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Business, Featured - Written by on Monday, August 10, 2009 12:23 - 10 Comments

Nick Vitalari
Apple and the Rise of Competitive Business Platforms – What Other Companies Must Know

Last Friday, the Apple rumor mill went into overdrive. Piper Jaffray’s Gene Munster and All Things Digital’s ardent Apple follower of Boomtown fame, Kara Swisher, openly discussed the long-rumored Apple “iTablet” computer. Unceremoniously, Apple Stock moved upward. But it’s not simply innovative products and fancy form factors that drive Apple’s growth – rather it is Apple’s 21st Century business model.

Apple understands that business platforms fundamentally change the rules of competition and accelerate cumulative business performance. Competitive business platforms drive and nurture the latest business innovations – mass collaboration, social networking, community formation, ecosystems, global cooperation, prosumerism, community branding, transparency, options portfolios and real time analytics to mention a few. And they also do the same for “old-fashioned” ones as well – things like business process management, customer intimacy, and supply chain management. We’ve studied business platforms extensively at nGenera Insight and Apple is not alone. But Apple has taken the approach and out-executed almost everyone else on the planet.

While many see Apple as enslaved to secrecy, unresponsive to external input, and obsessed with product control, the company has put many of those behaviors behind them. In fact, Apple is writing the book on 21st Century style collaborative business models and continuous business strategy.Nokia and RIM became Apple students in the last 12 months – both have adopted a business platform approach. Ironically, RIM had the makings of a business platform long before Apple, but did not really exploit it. AT&T is being schooled again about business platforms as it copes with Apple’s latest generation iPhone 3Gs release (it seems that AT&T’s network can’t keep up with new iPhone features such as tethering and MMS messaging). Verizon is playing catch-up because it only recently saw the light – but rumors suggest it may have a deal with Apple on the “iTablet.” Meanwhile, it appears that Motorola still doesn’t get it.

But Motorola’s not alone. Almost 10 years after Apple’s launch of the iPod, iTunes and the iTunes Store, most corporations either stand in awe of Apple’s accomplishments, or see Apple’s approach as completely irrelevant to their businesses. They’re mistaken. These developments signal a new formula for business success that extends beyond the glitzy world of Hollywood or the high tech software and telecommunications industries. More importantly, leading firms in other industries have used the recession to put plans in place.

Let’s take a look at what the iPod, iTunes, the iPhone and the App Store really mean for business. A bit of history first. Apple Inc. launched iTunes, the now famous digital music application, on January 9, 2001 for the Macintosh computer. A little over 9 months later Apple launched the 1st Generation iPod on October 23, 2001. About 2 years later Apple launched the iTunes Store on April 28, 2003. The iPhone was released 4 years later on June 29, 2007 after the runaway success of the iPod-iTunes-iTunes Store combo that revolutionized the retail music industry. The iPhone App Store was launched on July 8, 2008 with 500 applications, 125 of which were free. Today the iTunes Store is a digital media store encompassing all forms of digital media including music, games, software applications, podcasts, and a growing collection of video assets.

In the process, Apple sold in excess of 200 Million iPod units and over 40 Million iPhones. Apple sold more than 1 Million of the new 3Gs iPhones in the first weekend of its introduction in July. The iTunes store has sold 8 billion songs since inception, and is the undisputed leader in digital music sales. Moreover, Apple revealed in April of 2009 that the App Store introduced in July of 2008 had already hit the 1 Billion mark in downloaded applications. By late July of 2009, Apple reported that its extended community of iPhone developers, which split revenue with Apple on a 70/30 basis had produced over 65,000 applications that were approved by Apple and available for download on the App Store. At the end of 2001, Apple’s annual revenues were approximately $5.3 Billion USD. At the end of 2008, annual revenues had grown to approximately $32.4 Billion.

