The Case Of Fidelity And Platform Services

Most of us think that banks lack true innovative power. I guess that’s true in a structural sense – they have huge legacy systems and to release any kind of integrated applications have to do a lot of work on Cloud or other intermediary platforms.

But yesterday I had a long chat with Sean Belka who runs Fidelity Labs, the innovation arm of Fidelity, the fund managers.

Fidelity Labs is experimenting with a number of user interface and user experience technologies like Google Glass.  Sean made the point that Fidelity is interested in working out how it can differentiate itself in all the major social platforms. Social is a must-have but it can also provide some competitive advantage.

It’s interesting to see such a powerful player with a strong interest in social as a channel but more interesting still is the story Sean tells about Fidelity as a platform company (I’m going to write elsewhere about how we define platform. In short I think we call many things “platform” but the term covers a lot of different activities).

In the case of Fidelity their funds platform has all the characteristics of an extensible platform of the type we saw emerge in different sectors like mobile from about 2008 onwards.

It is similar to a two-sided marketplace in some respects but it is also a rich information market, a facet you don’t see in two-sided markets; and it brings in intermediary as well as primary players in the market. Thousands of funds and brokerages and other third parties do business through it. It is often called a “supermarket” but supermarkets do not have rich information markets.

This type of platform is, however, now working its way into retail as competitors grapple with how to compete with Amazon.

Sean was making the point that the platform has been around for nearly 20 years and provides a continuous source of durable advantage.

That advantage is “utility-like”. It is both a source of low-cost competition and a differentiator – the significant convenience of a single shop for investments.  And Fidelity can now make more of the differentiation as it increasingly turns to social channels like Facebook and LinkedIn, increasing the usability of services and improving UX.

These improvements defy traditional low-cost competitor rules – they don’t lead to lower qualities of service. Better UX leads to better service and fewer hurdles for making trades or taking other actions.

This platform-platform strategy is also picking up. While Facebook is currently about social communications it must surely edge its way towards taking full advantage of its audience reach.

The fact that fund managers have developed incredible platforms – Fidelity’s serves over 5,000 partners – is an oversight in most accounts of platform business. We tend to think of the tech-first examples like Apple and Android and Amazon.

But like eBay, Fidelity predates both. And next steps: Cloud, deeper personal service and service integration, allied to AI, all on the platform. Financial services could, in fact, be a pace setter.

Does A Platform Imply A Two-Sided Market?

Digging deeper into how platforms are conceived, used and then managed, it is worth asking do they always imply a two-sided market?

The idea of the two-sided market stems from work by Parker & Van Alstyne (2000;20002005)  and Rochet & Tirole (2003). Those markets are generally understood as a refinement of network effects. A network effect happens, for example, when a company like Facebook grows its  member base. Each member will benefit if the platform has more members, i.e. more friends. The increased utility of a social network lies in knowing more people in it – to a point.

In the case of many software markets, recruiting new users is delegated to existing users (e.g. DropBox used double incentive marketing to reward its users for bringing in new users – however it had to reward both the existing user and the new user, which is why the technique is called double incentive).

This needs less incentivizing when the addition of users makes everyone’s experience better (e.g. as it does on Skype). Participation needs to be incentivized when the network effect is low (as in DropBox).

Clearly not all platforms offer network effects. Yet the network effect can have a profound effect on how business models are designed – it is cheaper to market them.

Some platforms benefit from an indirect network effect:

AirBnB users benefit when there are more apartments; Uber users benefit when there are more taxis. These types of services have grown as match-pairing technology improved and it might be the ability to match needs rather than a network effect that makes them successful.

This is substantially different, however, from Skype where each user needs another user, not another Skype or service provider.

On the other hand, Quirky users do not need other Quirky users to make their products happen. They need the services the platform provides.  GrabCad members do need other members but not in a truly imperative sense. Having access to other members lies in the category of “very nice to have” rather than “must-have”. The counter parties truly add value without causing dependency.

Here are Parker & Van Alstyne’s examples of two-sided markets:

” credit cards, composed of cardholders and merchants; HMOs (patients and doctors); operating systems (end-users and developers), travel reservation services (travelers and airlines); yellow pages (advertisers and consumers); video game consoles (gamers and game developers); and communication networks, such as the Internet.”

The network effect on AirBnB and Uber looks weak in comparison.

Another characteristic of platforms is way that they enable economic activity. In these instances the platform is only enabling a consumption transaction or service. For example in credit cards, that is abundantly obvious. The platform exists to enable transactions. But also in gaming the fundamental objective is to consume the game.

