Information Systems in Organizations 5.1 Platforms and Network Effects

Administrivia Learn IT #5 is due in next week (4/13) Final Exam – 50 minute exam – Wednesday 5/4 - 5:45-6:45 – No dice on changing the time

Administrivia Student Feedback Forms – Please do fill them out, they are important – They also help us restructure the course

Where are We?

Agenda Two topics for today – Platforms and network enabled commerce – The Cloud

Build Your Own Study Guide What is a Platform? What is a Platform? What are 3 key points from this reading? What are 3 important details from this reading? Students will be called upon at random

Build Your Own Study Guide Business Model Analysis, Part 2: Platforms and Network Effects Business Model Analysis, Part 2: Platforms and Network Effects What are 3 key points from this reading? What are 3 important details from this reading? Students will be called upon at random

Build Your Own Study Guide What Makes Uber Different from Android? How to Make Sense of Platform Businesses What Makes Uber Different from Android? How to Make Sense of Platform Businesses What are 3 key points from this reading? What are 3 important details from this reading? Students will be called upon at random

Build Your Own Study Guide Zynga tries to reinvent itself with a new smartphone strategy game Zynga tries to reinvent itself with a new smartphone strategy game What are 3 key points from this reading? What are 3 important details from this reading? Students will be called upon at random

What is a Platform? A platform is an environment provided by an intermediary (proprietary or hosted) encompassing infrastructure and rules to facilitate users’ interactions with each other. This is a relatively useless definition: – A platform is an environment, with rules, that allows parties to transact, i.e. mediates transaction – It’s value is often determined by the strength of its network A platform is NOT a business model, despite what the readings claim

Network? Network users access a common platform that facilitates their interactions Platforms are subset of components and rules employed by users in most of their transactions Users rely on a platform when doing so is more efficient than unmediated bilateral dealings

12 User AUser B Network User AUser B Components - Hardware - Software - Services Rules - Standards - Protocols - Policies - Contracts Architecture Platform

What is a Network Effect? In economics, a network effect is defined as the change in utility one user of a good experiences when another person is added or subtracted from the network. This is formally defined by Metcalfe’s law v = n(n-1)

Where might we see this “network effect”?

Well, what are the benefits? Rules are good Increased efficiency – Reduced search costs – Protection from opportunism

More examples of Platform Mediated Networks Connect networks of customers / users, and are not limited to information industries: Financial services (e.g., stock exchanges, credit cards, ATMs), Health care (e.g., HMOs) Energy (e.g., the power grid) Transportation (e.g., airlines, container shipping, gasoline stations) Retailing (e.g., shopping malls, barcodes). A diverse array of matchmaking businesses mediate network transactions, including auctioneers, executive recruiters, realtors, and travel agencies. Enable communication & commerce

Platform Business Models Proprietary – Single provider with exclusive control over technology, standards, pricing leverage (e.g. eBay, Federal Express, Google) Shared – Multiple providers collaborate in developing technology, then compete in differentiating services (e.g. Xbox, Windows, cellular LTE)

Now, we have two problems How do we start? How do we win? – Can there even be a winner?

Winner Take All Network effects are positive and strong Multi-homing costs are high for both sides Demand for differentiated features is weak

BREAK OR POWER THRU? Break Time

Information Systems in Organizations 5.2 Cloud Computing

Build Your Own Study Guide Cloud Computing 101 Cloud Computing 101 What are 3 key points from this reading? What are 3 important details from this reading? Students will be called upon at random

Build Your Own Study Guide How to Choose Your Cloud Service Provider How to Choose Your Cloud Service Provider What are 3 key points from this reading? What are 3 important details from this reading? Students will be called upon at random

Build Your Own Study Guide Cloud failures will happen. Are you ready? Cloud failures will happen. Are you ready? What are 3 key points from this reading? What are 3 important details from this reading? Students will be called upon at random

Enterprise Cloud Computing Computing On Demand

Enterprise Cloud Computing Technology as a “utility” Capital Expenditures become Operating Expenditures Enables universal, global, & mobile collaboration Source:

Why would we do this? Specialization of labor (Smith, 1776) and gains from trade (Ricardo, 1809)

Why would we do this? What is the cost of Amazon being down for one minute? 66,000+ dollars (2015 estimate)

Big Players in Cloud Computing Amazon Web Services (AWS) Google Cloud Platform Oracle And many others

Cloud Computing Models IaaS: Infrastructure as a Service PaaS: Platform as a Service SaaS: Software as a Service Various other models exist (XaaS)

IaaS, PaaS, SaaS Explained IaaS: “host” – you pay for the infrastructure but you are responsible for all application development and deployment and support activities. PaaS: “build” – you pay for the infrastructure and for a developing platform that supports many areas of deployment so you can just focus on programming your application. SaaS: “consume” – you pay for an entire solution that is fully built, deployed, and distributed over the web for you to consume on demand. You have no infrastructure, development, deployment, or support responsibilities.

