Platform Firms Research Articles

Strategizing the Co-Developments of Business Models and Ecosystems for Platforms

Business Models and Ecosystems represent two important theoretical lenses for understanding value creation (and subsequent value capture). Each perspective brings great insights to understanding platform firms. When explaining platform’s value creation and capture mechanism, strategy scholars tend to focus on just one perspective. While each perspective has usefully explained mechanisms for value creation and capture and acknowledged the conceptual significance of another, interactive aspect between them has been under-explored. We suggest that bringing the two perspectives together brings added insights, especially in the cases where complementors can both create and destroy value. This paper advances theory by offering a preliminary integrated framework . Building on interdependencies as foundations of both ecosystem and business model, it shows how platform entrepreneurs can choose to design different interdependencies on a same service. With each design choice having different implications for both scale and scope, entrepreneurs can co-develop both platform business model and ecosystem. The integral view offers theoretical insights on 1) platform competitive dynamics, 2) changes in value creations and capture mechanisms understood as business model / ecosystem changes, and 3) entrepreneurial opportunity formations.

Dynamic Resource Allocation on Multi-Category Two-Sided Platforms

Platform businesses are typically resource-intensive and must scale up their business quickly in the early stage to compete successfully against fast-emerging rivals. We study a critical question faced by such firms in the novel context of multicategory two-sided platforms: how to optimally make investment decisions across two sides, multiple categories, and different time periods to achieve fast and sustainable growth. We first develop a two-category two-period theoretical model and propose optimal resource allocation strategies that account for heterogeneous within-category direct and indirect network effects and cross-category interdependence. We find that the proposed strategy shares the spirit of the allocation rules for multiproduct nonplatform firms and single-product platform firms, yet it does not amount to a simple combination of the existing rules. Interestingly, the business model that platforms adopt crucially determines the optimal strategy. Platforms that charge by user should adopt a “reinforcing” rule for both within- and cross-category allocations by allocating more resources toward the stronger growth driver. Platforms that charge by transaction should also adopt the reinforcing rule for within-category allocation, but follow a “compensatory” rule for cross-category and intertemporal allocations by allocating more resources toward the weaker growth driver. We use data from the daily deals industry to empirically identify the network effects, propose alternative allocation strategies stemming from our theoretical findings, and use simulations to show the benefits of these strategies. For instance, we show that reallocating 10% of the average observed investment from Fitness to Beauty can increase profits by up to 15.5% for some cities. This paper was accepted by Matthew Shum, marketing.

Customer management in Internet-based platform firms: review and future research directions

PurposeThis study proposes a conceptual framework for analyzing customer management strategies and their effects on Internet-based platform performance based on a review of the relevant literature, and provides directions for future research.Design/methodology/approachA literature review of relevant research articles on customer management in platform firms was conducted.FindingsFirst, a framework based on the market maker view of platform firms suggests customer acquisition, customer retention and customer governance are the main customer management subprocesses toward improving platform firm performance. Second, the most studied customer management strategies for each subprocess contribute to platform performance based on the mechanisms of building customer network, developing customer network effect and managing sustainable customer networks.Originality/valueThis study proposes a framework that identifies customer acquisition, customer retention and customer governance as three key customer management subprocesses in platform firms. It also summarizes the most studied customer management strategies/actions for each subprocess. With this analytical framework, it identifies underexplored key issues in customer management for further research.

Industrial possibilities and false necessity: rethinking production, employment and labor dynamics in the global economy1

AbstractMuch of contemporary comparative political–economic thinking about global industrial production accepts the following claims (a) that manufacturing is destined to leave rich political economies for lower wage ones; (b) that global industrial production is hierarchically structured with higher value operations concentrated in the rich countries and intermediate component production distributed across increasingly specialized clusters in emerging political economies; (c) that digital technological advance, automation and massive platform firms are ushering in a new historical regime of capitalism that is generating high rates of inequality and threatens to thoroughly degrade work for less educated and less skilled workers all over the globe. This article argues that these three arguments are deeply flawed because they present only a partial picture of contemporary global industrial dynamics. They exclude from view many concurrent developments that suggest that alternative political and economic practices and trajectories are possible. And they downplay the role that politics and struggle have played and can play in the constitution of the political economy. By deconstructing these three arguments, this article attempts to recover possibility from the constraints of false necessity in thinking about global industrial production dynamics.

How does customer orientation (in)congruence affect B2B electronic commerce platform firms' performance?

