IS4940 week 6
Innovation & Technology Entrepreneurship
Learning Objectives
• Platform Strategies
• Mid-term Test Introduction
• Case Discussion
1. Platform Openness vs Closed
https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2017.2757
A firm in charge of a business platform is a
firm in charge of a microeconomy.
The platform can control the openness,
the duration of IP rights, and thus the spillovers
Coding on the shoulders of a platform
• The platform gives some of its value V away
• Developers build apps on the platform, adding new layers of value.
• Benefits:
• Platform from increased innovation and sales.
• Developer from cost savings and installed base.
• Sponsor bundles new innovation into platform. Makes it freely available.
• Repeat
Openness vs. Closed
Maximum protection ≠ Maximum Value
Proprietary
Your Share
Open
Value Created
Your Reward = (Value created) x (Your share)
Q1
Apple's App Store charges a 30% commission on
all sales, is it too high? Should platforms open
free resources to third-party developers?
Different policies for small firms and large firms.
2. Platform Controlling vs Enabling
https://pubsonline.informs.org/doi/epdf/10.1287/mnsc.2017.2956
Amazon.com
Sale of goods or services
3rd-party sellers Buyers
3rd-party sellers Buyers
Sale of goods Sale of goods
or services or services
Which model is better for which types of products? Why?
Control vs. cost
Cost
structure Reseller or
V.I. firm
Pure Platform
Control
Which model is better for which types of products?
Why?
• iPhone
• Clothes
Low-demand or “long-tail” products vs high-demand or “short-tail” products
Platform vs. reseller positioning
A. Hagiu and J. Wright “Marketplace or Reseller,” Management Science, January 2015
• Cost structure
=> eBay vs. Amazon vs. Zappos.
• Suppliers have (respectively, intermediary has) better information about demand
=> Platform (respectively, reseller). E.g. Best Buy, eBay vs. Amazon vs. Zappos.
3. Market Expansion Strategy
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Zhou Zhou zhouzhou@bu.edu 15
Zhou Zhou zhouzhou@bu.edu 16
腾讯帝国
Zhou Zhou zhouzhou@bu.edu 17
PDD + Tencent
• After Tencent became the second largest
shareholder of PDD, PDD and Tencent form
an alliance to compete with Alibaba.
• The alliance of PDD with Tencent harnesses
the network effects that previously had
protected Alibaba.
Zhou Zhou zhouzhou@bu.edu 18
Alliance of entrant platform and giant platform
An Innovative
entrant
platform
An innovative An incumbent
entrant platform Competition platform with
with strong strong network
network effects effects
A giant
platform with
strong
network
effects
Zhou Zhou zhouzhou@bu.edu 19
Why Some Platforms Thrive and Others Don’t
https://hbr.org/2019/01/why-some-platforms-thrive-and-others-dont
Why Some Platforms Thrive and Others Don’t
• Winner-take-all?
• In the digital economy, scale is no guarantee of continued success.
• A few successful platforms: Facebook, Google, Amazon…
• Much more failed platforms.
• Five factors that help the platform win the market
• If the platform face a problem such as disintermediation, how to fix it?
Strength of Network Effects
Positive Examples
• WeChat
Negative Examples
• iQIYI
Network Clustering
Risk of Disintermediation
Positive Examples
• Taobao
Negative Examples
• Zhubajie
• Groupon
Vulnerability to Multi-Homing
Positive Examples
• Facebook
Negative Examples
• Uber
Network Bridging
Positive Examples
• Google
• Meituan
Negative Examples
• Terence: Microsoft
• Vera: Microsoft
Case Discussion
WeChat Red Envelope
https://finance.yahoo.com/news/tencent-challenges-e-commerce-rivals-093000716.html
Tencent challenges e-commerce rivals with new gift-giving feature on WeChat
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Discussion Questions
1.What special characteristics of WeChat Red Envelope made it attractive to users?
2.What are the key factors contributing to the success of WeChat Red Envelope?
3.What are the major challenges to the growth of WeChat Red Envelope?
4.How can WeChat capitalize on the WeChat Red Envelope to further growth its
business?
Thanks!
