Presentation 3: Strategic decisions of platform owners

Designing digital platforms ecosystems

What types of complementarities exist?

= Complementarities exist when two or more products, services, assets, or activities create more value together than separately

Unique/Strong Complementries:

• Strict dependency

• Part A requires Part B to function

• e.g. a specific app that only works on Apple´s iOS (e.g. AirDrop + Apple devices, Apple Watch + iphone)

  • sometimes the same app exists on other platforms but it is never identical (Limited substitution)

• Platform owner use it to create customer lock-in and differentiation

Generic/Weak Complementarities:

• Standardized inputs widely available in markets

• Any Part A works with any Part B

• No exclusive pairing required (easily substitution, many combinations possible)

  ➡ There is little dependency between firms.

  ➡ Therefore, there is no real ecosystem relationship → no relevant for ecosystem i(f one supplier disappears, another can easily replace it)

• e.g. Electricity, tea bags, USB-C Charger

Supermodular Complementarities:

• “1+1 = 3” effect

• More of Part A makes Part B more valuable

• e.g. more apps make Apple´s iOS more attractive

• (value function for weak supermodular complement x and y > Value function for strong complements x and y

• platform owner use it to drive etwork effects, ecosystem growth and innovation

How can Complementarities can explain verticle integration?

• Complementarities create both centripetal and centrifugal forces that influence whether activities should be integrated within one firm or coordinated through an ecosystem

• complementarities as a defining feature of digital platform ecosystems

→ Platform success is driven by complementarities

What are centripetal forces? Which four aspects support the forces and why?

= Pulling partners toward the Platform core (verticle integration)

1. Complementarities:

• existst when assets, technologies, or tasks create higher value when used together within a single system

2. Task interdependence:

• When tasks are highly interconnected, people and assets become cospecialized over time → making seperatly costly

• this pushes firms toward tighter integration to coordinate more effeciently

3. Incomplete Contracts and Unobservable Effort:

• When performance or effort is hard to measure, firms prefer closer control rather than relying (sich verlassen) on external partners

• Integration helps reduce uncertainty (Unsicherheit) and improve incentives (Anreize)

4. Long-lived Co-specialized Investments:

• Some assets only create value when used together

• Keeping them in one firm prevents conflicts or “hold-up” problems between seperate owners

What are centrifugal forces? Which three aspects support the forces and why?

= Pushing partners away from the Platform core

1. Dispersed Knowledge and diverse Talent:

• Knowledge and talent are spread across many people and organizations

• Working with external partners allows access to more ideas and expertise

2. Modularity:

• If a system can be divided into independent parts with clear interfaces, different firms can specialize in each part

• This lowers coordination costs and increases competition

3. Network Effects:

• The value of a system increases as more users or partners join

• Firms benefit more by enabling broad participation than by cntrolling everything internally

Why is a balance between centripetal centrifugal and forces important for the platform owner? What happens when there is no balance?

• To much centripetal force → everything is integrated → little innovation, high osts, slow development

• Too much centrifugal forces → Everything is outsourced → los of quality control, coordination problems, fragmentation

→ Platform owner balance both forces to archiev innovation, coordination, ecosystem growth, control

→ e.g. For Apple:

• Too much control → developers leave.

• Too much openness → Apple loses quality and security.

Explain the concept of Complementarities and Forces by the Example of Apple´s iOS.

Weak Complementarities: A lot of apps have standalone value across platforms but combined with iOS value increases (e.g. WhatsApp works on Android and iOS)

Strong Complementarities: Some Apple services/apps only work with Apple devices (e.g. AirDrop)

Centripetal Forces: Apps must follow Apple´s rules (App Store, API, Payment, Security, etc.)

Centrifugal Forces: Apps are build by independent companies to work across platforms and bring their own features (e.g. WhatsApp, Spotify) → this brings inovation

Which three types of value Systems exist? In which value system can you order the concept of complementarities?

1. Hierarchy-based value system:

• Final customer buys final output in the form assembled and sold by the focal firm) → no complementarities

→ one firm owns almost everything (e.g. apple hardware production)

2. Ecosystem-based value system:

• Final customer buys the local Firm products and specific complementarities from individual complementors

→ Independent firms cooperate using strong complements

3. Market-based Value system:

• Final Customer buys seperate products (generic complementarities) from independent sellers for consuming them individually or jointly

→ independent firms exchange standardized products (e.g. USB cable, electricity)

→The value system of ecosystems, markets and hierarchies differ

Define Ecosystems.