Which environment would be best if your use case requires a lot of customization and proprietary code to support a unique business model, and you have a big budget and plenty of developing, back-end, and support talent? Which environment would be best if you need a simple, rapid, high-availability solution to answer a standard business problem? Which environment would be best if you need to rapidly deploy your own application but need the support of a developing environment and automated support to your code?

IaaS (Infrastructure as a Service) “Online services that abstract user from the detail of infrastructure like physical computing resources, location, data partitioning, scaling, security, backup, etc.” The user is responsible for installing and maintaining the operating system and the application software. Pay for resources allocated and consumed, much like a utility service.

IaaS: Amazon Web Services: EC2 The gold standard in IaaS Many services you use run on AWS Hundreds of success stories Click image to watch demo

AWS Case Study: Johnson & Johnson Click image to watch video

AWS Case Study: Johnson & Johnson What we learned from watching the video: – What are J&J main product offerings (pharmaceuticals and medical devices) – How J&J have achieved global growth (M&A) – Forces in the competitive landscape: demand for efficiency, transparency, healthcare reform, emerging markets (Sounds like Michael Porter 5 Forces) – What AWS did for J&J’s technology architecture (hard and soft benefits?) – Servers on demand & Virtualization – Compliance with FDA, HIPPA, CMS – Insights (how does big data create value by providing insights?) – BYOD trend

Google Cloud Platform: Compute Engine Built on the same infrastructure as Google search engine, Gmail, YouTube: “Powered by Google” Scalable virtualization on demand Pay per consumption, like a utility, cents per hour of usage Each virtual machine instance is equipped with resources like disk, network, firewall, etc.

PaaS (Platform as a Service) Build and deploy applications to the web quickly and without the significant capital expenditures and complexity of investments in infrastructure and support layers Platform includes security layers, databases, operating systems, and developing/execution environments Rapid deployment Automatic Scaling Integration with developing tools Pay for what your application consumes

PaaS: Google App Engine (2008) The gold standard in PaaS Supports Python, Java, PHP, and Go Includes free quotas Pay per application consumption Hundreds of apps built and deployed

GCP Case Study: Snapchat Snapchat has been valued at ~$15 Billion All it offers is an app to share temporary, fleeting images Why is scalability so important? How might demand surge during events like Superbowl, Academy Awards, Elections, etc.? << Click image to watch video

PaaS: AWS Elastic Beanstalk (2011) Click image to watch demo Launched 3 years after (and in response to) Google App Engine Supports more programming languages than Google Uses similar quotas and pay per consumption model

SaaS (Software as a Service) Cloud based software Central, multi-tenant or virtualization architecture supports scalability Distributed via web browsers; available anywhere with an internet connection Compatible with multiple operating systems and devices Easy to use, collaborate, update, and sync Revenue model is subscription based

Examples of SaaS SalesForce CRM tool NetSuite CRM and ERP combined service Constant Contact Marketing automation tool GoToMeeting Conferencing solution Google Docs Collaboration tool DropBox Storage solution Adobe Creative Cloud Suite of creative solution Microsoft 365 Suite of creative solutions

SaaS Subscription Types Monthly billing Term billing Freemium: limited version free forever (usually very low conversion rate) Free Trial: full version free for a period (conversion rates should be higher) Paywall: similar to free trial, content blocked by quota Freemium This is called versioning… In principle it is second degree price discrimination

In class exercise AWS Case Study: Netflix Questions based on the video: How has AWS solved Netflix’s technology needs? What are virtualization instances? What are the benefits of scalability in architecture? What are some other potential uses for web services?

Recap Today we discussed platforms and cloud computing – What is a platform? – What affects its value? – When will the Winner Take All? – What are the reasons we migrate the cloud? – What can we do when we are there?