. Now I'll focus on a battle for platform definition that has been going on since the late seventies. The objective for the warriors may be stated as:

Share dominance in the specification of programming and user interfaces for general purpose computing and communications, leading to a role as de facto market definer for all other players.

There are other platform wars out there, but this is the one that counts. The compounding experience curves and economies of scale in general-purpose "PCs" have wiped out entire industries devoted to special-purpose computing: dedicated word processors, LISP-coded AI machines, and CAD-CAM workstations, to name a few. Special-purpose graphics and transaction machinery may be the next to go under, and even telephony vendors are looking over their shoulder. If you want to play for all the marbles, this is the game you play.

An Aside to Non-Geeks

To make some sense of what follows, you need to know a little about how computer systems are built; in particular, you need to know about layered architecture. Most every system is constructed of components that are logically stacked on top of each other. As an example, let's do a simple analysis of the system you must be running to see this:

You're connected either by a modem and phone line, or by a local area network of some sort. That's your network layer. It provides a standard facility and interface for moving data, called TCP/IP, to your web browser, which is blissfully ignorant of what kind of network you have: that's logical independence. In turn, the web browser provides a standard display definition and interface called HTML. I wrote this column using HTML, taking advantage of its logical independence, so that I don't have to produce a different version for every browser out there. We've now defined a system in three layers:

  1. Network connection, presenting a TCP/IP interface.
  2. Browser, using TCP/IP, presenting an HTML interface.
  3. This page, using HTML.
While the techies who've followed this know that I have glossed over many intermediate layers and supporting functions, my example should illustrate the following points:
  • Computer systems are architected in layers.
  • Each layer abstracts and hides its actual implementation, presenting a standard interface.
  • The specification of the interface between the provider of service (the bottom layer) and the user of service (the next layer) fulfills the platform definition of interoperation without special arrangement.
In an economic sense, each layer's interface provides value by removing specificity costs between the implementation of the layer and its users. The Great Game is fought out over the definition and control of these interfaces between layers, which you may also hear called APIs (application programming interfaces), protocols, or standard data formats. A computing and communications platform consists of a number of such APIs, dedicated to various functions in the system.

How To Make Platform War

There's no manual of strategy and tactics for this kind of war. The following set of strategies is my extrapolation from moves I've seen repeatedly over twenty years in the industry. There is no canonicity to my names -- they're just meant to evoke the right image when I use them again. Along with the definition, I'll mention why the move is (maybe) good for its practitioner and (maybe) good for the market or society at large.


This is pure competition for market share between solutions with similar "top layers," providing more or less the same value: Word versus Word Perfect; Oracle versus SQL Server versus DB2; LAN Manager versus Netware. Here's where marketing and financial power count. Brand power, advertising, distribution leverage, margin slashing, and bundling are weapons of choice. This is also the purest case of increasing returns for both vendor and market, as I discussed last time. It's therefore hard to come from behind with this strategy, unless your competitor screws up. (Which does happen: heard much about dBase lately?) But if you're behind, you're more likely to attempt one of the following moves to avoid the head-to-head conflict.

Accretion: Adding a layer

Rather than go head-on, the competitor may opt to add a new architectural layer to the platform, providing new capabilities. The benefits of reduced specificity will extend to this new function within the platform, providing increased value to its users and hopefully securing their continued loyalty. The hope is also that the competing platform(s) will begin to lose market share to the newly improved competitor, and that their purveyors will then be forced to add the new architectural feature at a time and cost disadvantage. An example of accretion was Apple's addition of easy-to-use desktop publishing features to the Macintosh in the mid-eighties.

Accretion works best when the newly added function is one that is already frequently used, but not yet standardized, among the users of the platform. Since the need has already been filled to some degree by developers extending the platform, they are often the victims of the accretion strategy, while the end users typically get more functionality for the same or less.

An accretion move can also be used aggressively, by attempting to establish the same functional layer as a beachhead on top of the opponent's platform. If the market accepts this move, the competitor's ability to control how the function is added to his platform may be reduced. In the best possible outcome, the increasing returns of adding the function on all platforms may cause the first mover to dominate the architectural layer. Examples of aggressive accretion moves include Apple's move of QuickTime onto the Windows platform, and Microsoft's support of OLE (via MS Office) on the Macintosh.

Commoditize a Layer

Suppose you've had the misfortune to lose control of a layer to a competitor, who is thereby able to gain share and margin and to restrict your ability to evolve your platform. Or perhaps fast-moving startups have opened up a new area of functionality that's becoming important enough to threaten your own definition of platform. If you have a good profit base from the rest of your platform, you might want to commoditize the layer where the competitor or startups are growing. Consider publishing your specification of the layer free to all comers, or giving it to a standards group, or adopting an already commoditized "open" alternative, or even giving away your implementation. Though you may not be able to recover your costs, the resulting margin drops will reduce the benefit of the win to your competitor, and may implode the upstarts' business models. Your users will be happy -- they're getting something for (nearly) free.

Microsoft practiced this move when it adopted TCP/IP as a network solution after losing this struggle to Novell. It's also used in a less obvious fashion by tool vendors (such as Macromedia) when they give away the players for their architectures. This has an effect of giving immediate value to end users, while flattening competitors whose business models require pay-per-copy to survive.

