Presentation 9: Platform governance

Platform openness & governance

Define traditional and platform governance.

= who makes what decisions

Traditional governance:

• Rigid hierarchy & command: Managers exert direct authority over employees

  • Uses a closed, internal innovation model

• Directing labor: Primary goal is to direct specific actions and enforce compliance

  • Often relies on punitive penalties

• Employment-based control: Authority is accepted as a standard condition of employment

Platform Governance:

• Orchestration over control: Platform owners act as conductors, shaping an ecosystem of autonomous developers

• Open & distributed innovation: Gives up some control

  • Uses incentives and rewards instead of punishment

• Respect for autonomy: Developers freely choose to follow. Their varied contributions integrate

→ Platform governance differs across platform setups (e.g., ecosystem structure, maturity of the platform)

Explain the way from traditional governance to platform governance with the example of Microsoft.

Before 2014:

• Closed ecosystem that fiercely protected Windows as its dominant server operating system

• Dictated rigid rules to partners

• Saw outside developers as secondary

Now:

• Became open platform orchestrator centered on a more open server service (Azure)

• Allowed developers to sell directly to users with lower revenue cuts (85/15 vs 70/30)

• Embraced open-source, using incentives over control

→ Outcome: Market value rose from ~$300B (2014) to over $3T (2026), proving that giving up some control can create more value

→ Platform governance creates more value than traditional commandand-control by orchestration

What does it mean that private regulation can trump public regulation?

• normally governments regulate markets (public regulation) through EU law, German law etc. but on digital platforms, the platform owner can make additional private rules that are often more stricter

• Private regulation = platform governance → platform owner becomes regulator, police, judge inside the ecosystem

• e.g. Apple exercises ”bouncer’s rights” to exclude apps of low quality, pornography, hate speech or viruses

• e.g. Viddy lost API access after spamming friend links about its video service

  • Fake profiles immediately deleted

  • Facebook must balance needs of users, advertisers and developers

• e.g. “Front Running” lets high speed traders arbitrage incoming purchase

  • IEX precisely times orders to eliminate advantages of Goldman Sachs

• e.g. In contrast to standard practice, Airbnb embraces risk and insures travelers and hosts against loss

→ showes need for platform governance

How does platform governance orchestrates evolution?

1. Decision rights Partitioning (Aufteilung der Entscheidungsbefugnisse): Allocation (Aufteilung) of authority between owner and complementors

2. Control Portfolio: Formal and informal governance mechanism

3. Incentive (Anreiz) structure: Aligning (anpassen) individual interests with platform goals

→ all three are part of platform governance Toolbox + boundary resources

Explain decision rights partitioning.

Who decides?

• Core vs. Periphery: Owner controls the platform, developers control their apps

• Autonomy: Decentralizes authority to spark innovation at the edges

• Balance: Trades off centralized power against developer freedom

= the structural division of authority between a platform owner controlling the core and developers controlling their apps

• It defines how overall decision rights are allocated to balance platform stability with developer innovation

What are pros of centralization and pros of decentralization

Pros of centralization (Centralized with platform owner):

• High Control: Ensures structural consistency

• Low Risk: Minimizes security flaws, fragmentation, and compatibility bugs

• Unified Strategy: Allows the owner to steer (steuern) the ecosystem's

Pros of decentralization (decentralized with app developer):

• Rapid Innovation: Many developers to create a wide variety of apps

• High Scalability: Removes corporate bottlenecks, allowing fast growth

• Fast Adaptation: Empowers developers to respond to local user needs

→ Rather than being strictly centralized or decentralized, it treats decision-making authority as a movalbe slider where control is shared in varying degrees

Explain control portfolio.

How does the platform enforce quality?

• Four Elements: Combines gatekeeping, metrics, process rules, and relationships

• No Hierarchy: Replaces employee management with ecosystem oversight

• Quality Guardrails: Secures platform performance, safety, and standards

→ Portfolio is used by platform owners to manage and regulate the ecosystem in a structured way while balancing innovation and control

Explain Gatekeeping, process-control and metrics as part of the control portfolio.

Idea: A participant would have to go through three stages

Three main tools for the platform to enforcing quality

1. Gatekeeping: Approval of developers and apps → ensure quality and security (Who may enter?)

2. Process-control: Rewards or penalties based on compliance with rules and standards → ensure interoperability

3. Metrics: Management based on objective targets and KPIs (e.g. sales figures, user ratings) → performance management

→ effective control system has to be simple, transparent, realistic, value-based and fair

Explain incentive structure.

