Tech Platforms

for Value Investors

Rishi Gosalia
October Quest 2017

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Case Study

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Rise of Android / iOS

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Blackberry’s Demise

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Nokia’s Demise

“Nokia, our platform is burning...The

battle of devices has now become a
war of ecosystems”

- Stephen Elop, Nokia CEO, 2011

Source: Burning Platform memo] 5

Ecosystems Emerge as Winners

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iOS / Android: Platform Ecosystems

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Top 15 Publicly Listed Platforms

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Significantly Better Businesses

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What are Platforms?

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What is a Platform?

● Connects Mutually Dependent Groups.

● Reduces Transaction Costs.
● Enables Innovation.

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Stock Exchanges: Trading Marketplaces

The oldest stock exchange in the world in Antwerp, Belgium, in NYSE, 1929
1460.
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Newspapers: Platform for Readers and Advertisers

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Payment Processors: Consumers/Banks/Vendors

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What has changed in last 20 years?
Technology is enabling Platforms to grow globally at scale!

● Moore’s Law
● Internet
● World Wide Web
● Broadband Communications
● Software Programming Languages and OS.
● Cloud

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How Platforms Work?

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Core Functions of a Platform
● Matchmaking
● Building Liquidity
● Providing Functionality
● Setting Rules & Standards

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Network Effects
● Product Companies: Supply Economies of Scale
● Platforms: Demand Economies of Scale.
○ Benefit from Frictionless Entry
○ Liquidity Provider
○ Effective Curator

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Unique Pricing Economics
● More complicated than product companies.
● Accept financial loses serving one group (subsidy side)
to profit from the other group (money side).

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How to Expand Platform’s Moat?

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Porter’s Five Forces - Resource Based View

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Hypercompetition

● Sustainable advantage based on

ownership of resources is illusory.

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How Platforms Can Sustain Competitive Advantages
● Prevent Multihoming
● Foster Innovation and Capture Value
● Leverage Value of Data
● Thoughtful M&A

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When Platforms are Winner-Take-All?
● Supply Economies of Scale
● Strong Network Effects
● High Multihoming Costs
● Lack of Niche Specialization

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References

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