Value Creation and Capture in Digital Platforms

Learning Outcomes

  • Understanding of value creation and capture in digital platforms.

  • Examination of how value is created and captured in digital platforms.

Value Assessment

Utility Theory

  • The Utility Theory posits that consumers allocate their income to maximize satisfaction from products.

    • Definition: "People spend their money on what they expect will give them most satisfaction" (Bach et al., 1987, p. 92).

    • Customer value is influenced by individual beliefs about products, needs, experiences, wants, wishes, and expectations (Zeithaml, 1991).

Types of Value

  1. Use Value

    • Refers to the specific qualities of a product perceived by customers in relation to their needs.

  2. Exchange Value

    • Refers to the monetary amount realized at a point in time when the exchange of goods occurs.

Organization as a Bundle of Resources

  • Resource-based theory views organizations as bundles of resources:

    • Resources must be:

    • Valuable

    • Rare

    • Imperfectly imitable

    • Imperfectly substitutable

  • These resources are crucial for sustainable competitive advantage (Amit and Schoemaker, 1993; Rumelt, 1984).

Resource Types

  1. Tangible Resources

    • Examples: Machines, buildings, steel, computers.

    • Characteristics: Cannot transform without activation or work; must be utilized to generate new use values.

  2. Intangible Resources

    • Examples: Data, information, brands.

    • Characteristics: Do not add value independently; must be associated with products or services.

Organizational Member Role

  • Value creation is a collective effort by organizational members who combine and transform both tangible and intangible resources acquired by the organization.

Who Captures Value, and Why?

  • Value Capture: The realization of exchange value is influenced by bargaining relationships between buyers and sellers.

    • Customer bargaining power is increased by:

    • Availability of close substitutes.

    • Low switching costs for buyers, which diminishes their capacity to capture exchange value through high prices.

Value Creation and Capture in Digital Platform Context

Digital Platform Structure

  • The digital platform consists of:

    • Complementors (external): Contributory entities providing additional value.

    • Consumers (external): End-users of the platform's offerings.

  • Key questions:

    • Who creates value?

    • Who captures value?

    • How is value created and captured?

Prerequisites for Value Creation and Capture in Digital Platforms

1. Technology-Related Capabilities

  • Cloud-Based: Utilizing cloud-native service instead of traditional on-premise enterprise software.

  • Platformization: Transitioning products or systems into platforms for integration with various actors.

  • Open IT Landscape Management: Essential capabilities to manage an open, interoperable, partner-friendly technology environment.

2. Relationship-Driven Capabilities

  • Ecosystem Orchestration: Activities related to designing, facilitating, and governing a platform ecosystem.

  • Platform Evangelism: Efforts to create awareness, excitement, and engagement to expand the platform ecosystem.

  • Platform Co-Selling: Collaborations with ecosystem partners for commercial activities aimed at revenue generation and increasing platform adoption.

Balancing Value Creation and Capture in Digital Platforms

Strategies

  1. Establish Value Co-Creation

    • Based on technology-related and relationship-driven capabilities.

    • Emphasis on technology-related capabilities.

  2. Ensure Value Capture

    • Prioritize relationship-driven capabilities.

    • Avoid negative impacts on value co-creation.

  • Adjust approaches to maintain balance between value creation and value capture.

How Platform Owners Capture Value

Integrative Capability

  • Abilities that allow platform owners to assemble technology, partners, data, users, and internal functions to realize effective innovations.

  • Facilitates governance structures within the ecosystem and aligns external resources with internal needs.

Strategies for Value Capture

  1. Promoting Popular Products

    • Owners utilize access to transaction and performance data to identify successful complementors.

  2. Steps in Value Capture

    • Step One: Identify idle resources.

    • Step Two: Design compelling value propositions.

    • Step Three: Engage relevant stakeholders.

How Complementors Capture Value

Mechanisms

  1. Informal Mechanisms: Utilize downstream capabilities, rapid innovation, and early-entry advantages.

  2. Formal Mechanisms: Protect value through intellectual property rights (patents, trademarks, copyrights) and enhance visibility online.

How Customers Capture Value

Strategies Utilized by Customers

  • Personalization: Customizing offerings to user preferences.

  • Information and Transparency: Access to clear and abundant information related to products/services.

  • Convenience and Time Savings: Choosing offerings that enhance operational efficiency and reduce time spent.

Summary

  • Differentiation between value creation and capture in traditional versus digital contexts.

  • Emphasis on the roles and relationships among different actors (platform owners, complementors, and customers) within digital platforms.

References

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  2. Lepak, D. P., Smith, K. G., & Taylor, M. S. (2007). "Value Creation and Value Capture: A Multilevel Perspective," Academy of Management Review, 32(1), 180–194.

  3. Rietveld, J., Schilling, M. A., & Bellavitis, C. (2019). "Platform Strategy: Managing Ecosystem Value Through Selective Promotion of Complements," Organization Science, 30(6), 1232–1251.

  4. Schreieck, M., Wiesche, M., & Krcmar, H. (2021). "Capabilities for Value Co-Creation and Value Capture in Emergent Platform Ecosystems: A Longitudinal Case Study of SAP’s Cloud Platform," Journal of Information Technology, 36(4), 365–390.

  5. Uzunca, B., Sharapov, D., & Tee, R. (2022). "Governance Rigidity, Industry Evolution, and Value Capture in Platform Ecosystems," Research Policy, 51(7), 104560.

  6. Subramanian, H., Mitra, S., & Ransbotham, S. (2021). "Capturing Value in Platform Business Models That Rely on User-Generated Content," Organization Science, 32(3), 804–823.

  7. Wen, W., & Zhu, F. (2019). "Threat of Platform-Owner Entry and Complementor Responses: Evidence from the Mobile App Market," Strategic Management Journal, 40(9), 1336–1367.

  8. Shi, R., Aaltonen, A., Henfridsson, O., & Gopal, R. D. (2023). "Comparing Platform Owners’ Early and Late Entry Into Complementary Markets," MIS Quarterly, 47(7), 1727–1744.

  9. Raguseo, E., Neirotti, P., & Paolucci, E. (2017). "How Small Hotels Can Drive Value Their Way in Infomediation: The Case of ‘Italian Hotels vs. OTAs and TripAdvisor,” Information and Management, 54(6), 745–756.

  10. Pagani, M. (2013). "Digital Business Strategy and Value Creation: Framing the Dynamic Cycle of Control Points," MIS Quarterly, 37(2), 617–632.

  11. Oh, J., Koh, B., & Raghunathan, S. (2015). "Value Appropriation between the Platform Provider and App Developers in Mobile Platform Mediated Networks," Journal of Information Technology, 30(3), 245–259.

  12. Huber, T. L., Kude, T., & Dibbern, J. (2017). "Governance Practices in Platform Ecosystems: Navigating Tensions between Co-created Value and Governance Costs," Information Systems Research, 28(3), 563–584.