Why should developers behave the way I want?:

• Goal Alignment: Connects developer financial interests directly to platform growth

• Asymmetric Pricing: Shifts costs to one side to trigger network effects

• Carrots, Not Sticks: Drives high-quality contributions via economic rewards

→ instead of forcing behavior

Explain pricing policies for incentive structure.

• Platforms are heterogeneous

• There is no one-fits-all strategy for valuecapture!

• Often, platform value capture is low in the beginning and higher with growing network effects / market dominance (often subsidize one side during early growth and increase value capture once strong network effects have been established)

• Incentive structures and pricing shape complementor and user behavior

• Also non-monetary incentives

Explain boundary resources as another tool of platform governance.

• Interface between platform owner and complementors (developers)

• On the one hand provide resources to developers (enable) and...

  • technical resources: Enable external developer to build apps easily

    • API: Acess to platform functions and data

    • SDKs: Tools, libraries, and documentation for development

    • Other Tools: Testing tools, and reference models

• … on the other hand restrict the developers to given resources (control)

  • Social Resources: Define the legal and social framework of the ecosystem

    • Guidlines & Documentations: Transparency and quality standards

    • IP-Rights: Rules on ownership and use of innovations

    • Social infrastructure: Forums, blocks, conferences to built community norms

• Provide a solution for direct communication problems with many developers

→ Balance innovation (developer freedom) and control (quality, security, consistency) on the platform

Explain how boundary resources help Resourcing and Securing for platforms.

Resourcing = provides developers with technical resources to create innovations.

• Encourages complementors to create new innovations

• Achieved, for example, through more powerful APIs or improved development tools

• Incentive: Foster innovation and increase user value

• Example: New APIs create new app ideas

Securing = protects the platform core by controlling access and defining rules for developers

• Can involve changing API access rules or licensing terms

• Helps prevent platform cloning (forking) and low-quality content

• Ensures that platform activities remain aligned with the platform owner's objectives

• Incentive: Protect the platform core from undesirable (unerwünschten) behavior and ensure quality

• Example: Restricting API access or licenses to prevent misuse and fragmentation

→ Successful platform governance balances openness and control to foster innovation, ensure ecosystem quality, and maintain longterm platform resilience

Explain the four layers of platform Governance (Concept of Multi-Layer Governance).

Incumbents need a more complex governance approach

Not every partner is governed equally

1. Governance of Internal Business Units: Hierarchical governance to strictly align internal Business Units and synchronize development cycles

• BU = a semi-autonomous division within a larger company that operates as a distinct profit center focused on a specific product line, market, or geographic region.

2. Governance of Core partner: Close governance (relational/contractual) to maintain control over the platform core while benefiting from partner resources

3. Governance of 3rd-Party Developers: Open governance to grant autonomy and maximize creativity and innovation in the ecosystem's periphery

4. Governance of Ecosystem Relationships: Conciliatory governance to act as a mediator, resolve tensions between actors, and foster innovation clusters

Explain the Incumbent challenge with the example of BMW.

The Startup vs. Incumbent Gap: Unlike startups, established companies must manage entrenched structures, legacy systems, and physical product cycles.

Real-World Example: BMW Connected

1) Internal Business Units: Hierarchical Governance is required to strictly synchronize long hardware development cycles (car manufacturing) with agile software platform updates

2) Core Partners: Close Governance integrates longstanding key suppliers into the digital core. This maintains strict safety/quality standards before opening up to the periphery.

What is the danger of governance rigidity (Steifheit)?

Governance Rigidity = Platform rules become difficult to change over time.

• Path Dependency: Initial ecosystem rules become formal commitments that are highly costly to alter ("Governance Inseparability") → Early decisions determine future possibilities + Governance rules become deeply embedded in the ecosystem

• The Power Gap (Δ): A growing disconnect between a platform's latent bargaining power (market reality) and its exerted bargaining power (contractual reality)

  • today's market reality

  • yesterday's governance rules

  is called the Power Gap (Δ) → The platform waited too long to adapt its governance

• The Apple Paradox: Rigidity safeguarded Apple’s 30% commission for 15 years. However, an excessive Δ ultimately provokes exogenous shocks (e.g., the EU DMA)