Aggregated enterprise architecture wisdom
This post is the sixth in a series of ten about real life experiences of using business model thinking as a foundation for planning and delivering change. Writing this post I’ve had the help of a true friend and admirable colleague (Eva Kammerfors) whom I’ve shared many of the referred to business model experiences with. […]
This is the fifteenth post in my series on BYOD. I have mostly avoided talking about technology, as in many ways that is the least important, and the most straightforward aspect of dealing with BYOD. Most people automatically think of Mobile Device Management (MDM) when they think of mobile or BYOD technology, but that is far from […]
A multi-sided platform business has the following characteristic features.
1. The platform serves two or more distinct categories of customer. For example, a credit card platform serves both cardholders and merchants. For example, a heterosexual dating agency serves both men and women.
2. The platform provides a mechanism for connecting customers from different categories. The credit card increases the potential interaction between cardholders and merchants, as well as processing the transactions. And the dating agency brings men and women together.
3. The value of the platform to one category of customers depends on the quantity and quality of the other categories. For example, the value of a credit card to the cardholder depends on the number of merchants that accept the card. Meanwhile, the value of the card to the merchant depends on the number of cardholders.
Under certain circumstances, it might be possible to build one side of the platform first. For example, if you had some brilliant idea for a entirely new kind of credit card, and had a lot of funding and a persuasive sales team, you might conceivably be able to recruit a large number of merchants into the scheme before you had any cardholders at all. Or imagine persuading a group of men to invest all their spare time for two years building a nightclub that would (when finished) attract the hottest women in the city. But this strategy requires a considerable degree of confidence and trust. So in practice it usually makes sense to build up both sides at the same time.
There are various strategies that can be used to create a multi-sided platform. Sometimes it is possible to start small. When Frank McNamara created Diners Club in 1950, he started in a small geographical area (Manhatten), with 14 merchants and a few hundred cardholders. Within a year, he had 300 merchants and 40,000 cardholders.
When American Express wished to enter the market in 1958, it needed to create something quickly that could compete with Diners Club. One way to do this was to acquire and consolidate some existing schemes. But the key element to the American Express’s success was a marquee strategy – recruiting the most desirable customers (e.g. business travellers on expense accounts) and the most desirable merchants (e.g. high status hotels, restaurants and stores).
A marquee strategy depends on a degree of exclusivity, real or imagined. In a multi-sided market, you don’t gain directly from the number of people on your own side, since they may be competing with you for the attention of the people on the other side.
American Express is now much larger than Diners Club. So much for first-mover advantage then. The most desirable customers are not necessarily the ones with the greatest willingness to experiment with a novel platform. Novel platforms tend to attract early adopters and low-value customers (AltaVista, MySpace, OnSale). Once the platform concept is understood, a new entrant may be more successful in recruiting the high-value and mainstream customers (Google, Facebook, eBay).
Among users of Facebook and Twitter, a gulf is emerging between celebrities and other users. Facebook is currently experimenting with charging a fee for ordinary users to send messages to celebrities. According to the Independent, Facebook plans to keep this money itself. Presumably the only benefit to the celebrity is helping to filter incoming messages. And of course many celebrities are now dependent on Facebook and Twitter for maintaining their public profile, so they are not able to walk away.
The growing distinction between different categories of user marks a transition from same-side network effects (which assume a single category of user) into a multi-sided platform. Linked-In is another platform that is making this transition. Linked-In gets much of its revenue from the recruitment business, so it is essentially a market-making platform. Whereas Facebook and Twitter remain largely audience-making platforms.
(For the distinction between market-making and audience-making platforms, as well as a third category of demand-coordination platforms, see David S Evans.)
I shall be talking at the IASA UK Architecture Summit on 26th April on Architecting the Multi-Sided Business. There is more extensive coverage in my Business Architecture Workshop. Please contact me if you have any practical challenges in this area.
Pieter Ballon, Platform Types and Gatekeeper Roles: the Case of the Mobile Communications Industry (2009)
Mark Bonchek and Sangeet Paul Choudary, Three Elements of a Successful Platform Strategy (HBR Blog Network Jan 2013)
David S. Evans, Managing the Maze of Multisided Markets (Strategy+Business Fall 2003)
David S. Evans, The Antitrust Economics of Multi-Sided Platform Markets (Yale Journal on Regulation, 2003)
David S. Evans and Richard Schmalensee, Failure to Launch: Critical Mass in Platform Businesses (Sept 2010)
Thomas Eisenmann, Geoffrey Parker, and Marshall W. Van Alstyne, Strategies for Two-Sided Markets (HBR October 2006)
James Legge, Facebook now charges you for messages sent to celebrities and people you aren’t friends with (Independent 7 April 2013)
Lisa O’Carroll, Facebook starts charging users up to £11 to contact celebrities (Guardian 8 April 2013)
Geoffrey Parker and Marshall Van Alstyne, A Digital Postal Platform: Definitions and a Roadmap (MIT Jan 2012)
Richard Veryard, The Component-Based Business: Plug and Play (Springer 2001)
Understanding LinkedIn Business Model (BMI Matters May 2012)
In Enterprise Architecture, one of the most important aspects of the job is not only to communicate, but to lead change. In other words, it is great to have the data to point to a problem in an enterprise. It is better to help that enterprise overcome it by changing something (processes, technology, training, staff levels, departmental structures, roles and responsibilities, artifacts, governance mechanisms, etc). Change requires more than simple communication. It requires a kind of in-person, face-to-face, listening and hearing and absorbing interaction that is difficult or impossible over written mechanisms like e-mail, word documents, and powerpoint presentations.
