Invisible Engines: How Software Platforms Drive Innovation and Transform Industries

by David S. Evans, Andrei Hagiu, Richard Schmalensee

Overview

Harnessing the power of software platforms: what executives and entrepreneurs must know about how to use this technology to transform industries and how to develop the strategies that will create value and drive profits.

Software platforms are the invisible engines that have created, touched, or transformed nearly every major industry for the past quarter century. They power everything from mobile phones and automobile navigation systems to search engines and web portals. They have been the source of enormous value to consumers and helped some entrepreneurs build great fortunes. And they are likely to drive change that will dwarf the business and technology revolution we have seen to this point. Invisible Engines examines the business dynamics and strategies used by firms that recognize the transformative power unleashed by this new revolution—a revolution that will change both new and old industries.

The authors argue that in order to understand the successes of software platforms, we must first understand their role as a technological meeting ground where application developers and end users converge. Apple, Microsoft, and Google, for example, charge developers little or nothing for using their platforms and make most of their money from end users; Sony PlayStation and other game consoles, by contrast, subsidize users and make more money from developers, who pay royalties for access to the code they need to write games. More applications attract more users, and more users attract more applications. And more applications and more users lead to more profits.

Invisible Engines explores this story through the lens of the companies that have mastered this platform-balancing act. It offers detailed studies of the personal computer, video game console, personal digital assistant, smart mobile phone, and digital media software platform industries, focusing on the business decisions made by industry players to drive profits and stay a step ahead of the competition. Shorter discussions of Internet-based software platforms provide an important glimpse into a future in which the way we buy, pay, watch, listen, learn, and communicate will change forever. An electronic version of this book is available under a Creative Commons license.

Product Details

ISBN-13:	9780262262644
Publisher:	MIT Press
Publication date:	02/15/2008
Series:	The MIT Press
Sold by:	Penguin Random House Publisher Services
Format:	eBook
Pages:	408
File size:	1 MB
Age Range:	18 Years

About the Author

David S. Evans is Managing Director of the Global Competition Policy Practice at LECG LLC and part of Market Platform Dynamics, a management consulting firm that focuses on strategic analysis and product design for platform-based firms.

Richard L. Schmalensee is John C. Head III Dean and Professor of Management and Economics at the MIT Sloan School of Management. He is co-editor of Management: Inventing and Delivering Its Future (MIT Press, 2003).

Table of Contents

Preface     vii
Acknowledgments     xi
Invisible Engines     1
Speaking in Code     17
Both Sides Now     43
Dropouts and Evangelists     81
PONG     115
The Palm Economy     155
Ba-BA-Ba-BAAAAH     183
Dangerous Intersections     213
With a Little Help...     245
Some Lunches Are Free     275
When Bigger Is Better     303
Swept Away     337
Selected Bibliography     367
Index     377

What People are Saying About This

"As the power behind every kind of digital device, software platforms truly are the invisible engines of the information age. In their absorbing and comprehensive account of the evolution and economics of platform technologies, Evans, Hagiu, and Schmalensee essentially map out the still-evolving history of the third industrial revolution."
--Craig Mundie, Chief Technical Officer, Microsoft

"Most high-tech markets today revolve around software and are 'two-sided'--they require end-users as well as producers of complementary products such as software applications or digital content to support one platform over another. Invisible Engines is by far the broadest study of this subject to date. The authors probe expertly into the economics and technology underlying these markets as well as what business models and pricing strategies seem most likely to work. A very impressive book."
--Michael A. Cusumano, author of The Business of Software and coauthor of Platform Leadership

" Invisible Engines describes the economics of operating systems, those fiendishly complex pieces of software that provide the nervous system for computers, cell phones, game consoles, and a host of other devices. It is a must-read for anyone who wants to understand the economic forces that drive high-tech industries."
--Hal Varian, Haas School of Business and Department of Economics, University of California, Berkeley

"Invisible Engines is a highly sophisticated yet readable exploration of how companies do, can, and should deliver great value through software platforms. By combining economics and management, the authors deliver deep insights into the multifaceted world of software." --David B. Yoffie, Max and Doris Starr Professor of International Business Administration, Harvard Business School

"Google, eBay, mobile phones, and the Xbox have a lot more in common that you might suspect. Invisible Engines builds on recent thinking about two-sided platforms, including the authors' substantial contributions to it. Evans, Hagiu and Schmalensee beautifully blend economics, history, and business analysis to shed light on how businesses and policy makers should design their strategies. This exciting book will be a key resource for practitioners and academics interested in knowing how software platforms work and where information technologies are heading."
--Jean Tirole, Institut d'Economie Industrielle, University of Toulouse

Jean Tirole

Google, eBay, mobile phones, and the Xbox have a lot more in common that you might suspect. Invisible Engines builds on recent thinking about two-sided platforms, including the authors' substantial contributions to it. Evans, Hagiu and Schmalensee beautifully blend economics, history, and business analysis to shed light on how businesses and policy makers should design their strategies. This exciting book will be a key resource for practitioners and academics interested in knowing how software platforms work and where information technologies are heading.