Business-to-business (B2B) electronic platforms have become important channels for transforming traditional modes of transaction. The success of these platforms relies heavily on the platform firms' customer orientation (CO) practices, which are designed to attract both sellers and buyers. This study draws on the cross network effect theory to explore whether and how a B2B e-commerce platform firm's (in)congruent CO strategic initiatives toward sellers or buyers affect the firm's performance. In addition, the moderating effects of seller-side and buyer-side demand uncertainty on the relationship between CO (in)congruence and platform firm performance are investigated. The analysis of data collected from 185 B2B electronic platform firms in China reveals that CO incongruence is more beneficial to firm performance than CO congruence. Furthermore, when seller-side demand uncertainty is high, an increase in seller-focused CO incongruence (i.e., higher seller orientation than buyer orientation) or buyer-focused CO incongruence (i.e., lower seller orientation than buyer orientation) improves or impedes a B2B e-commerce platform firm's performance, respectively. However, when buyer-side demand uncertainty is high, an increase in either type of CO incongruence does not improve firm performance. These findings contribute to the literature on and practices of B2B e-commerce and customer orientation.

Economic Rents and the Contours of Conflict in the Data-Driven Economy

In the era of continuous and steadily accelerating technological change that started with the industrial revolution, economies and societies were repeatedly transformed in ways that can be linked to ownership of the essential and scarce factor of production of the day and command of the economic rents that flow to that factor. While history allows many narratives to be spun, the contours of conflict, both internal and between states, can be seen as aligned with the contest over rents – from the wars of territorial acquisition of the feudal era when land was the main source rents, to the wars of mercantilist expansion when the economies of scale generated by the machinery of mass production became the main source of rent, to the resource-rent-fuelled oil wars of the modern era, and in recent decades the proliferating conflicts over intellectual property. With the digital transformation we are seeing the emergence of a new type of economy – the data-driven economy, in which data is the essential factor of production. Data generates massive rents, fuels the rise of superstar firms, and generates powerful incentives for strategic trade and investment policy. The emergence of this new economy signals a new era of conflict, on new battlegrounds, with new tools or weapons, between new coalitions within and amongst countries. This conflict is already upon us. The vast rents prospectively at play in the data-driven economy arguably constitute a major (perhaps the major) trigger for the open trade and technology war between the United States and China. They also are at the heart of the brewing conflicts over taxation of digital platform firms. This note describes the contours of the conflicts that are to be expected with the digital transformation as it realigns interests, compares these expectations with actual developments, and comments on the implications for the rules-based system of international commerce.

The Platform Economy and Geography: Restructuring the Space of Capitalist Accumulation

Digital online platform firms are reorganizing the geography of how value is created, who captures it, and where. This essay argues that economic geographers have underestimated the power of platform and the firms that control them. We further demonstrate the remarkable concentration of these firms on the U.S. West Coast even while they organize global ecosystems. We suggest that a new spatial fix for the core of the global capitalist economy is emerging. We build upon a taxonomy of platform economy labor types and the location of the various types of labor and the implications of the ability of platforms to extract value from this labor. To illustrate, the impact on the geography of value creation, we undertake cases studies of two platforms, Amazon and Google Maps to explicate their effects upon the location of economic activity. Platforms are increasingly reorganizing labor and the location of value creation We argue that platforms are a new organizational form that is the result of an asymmetric power relationship between a platform and an ecosystem of complementers and users that interact and transact through platform. These platform leaders have the largest data sets and have created enormous teams of the best AI, machine learning researchers, and, finally, have enormous reservoirs of capital with which to capture new technologies that may threaten them.

Ecosystem-specific advantages in international digital commerce

We consider the applicability to digital platforms of extant international business scholarship. The organization of digital platforms has been seen to such an extent as predicated upon the bundling of external resources for collective value creation that their expansion may follow the logic of externalization. We further that literature contrasting the governance of network multinationals with that of platform-centric ecosystems. Building on and extending the theory of the ecosystem, we propose the concept of ecosystem-specific advantages. We identify costs and difficulties in the transfer of such advantages to new markets, emphasizing in particular the idea of bottlenecks. We then propose a framework that can be applied to future research on digital platforms, focusing on the users, suppliers of complementary products, and platform firms. We also call for research on the dynamic process of creating, transferring, and upgrading ecosystem-specific advantages.