= a system of organisms occupying a habitat, together with those aspects of the physical environment with which they interact (biological ecosystem)

= The collection of the platform and the modules/apps specific to it (Management/Technological-oriented ecosystem)

Why digital ecosystem?

• Digital ecosystem = Variety in the developer and user communities

  • To increase the value of the product by extending the market horizon

  • When one market segment is obsolete because of competing technological platform, the ecosystem can still foster other areas

→ From an ecosystem perspective, greater diversity among developers and users increases platform value and resilience, helping the ecosystem remain viable even when specific market segments decline

• greater innovation

• greater diversity

• higher resilience

• larger market

• adaptability

Define Platform Ecosystem by defining Ecosystem and Platform seperatly. Explain the value creation in it.

• Ecosystem = Autonomous but interdependent group of firms and individuals

  • Actors create value together

• Platform = Technical system with core functinal elements + optional complements

  • no value without optional complements

  • Purpose: provide options

  • Focus on technical architecture

• Platform Ecosystem = Platform + provider/owner + complementors + end-users

  • Value co-creation through platform interactions (e.g. data integration, co-development)

What two dimensions for defining multi-platform integrtion strategies exist?

1. Type of the Platform: Innovation, Transaction, communication

2. Entend of Integration:

• Partial Integration:

  • Connected via APIs

  • Invisible for users

  • Shared data & functions

  • Example: Facebook Messenger & WhatsApp

• Full integration:

  • Shared UI, data & functions

  • Visible for users

  • Example: Grab

Name the four Strategies of Multi-Platform Integration Strategies.

1. Collection

2. Consolidation

3. Symbiosis

4. Assemblage

→ Strategies are used to get complementarities by integrating multiple platforms into multi-platform ecosystems

Describe the four strategies of Multi-Platform Integration Strategies. In doing so, address the two dimensions used to define the strategies.

1. Collection: Same Platform Type + Partial Integrated

• Complementarities: based on network effects and in production

  • More users & shared modules improve efficiency and quality

  • e.g. Adevinta (Collection of kleinanzeige, Subito, Kijiji)

2. Consolidation: Same Platform Type + Full Integrated

• Complementarities: based on network effects and in production and use

  • Multiple similar platforms combined for convenience

  • e.g. Amazon Prime ( Consolidation of Marketplace, Video, Music)

3. Symbiosis: Different Platform Type + Partial Integrated

• Complementarities: based on network effects and functionality and in production

  • Shared insights & ressources

  • e.g. SAP´s cloud platform and SAP Community

4. Assemblage: Different Platform Type + Full Integrated

• Complementarities: based on network effects and functionality and in production and use

  • Combines community, innovation & transaction platforms

  • e.g. Facebook

What are cmplementarities based on network effects or/ and functionality and complementarities in production and/or use?

• Complementarities based on network effects:

  • Users of one platform increase value of another (e.g. Facebook, Instagram: Messenger → Shared Users)

• Complementarities based on functionality:

  • Different Platforms provide different capabilities)

• Complementarities in production:

  • Platforms share technology, infrastructure, employess to lower production costs

• Complementarities in use:

  • Users gain more value by using several services together

Define Inter-Platform Ecosystems and why they are used.

= Different platforms are becoming complementors for each other (Platform themselves also become complementors)

• to boost cross-platform interactions and reduce searching costs and referral traffic

Name and explain the four strategies for building inter-platform ecosystems.

1. Meta-Platform:

• Platforms that sit “on top” of others to aggregate them

• e.g. Skyscanner (bundles Airlines)

2. Network Fusion:

• Hosting content from a different competing platform

• e.g. Wizzair/Booking.com (booking a hotel directly through a flight app

3. User-Community-Driven Cross-Platform Interactions:

• Users create connections between platforms

• Users of one platform discuss features/offers from another

• e.g. Discord and Twich

4. Platfrom Concatenation:

• Platform refers users to another platform for complementary services

• e.g. Trip Advisor