Hal Varian

Invisible Engines describes the economics of operating systems, those fiendishly complex pieces of software that provide the nervous system for computers, cell phones, game consoles, and a host of other devices. It is a must-read for anyone who wants to understand the economic forces that drive high-tech industries.

Craig Mundie

As the power behind every kind of digital device, software platforms truly are the invisible engines of the information age. In their absorbing and comprehensive account of the evolution and economics of platform technologies, Evans, Hagiu, and Schmalensee essentially map out the still-evolving history of the third industrial revolution.

David B. Yoffie

Invisible Engines is a highly sophisticated yet readable exploration of how companies do, can, and should deliver great value through software platforms. By combining economics and management, the authors deliver deep insights into the multifaceted world of software.

Endorsement

Most high-tech markets today revolve around software and are 'two-sided'they require end-users as well as producers of complementary products such as software applications or digital content to support one platform over another. Invisible Engines is by far the broadest study of this subject to date. The authors probe expertly into the economics and technology underlying these markets as well as what business models and pricing strategies seem most likely to work. A very impressive book.

—Michael A. Cusumano, author of The Business of Software and coauthor of Platform Leadership

From the Publisher

As the power behind every kind of digital device, software platforms truly are the invisible engines of the information age. In their absorbing and comprehensive account of the evolution and economics of platform technologies, Evans, Hagiu, and Schmalensee essentially map out the still-evolving history of the third industrial revolution.

—Craig Mundie, Chief Technical Officer, Microsoft

Google, eBay, mobile phones, and the Xbox have a lot more in common that you might suspect. Invisible Engines builds on recent thinking about two-sided platforms, including the authors' substantial contributions to it. Evans, Hagiu and Schmalensee beautifully blend economics, history, and business analysis to shed light on how businesses and policy makers should design their strategies. This exciting book will be a key resource for practitioners and academics interested in knowing how software platforms work and where information technologies are heading.

—Jean Tirole, Institut d'Economie Industrielle, University of Toulouse

Invisible Engines describes the economics of operating systems, those fiendishly complex pieces of software that provide the nervous system for computers, cell phones, game consoles, and a host of other devices. It is a must-read for anyone who wants to understand the economic forces that drive high-tech industries.

—Hal Varian, Haas School of Business and Department of Economics, University of California, Berkeley

Invisible Engines is a highly sophisticated yet readable exploration of how companies do, can, and should deliver great value through software platforms. By combining economics and management, the authors deliver deep insights into the multifaceted world of software.

—David B. Yoffie , Max and Doris Starr Professor of International Business Administration, Harvard Business School

Most high-tech markets today revolve around software and are 'two-sided'they require end-users as well as producers of complementary products such as software applications or digital content to support one platform over another. Invisible Engines is by far the broadest study of this subject to date. The authors probe expertly into the economics and technology underlying these markets as well as what business models and pricing strategies seem most likely to work. A very impressive book.

—Michael A. Cusumano, author of The Business of Software and coauthor of Platform Leadership

Michael A. Cusumano

Most high-tech markets today revolve around software and are 'two-sided'they require end-users as well as producers of complementary products such as software applications or digital content to support one platform over another. Invisible Engines is by far the broadest study of this subject to date. The authors probe expertly into the economics and technology underlying these markets as well as what business models and pricing strategies seem most likely to work. A very impressive book.

Editorial Reviews

The prose is accessible, even engaging. And the shrewd analysisbacked up by a great deal of research and a precise narrative of recent business historymore than makes up for the lack of office politics and entrepreneur heroics. Any executive looking to turn his company's product into an engine of growth will want to consult Invisible Engines.—Om Malik, Wall Street Journal—

From the Publisher

The prose is accessible, even engaging. And the shrewd analysisbacked up by a great deal of research and a precise narrative of recent business historymore than makes up for the lack of office politics and entrepreneur heroics. Any executive looking to turn his company's product into an engine of growth will want to consult Invisible Engines.

—Om Malik, Wall Street Journal

Reviews

The prose is accessible, even engaging. And the shrewd analysisbacked up by a great deal of research and a precise narrative of recent business historymore than makes up for the lack of office politics and entrepreneur heroics. Any executive looking to turn his company's product into an engine of growth will want to consult Invisible Engines.

Wall Street Journal - Om Malik