Towards A Theory of Platform Firms: Platform Firms As An Organizational Innovation

Despite recent increasing interest in platforms, platform ecosystems, and platform firms, we still know little about why and how platform firms come into existence. Analyzing 52 publicly available interviews with platform entrepreneurs, managers, and venture capitalists, I explore the origin of platform firms. In a rigorous study based on several complementary qualitative techniques, I develop a theory and a process model showing how platform firms evolve from entrepreneurial motivation, market inefficiency and enabling technology. The paper unearths that platform firms arise as a result of four consecutive stages: pre-platform, platform evolution, platform sustainability, and platform firms. Along with these stages, two important contributions of the paper are: (1) constructing a theory of the platform firm and (2) introducing inter-platform and half-platform governance modes.

Are We All Amazon Primed? Consumers and the Politics of Platform Power

This article articulates a distinctive source of political influence of some technology firms, which we call platform power. Platform power inheres in companies of economic scale that provide the terms of access through which large numbers of consumers access goods, services, and information. Firms with platform power benefit from a deference from policymakers, but this deference is not primarily a function of direct influence through lobbying or campaign contributions, nor does it come from the threat of disinvestment. Companies with platform power instead benefit from the tacit allegiance of consumers, who can prove a formidable source of opposition to regulations that threaten these platforms. Focusing on the critical role played by consumers in explaining the powers platform firms wield in the rich democracies lends insight as well into their distinctive vulnerabilities, which flow from events that split the consumer–platform alliance or that cue citizen, as opposed to consumer, political identities.

“We’re not uber:” control, autonomy, and entrepreneurship in the gig economy

PurposeUnlike the effect of management styles on employee attitudes, little is known about the effect of managerial assumptions on workers within the gig economy. The purpose of this paper is to utilize McGregor’s Theory X and Theory Y as a framework to discuss two gig economy platforms and how their differing management assumptions affect worker perceptions of themselves as entrepreneurs.Design/methodology/approachThe author utilized qualitative interviews and demographic surveys with 41 contract workers from TaskRabbit, a personal assistant platform, and Kitchensurfing, a “rent-a-chef” service, to examine the impact of differing management assumptions on independent contractor perceptions of themselves as entrepreneurs.FindingsThe Theory X management assumptions and correlated behaviors directly contradict the entrepreneurial ethos marketed by the platforms, resulting in a psychological contract violation for workers and negative responses to the platform. In comparison, Theory Y managerial assumptions and correlated behaviors can be utilized to encourage worker innovation, creativity and sense of self as an entrepreneur.Practical implicationsAs the gig economy continues to grow, algorithms are likely to take on increased importance as a management tool. Although some have suggested that such algorithms may reduce the impact of a capricious manager, the fact remains that algorithms are created by management. If the gig economy intends to encourage entrepreneurship, additional attention must be paid to how differing management assumptions, and their resulting behaviors and algorithms, affect worker attitudes and experience.Originality/valueThis study represents one of the initial academic investigations into how the Theory X and Theory Y management assumptions and correlated perspectives may be applied to independent contractors within the gig economy. Additionally, this study is among the first to examine how gig worker attitudes toward platform firms, and views of themselves as entrepreneurs, are affected by algorithm-implemented management policies.

Conceptualizing human resource management in the gig economy

Purpose Although it is transforming the meaning of employment for many people, little is known about the implications of the gig economy for human resource management (HRM) theory and practice. The purpose of this paper is to conceptually explore the notion of HRM in the gig economy, where intermediary platform firms design and implement HRM activities while simultaneously trying to avoid the establishment of employment relationships with gig workers. Design/methodology/approach To conceptualize HRM in the gig economy, the authors offer a novel ecosystem perspective to develop propositions on the role and implementation of HRM activities in the gig economy. Findings The authors show that HRM activities in the gig economy are designed to govern platform ecosystems by aligning the multilateral exchanges of three key gig economy actors: gig workers, requesters and intermediary platform firms, for ensuring value co-creation. The authors argue that the implementation of HRM activities in the gig economy is contingent on the involvement and activities of these gig economy actors. This means that they are not mere recipients of HRM but also actively engaged in, and needed for, the execution of HRM activities. Originality/value The study contributes to research by proposing a theoretical framework for studying the design of HRM activities, and their implementation, in the gig economy. From this framework, the authors derive directions for future research on HRM in the gig economy.

