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Quantity or quality? Value creation in two-sided platforms
Abstract and Figures
Two-sided platforms emerged as a more common business model, mainly due to the spread of digital technologies. Economic literature suggests a 'quantity'-driven strategy to enhance the cross-side network externalities at the basis of the system. Nevertheless, the widespread of this business model lets emerge different peculiarities worth exploring. This research aims to examine the role of a 'quality'-driven strategy in welcoming players on the platforms' sides in the value perceived by the other side. The research is based on a qualitative study develop through eight case studies based on primary and secondary sources. Five of them let emerge a 'quantity'-driven strategy, while three of them a 'quality'-driven strategy, which is presented and discussed regarding the type of platforms. From a theoretical perspective, it distinguishes 'quantity'-driven from 'quality'-driven strategies in bringing players onboard on the platform, expanding the literature that considered quality as a main characteristic of the platform provider, rather than the players on it. Moreover, it suggests a strong link with the lifecycle phase. From a managerial perspective, it highlights operational tactics for both 'quantity'-driven and 'quality'-driven strategies and-more importantly-it suggests a possible integration of the two strategies. ARTICLE HISTORY
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... Parker, Alstyne, and Jiang 2017). To wit, most studies have not probed the origins and logic of creating indirect effects, but instead have mainly focused on the number of users on either side (Karhu, Heiskala, and Ritala 2020;Trabucchi, Buganza, and Verganti 2021). Fourth, previous analyses have examined well-established, successful platforms (Boudreau 2012;Karhu, Gustafsson, and Lyytinen 2018;Parker, Alstyne, and Choudary 2016). ...
... These findings extend previous research on mechanisms that promote growth on digital platforms endowed with direct network effects (Afuah 2013;Gawer 2009;Thomas, Autio, and Gann 2014;Trabucchi, Buganza, and Verganti 2021). For instance, previous research suggests that the quantity and density of user networks play an important role in social media platforms (Evans 2009;Evans and Schmalensee 2016). ...
... This heterogeneity increases the importance of promoting the diversity and quality of content (cf. Trabucchi, Buganza, and Verganti 2021), in addition to taking care of a sufficient number of providers. In this regard, moves addressing multihoming (for market penetration) and content acquisition (for improved market presence) are very important. ...
Digital platforms play a central role in today’s market-based competition. To build a successful platform, entrepreneurs must pursue indirect network effects and shape multiple sides of the platform. However, the extant literature provides only a meager understanding of how entrepreneurs can create such indirect network effects. To better understand how this can be done, we conduct a case study that longitudinally traces 16 years of digital game platform growth as the entrepreneurs bring the platform successfully into multiple markets. The analysis advances theorising of the entrepreneurs’ repertoires of moves seeking to increase the number and variety of platform participants conducive to creating indirect network effects. The findings indicate that early moves focus on creating technical solutions that overcome technical challenges and permit platform scaling, whereas later moves seek to create a more flexible and generalisable platform architecture that allows a wider range of interactions. The findings make several contributions to the digital entrepreneurship literature by synthesising a dynamic model of entrepreneurs’ repertoire of competitive moves that will induce indirect network effects.
... Firstly, the results highlight that an appropriate coupon strategy increases the number of participants and their utility. us, it is verified that the impact of coupon on the externalities is not only a simple question of "quantity" but also a question of "quality", which extended the conclusion of Trabucchi et al. [20]. Although the platform is an information intermediary, it can optimize the trading results of participants, using strategies such as coupons, and promote the healthy development of the entire trading system. is result also complements the research of management perspective on two-sided platforms [12]. ...
... Two primary streams of the literature relate most closely to our work: studies of two-sided markets and studies of the coupon strategy. First, several branches of the literature on two-sided markets yield insights; Trabucchi et al. [20] present an overview of the dynamics governing value mechanisms within a platform through the theoretical lens of the business model by using two prominent cases of multisided platforms. e other research also includes network externalities, network effects, and multiproduct pricing. ...
... However, studies of how to promote coordination in two-sided markets are scarce [2][3][4] as noted earlier. We study the influence of coupon strategy on the number of participants and their utility, and it is verified that the impact of coupons on the externalities is not only a simple question of "quantity" but also a question of "quality" [20]. ...
Two-sided markets serve as information intermediaries by connecting participants on both sides. In this study, we focus on the coordination of participants in the P2P lending market using a coupon strategy as an incentive to attract investment. Using a two-sided market model, we find that when a platform adopts the coupon strategy, (i) the platform utility and participants’ utility are both greater and (ii) the number of participants is greater. In addition, as most research on two-sided markets and coupon strategy focuses on theoretical models, our study provides empirical support using data from Renrendai.com over 2018 to 2019.
... This paper shows that the value in two-sided platforms is based not just on their ability to reduce transaction costs and resolve frictions in the market (Parker, Van Alstyne, and Choudary 2016;Trabucchi, Buganza, and Verganti 2020), which represent a combination of two basic and complementary value propositions associated with a match-making mechanism. This study contributes to the academic debate on the peculiarities of digital two-sided platforms, highlighting dedicated drivers of value creation (the role of trust, data-driven opportunities, personalisation and the community feeling), differentiating them from previous studies mainly through their peculiarity of building one on the others to enhance the main value proposition of a two-sided platform: the matchmaking process, rather than becoming design themes as previous literature suggests (Amit and Zott 2015). ...