In many instances of platform though, the platform is enabling productive activity. In the case of GrabCad, the objective is to share design drawings in order to reduce the development time of new products. In open source platforms a similar productive activity is taking place.

In these cases too the platform has a network effect but is not bound by a two-sided market. It is bound instead by a moral framework. The only way to achieve the moral objectives of the community is to recruit ore members and evangelize it use.

Platforms have many characteristics that make it difficult to nail down one definition. Here are some examples.

The last column in the table below refers to the degree to which an actual exchange is a focal point of the platform. Exchange can be a high or low focus or it can be direct or indirect.

“Multiparty” is a new development in platform environments, beyond two-sided markets. For example Apple’s struggle with Health Kit is going to be making it work for multiple-sided markets including hospitals, family doctors, labs, devices, monitoring services, analytics and users. In that sense the market itself becomes ecosystem-like and poses new degrees of complexity on marketing and coordination.

PLATFORM Network effect Two-sided market Multi-sided market Exchange
Quirky Low No No Medium
AirBnB Medium Yes No High
GrabCad High No No Indirect
App Store High Yes No High
Health Kit High No Yes MultiParty
Credit cards High Yes No High
Billing Medium No Yes Multiparty

I’ll come back with some more thoughts in the next few days. Here is a definition provided by Gawer, taken from Parker & Van Alstyne:

“Industry platforms are products, services or technologies that are developed by one or several firms, and which serve as foundations upon which other firms can build complementary products, services or technologies.”

I don’t find this enlightening but I do think it illustrates the difficult of finding a good definition.

Platform

How we define a business platform goes a long way to shaping how we see the new economy. In my view there is no satisfactory definition out there yet.

Alex Moazed, CEO of Applico Inc, had a go at defining it recently:

A platform is a business model that creates value by facilitating exchange between two or more interdependent groups, usually consumers and producers.

The definition has the advantage of brevity but it doesn’t encapsulate what platforms are really about and how they function.

Along with David Card, SVP at GigaOm research I have been searching for a more encompassing decision for a new paper on IT-Business integration, due to be published end June.

We’re clear that many things are described as platforms even though they have quite different characteristics.

Netflix’s description of its internal processes suggests these are now largely “platform” based. Their cumulative effect is to enable an exchange. But organizing a whole enterprise around platforms suggests the concept has to mean much more than exchange.

It’s clear from this that “platform” can be a powerful term for internal reorganization.

Another feature of a platform is that it enables other people to create or produce. In that context it usually also facilitates exchange, as Alex Moazed says.

These platforms also tend to be tightly coupled to ecosystems, or loose groups of people who use a shared production resource such as an SDK and a “platform”.

Then there are platforms that are very much about exchange  marketplaces like eBay and Etsy.

And GE stakes a claim for its industrial data initiative also to be called a platform. In this case GE generates data from its global installed base of energy turbines and offers that out to a developer community via data APIs.

platform graphic

What about Expedia’s transaction platform, which 5,000 businesses now use as the back office to small scale travel businesses?

Or AirBnB’s, which is a resource sharing platform, as is Uber’s. And yet, then again Quirky has developed a platform that is almost wholly production orientated, and so too has GrabCad, a platform for engineers who want to share designs. Isn’t Kickstarter a platform? And the Respect Network, a platform for storing personal data.

There are huge differences between these projects and yet there is also commonality.

The commonality is the enabling factor. They are not selling a product to a consumer. They are enabling financing, production and transaction. These factors mean the platform is the economy. It is facilitating the factors of production and exchange.

More formally it facilitates the sharing of core services, the development of co-productive resources, and the development of marketplaces.

Skydivers, Mountaineers and Bicyclists – An Update on Google’s Project Glass

Realtime feed of skydiver wearing Google Glass prototype in descent to Moscone Center in San Francisco, June 27, 2012. Source: Google

Google had fun at its latest I/O developer conference with a theatrical level performance including skydivers wearing Google’s electronic glasses streaming live realtime video as they descended from high above San Francisco. As they landed on top of Moscone Center they relayed their payload to awaiting mountaineers who repelled down the side of the building. The payload was quickly transferred to bicyclists who road through the auditorium to cheering fans and up onto the stage to an awaiting Sergey Brin (see video).

