Let's continue our exploration of digital platform. In the last lesson, we discussed how to extend a platform with open innovation and the involvement of third party developers. Implicitly, in the discussion, there's a tension between innovation and control. The platform owner wants to keep things under control. To understand this tension, we're going to use two new concepts. The first is generalivity that entails a view of maximizing the innovation of compliments. The other concept is control, which refers to control for quality and to maximize value for the platform provider. Generativity is related to the five layers that we talked about before. Another term used is layered modular architecture. Within a layered modular architecture, a firm seeks to attract different partners to design and develop new components outside a platform core. The generativity of an architecture thus come from a firm's ability to design a platform that can encompass a large number of new components. The more different parts and components, the more generative the platform becomes. The power of generativity is fully realized when it's paired with demand side economics of scale. As a result, innovation within a layered modular architecture is distributed, not only among similar firms, but across firms of different kinds. These firm's innovation activities influence each other by being reciprocal and recursive. Thus, the innovation is the demand side based. It's also distributed because the primary source of value creation comes with different reasons across layers. In this environment, an essential capability is the ability to design a digital platform that inspire and create an interesting and distributed network to maximize the generative potential. In managing such contexts, a firm needs to have the capability to create new uses of its services and platform. Just think of Amazon who was a bookstore in the beginning, but now sells basically everything. This have implications for those who innovates and what is innovated. The value by generativity is that it adds unforeseen properties to the platform, such as the capability to recombine data sources, to seemingly automatically generate assembly or redistribute content. Generativity allows individuals, groups and other firms to co-create services, applications, and content. This can in principle combine any information, behaviors, or states available on the platform. This opens up for radical new business models. Just take eBay or PayPal as examples. New services have emerged, enabled by lower cost and global reach, encouraging wide participation in the development of complementary components and new markets. The outcome has been an unimaginable variety of new services, including search, e-commerce, social networking, information sharing, payments and lending, just to name a few. Today's platform market has become a dynamic mashup of unforeseen dependencies among content, devices, networks, and partners. PayPal exemplifies this change. The payment service uses a sophisticated digital platform seamlessly to integrate with websites from which music, videos, movies, application, magazines and books can be purchased. The combination of PayPal and e-commerce radically redefines forms of control, through device standards, storage medium, and transmission formats and blurs the boundaries between payment and e-commerce. As a result, people exerts new forms of control by coordinating the evolution of the platform for both developing and delivering new services. So there are endless of opportunities to innovate, but it is here the tension arises. So on one hand, the platform provider seeks to maximize innovation through open innovation and layer module architecture. But on the other hand, the platform provider seeks to keep some parts of the platform under strict control. The platform architecture provides a system to the platform owner. The layered architecture enforces a governance schemer. So, every layer in the digital platform include designed rules, data control and govern the platform and its components. Control options can be discussed along different types of governance design and degree of control in the distribution of platform derivatives. Governance design can be measured as the ability of, and degree to which third parties- >> [INAUDIBLE] >> Okay, governance design can be measured as the ability of, and degree to which third parties co-develop and maintain a digital platform. Platform owners, which normally follow the closed notion, develop and set their rules which potentially can exclude third parties. To illustrate close platform development, Barclay's mobile payment service Pingit shares these traits, as it is a proprietary and self-developed mobile payment platform. On the contrary, PayPal use an open platform development with an active development forum and repository service for code sharing. By having an online presence on this service, the platform owner and its third-party developers are co-developing the platform in a moderated process. Platform derivates distribution refers to the ability and degree of freedom for the third parties in distributing their platform developments. Digital platforms also difference in how platform derivatives are distributed. The moderated approach allows the platform owner to control and channel the distribution of the platform derivatives. As an example, PayPal request prior approval from third parties to use its payment API, to exclude for example, undesirable merchants. The free approach allows third parties to distribute their services without prior approval by the platform owner.