... Personalisation improves the efficiency of the match-making mechanisms. As the number of players increases on both sides, users may have difficulty in finding their right match (Trabucchi, Buganza, and Verganti 2020). At some point, individual drivers based on personalised data may increase the system's overall value, which leads us to the last driver: community building. ...
With the advent of the digital economy, two-sided platforms have gained significant momentum over the last two decades. Contrary to traditional businesses, two-sided platforms do not have linear value creation; instead, they create value by enabling interactions or exchange between two different groups of customers. This configuration creates challenges as well as opportunities and calls for an in-depth investigation in the digital context. This research investigates how digital platforms create value in two-sided platforms.
The paper is based on a multiple-case study of four leading digital companies. The sampling is based on a theoretical and replication logic. Both primary and secondary sources are used for the research.
This paper indicates that the value created by those digital platforms is based not only on their ability to reduce transaction costs and resolve frictions between two sides, but also on four other drivers (trustworthy environment, data-driven expansions, personalised services, and engagement mechanisms). These drivers enhance and enrich the basic value proposition of matchmaking. The four drivers build upon one another, bringing together two matching value propositions and forming a structure that is represented as the two-sided DNA.
The study investigated how small and medium enterprises (SMEs) create value in local supply chains. Specifically, the study focused on two initiators of value creation: entrepreneurial competences and supply chain trust. The authors analyse a cross-sectional survey of 294 SMEs in Uganda operating in the construction, furniture and fitting, food processing and agricultural sectors to test a number of hypotheses, using factor analysis and structural equation modelling. Results show that building value-driven supply chains requires SME owner-managers to build an optimal level of trust. Although trust is identified as a key factor in facilitating trade within local communities, different entrepreneurs’ perspectives alter how SME-owner managers assess trusted partners, determining different strategies and behaviours in building trust in customer, as opposed to suppliers’ relationships. In addition, findings show how operational cost is not a key value driver, indicating why SME-owners managers should instead focus on building trust.
Purpose
Over the past years – because of the huge impact of companies such as Airbnb and Uber – the concept of the platform became extremely popular in the business world. Still, the concept of the platform has been evolving for a long time in the management field, from internal platforms (like the famous case of Sony Walkman) to industry-wide platforms (like the case of computers with external software developers), up to transaction and two or multi-sided platforms (such as Airbnb and all the companies with a similar business model). Platforms are often considered disruptors in several industries, from accommodations to mobility to entertainment. Still, the disruptors in the creative world usually deal with the way in which they distribute content (Netflix or Spotify), rather than with the content itself. The purpose of this paper is to understand if and how platforms trategies can also be used in the creative industries.
Design/methodology/approach
This paper digs into the movie industry, studying the three most successful Superheroes sagas of the past two decades as follows: the Marvel Cinematic Universe (MCU), DC Comics and X-Men using a narrative approach. The three sagas are studied through network analysis to understand their “platform approach”.
Findings
The results show how platform strategies are relevant also in creative industries – defining the concept of “knowledge platform strategy” – and how they have a significant impact in terms of market performance. The MCU builds on a common knowledge through the various movies that enable the chance to rely on many of the platforms’ characteristics emerging from the literature.
Research limitations/implications
This research extends the concept of “platforms,” relying on the three kinds of platform defined in the managerial literature and introducing the “knowledge platform strategy” for creative industries. The main contribution is related to the extension of platforms in research fields where it has not been exploited. This opens up avenues for research both from a knowledge platform and creative industries perspectives.
Practical implications
Managers, working not only in creative industries but also in industries where a common knowledge basis may be leveraged to develop new products over time, may use the concept of “knowledge platform strategy” to rethink the new development process or knowledge management from a customer perspective.
Originality/value
This study explores a mature and relevant concept – the platforms – in a new filed, the creative industries using the case of Superheroes sagas, proposing a new perspective to explain the success of MCU while proposing a new platform strategy.
Two‐sided markets and digital platforms are becoming increasingly relevant in the modern scenario. Companies like Airbnb and Uber are inspiring many other firms in different fields that share their basic structure: they match two (or more) groups of customers. This research aims at exploring the innovation strategies companies such as these rely on to expand their basic structure towards more complex models. Being inspired by previous models in the field and considering the role that big data seems to play in these businesses, a first conceptual model is presented. Therefore, 100 companies—using mobile apps as the empirical setting—are explored in this research to understand the common behaviors concerning evolution. In the end, three strategies are presented: Supply (Side) Expansion, Transactional Advertising, and Data Trading. These strategies are further discussed to highlight two main directions of innovation—ecosystem innovation and data push innovation—which may be merged giving birth to multi‐sided epiphanies. The paper contributes to the literature showing various strategies and their implication to foster innovation on two‐sided platforms. Moreover, it shows possible ways to exploit the value embedded in the complex ecosystems of the relationships they create.
