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The dominant online platform companies are now the most valuable companies in the world, and their growing power over other organizations is enabling them to rewrite the rules of business strategy.
In the past decade, digital platforms have profoundly reorganized markets and industries and redefined the dynamics of value creation and competition.1 They have created marketplaces that have spawned an enormous number of platform-native startups.2 And as these have grown and prospered, existing businesses have felt compelled to join the platform economy, viewing participation as necessary for growth and even survival.3
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To date, most attention to platforms has focused on understanding their advantages over traditional industrial structures and how to replicate platform successes. However, the vast majority of companies will not own platforms but, rather, will increasingly depend and compete on them. To do so effectively, platform-dependent businesses must recognize the power dynamics and risks intrinsic to platform-controlled markets. And they must develop strategies that leverage a platform’s resources while mitigating its power over them.
How Platform Power Is Transforming Competitive Strategy
In early January 2019, after sealing a deal with Apple to sell more of its products, Amazon sent a letter to small businesses selling refurbished Apple products on the Amazon e-commerce platform. It read, in part, “You are receiving this message because you are currently selling … Apple or Beats products. Your existing offers for those products will soon be removed from Amazon’s online store in the United States.”
As one reseller said, “Since 2011, I have sold over a million dollars of iPods on Amazon and this is going to severely impact me and my family.”
For many resellers, the agreement between Amazon and Apple spelled the end of their businesses and livelihoods. And this existential threat is not confined to small businesses. Discussing Google’s ability to favor its own travel platform in search results,
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1. M.A. Cusumano, A. Gawer, and D.B. Yoffie, “The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power” (New York: Harper Business, 2019); and G.G. Parker, M.W. Van Alstyne, and S.P. Choudary, “Platform Revolution: How Networked Markets Are Transforming the Economy — and How to Make Them Work for You” (New York: W.W. Norton, 2016).
2. D. Cutolo and M. Kenney, “Platform-Dependent Entrepreneurs: Power Asymmetries, Risks, and Strategies in the Platform Economy,” Academy of Management Perspectives, forthcoming; and S. Nambisan, “Digital Entrepreneurship: Toward a Digital Technology Perspective of Entrepreneurship,” Entrepreneurship Theory and Practice 41, no. 6 (November 2017): 1029-1055.
3. M. Kenney and J. Zysman, “The Rise of the Platform Economy,” Issues in Science and Technology 32, no. 3 (spring 2016): 61-69.
4. M. Kenney, D. Bearson, and J. Zysman, “The Platform Economy Matures: Exploring and Measuring Pervasiveness and Power,” Socio-Economic Review, forthcoming.
5. On Aug. 13, 2020, Epic Games’ popular multiplayer online game Fortnite, which people could download through Apple’s and Google’s app stores, rolled out an update that violated the platforms’ terms of service by allowing players to pay Epic directly, thereby avoiding the platforms’ 30% fee on all revenues generated. In response, Apple and Google pulled the game from their stores. Epic has filed lawsuits against both.
6. J. Rietveld, J.N. Ploog, and D.B. Nieborg, “Coevolution of Platform Dominance and Governance Strategies: Effects on Complementor Performance Outcomes,” Academy of Management Discoveries 6, no. 3 (September 2020): 488-513.
7. R.D. Wang and C.D. Miller, “Complementors’ Engagement in an Ecosystem: A Study of Publishers’ E-Book Offerings on Amazon Kindle,” Strategic Management Journal 41, no. 1 (January 2020): 3-26.
8. J. Dzieza, “Prime and Punishment. Dirty Dealing in the $175 Billion Amazon Marketplace,” The Verge, Dec. 19, 2018, https://www.theverge.com.
9. F. Zhu and Q. Liu, “Competing With Complementors: An Empirical Look at Amazon.com,” Strategic Management Journal 39, no. 10 (October 2018): 2618-2642.
10. “The Investigation of Competition in Digital Markets: Majority Staff Report and Recommendations” issued in 2020 by the Subcommittee on Antitrust, Commercial, and Administrative Law of the Committee of the Judiciary of the U.S. House of Representatives, found significant corroboration for an April 2020 Wall Street Journal report on Amazon’s private-label product development practices, as well as substantial evidence of such behavior in other cases.
11. J. Nikas and K. Collins, “How Apple’s Apps Topped Rivals in the App Store It Controls,” The New York Times, Sept. 9, 2019, www.nytimes.com.
12. M.M. Tavalaei and C. Cennamo, “In Search of Complementarities Within and Across Platform Ecosystems: Complementors’ Relative Standing and Performance in Mobile Apps Ecosystems,” Long Range Planning, forthcoming.
13. Wang and Miller, “Complementors’ Engagement,” 3-26.
14. T.E. Brown, E. Boon, and L.F. Pitt, “Seeking Funding in Order to Sell: Crowdfunding as a Marketing Tool,” Business Horizons 60, no. 2 (March-April 2017): 189-195.
15. L. Sullivan, “Amazon Still First Place Many Consumers Search for Products,” MediaPost, May 22, 2020, www.mediapost.com.
16. C. Petre, B.E. Duffy, and E. Hund, “‘Gaming the System’: Platform Paternalism and the Politics of Algorithmic Visibility,” Social Media + Society 5, no. 4 (October-December 2019): 1-12.
17. “Justice Department Sues Monopolist Google for Violating Antitrust Laws,” U.S. Department of Justice, Oct. 20, 2020, www.justice.gov.