Creating Value through Complexity: Partial Compatibility as a Sustaining Strategy in Japan's Contactless Integrated Circuit Payment System

Abstract

The challenge of managing platforms has recently gained widespread attention. Even though there are various concepts focusing on building, managing, and sustaining platform ecosystems, the question of how to capitalize on a platform from the perspective of a focal firm—the platform leverage—remains an unexplored area. This study proposes the notion of partial compatibility as a novel mechanism of platform leverage. Partial compatibility consists of intra-platform envelopment by complementors and platform involvement of end users by connecting with the different platforms owned by complementors. The complementors maintain semi-compatibility to the widely diffused install base of the creator's leading platform, but end users are bound to the followers' platform. We argue that partial compatibility enables the follower to establish a sustainable competitive advantage following a winner-takes-all strategy, even though the install base might be smaller. We investigate the case of the FeliCa-based contactless integrated circuit payment system in Japan. Our empirical analysis is based on a longitudinal historical dataset from 1988 to 2015 and interviews with 29 executives involved in the ecosystem. We contribute to the platform literature by highlighting a dynamic functional mechanism resulting from partial compatibility as a rational strategic choice for achieving platform leverage.