Platform-based business models have become such an essential pillar of today’s
economy that the term ‘sharing economy’ is now frequently used to describe the new
status quo. The success of platforms such as Airbnb, Blablacar or Shpock is evidence
of a seismic shift from an ownership society to a sharing society. However, only very
few platforms are able to accumulate a large and loyal following of customers. When
success hinges upon engagement, a large user base can make or break one of these
platforms. In our research we approach this challenge by researching platform loyalty
from a customer-centric perspective. We show the impact of different value perceptions
for customer-to-customer-based platforms through the use of a variance-based
structural equation model. By demonstrating how customer perception of emotional
value and quality value drive the loyalty of the platform, we are able to show that
factors other than price determine loyal usage among platform-based business
models.
Recent technological advances have enabled the emergence of novel platform business models based on digital marketplaces. Marketplaces like Airbnb or Uber offer platforms to connect previously
unmatched demand-side and supply-side participants through innovative forms of value creation, delivery and capture. While countless firms claim to offer the next 'Airbnb for X' or 'Uber for Y', we lack knowledge
about the defining characteristics of these business models. To close the gap, this paper provides a conceptually and empirically grounded taxonomy of marketplace business models. Applying a mixed methods approach, we first develop an integrative framework that integrates the value creation, delivery, and capture choices. Guided by the framework, the research systematically analyzes 100 randomly selected marketplaces with content analysis and binary coding. The gathered data is analyzed with cluster analysis techniques to develop a taxonomy for digital marketplace business models. The clustering process reveals six clearly
distinguishable types of digital marketplace business models and thus shows that there exists no one-size-fits-all approach to creating, delivering, and capturing value with digital marketplaces. We characterize these distinctive business model types by integrating the qualitative and quantitative insights to advance the understanding of platform business models.
In the last years, management scholars have looked into the phenomenon of disruptive innovation, mostly focusing on the characteristics that identify a disruptive innovation and on the managerial solutions that incumbent firms should adopt to respond to the threat of a disruptive innovation. However, studying the characteristics of the context in which a disruptive innovation unfolds remains an under-researched topic. To fill this gap, this exploratory study examines how the disruptive innovation phenomenon is influenced by a set of variables that shape the context in which it takes place. This is done through a historical analysis of Uber, a widely discussed example of disruptive innovation. The exploratory analysis suggests that the extant regulatory framework plays a key role in influencing the impact that Uber has had on the taxi industry. By doing so, the paper points to the importance - for future researchers - to
study disruptive innovation by carefully placing it in the regulatory context in which it takes place, given the importance that this aspect plays in influencing the anatomy of the disruption phenomenon.
Platforms have evolved beyond just being organized as multi-sided markets with complementors selling to users. Complementors are often unpaid, working outside of a price system and driven by heterogeneous sources of motivation — which should affect how they respond to platform growth. Does reliance on network effects and strategies to attract large numbers of complementors remain advisable in such contexts? We test hypotheses related to these issues using data from 85 online multi-player game platforms with unpaid complementors. We find that complementor development responds to platform growth even without sales incentives, but that attracting complementors has a net zero effect on on-going development and fails to stimulate network effects. We discuss conditions under which a strategy of using unpaid crowd complementors remains advantageous.
We live in a world awash with ideas. Thanks to open innovation, design thinking, crowdsourcing, and to digital technologies, organizations nowadays have easy access to an unprecedented amount of novel opportunities.
The consequence? Ideas are becoming a commodity. They are cheap.
To succeed in an overcrowded world we do not need one more idea. We need a meaningful vision.
A vision that helps us make sense in a novel way of this overabundance of opportunities; that allows to create the next big thing without getting lost in trying everything; that engages people into action towards a common direction.
This book explains how to take the first crucial step in any innovation journey: the design of a meaningful vision. It provides the mindset, the process, and the tools.
Leveraging on the experiences of firms such as Apple, Yankee Candle, Nest Labs, Philips, Gucci, Deloitte, the book shows how to create and nurture a project vision that is shared within an organization, actionable, and that people love.
We live in a world awash with ideas. Thanks to open innovation, design thinking, crowdsourcing, and to digital technologies, organizations nowadays have easy access to an unprecedented amount of novel opportunities.
The consequence? Ideas are becoming a commodity. They are cheap.
To succeed in an overcrowded world we do not need one more idea. We need a meaningful vision.
A vision that helps us make sense in a novel way of this overabundance of opportunities; that allows to create the next big thing without getting lost in trying everything; that engages people into action towards a common direction.
This book explains how to take the first crucial step in any innovation journey: the design of a meaningful vision. It provides the mindset, the process, and the tools.
Leveraging on the experiences of firms such as Apple, Yankee Candle, Nest Labs, Philips, Gucci, Deloitte, the book shows how to create and nurture a project vision that is shared within an organization, actionable, and that people love.
To widen user participation and increase profit, two-sided platforms may invest on value-added services (VASs) for users. Due to the cross-market network externality, the investment for one side would affect the utility of users on two sides, thus affect the demand and profit of the platform. In this paper, we investigate one-side VAS investment and pricing strategies for a two-sided platform. It is revealed that it is optimal to invest at the maximum level for any marginal investing cost below a certain threshold, and to decrease the investment when the marginal investing cost increases above the threshold. We find that compared with the case of no investment, the invested user side will always be priced higher, while the uninvested user side may either be priced higher or lower, depending on the relative magnitude of mutual cross-market network externalities. If both sides are priced higher after the investment, the price increment for uninvested user side could be larger than that for invested user side.