Here’s what Apple has learned and what I believe all companies should heed – the undeniable superiority of the 21st Century business model:

  1. Products must become business platforms that grow through collaboration. The iPhone, the iTouch, and iPod are not music players and multimedia phone – ergo products – so much as they are business platforms. A business platform is the totality of the physical product (e.g. iPhone), the embedded software inside the product (iPhone OS), the collaborative platform (iTunes+App Store), the economic community (the iPhone ecosystem which includes AT&T and other wireless providers, Google, Yahoo, the iPhone developers, related iPhone social networks and communities, and the iPhone global industrial complex (core manufacturers – e.g. Intel, accessory providers etc.).
  2. Business platforms create superb externalities and a powerful ecosystem. Business platforms create a sort of lingua franca for all of the participants. In other words the business platform contains a common understanding for business transactions, business rules, business communication, technical specifications, interface standards and requirements. As a consequence transaction costs are minimized for all parties and efficiency results. For example, embedded in the iPhone OS, the iPhone SDK (systems development kit), the App Store and the iTunes store are the complete “rules of the road” for operating in the iPhone ecosystem. The result is a cumulative transparency that enables tens of thousands of participants to collaborate asynchronously and independently. In so doing they create economic value, a continuous wellspring of innovation and mutually extend the overall value of the economic community. They also rapidly extend the capabilities of Apple’s core product way beyond what Apple could ever do so on its own.
  3. Business platforms create a learning platform that spawns communities of interest and communities of practice. A multitude of social networks and communities surrounding Apple’s iPhone business platform. Numerous Apple-sponsored and independent communities trade ideas, IP and practices daily and cajole and attempt to predict Apple’s next move.
  4. Business platforms generate untold business analytics for the platform’s owner and participants. Because all elements of the business platform are networked, the platform generates a prodigious amount of valuable information about the product, the ecosystem, the participants, and the customers in realtime. Apple knows the score for each element of the platform and uses the information to fix, improve, extend and enhance the product and ultimately delight the customer.
  5. Business platforms generate a superior portfolio of strategic options. The generation and management of options remains at the core of business strategy. Business growth depends upon the portfolio of business options available to the executive team. Traditional business models depend upon internal knowledge and internal innovation processes to generate new product ideas, new ventures and appropriate acquisition strategies for growth. Such traditional processes are anemic when compared to an enterprise armed with a 21st Century collaborative business platform. Who has more options for the future, Apple or Motorola? Who has a richer options portfolio on potential products and services? Who has better information by which to value those options? For an investor looking to make an investment, which company has greater future value? The company with a business platform or a company with a 20th Century, product-focused, internally driven innovation engine. I know my pick.

In subsequent blogs I will examine what we’ve learned about managing business platforms and dealing with negative and positional externalities, what traditional firms must do to change and embrace the rise of business platforms, the power of business platforms in Collaborative Enterprise Management, and the role that business platforms play in continuous business strategy.

To Apple I say: mega kudos, keep up the good work – it’s good for the economy and good for business. Thanks for letting the cat out of the bag.



10 Comments

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Some of the Best of Web Media – August 10, 2009
Aug 10, 2009 16:36

[...] Apple and the Rise of Competitive Business Platforms – What Other Companies Must Know Forget about the secrecy bulls**t. This is the 21st Century business model. [...]

Ed
Aug 11, 2009 9:18

Nick,

I think you forget one major item for the 21st Century business model. They way to the company is through the consumer, not through IT. I know that this will scare many CIO’s, but the real truth here is that Apple does an extremely poor job selling to IT organizations, but a fantastic job selling to the Consumer. The demand of these “business” platforms is pushed into IT and not pushed from IT.

Many companies are slow to adopt technologies that enable the right collaboration because the baby boomer generation did not like failure of technologies at any point. The next work generation is much more fluid, if it does not work, they change the tool. IT organizatoins need to get used to that aspect.

Nick Vitalari
Aug 11, 2009 13:48

Ed, you make a very good point regarding Apple and their relationship with IT organizations – although the iPhone is making inroads into corporate IT organizations — where the Macintosh has not made significant inroads in the past. More importantly, the point you make about IT organizations resonates with my experience as well. While some of the leading IT organizations understand your point, many IT organizations have yet to adapt to the “consumerization of IT.” Whereas in the past much of the architecture and systems design was driven by the Defense Industry and Corporate needs, today the vast majority of investment is driven by consumer needs and desires. My colleagues and I did a major study over the past 18 months on employee computing in large scale organizations looking at the full spectrum of issues from competitiveness, architecture, security, privacy, economics, procurement, customer experience etc.. One finding was that many employees have a better computing environment at home than at the office. At another level, the IT community is only beginning to embrace the new architectures inherent in the new collaborative models of computing as expressed in Apple’s business platform and its products. Others have raised this concern as well – see Bob Evans article on Twitter. Some of the concerns are legitimate such as security, privacy, IP management, and open source liability, etc. One concern is not — limited scalability of the architectures — Facebook has put that issue to rest with over 250 million members – so too Amazon’s ECC. Nonetheless, the older IT architectures tend to be very rigid and can significantly limit business model innovation — as you also noted. The handwriting is on the wall — companies need to upgrade. As one CEO put it to me, “I can’t take this 20th Century company much further into the 21st Century.”