The Commerce Platform’s Governance Mechanisms on Seller Users: From the View of the Brand Attachment Theory

Because of the rapid development of information technology, more and more companies have started to exchange goods and services on the e-commerce platform. Under this new business model, the main challenge for e-commerce platform firms is how to govern user firms, especially how to improve seller user firms’ loyalty. Therefore, based on the review of the traditional channel governance mechanism, this study explores three platform governances （control, fairness and customization） by which one can increase seller user firms’ loyalty. Relationship marketing researchers suggest that the strong brand relationship between users and a platform firm is the main reason for users to be loyal to the firm. Prior research has utilized the brand attachment theory to systematically articulate the factors that can lead to a strong brand relationship. By following this direction, this study will also use the brand attachment theory to explicate the platform’s governance mechanisms and their roles in obtaining seller user firms’ loyalty. This study argues that the three platform governances can promote higher seller user firms’ loyalty, by increasing their brand attachment to the platform. According to the brand attachment theory, a user can build strong attachment to a brand if the brand can fulfill his/her goals of self-enablement, self-gratification, and self-enrichment. In the context of the e-commerce platform market, firstly, platform control strategy encourages seller user firms’ sense of self-efficacy and enables them to attain desired performance results. In other words, platform firms’ control mechanism promotes seller user firms’ performance satisfaction. Secondly, platform fairness strategy provides seller user firms emotional pleasures and trust towards the platform. That is, platform firms’ fairness mechanism promotes seller user firms’ relationship satisfaction. Thirdly, platforms customization strategy makes seller user firms identify with the concept or image of the platform. Specifically, platform firms’ customization mechanism promotes seller user firms’ self-concept connection. Therefore, this study posits that control, fairness, and customization will increase seller user firms’ loyalty through promoting their performance satisfaction, relationship satisfaction, and self-concept connection with the platform, respectively. Moreover, the relationship marketing literature also addresses the importance of brand switching costs in corporates’ user retention programs. Strong brand attachment will cause true loyalty, while high brand switching costs will lead to spurious loyalty. Therefore, this study analyzes the moderating effects of switching costs on the three platform governances. We suggest that high brand-switching costs buffer the effectiveness of these three governance mechanisms. Specifically, control, fairness, and customization will be less effective in building brand attachment to the platform when user firms are forced to stay in the e-commerce platform by higher brand switching costs. Finally, by collecting data from 177 seller user firms registered and transacting in key e-commerce platforms and using Partial Least Squares （PLS） to test the model, the empirical results show that the proposed research model and most hypotheses are verified.

For whom do we write?

For whom do we write?

Platforms without borders? The international strategies of digital platform firms

Research Summary: Digitalization has enabled firms with so‐called platform business models to emerge in many sectors of the economy. By facilitating transactions between different groups of users (e.g., buyers and sellers), platform firms are disrupting industries around the world. However, little is known about the international strategies of platform firms, as research has mostly examined platforms in single‐country contexts. We address this gap by integrating insights from platform research in strategy and economics—specifically the notion of network externalities—with internalization theory. We extend the existing typology of network externalities by distinguishing between within‐country and cross‐country network externalities. We derive testable propositions regarding the foreign entry modes of platform firms, their international strategic posture (multidomestic vs. globally integrated), as well as foreign market selection criteria and market exit. Managerial Summary: Many companies in the digital economy operate platform business models, which create value by connecting different groups of users, such as buyers and sellers. We examine how network externalities—the notion that a platform becomes more valuable to each user as more users join—influence the international expansion of these firms. We show that it is important to consider the geographic scope of network externalities, that is, whether network externalities operate across national borders or whether platform firms have to create separate user networks in each country. The distinction between within‐country and cross‐country network externalities affects key internationalization decisions, such as how to enter foreign markets, whether to pursue multidomestic or global strategies, how to select foreign markets, and when to exit from a foreign market.

Network Structures and Entry into Platform Markets

Digital technologies have led to the emergence of many platforms in our economy today. In certain platform networks, buyers in one market purchase services from providers in many other markets, whereas other platform networks may comprise local clusters in which buyers primarily purchase services from providers within the same cluster. Consequently, network interconnectivity varies across different industries. We examine how network interconnectivity affects interactions between an incumbent platform serving multiple markets and an entrant platform seeking to enter one of these markets. Our model yields several interesting results. First, even if the entrant can advertise at no cost, it still may not want to make every user in a local market aware of its service, as doing so may trigger a competitive response from the incumbent. Second, having more mobile buyers, which increases interconnectivity between markets, can reduce the incumbent’s incentive to fight and, thus, increase the entrant’s incentive to expand. Third, stronger interconnectivity between markets may or may not make the incumbent more defensible: when advertising is not costly and mobile buyers consume in both their local markets and the markets they visit, a large number of mobile buyers will increase the entrant’s profitability, thereby making it difficult for the incumbent to deter entry. However, when advertising is costly or mobile buyers only consume in the markets they travel to, a large number of mobile buyers will help the incumbent deter entry. When advertising cost is at an intermediate level, the entrant prefers a market with moderate interconnectivity between markets. Fourth, we find that even if advanced targeting technologies can enable the entrant to also advertise to mobile buyers, the entrant may choose not to do so in order to avoid triggering then incumbent’s competitive response. Finally, we find that the presence of network effects is likely to decrease the entrant’s profit. Our results offer managerial implications for platform firms and help understand their performance heterogeneity.