This paper investigates the competition between vertically differentiated platforms in two-sided markets. We assume the presence of two competing platforms producing either higher- or lower-quality devices for consumers. Each platform decides the price of its hardware device for consumers and the royalty rate for software developers. We find that, despite the existence of quality differences, the decisions by the platforms about royalty rates are symmetric and only hardware pricing is asymmetric. We also demonstrate that an equilibrium may exist in which a lower-quality platform can enjoy greater profit than a higher-quality rival when there are higher development costs associated with creating software to meet the needs of higher-quality devices.
Platforms have evolved beyond just being organized as multi-sided markets with complementors selling to users. Complementors are often unpaid, working outside of a price system and driven by heterogeneous sources of motivation—which should affect how they respond to platform growth. Does reliance on network effects and strategies to attract large numbers of complementors remain advisable in such contexts? We test hypotheses related to these issues using data from 85 online multi-player game platforms with unpaid complementors. We find that complementor development responds to platform growth even without sales incentives, but that attracting complementors has a net zero effect on on-going development and fails to stimulate network effects. We discuss conditions under which a strategy of using unpaid crowd complementors remains advantageous.
We present theoretical and empirical analyses of indirect network effects for a hardware market with vertically differentiated complementary goods. We demonstrate that the heretofore typical use of aggregate software counts can mis-measure the presence and/or magnitude of indirect network effects. We show this is true when there is correlation along the quality dimension between the marginal utility of software and either 1) the response of software supply to an increase in installed base, or 2) conditional variation in software availability. We illustrate this idea using a simple monopolistic competition model, and through empirical analysis of the 7th-generation console market.
We consider the role of the endogenous choice of platform quality in a broadcasting duopoly market where competing media platforms choose also their level of advertising. We compare the equilibrium levels of quality, advertising and welfare under private and mixed duopoly competition. We show that the welfare comparison between the private and mixed duopoly regimes depends, crucially, on the interplay between the net direct effect of advertising on welfare and the degree of substitutability between platforms. We also consider the effects on quality and welfare of recent policies tending to eliminate advertising as a way of financing publicly-owned platforms.
Two-sided exchange networks (such as eBay.com) often advertise their number of users, presumably to encourage further participation. However, these networks differ markedly on how they advertise their user base. Some highlight the number of sellers, some emphasize the number of buyers, and others disclose both. We use field experiment data from a business-to-business website to examine the efficacy of these different display formats. Before each potential seller posted a listing, the website randomized whether to display the number of buyers and/or sellers, and if so, how many buyers and/or sellers to claim. We find that when information about both buyers and sellers is displayed, a large number of sellers deters further seller listings. However, this deterrence effect disappears when only the number of sellers is presented. Similarly, a large number of buyers is more likely to attract new listings when it is displayed together with the number of sellers. These results suggest the presence of indirect network externalities, whereby a seller prefers markets with many other sellers because they help attract more buyers.
How can firms profitably give away free products? This paper provides a novel answer and articulates trade-offs in a space of information product design. We introduce a formal model of two-sided network externalities based in textbook economics—a mix of Katz and Shapiro network effects, price discrimination, and product differentiation. Externality-based complements, however, exploit a different mechanism than either tying or lock-in even as they help to explain many recent strategies such as those of firms selling operating systems, Internet browsers, games, music, and video.
The model presented here argues for three simple but useful results. First, even in the absence of competition, a firm can rationally invest in a product it intends to give away into perpetuity. Second, we identify distinct markets for content providers and end consumers and show that either can be a candidate for a free good. Third, product coupling across markets can increase consumer welfare even as it increases firm profits.
The model also generates testable hypotheses on the size and direction of network effects while offering insights to regulators seeking to apply antitrust law to network markets.
We analyze a model of imperfect price competition between intermediation service providers. We insist on features that are relevant for informational intermediation via the Internet: the presence of indirect network externalities, the possibility of using the nonexclusive services of several intermediaries, and the widespread practice of price discrimination based on users' identity and on usage. Efficient market structures emerge in equilibrium, as well as some specific form of inefficient structures. Intermediaries have incentives to propose non-exclusive services, as this moderates competition and allows them to exert market power. We analyze in detail the pricing and business strategies followed by intermediation services providers. Copyright 2003 by the RAND Corporation.