Our technology has led us to the point, in modern business, that we consider outsourcing and remote work to be a net benefit for all involved, but each of these “distance” mechanisms introduces the RISK of poor communication. That risk is magnified when the person on one end of the line is hoping to change something that the person on the other end is doing. Change is harder across distance, and that difficulty becomes magnified when dealing with the array of different interactions that are needed at the enterprise level.
I wonder if the PC revolution, that brought us personal access to written communication, has created a deep reliance on written communication in corporate processes. I wonder, further, if that access to technology isn’t directly harming our ability to look a person in the eyes and communicate with them.
As a culture, we have moved from the age of face-to-face all the way to text-messaging-someone-in-the-same-room in the course of a single generation.
Enterprise Architecture is more difficult because of this shift in communication patterns. All forms of face-to-face communication are hampered by it.
Modern technology has done more to damage interpersonal communication than any other paradigm shift in human history.
This worries me.
When establishing an Enterprise Architecture within a business it is extremely rare that that the business would be regarded as being truly ‘Greenfield’. In a ‘Greenfield’ business there is no existing architectural collateral that need be considered as influencing the … Continue reading →
What’s Next in the Techonomy? — Hagel & Seely Brown
“In the last few decades, we have witnessed a steady doubling in the price performance of digital technologies. However, we are reaching a tipping point of this exponential growth, and it is unclear how the cumulative effects of technology will reshape our economy, political systems, and collective future. One thing is clear: in the hands of existing institutions-firms, schools, non-profits, civic institutions and governments-this awesome technology will achieve only a fraction of its potential.
Unfortunately, we haven’t seen the same exponential rate of change in institutions as we have in technology (Unlike computer chips, government and business structures don’t predictably get faster and less expensive). Managerial fiefdoms, rigid hierarchies and tightly scripted procedures remain from the industrial revolution era like vestigial structures; they were important at some point, but it’s unclear what purpose they serve now…”
tags: innovation technology institutions
How To Think Like An Engineer ⚙ Co.Labs ⚙ code + community
Good insights in here. If you already think this way, consider passing it along to folks who “don’t get your thought process”…
“Excelling in business today means knowing how to think through technological abstraction and ambiguity. Here, we listen in as engineers discuss this very skill–and decode their secrets for how to hone it.”
Big Data’s Promise and Limitations : The New Yorker
“Big Data can be especially helpful in systems that are consistent over time, with straightforward and well-characterized properties, little unpredictable variation, and relatively little underlying complexity.
But not every problem fits those criteria; unpredictability, complexity, and abrupt shifts over time can lead even the largest data astray. Big Data is a powerful tool for inferring correlations, not a magic wand for inferring causality.”
tags: bigdata
As an architect involved in an agile implementation (my current gig), you can imagine how interested I was to see that there’s a new book on Agile Architecture, and perhaps how disappointed I was to see that it focused on SOA and Cloud. That’s not to put down SOA or the cloud. I’m a huge fan of both. But it wasn’t the area of agility that I was hoping that a book, with that title, would address. The misunderstanding was mine, not the authors. I haven’t read the book yet, but I’m sure I will.
That moment of misunderstanding crystallized a thought: how even a two word phrase like “agile architecture” had two completely different meanings. The opening scene of the movie “The Hobbit, An Unexpected Journey,” puts a rather humorous twist on this idea, when Gandalf introduces himself to Bilbo Baggins (who has apparently forgotten having met him as a boy).
Bilbo: Good Morning
Gandalf: What do you mean? Do you wish me a good morning, or mean that it is a good morning whether I want it or not;
Bilbo: <stunned silence>
Gandalf: Or that you feel good this morning; or that it is a morning to be good on?
Bilbo: All of them at once, I suppose.
Of course, in Enterprise Architecture, we have the same problem. Does Enterprise Architecture mean “the practice of using technology architecture at an enterprise-wide scale,” or does it mean “the practice of using architectural ideas to shape the enterprise itself?”
And after a bit of stunned silence, perhaps it means
“Creating an architecture to describe the externalities of an enterprise to set its context and improve the relationships it has with customers, partners, and suppliers?”
All of them at once, I suppose.
Having just re-watched the Hobbit movie on my morning flight, these bits connected up in my head.
I’m proud to be both an architect of agility (applying the principles of agility to the processes of a business so that the business achieves the ability to change its own processes in response to agile demands), as well as a person who can craft technology architecture that reflects the notion of agility itself (technology that can be set up to change rapidly in response to business events).
All of them at once, I suppose.
Enterprise Architecture Objectives and Claims There are different views (and debates) on the objectives of Enterprise Architecture (EA); is it about describing and specifying (‘enterprise engineering approach’), or is it about understanding and insight (‘decision support approach’) or is about … Continue reading →
By Dana Gardner, Interarbor Solutions Listen to the recorded podcast here: Expert Panel Explores Enterprise Architecture and Business Architecture as Enterprise Transformation Agents, or read the transcript here. Dana Gardner: Hello, and welcome to a special BriefingsDirect Thought Leadership interview series, coming to you in conjunction with The Open Group Conference on April 15, in … … Continue reading →
The rate of change, the number of sources of change and the impact of change are at an unprecedented level in human history. Has it now reached such a pitch that change itself is a paradigm changing phenomenon, regardless of the content of the change?
I’ve seen quite a few discussions over the last couple of years about whether enterprise architecture (EA) is amenable to disciplined, rigorous methods – sometimes described as a scientific approach. A lot of what I’ve seen strikes me as anything but s…
DSC_0475 on Flickr.Piglets in hay