Naumi Haque
Aug 12, 2009 17:23

Excellent post Nick. I would, however say that Apple’s investments in form factor and design are equally responsible for its success. As an example, if a company like IBM (or Lenovo) had decided to employ an identical platform strategy, they wouldn’t be nearly as successful. The fans are fickle – consumers want cool toys and Apple has consistently delivered on the cool factor as well.

Wikinomics» Blog Archive » Embracing the Potential of the New Public-Private Ecosystem
Aug 25, 2009 10:09

[...] Apple and the Rise of Competitive Business Platforms – What Other Companies Must Know [...]

business ecosystems « Business Models « Innovation Leadership Network
Sep 8, 2009 6:09

[...] a nice post on the wikinomics blog which discusses how Apple has built an effective business platform surrounding the iPhone. The post [...]

Wikinomics» Blog Archive » Collaborative Platforms and Open Data as Keys to the New Public-Private Ecosystem
Sep 10, 2009 10:45

[...] Apple and the Rise of Competitive Business Platforms – What Other Companies Must Know [...]

Wikinomics – Mobile Platform Magic: Five Things Executives Must Know about Mobility
Mar 16, 2010 15:12

[...] do not see how a mobile device combined with a business platform (elsewhere I have discussed the characteristics and success factors of business platforms) can lead to new business models, entirely new [...]

haydn
Jun 10, 2010 19:10

Hey Nick – came to this post late of course and wanted to make a point or two and maybe reignite the debate.

I think Ed’s point is quite right – if you look at Apple’s approach to the iPhone it has been so totally customer centric in its design (though appalling in the contract customers sign up to – a very big customer negative). By the way anyone remember 2007 when it looked like the iPhone might tank? The iPhone was in crisis in those early days. What really worked for the iPhone initially was the endorsement of key Valley figures (Arrington and Om Malik in particular). When Arrington and Malik started to declare for Android, Android’s ecosystem began perking up!

Let’s not rule out then that there are swarm factors at work here. Apple had some powerful messengers onside.

We should be aware that the web is liable to create swarms in unpredictable ways – what Apple has done is give this kind of randomness a great chance of happening but nonetheless chance played a large role as it does in all ecosystems (I am sure people will begin analyzing the complexity theory aspect of this again soon :-)

Apple has also done a great job of positioning itself as the change agent – and that is part of its lifestyle appeal (which I think Naumi has got right with this proviso – it is not just a cool product, it is a lifestyle statement). Apple v IBM, Apple v Microsoft, Apple v Nokia. We are all rebels, just like Mick Jagger.

Finally I don’t believe all of Nokia’s strategy is related to the iPhone (it has been very slow into tablets for example). Nokia set its strategy in the context of a global industry with unprecedented economies sf scale (there are soon to be 1.1 billion mobile subscribers in India alone – which means a lot of handsets). In this context Apple is a sideshow – though one that takes some of the gloss of Nokia.

I raise this question – is Nokia in self-destruct mode with its platform strategy? By driving device prices down to cost and relying on service revenues via plays like Ovi doesn’t it open itself up to competition from Apple when it really doesn’t have to, and potentially open itself up to competition from many other sources. In the European economy Nokia retains goodwill for now but do we want to be dependent on it for our mobile content and apps? I can’t see that Nokia has that kind of prestige.

Wikinomics – Survey: How are you using Facebook, Twitter, smart phones, and other technology platforms?
Sep 29, 2010 15:22

[...] about why platforms are important and what makes them successful, read Nick Vitalari’s posts Apple and the Rise of Competitive Business Platforms – What Other Companies Must Know and 12 Critical Success Factors for Business [...]

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