There are many products for which the utility that a user derives from consumption of the good increases with the number of other agents consuming the good. There are several possible sources of these positive con- sumption externalities.1 1) The consumption externalities may be generated through a direct physical effect of the number of purchasers on the quality of the product. The utility that a consumer derives from purchasing a telephone, for ex- ample, clearly depends on the number of other households or businesses that have joined the telephone network. These network externalities are present for other communi- cations technologies as well, including Telex, data networks, and over-the-phone facsimilie equipment. 2) There may be indirect effects that give rise to consumption externalities. For example, an agent purchasing a personal computer will be concerned with the number of other agents purchasing similar hardware because the amount and variety of software that will be supplied for use with a given computer will be an increasing function of the number of hardware units that have been sold. This hardware-software paradigm also applies to video games, video players and recorders, and phonograph equipment. 3) Positive consumption externalities arise for a durable good when the quality and availability of postpurchase service for the good depend on the experience and size of the service network, which may in turn vary with the number of units of the good that have been sold. In the automobile market, for example, foreign manufacturers' sales initially were retarded by consumers' awareness of the less experienced and thinner service networks that existed for new or less popular brands. In all of these cases, the utility that a given user derives from the good depends upon the number of other users who are in the same "network" as is he or she. The scope of the network that gives rise to the consumption
Indirect network effects are of prime interest to marketers because they affect the growth and takeoff of software availability for and hardware sales of a new product. Although prior work on indirect network effects in the economics and marketing literature is valuable, there are two main shortcomings. First, empirical analysis of indirect network effects is rare. Second, in contrast to the importance prior literature credits to the “chicken-and-egg” paradox in these markets, the temporal pattern (i.e., Which leads to which?) of indirect network effects remains unstudied. Based on empirical evidence of nine markets, this study shows that (1) indirect network effects, as commonly operationalized by prior literature, are weaker than expected from prior literature and (2) in most markets examined, hardware sales “lead” software availability, whereas the reverse almost never happens, contrary to existing beliefs. These findings are supported by multiple methods, such as takeoff and time-series analyses, and fit with the histories of the markets studied herein. For academia, the study identifies a need for new and more relevant conceptualizations of indirect network effects. For public policy, it questions the need for intervention in network markets. For management practice, it downplays the importance of the availability of a large library of software for hardware technology to be successful.
Two-sided platforms are becoming more and more relevant in the modern economy, with leading examples like Airbnb or Uber. These companies can leverage several opportunities, which are intrinsic in their nature, but they also need to face severe challenges before reaching a critical mass and a mature stage. One of the greatest challenges is represented by the chicken and egg paradox, which refers to the need of the platform provider to convince both sides to join the platform even if it is worthless since the other side is not there. Previous studies provided examples of possible strategies to address it, but there is a lack of operational tactics that practitioners may use to direct tackle the challenges. Through the analysis of 16 case studies based on primary sources, this study presents seven tactics, then clusters in three groups. They are discussed according to previous literature drawing reflections on the characteristics of the two-sided platform and their business model implications.
Overview
Several approaches to developing new technologies are available to companies, but few studies explore how the development process can reveal hidden opportunities in existing technologies. This paper investigates the technology development process to consider how they can discover opportunities that generate higher value for users. Implementing a five-step framework in the discovery process can help identify new opportunities and reveal new application fields for existing technologies.
Today's world is characterized by a continuous evolution in the demand and supply of new technology solutions, challenging the way companies pursue and manage technology development. Indeed, companies can no longer take decades to develop new technologies, but are compelled to deliver technologies in a short space of time. Despite the ample literature on the different technology development processes, the main factors influencing the creation of technological solutions remain unclear. The problem is no longer identifying a new process for developing a technology, but understanding which elements can guide the selection of the best approach for the situation faced. The aim of this study is therefore to provide a systematic literature review of technology development studies to contribute to shed lights on how companies can develop technology to foster innovations in a society that is continuously evolving its technological needs. The analysis of 187 articles highlights that process, organization, and knowledge are the three key dimensions that influence every technology development process. Thus, two main dichotomies emerge (i) linear vs iterative on the process level, (ii) designing vs finding on the knowledge level. Accordingly, we propose a research agenda based on a framework mapping the four resulting approaches.
Purpose
Innovations are vital tasks for modern two-sided platforms to grow and avoid defunct. How these two-sided platforms innovate to impact platform performance remains virtually unexplored in literature. The purpose of this paper is to classify two types of platform innovations – same-side and cross-side – and to hypothesize that their performance is contingent on platform monetization type, growth rate and user acquisition and retention costs.
Design/methodology/approach
The authors collected news announcements of 177 same-side producer-to-producer (P-P), 216 same-side consumer-to-consumer (C-C) and 284 cross-side producer-to-consumer (P-C) innovations from 30 two-sided platforms and used event study and econometric techniques in data analysis.
Findings
The findings reveal that same-side innovations cannot sufficiently lead to an impact on platform performance, while cross-side innovations are always beneficial. Same-side P-P innovations can affect platform performance positively on consumer-monetized platforms, whereas same-side C-C innovations can only do so on producer-monetized platforms. Besides, when platforms grow rapidly (slowly), cross-side (same-side) innovations strengthen platform performance. On platforms that are subject to higher (lower) user acquisition and retention costs, only same-side (cross-side) innovations can enhance platform performance.
Practical implications
This study provides actionable insights for platform practitioners to implement proper strategies to manage same-side and cross-side innovations based on the three platform attributes of platform monetization type, growth rate and user acquisition and retention costs.
Originality/value
This study offers the first systematic and empirical investigation of two-sided platform innovations by classifying them as same-side innovations for building capability in managing users and cross-side innovations for establishing capability in managing exchange, which are the two core capabilities for two-sided platforms to avoid defunct. This study further provides a contingency framework that is unique to the two-sided platform setting to study the performance impact of these innovations.
