Ozzie on Platforms

Another interesting comment from Ray Ozzie on Platforms:

Furthermore, related to the issues of partner conflict, conflict must be present in ALL successful platform businesses. As an astute investor once told me, “no conflict, no interest.” If it’s not an issue in the short term, it will be an issue in the long term. This is fundamental to the platform business model; failure to recognize this represents a failure to recognize the difference between a “platform” (e.g. Linux) and a “platform business” (e.g. OS X).

In a platform business, the very basis for the business model is by definition to maximize wealth creation by continuously optimizing the balanced distribution of value between the platform provider and the platform ecosystem. In the act of creating wealth for itself, the business entity must also concurrently ensure that its actions also build a healthy and stable ecosystem that is sustainably profitable to others. If, as you say, the platform provider fails in this balanced optimization and becomes too “greedy”, the ecosystem will whither as value migrates from the edge to the center, and developers lose interest.

In other words, in building platform businesses, there is no question as to whether Apple or Microsoft or IBM or Lotus or Sun or Novell will have conflict with their ecosystem – they will, at some point, to some degree. If they don’t, then they’re certainly not leveraging their own platform asset to an appropriate level. When Netware and Notes were at their peaks, for example, they were generating ecosystem “drag-along” revenues of 6X-8X; that is, when Notes was doing about 500MM of product revenue, the ecosystem of application and solution providers was doing about 3B+ of annual revenue, of which Lotus’ own (clearly conflicting with partners) consulting business was probably doing about 200MM.

Healthy platform businesses are optimized mixtures of platform margins, layered application margins, and layered professional services margins, along with a very very healthy ecosystem doing the same.

He also makes an interesting point when it comes to platforms and applications: “With regard to platforms vs. applications, I think that we are pretty much in agreement: End-users see value in applications, and so they compensate the developers by buying them. Developers see value in leveraging platforms, but would always rather that the platform vendor be compensated by someone else in the value chain…Since it thus takes applications to drive creation of a new platform’s value chain, and since this can take some time, it can be critically important that the platform vendor itself take the lead in demonstrating the unique capabilities of the platform by building at least a few key applications on top of it. The Windows platform needed Microsoft Excel. The Notes platform needed Lotus Notes Mail. The Groove platform needs Groove Workspace.”

The Platform discussion is important because we want to build Emergic into one – a computing platform the next set of users in the world’s emerging markets, a platform which costs a tenth of the hardware-software platforms of today.

Platform OR Platforms

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Rajesh Jain

An Entrepreneur based in Mumbai, India.