“Platform companies are becoming more powerful” (Herrman, 2017) headlined the New York Times in March this year, putting emphasize on a digital phenomenon that has been spreading heavily since the invention of the internet. Nowadays, platform businesses can be found on nearly every continent of the planet, no longer exclusively focussing on new media and light assets, but increasingly approaching traditional industries, such as healthcare or banking. Multi-sided platforms simplify the introduction and upscaling of businesses, wherefore especially digital platforms are suspected to change the traditional competition.
In fact, there are already clear indicators for the rising importance of multi-sided platform businesses. Among others, Coca-Cola was dominating the top five of the world’s most valuable brands in 2007 with a brand value of around $65bn. At that time, only one of the five companies was active in the platform business. However, the same ranking in 2017 was headed by Apple Inc., reporting a brand value of approximately $184bn. In this ranking four of the top five companies were actively utilizing multi-sided platforms. This development underlines the increasing importance of multi-sided platforms in today’s economy. Nevertheless, in the same period, other companies, such as Yahoo!, which have also been trying to implement platform businesses, dropped out of the ranking. Hence, some of the companies managed the utilization of multi-sided platforms better than others. Consequently, it appears to be insufficient to simply introduce the new digital phenomenon to be successful, but rather important to combine it with the right strategy. The obvious question, which is inhered by this conclusion is: What characteristics of the multi-sided platform business must strategic management consider, in order to achieve and secure the success of a platform? In the course of this literature-based review, this question will be guiding through the investigation of the key functions and particularities of multi-sided platform businesses.
Table of Contents
1 The Significance of Multisided Platforms in Today’s Economy
2 Definition and Generic Functions of Multi-Sided Platforms
2.1 Defining Multi-Sided Platforms
2.2 The Generic Functions of Multi-Sided Platforms
3 Special Characteristics of Multi-Sided Platform Businesses
3.1 Introducing the Network Effect and the Chicken-and-Egg Problem
3.2 How to Utilize Network Effects and Tackle the Chicken-and-Egg Problem
4 Conclusion
Research Objectives and Topics
This paper investigates the strategic management of multi-sided platforms by examining their core functions and key market characteristics to understand how firms can achieve and secure long-term success in an increasingly digital economy.
- Evolution and rising economic significance of platform-based business models.
- Taxonomy and generic functions of multi-sided platforms.
- Strategic implications of the network effect on platform growth.
- Strategies for overcoming the initial "chicken-and-egg" problem.
- Analysis of platform building blocks and value generation mechanisms.
Excerpt from the Book
The Chicken-and-Egg Problem
The described network effect brings off an intricate problem. Based on the network effects, users of a platform, in an extreme case, will only enter the platform, if they expect a large number of producers to be participating and vice versa. Thus, both parties want to participate in the potentially created value of the platform, while neither of them is willing to accept the risk of ending up with no value, but sunk cost or effort (Evans, 2003a, p. 195). Returning to the example of UBER, drivers will not use the platform, if there are no passengers to address. Passengers, on the contrary, will only be willing to sign up to the platform, if they expect a certain number of drivers available. As UBER is widely used, this problem is obviously not obligatorily urging, if a platform has already acquired sufficient participants of all sides. However, it confronts unestablished platform firms with the question of which party to get on board first (Evans, 2003a, p. 195; Evans, 2009, p. 100; Tiwana, 2014, p. 33). This problem of which side to address first, is known as the chicken-and-egg problem (Caillaud & Jullien, 2003, p. 310; Rochet & Tirole, 2003, p. 990; Evans, 2003a, p. 195).
Summary of Chapters
1 The Significance of Multisided Platforms in Today’s Economy: This chapter contextualizes the rise of platform-based companies in the modern economy and highlights the shift from traditional business models to digital platform ecosystems.
2 Definition and Generic Functions of Multi-Sided Platforms: This section defines the term "platform" within an academic framework and outlines the core functions, such as connecting and facilitating, that allow these businesses to generate value.
3 Special Characteristics of Multi-Sided Platform Businesses: This chapter analyzes the critical strategic challenges of network effects and the chicken-and-egg problem, while exploring methods to effectively utilize or resolve these phenomena.
4 Conclusion: The concluding chapter summarizes the necessity for strategic management in the platform sector and suggests that understanding generic core functions is essential for navigating this complex market.
Keywords
Multi-sided platforms, Strategic management, Network effects, Chicken-and-egg problem, Digital transformation, Platform economy, Intermediaries, Value generation, Pricing strategies, Market-makers, Audience-makers, Demand-coordinators, Business ecosystem.
Frequently Asked Questions
What is the primary focus of this work?
The paper examines the strategic management of multi-sided platforms, focusing on how firms can navigate specific market challenges to build successful, value-generating ecosystems.
What are the central themes covered?
Key themes include the definition and categorization of platforms, the economic impact of network effects, and the strategic resolution of the chicken-and-egg problem in start-up environments.
What is the core research question?
The study seeks to answer which specific characteristics of multi-sided platform businesses must be considered by strategic management to achieve and maintain success.
Which scientific methodology is applied?
This work is a literature-based review that synthesizes academic research, industry reports, and existing economic theories regarding platform strategies.
What topics are discussed in the main body?
The main body addresses the classification of platforms, the identification of generic functions (connecting, matching, facilitating), the mechanism of network effects, and strategic pricing solutions.
Which keywords best describe the research?
The work is characterized by terms such as multi-sided platforms, network effects, platform strategy, and the chicken-and-egg problem.
How does the author define the "chicken-and-egg" problem?
It is defined as the strategic challenge faced by new platforms where two interdependent user groups are hesitant to join unless the other group is already present, risking failure due to a lack of initial liquidity.
How do subsidies act as a solution to the chicken-and-egg problem?
Subsidies reduce the hurdles for participation by lowering costs for one group (the "subsidized segment") at the expense of another (the "subsidizing segment"), thereby incentivizing growth and fostering network effects.
- Arbeit zitieren
- Fabian Gartner (Autor:in), 2017, Strategic Management of Multisided Platforms, München, GRIN Verlag, https://www.grin.com/document/476747