The Relationship between M&Amp;A and Innovation

M&As have been used as one of the most preferable strategies for firm growth. However, the motivations for M&A have changed mainly because the nature of technologies is changing. Due to the complicated nature of the latest technologies such as IoT and AI, as well as their rapid pace of change, firms acquire innovative startups that already deal with the cutting-edge technologies like Googles acquisition of DeepMind or Facebooks purchase of WhatsApp. The implications of these M&As are two-fold. First, by acquiring firms with high-skilled experts, existing firms can save the time and costs necessary not only to educate workers lack of technological background but also to catch up with cutting-edge and promising businesses. Second, acquiring innovative firms with diverse technologies and services can attract more customers, meaning this could be the best strategy for existing digital platform firms seeking profit-maximization through innovation due to network effects. Therefore, it is a good option for firms to acquire innovative companies in order to achieve long-run growth based on continuous innovation.

"Platform Leadership: Managing Boundaries for the Network Growth of Digital Platforms"

This study aims to generate a systematic understanding of how digital platform firms can attain platform leadership. We explore the question by casting a boundary management lens over the complex network of interactions on a digital platform. Firms are faced with various boundaries—boundaries of efficiency, competence, power, identity, and ties—and must carefully address tensions within diverse groups of actors with their own interests. We conducted an in-depth case study on China’s largest online ticketing firm and established two contributions for attaining platform leadership. First, we conceptualized the development of a digital platform as a set of technology-based boundary management mechanisms (functional multiplexing, scope expansion, community curation, actor empowerment, and positional escalation) that includes a combination of boundary spanning, erecting, and reinforcing. Second, we uncovered the network dynamics of a digital platform by explicating the synergies and tensions of boundary management. Considering our novel findings, this study offers managerial and design guidelines for a digital platform by advocating an integrative view of boundary management. We present a multidimensional framework that includes five boundaries and four types of networks (dyadic, interconnected, intraconnected, and external) for future analysis of networks built on digital platforms.

The influence of managerial attention on the deployment of dynamic capability: a case study of Internet platform firms in China

We examine the interaction of processes of managerial attention and dynamic capabilities deployment, drawing on qualitative data from the development of two Internet Platform Companies – Alibaba and Tencent – over their first fifteen years of existence. Informed by senior management interviews, we create a process model of the relationship between activities of managerial attention and dynamic capability deployment within context. We show how the focus of managerial attention on aspects of the organizational context leads to the deployment of specific dynamic capabilities. Further, we propose that a continuing focus of managerial attention to any aspect of the organization’s context gives rise to core dynamic capabilities – a set of continually deployed processes for changing the resource base in a way that corresponds with the strategic logic of the organization. We find that core dynamic capabilities are complemented by contingent dynamic capabilities – intermittently deployed strategic change processes which enable and enhance the use of core dynamic capabilities.

The Effect of Online Shopping Platform Strategies on Search, Display, and Membership Revenues

Most online shopping platform firms generate revenue from three sources: pay-per-click search advertising, pay-per-impression display advertising, and membership fees. The strategies that influence these revenue sources typically are studied individually, rather than in a holistic fashion. In response, this study uses time-series data with 18 million buyers and sellers from 2010 to 2011 and undertakes a quasi-experiment to analyze how the distinct effects of buyer- and seller-side strategies on revenues (1) vary across all three revenue sources and (2) depend differentially on a platform’s upmarket repositioning strategy. The results show that buyers that purchase through direct traffic (e.g., typing in the site address) yield more display advertising and membership fee revenues than those gained through organic traffic (e.g., landing from a search engine). Engagement strategies that appeal to established sellers (i.e., value-added services) yield more search advertising and membership revenue than those that appeal to new sellers (i.e., social forums). An upmarket repositioning strategy (i.e., eliminating low quality sellers) enhances the revenue effects of buyer traffic generation and seller engagement strategies. Post hoc analyses suggest that a 1% increase in direct traffic generates an additional $151,506 in display advertising revenue after (vs. before) the repositioning.