To survive and prosper, firms need to be able to capture the value they create. The role of the central actor in developing a viable multi-stakeholder platform resides in its ability to continuously manage synergies between the value it enables and creates, and the value it appropriates. However, capturing value is more difficult than its creation, which often results in a rather short lifespan of many platform-based businesses. Existing literature, however, neglects the role of the central actor in orchestrating value in these platforms, and mostly focuses on mechanisms through which diverse stakeholders gain financial benefits and appropriate value for themselves. With an aim to contribute to this research field, we draw upon stakeholder theory and a longitudinal case study of HeadBox, the first online B2B sharing economy-based platform that enables businesses to offer and hire inspiring off-site spaces and associated services in the United Kingdom. We put forward a Platform Stickiness – Stakeholder Profitability Framework that establishes the missing connection between value creation and value appropriation by the central actor in multi-stakeholder platforms. The framework integrates eight ‘value-driving’ mechanisms that impact the central actor's ability to establish synergies between value creation and capture within a platform.
Innovation scholars have long studied how and why new products and services diffuse into the market following trajectories such as the S-curve and in accordance with epidemic, social, and information cascade models. However, we see today many new products and services, especially those enabled by digital technologies, which do not seem to fit the above-mentioned trajectories and models due to the incredibly high speed and virulence at which they diffuse. Moreover, the diffusion of these innovations does not seem to depend, contrary to what the previous patterns of innovation diffusion argue, on their technological characteristics or on demand-side factors, such as the word-of-mouth effect or the feedback they receive from their early adopters. Rather, their diffusion seems to be affected by the characteristics of the business model adopted by the companies that have created and commercialized them into the market. Accordingly, our study analyzes through the historical research methodology the business model of a sample of 50 Unicorn tech-companies, which have experienced incredibly fast diffusion rates and business growth and are disrupting entire industries. The outcome of our study is a framework that maps two business model configurations that explain the role of different business model design and innovation choices in the diffusion of new products and services enabled by digital technologies.
We propose a conceptual framework for examining the value-creation potential embedded into novel, digitally powered resource configurations. We suggest that business digitization calls for firms to adopt a system-based, value-creation-centric perspective for designing and organizing their resource configuration. Our conceptualization of a firm's resource-configuration decisions centers on organizing access to resources controlled by value co-creators. We discuss resource-configuration prototypes, value-creation sources, and the underlying resource-configuration processes enabled by digitization. Our study contributes to the literature on strategic entrepreneurship by incorporating the ramifications of digitization into the theory on firms' resource configuration and its underlying processes to enable strategic entrepreneurship. Digitization has profoundly reshaped the way business opportunities are discovered and exploited. In this article, we suggest that digitization expands the scope of resources firm could utilize while requiring firms to take a holistic approach in considering the resources and addressing the needs of all customers and partners (e.g., resource providers). We highlight the importance of such a holistic approach to enhancing the value creation potential in the digital age for entrepreneurs and managers. In addition, we propose novel ways to connect resources with needs of customers and partners (e.g., enabling transactions and providing bridges) as well as the actionable micro processes that undergird and enable these novel connections in a digitally enabled world.
The authors examine factors that affect the encroachment speed of disruptive innovations with indirect network externalities. The authors focus on the 2010 introduction of a new generation of e-readers in Japan and explore the reasons why, relative to comparable e-readers in the United States, the Japanese e-readers were introduced later and adoption rates have been lower. Existing research suggests several possible explanations for these cross-country differences, including the attitudes and behaviors of the firms that compose the paper book value network in Japan, environmental variables such as legal and regulatory constraints, and cultural differences between Japan and the United States. To assess the importance of these explanations, the authors interviewed 20 key figures in the United States and Japan and reviewed a variety of published information sources. Findings indicate that the slower encroachment speed of e-readers in Japan reflects a kind of myopia among publishing industry insiders arising from three sources: (1) organizational factors, (2) technology factors, and (3) environmental factors. Important elements within these categories include the interpretation of the market performance of earlier generations of e-readers, the interdependence of partners within the value network for e-books, the presence of competing technology formats that create uncertainty among consumers regarding the availability of e-books for a specific platform, and the existence of regulations and institutionalized activities that constrain the supply of e-books and retail pricing flexibility. Findings have important implications for future studies of encroachment speed, the management of disruptive technologies, and strategic responses to potentially disruptive innovations launched by fringe competitors and new entrants.
Taxi hailing apps that facilitate taxi-customer matching quickly become popular in recent years. By combining the theories of two-sided market and taxi market, this paper models the taxi market in the presence of a single taxi hailing app through an aggregate and static approach. Based on the equilibrium model, the existence and stability of equilibria are examined, and a partial-derivative-based sensitivity analysis is conducted to quantitatively evaluate the impacts of the platform’s pricing strategies to the taxi market performance. The features of desirable price perturbations that improve social welfare and/or the platform’s profitability are also characterized.