A commoditized layer in an architectural stack can also create a "firebreak" that prevents players in lower levels from directly attacking those above the commoditized layer. A router provider might create a proprietary network protocol guaranteeing low latency, but would have greate difficulty leveraging the product through the commoditized TCP/IP layer to create a successful proprietary networked gaming platform: game developers would simply be unwilling to walk away from the size of the intervening market defined by TCP/IP (the whole Internet) in order to gain the advantages of the proprietary approach.

One of this strategy's risks is the loss of control that may be suffered if an "open" solution is adopted, or if the proprietary specification is turned over to an independent group: the resulting market may take on a life of its own. By the same argument as above, this market in the commoditized layer may have the effect of reducing leverage from one side of it to the other; an extreme example could result in the disaggregation of a vertically integrated platform.

Hollow Out

Some platforms, like the Macintosh, include all the layers from hardware to user interface in one vertically integrated stack. But it's not necessary to own all the layers to have a viable platform. Instead, one can create a standardized downward interface to the supporting hardware and other layers. If the platform is sufficiently popular, vendors will compete to create systems that support the downward interface, and the volumes and learning curves in that market will create great leverage for the owner of the platform. CCP/M was the first platform to adopt this approach in microcomputers; Windows is the current equivalent. Although this strategy is often referred to as "being open," I'll call it "hollowing out" to distinguish it from the UNIX flavor of open, which is itself more a variant of a commoditization strategy.

Although hollowing out can create great leverage for the platform owner, and lower total prices to end users, there are hidden risks. The platform owner must retain firm ownership and control of the layers between the downward interface and the interfaces upward to the end user market. Failure to do so may result in an opponent taking effective control of the market defined by the downward interface.

The downward interface is always a point of struggle. Those who work below the downward interface (think "clonemakers") are intensely motivated to break through to the end user market by providing features that step outside the existing scope of the platform. Consider how Intel periodically attempts to define systems-level elements in the PC platform, and is just as regularly slapped down when Microsoft defines its own reference platform and covering APIs for the same functions.

A "hollow" platform is rarely as smoothly integrated as a vertically integrated platform. Anyone who has set up both Mac and PC systems has seen this at first hand. If the platform provider moves too slowly, features may appear in systems below the downward interface that are not directly supported by the platform, and if they are sufficiently valuable, developers and users will utilize them directly, rather than waiting for the platform to catch up (think "SoundBlaster"). The direct linkage between supporting systems and end market begins to erode the usefulness of the platform in reducing specificity, offering opportunities to competing vertically integrated systems.

Change the Conversation

If you're losing an argument, try to change the topic. The most effective come-from-behind move is to change the market's notion of what constitutes a viable platform, and hopefully to make the incumbent's share look irrelevant. Changing the conversation is the judo throw of platform war. When it works it's dazzling; when it fails it's pitiful. There are three ways to change the conversation:

Change the scope. Redefine the functional scope expected of a platform or the market area it should cover. "The network is the computer" was Sun's attempt to change the scope of conversation. Network computers are a current attempt.

Define a new genre. If you can invent a really new platform, you will start with the leading share. Occasionally it works: Visicalc. More often it flops: Newton. When you read a press release that says something like "defines a new category," this move is being attempted. Maybe 1 percent of these genre-definers are really in the running; the rest are just confessing that they are losing in their home category.

Create a new top layer. If you can define a new function that is not only valuable to a large market, but also spans multiple existing platforms, you might have a fighting chance to steal control by superimposing a layer on all of them. The owner of the new layer gains the benefits of network effects and reduced specificity, while the erstwhile platform players may be reduced to struggling below the new downward interface. Netscape would like their story to read this way.

Even partial success in these moves can gain a competitor new life, if a large enough part of the market finds the increased utility in the expanded scope or functionality to be more important than the specificity costs induced by moving away from the dominant platform. One platform company has spent its whole life making this type of move -- can you name it?

Next Time

This little strategy manual grew to encompass the whole column, so next time we'll do the play-by-play of both the Clone Wars (1979-'93) and the Network War ('93-now), watch Bill Gates go from a kid with a Basic interpreter on a paper tape to a billionaire ten times over, and ask whether the fight was fair or foul.

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clm said:

What strikes me as important about WebTV is that it is a proof of concept for the notion that the "client-side" can itself be implemented using a client-server model and extremely inexpensive clients. Or, another way of saying it, WebTV exploits the three-tier model of distributed app deployment.

Microsoft (and others) have been promoting this model for quite some time.

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If you can define a new function that is not only valuable to a large market, but also spans multiple existing platforms, you might have a fighting chance to steal control by superimposing a layer on all of them. Netscape would like their story to read this way.

Also in Wealth of Networks:

Platform Wars III: Clone Wars
The early years of personal computers: Apple, IBM, and Microsoft battle for control of the desktop.

Excerpts from "Net Gain"
Excerpts from "Net Gain," by John Hagel III and Arthur G. Armstrong.

Platform Wars II:
The Great Game

Share dominance: the business battle for all the marbles.

Complete Archive




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