Latest Details on Project Glass

Nonetheless, the theatrics provided some new information including the announcement that the glasses will become a product next year, and prototypes (i.e. beta version) are now available for $1500 to well-heeled developers flourishing in the Google ecosystem.

Continue reading

Everyone Beware: Microsoft is Alive Again and May Become an Elastic Enterprise

A giant has awakened.  Microsoft’s alliance with Barnes and Noble is a major market signal. It should be a wake up call for everyone.  Yes, it’s a great deal for Barnes and Noble and just what the doctor ordered (see my previous blog on B&N). But, it also builds up Microsoft’s business platforms and adds an established e-commerce engine to Microsoft’s repertoire that could add to the appeal of Windows 8.

Yes there are detractors. On Yahoo Finance’s Daily Ticker, Dan Gross quipped, “The desperate got married to the hopeless,” and Henry Blodget added “My guess is that this is rearranging deck chairs.”  I am a fan of both commentators. But, in this case, there is more to the story. The bigger story is about the overlooked overhaul and transformation of Microsoft, the company. Continue reading

Pebble Technology and its “Watch” — A Start-up Surging with Elasticity

With thousands of others, I just became an official backer on Kickstarter of the Pebble, a watch, really a wearable computing device that interfaces seamlessly, conveniently, and wirelessly  with Apple’s iPhone and Google’s Android OS phones.

The Pebble / Pebble Technology
Source: http://www.getpebble.com

Over the past two months I’ve written twice about wearable computing – coming from mainline firms, Nike (the FuelBand) and Google (Google glasses). Nike and Google are well-established elastic enterprises and benefit from the elasticity that they have built into their companies. Their wearable devices add new levels of engagement and options for  their huge base of customers.

But Pebble Technology, the maker of Pebble, is a startup.  It also has a noteworthy distinction: it raised over $1 Million dollars from supporters on Kickstarter in 28 hours – for a product that is not yet in production.   But a snappy video and a low-key pitch inspired thousands to make an “investment.”  The Pebble folks also smartly provided “investors” with various contribution options, from a minimum of $99 to a high of $10,000, but each level will receive 1 or more Pebble watches when they are produced sometime in the fall of 2012. Continue reading

We’re on a Journey to the Vanishing Point: Google’s Project Glass and Why You Should Care

It started as a rumor.  It rippled through social networks.  Then came stories by Nick Bilton at the New York Times in December 2011, Seth Weintrab at 9TO5 Google and most recently again from Nick Bilton in a follow-up article about testing prototypes of “Google Glasses.” And Steven Levy at Wired recounted some deep history and added perspective and background elements about the project, now known as Project Glass.

Google CEO, Larry Page Sports New Google Glasses
(Flickr / Thomas Hawk)

This much we know.  According to many reports, an official demo video, and individuals who recently saw Larry Page wearing the glasses at a party, these high-tech glasses superimpose critical information and alerts as one interacts with the physical world, in realtime.  They are essentially a heads-up display for daily life. And if it catches on and moves beyond geekdom, it could be a winner in the interface wars. And no matter how much you want it, whatever you see is a prototype, not yet a product for sale.

But Google’s Project Glass is about more than a new mobile or wearable device – it’s about what we call the vanishing point.  Smartphones and tablets are only the first step on a journey to operationally merge the digital and physical worlds. Continue reading

Salesforce.com Relishing Its New Elasticity

Salesforce.com is one of the companies we write about in the Elastic Enterprise. CEO Marc Benioff believes Wall St doesn’t quite understand what he’s achieving (though his P/E is 90). He added 2,500 employees over the past year, mostly in the U.S., an increase of 47%. He also delivered 37% growth.

The complaint is that Salesforce.com is not delivering the margins. But listen to how Benioff responds to this. Continue reading

Competition and the Elastic Enterprise: Business Platforms, Personal Biometrics and Strategic Options: Nike and FuelBand

How does a sports shoe manufacturer grow?  Well if it was the 1980s or 1990’s, you would get sport celebrities, use high technology materials, create great designs, diversify your merchandise, and go global with sales and manufacturing.  Nike did exceedingly well with that model.  Today you still do all of that but you do more…

If you’re at the top of your game, you “just do it,” differently.  You do it as an elastic enterprise.   Nike is well on its way to becoming an elastic enterprise.  And it’s already reaping the benefits of an elastic strategy with a robust strategic options portfolio.

Nike’s FuelBand, a recently launched high-tech electronic wristband, is another component in Nike’s elastic journey that highlights its strategy. Continue reading