Research on network externalities has identified a number of product categories in which the market performance of an innovation (e.g., unit sales and revenues) is an increasing function of that innovation's installed base and the availability of complementary products. Innovation scholars have attributed these findings to the positive impact of network externality variables on consumer perceptions of innovation attributes. This paper provides the first empirical examination of these perceptual linkages by extending the Technology Acceptance Model to include consumer perceptions of network externality variables. The authors hypothesize that, when direct and indirect network externalities exist, consumer purchase intentions and consumer perceptions of an innovation's usefulness and ease of use will positively reflect perceptions of installed base size and the availability of complementary products. To test this reasoning, the authors developed new measures of consumer perceptions of network externality variables. These measures were incorporated into a survey that explored the attitudes in Japan of potential adopters toward digital music (DM) players at an early stage in the product life cycle. Findings reveal a direct positive relationship between ease of use and the perceived availability of digital music. The authors also find positive and significant relationships between both purchase intention and perceived usefulness and (1) the perceived size of the DM player installed base and (2) the perceived availability of digital music. An application of the Baron-Kenny test for mediating variables reveals that (1) ease of use partially mediates the relationship between the perceived availability of digital music and perceived usefulness and (2) perceived usefulness partially mediates the relationship between the perceived availability of digital music and purchase intention. The research has important implications for future research on new product adoption and for the management of innovations that involve network externalities. The conceptual model provides a framework for testing alternative explanations of observed variations in the impact of network externalities within and across product categories. The empirical analysis provides guidance for managers who wish to manage the impact of network externalities on adoption. In addition to stimulating the size of the installed base and the variety of complementary products, executives must also manage consumer awareness of network externality variables and consumer understanding of the relationship between those variables and innovation attributes. Finally, traditional adoption models link consumer adoption decisions to perceptions of innovation attributes. The findings provided here imply that predictive accuracy of these models can be improved by including consumer perceptions of network externality variables.
‘Sharing economy’ platforms such as Airbnb have recently flourished in the tourism industry. The prominent appearance of sellers' photos on these platforms motivated our study. We suggest that the presence of these photos can have a significant impact on guests' decision making. Specifically, we contend that guests infer the host's trustworthiness from these photos, and that their choice is affected by this inference. In an empirical analysis of Airbnb's data and a controlled experiment, we found that the more trustworthy the host is perceived to be from her photo, the higher the price of the listing and the probability of its being chosen. We also find that a host's reputation, communicated by her online review scores, has no effect on listing price or likelihood of consumer booking. We further demonstrate that if review scores are varied experimentally, they affect guests' decisions, but the role of the host's photo remains significant.
Multi-sided platforms bring together two or more distinct but interdependent groups of customers, normally described as B2B and B2C. Two-sided platforms have proliferated rapidly with the Internet and this has led to the development of new business models to monetize innovative value propositions in online markets. This paper puts forward a model of the evolution of the marketing strategies and business models of two-sided Internet businesses. In this model, Internet intermediaries are visualized as resource integrators, involving consumers and business partners in a process of co-creation of value—an integrated, two-sided business model. An analysis of five early stage Internet ventures reveals that the business models of these Internet ventures show a clear pattern of evolution from inception to maturity, from B2C towards B2B, and ultimately to an integrated combination (B2B&C and B2C&B). This is primarily due to a shift in the relative influence of different business stakeholders, identified as change agents in the context of the business modeling of two-sided Internet platforms.
We study the economic tradeoffs that drive organizations to position themselves closer to or further away from a multi-sided platform (MSP) business model, relative to three traditional alternatives: vertically integrated firms, resellers or input suppliers. These tradeoffs lead to a comprehensive discussion of the defining features of MSPs. The formal model we develop focuses on the MSP versus vertical integration choice, which we interpret in the context of professional services. A key tradeoff emerges between the need to coordinate decisions that generate spillovers across professionals (best achieved by a vertical integrated firm) and the need to both motivate unobservable effort by professionals and ensure professionals adapt their decisions to their private information (best achieved by a MSP). We show how this baseline tradeoff is impacted by the nature of contracts available to the vertically integrated firm and the MSP, and by the possibility of professionals holding pessimistic expectations when deciding whether or not to join the vertically integrated firm or MSP.
Changes in the global environment are generating opportunities for companies to build advantage by creating loosely coupled networks or ecosystems. Ecosystems are larger, more diverse, and more fluid than a traditional set of bilateral partnerships or complementors. By leveraging ecosystems, companies can deliver complex solutions while maintaining corporate focus. This article describes six keys to unlock ecosystem advantage: pinpointing where value is created, defining an architecture of differentiated partner roles, stimulating complementary partner investments, reducing the transaction costs, facilitating joint learning across the network, and engineering effective ways to capture profit.
Research on network externalities has identified a number of product categories in which the market performance of an innovation (e.g., unit sales and revenues) is an increasing function of that innovation's installed base and the availability of complementary products. Innovation scholars have attributed these findings to the positive impact of network externality variables on consumer perceptions of innovation attributes. This paper provides the first empirical examination of these perceptual linkages by extending the Technology Acceptance Model to include consumer perceptions of network externality variables. The authors hypothesize that, when direct and indirect network externalities exist, consumer purchase intentions and consumer perceptions of an innovation's usefulness and ease of use will positively reflect perceptions of installed base size and the availability of complementary products. To test this reasoning, the authors developed new measures of consumer perceptions of network externality variables. These measures were incorporated into a survey that explored the attitudes in Japan of potential adopters toward digital music (DM) players at an early stage in the product life cycle. Findings reveal a direct positive relationship between ease of use and the perceived availability of digital music. The authors also find positive and significant relationships between both purchase intention and perceived usefulness and (1) the perceived size of the DM player installed base and (2) the perceived availability of digital music. An application of the Baron-Kenny test for mediating variables reveals that (1) ease of use partially mediates the relationship between the perceived availability of digital music and perceived usefulness and (2) perceived usefulness partially mediates the relationship between the perceived availability of digital music and purchase intention. The research has important implications for future research on new product adoption and for the management of innovations that involve network externalities. The conceptual model provides a framework for testing alternative explanations of observed variations in the impact of network externalities within and across product categories. The empirical analysis provides guidance for managers who wish to manage the impact of network externalities on adoption. In addition to stimulating the size of the installed base and the variety of complementary products, executives must also manage consumer awareness of network externality variables and consumer understanding of the relationship between those variables and innovation attributes. Finally, traditional adoption models link consumer adoption decisions to perceptions of innovation attributes. The findings provided here imply that predictive accuracy of these models can be improved by including consumer perceptions of network externality variables.
