Competitive dynamics in Platform Markets


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Presentation of my dissertation work for the Academy of Management Bets Dissertation Award, Technology & Innovation Management division - San Antonio 2011

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Competitive dynamics in Platform Markets

  1. 1. COMPETITIVE DYNAMICS IN PLATFORM MARKETS Carmelo Cennamo TIM Best Dissertation Award AoM Meeting, San Antonio 15th August 2011
  2. 2. The phenomenon under study Competition between incompatible technology platforms • Technological standards battles (Suarez, 2004) • Fierce competition to win the market (“winner-take-all”) (e.g., Eisenmann et al. 2006; Schilling, 2002) Platform: interface mediating distinct but interdependent groups of users that transact on the platform to obtain value (Evans, 2003; Hagiu, 2005; Rochet & Tirole, 2003, 2006) The market race unfolds through accumulation of co- specialized assets (complementary applications) and user installed baseTIM Best Dissertation Award © C. Cennamo 8/15/11
  3. 3. Platform Markets: examplesTIM Best Dissertation Award © C. Cennamo 8/15/11
  4. 4. Dissertation’s focus Platform-level explanatory factors Impact of platform’s strategies/capabilities on system competitiveness (quality), positioning and evolutionTIM Best Dissertation Award © C. Cennamo 8/15/11
  5. 5. Econ lit. (Two-sided markets) System evolution driven by (indirect) network effects (e.g., Armstrong 06; Caillaud & Jullien 03; Clements & Oashi 05; Eisenmann et al. 06; Hagiu 05, 09; Rochet & Tirole 03, 06) Users Installed Base Higher-level Platform Platform mechanisms System Performance – Market Share Complementary ApplicationsPlatform-level mechanismsAggressive PricingRoyalties structure-fees Feedback effectTIM Best Dissertation Award © C. Cennamo 8/15/11
  6. 6. Technology lit. System evolves according to waves of (platform technology) innovation (e.g., Schilling 02, 03; Sheremata 04; Suarez 04, 05;Venkatraman & Lee 04; Wade 95)Technological Technological Technological Selection Bandwagons Dominance Regime of Users Installed appropriability Base Switching costs Platform Platform Characteristics Performance System technological field Social dynamics Complementary Applications Platform-level mechanisms Technological superiority Licensing–Timing–MarketingTIM Best Dissertation Award © C. Cennamo 8/15/11
  7. 7. Gaps Paucity of analysis on platform-level mechanisms • Managing relationships with complementors (Gawer 2010; Gawer-Cusumano 2002; Yoffie-Kwak; 2006) • Learning and internal R&D (Gawer-Cusumano 2002; Hill 1997; Schilling 2002, 2003) • Industry-Platform evolution (Jacobides et al. 2006; Ozcan-Eisenhardt 2009) How to “build” a competitive ecosystem? Cannot be just a matter of snowball effects Platform system positioning? Classical in competitive strategy studies, but absent in platform literature What about the ecosystem evolution (i.e., the race competition per se)? Previous research just focuses on the final outcomeTIM Best Dissertation Award © C. Cennamo 8/15/11
  8. 8. An integrated viewTIM Best Dissertation Award © C. Cennamo 8/15/11
  9. 9. Dissertation’s contributionTIM Best Dissertation Award © C. Cennamo 8/15/11
  10. 10. Empirical setting - Methods US Videogame Industry (1995-2008) • Monthly obs. on each console and game-titles supplied to it (sales, intro date, producer etc....) • Data from NPD research group and specialized website Panel model, fixed effects + 2SLS to account for unobserved individual effects and endogeneity issues Game Players Videogame Videogames Console ProducersTIM Best Dissertation Award © C. Cennamo 8/15/11
  11. 11. Main Findings Tradeoffs among multiple WTA strategies: joint implementation does not lead to WTA outcome Platform-level capabilities (network orchestration & in-house development) are a) key factors for managing and growing the ecosystem b) important drivers of system evolution beyond technology characteristics Quality of ecosystem’s applications influenced by level of competition allowed by the platform among app producersTIM Best Dissertation Award © C. Cennamo 8/15/11
  12. 12. Implications Not just network size! What matters is level of system competitiveness • Need for control over trajectory of ecosystem evolution • Balance platform’s WTA incentives with those of external providers of complementary apps/content Network Orchestration: main task and key capability for platform • Crucial for properly managing relationships with app/content providers Not a one dimension game! Integration of technology and orchestration capabilities into system evolutionTIM Best Dissertation Award © C. Cennamo 8/15/11
  13. 13. !T h a n k Y o u
  14. 14. !T h a n k Y o u