Research about the critical drivers of new product success is perhaps one of the thorniest issues confronting academic research in the field. Among them, product quality is considered a crucial element to obtain a competitive advantage. However, empirical evidence suggests low returns on product quality investments in new products, and consequent manager claims for an explanation of whether quality investments are fruitful for the firm. Recently, a new research stream has suggested that the role of other complementary products (indirect network externalities) and the critical mass of adopters (direct network externalities) lead to higher market returns than quality itself. Moreover, researchers disagree about the perverse or positive effects that the switching costs associated with the product have on the short- and long-term performance of the firm. In this paper, we propose that, as products and technologies become more interconnected, the associated network effects and switching costs will play an important role with regard to new product performance, both independently and in conjunction with its quality. We empirically test a model that relates product quality, network effects, and switching costs to short-term/long-term new product performance, using data collected from 255 innovative products. The data analysis indicates that network effects, and consumers' switching costs, can modify previous findings with regard to the isolated product quality consequences concerning new product performance. Overall, the results of this study may help firms manage the relationship between quality, network externalities, and switching costs more efficiently, both in the short term and in the long term.
We provide a roadmap to the burgeoning literature on two-sided markets and present new results. We identify two-sided markets with markets in which the structure, and not only the level of prices charged by platforms, matters. The failure of the Coase theorem is necessary but not sufficient for two-sidedness. We build a model integrating usage and membership externalities that unifies two hitherto disparate strands of the literature emphasizing either form of externality, and obtain new results on the mix of membership and usage charges when price setting or bargaining determine payments between end-users.
Indirect network externality (INE) effect exists when the utility of a product increases with the greater availability of compatible complementary products. We demonstrate that INE effects can vary by product attributes, with externality-sensitive attributes gaining more from increased availability of complementary products than other attributes. Past research has assumed that the benefit of increased availability of complementary products (e.g., software) accrues to theproduct (e.g., hardware). Utilizing data covering a period from 1985 to 1995 on compact disc player prices, attributes, and CD titles releases, and using a hedonic price approach, we find significant positive interactions between CD title availability and two attributes of the CD player, namely, changer capacity and its oversampling rate. In addition to INE-attribute interactions, increased availability of CD titles is found to have a significant positive impact on the overall price of CD players, which is consistent with past research. Collectively, these effects of INE have helped reduce the yearly decline in the price of CD players. The finding that INE effects differentially affect different attributes can help managers in decisions such as pricing, timing of introduction, and changing the levels of INE-sensitive attributes.
Indirect network effects are of prime interest to marketers because they affect the growth and takeoff of software availability for, and hardware sales of, a new product. While prior work on indirect network effects in the economics and marketing literature is valuable, these literatures show two main shortcomings. First, empirical analysis of indirect network effects is rare. Second, in contrast to the importance the prior literature credits to the chicken-and-egg paradox in these markets, the temporal pattern – which leads which? – of indirect network effects remains unstudied. Based on empirical evidence of nine markets, this study shows, among others, that: (1) indirect network effects, as commonly operationalized by prior literature, are weaker than expected from prior literature; (2) in most markets we examined, hardware sales leads software availability, while the reverse almost never happens, contradicting existing beliefs. These findings are supported by multiple methods, such as takeoff and time series analyses, and fit with the histories of the markets we studied. The findings have important implications for academia, public policy and management practice. To academia, it identifies a need for new, and more relevant, conceptualizations of indirect network effects. To public policy, it questions the need for intervention in network markets. To management practice, it downplays the importance of the availability of a large library of software for hardware technology to be successful.
Platform Revolution: How Networked Markets are Transforming the Economy and How to Make Them Work for You
- S P Choudary
- G G Parker
- M W Van Alstyne
Choudary, S. P., G. G. Parker, and M. W. Van Alstyne. 2016. Platform Revolution: How Networked Markets are Transforming
the Economy and How to Make Them Work for You. New York, NY: WW Norton & Company.
Managing Our Hub Economy
- M Iansiti
- K R Lakhani
Iansiti, M., and K. R. Lakhani. 2017. "Managing Our Hub Economy." Harvard Business Review 95 (5): 84-92.
The Network Imperative: How to Survive and Grow in the Age of Digital Business Models
- B Libert
- M Beck
- J Wind
Libert, B., M. Beck, and J. Wind. 2016. The Network Imperative: How to Survive and Grow in the Age of Digital Business
Models. Boston: Harvard Business Review Press.
Case Study Research: Design and Methods
- R K Yin
Yin, R. K. 2013. Case Study Research: Design and Methods. Thousand Oaks, CA: Sage Publications.