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Strategic Management Journal
Strat. Mgmt. J., 38: 141–160 (2017)
Published online EarlyView 17 November 2016 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2596
Received 29 April 2014; Final revision received 17 May 2016
NETWORKS, PLATFORMS, AND STRATEGY:
EMERGING VIEWS AND NEXT STEPS
DAVID P. MCINTYRE* and ARATI SRINIVASAN
Department of Management, School of Business, Providence College, Providence,
Rhode Island, U.S.A.
Research summary: A substantial and burgeoning body of research has described the influence
of platform-mediated networks in a wide variety of settings, whereby users and complementors
desire compatibility on a common platform. In this review, we outline extant views of these
dynamics from the industrial organization (IO) economics, technology management, and strategic
management perspectives. Using this review as a foundation, we propose a future research
agenda in this domain that focuses the on the relative influence of network effects and platform
quality in competitive outcomes, drivers of indirect network effects, the nature and attributes of
complementors, and leveraging complementor dynamics for competitive advantage.
Managerial summary: In many industries, such as social networks and video games, consumers
place greater value on products with a large network of other users and a large variety of
complementary products. Such “network effects” offer lucrative opportunities for firms that can
leverage these dynamics to create dominant technology platforms. This article reviews current
perspectives on network effects and the emergence of platforms, and offers several areas of future
consideration for optimal strategies in these settings. Copyright © 2016 John Wiley & Sons, Ltd.
INTRODUCTION
In today’s economy, businesses are increas-
ingly characterized by competition among
platform-mediated networks in which network
users—individuals or firms—desire compatibility
and interaction (Eisenmann, Parker, and Van
Alstyne, 2011). As a result, a variety of products
such as video games, enterprise software, and
online social networks are organized around plat-
forms, which facilitate transactions among firms
that and/or individuals who may not have been
able to transact otherwise (Eisenmann, Parker,
and Alstyne, 2006; Evans and Schmalensee, 2008;
Gawer, 2009; Hagiu, 2005; Rochet and Tirole,
Keywords: platforms; network effects; complements;
technology standards; ecosystems
*Correspondence to: David P. McIntyre, School of Business,
Providence College, 1 Cunningham Square, Providence,
RI 02918, U.S.A. E-mail: dmcinty2@providence.edu
Copyright © 2016 John Wiley & Sons, Ltd.
2006). For instance, video game consoles such as
Microsoft’s Xbox and Sony’s PlayStation serve as
platforms for which complementary game titles are
developed by third-party developers and played
by end users. Similarly, SAP provides a platform
for software developers to connect with enterprise
business clients. Though platform-mediated net-
works are often associated with high-technology
industries, they manifest across a wide array of set-
tings, including shopping malls, stock exchanges,
single-serving coffee makers, real estate bro-
kerages, and health maintenance organizations
(HMOs).
The fundamental premise of platform-mediated
networks is that users place a higher value on plat-
forms with a larger number of other users (Cen-
namo and Santalo, 2013). The increased value that
accrues to network participants is contingent on
the number of other users in the network with
whom they can interact (Eisenmann, 2007; Farrell
142 D. P. McIntyre and A. Srinivasan
and Saloner, 1985; Katz and Shapiro, 1986). For
instance, the value of online social networks such
as Facebook and LinkedIn increases with the num-
ber of participants on the site. In addition, enhanced
value to users may manifest indirectly when they
anticipate that platforms with more users will also
offer a greater variety of complementary prod-
ucts and services (Evans, 2003; Rochet and Tirole,
2003). In tandem, these direct network effects (via
a large number of users with whom to interact)
and indirect network effects (via the availability and
variety of complements) can foster the emergence
and persistence of dominant platforms, and thus,
strong competitive positions for their sponsoring
firms (Bonardi and Durand, 2003; Eisenmann et al.,
2011).
The dynamics of platform-mediated networks
have received significant attention from industrial
organization (IO) economics, technology man-
agement, and strategy perspectives. Economists
have sought to explain the existence of direct and
indirect network effects in diverse settings, and the
subsequent emergence of dominant platforms (for
instance, Parker and Van Alstyne, 2005; Shapiro,
1999). The technology management stream has
focused largely on platform sponsors, particularly
how they can attract third-party complementors
to stimulate indirect network effects (Eisenmann,
2006; Evans, Hagiu, and Schmalensee, 2006). This
stream characterizes platforms as technological
architectures (Gawer, 2014) on which platform
sponsors and complementors seek to innovate.
In contrast, strategic management scholars have
emphasized the emergence and persistence of com-
petitive advantage in these settings. Competitive
advantage arises when firms offer greater value
to customers at a lower cost than rivals (Besanko,
Dranove, and Shanley, 1999; Hoopes, Madsen, and
Walker, 2003; Peteraf and Barney, 2003; Porter,
1985). In platform-mediated settings, competitive
advantage is strongly dependent on the ability
of platform firms to stimulate value co-creation
with their network of complementors (Adner and
Kapoor, 2010) and exploit the ensuing positive
feedback dynamics (Katz and Shapiro, 1986). As
such, strategic management research has focused
on concepts such as platform leadership (Gawer
and Cusumano, 2002; Gawer and Henderson,
2007) and strategic interactions with comple-
mentors (Cennamo and Santalo, 2013; Kapoor
and Lee, 2013), while also examining strategic
choices around leveraging an existing installed
base of users (Afuah, 2013; Fuentelsaz, Garrido,
and Maicas, 2015).
While these three streams of research have vastly
enhanced our understanding of networks and plat-
forms, many studies across these perspectives have
been limited to single-industry settings or narra-
tive cases, thus limiting more robust and general-
izable implications. Therefore, it is our contention
that additional studies integrating these different
strands of research are needed to better under-
stand the genesis and maintenance of competitive
advantage in the context of platform-mediated net-
works. We address this issue by developing a future
research agenda that is broadly organized around
five key questions. First, what contextual factors
determine the strength or intensity of direct net-
work effects, and how can they be assessed? Rather
than creating a strict dichotomy between markets
where network effects occur and those in which
they are absent, we hope to understand how net-
work effects manifest differently across an array
of settings, and their subsequent influence on com-
petitive dynamics and market outcomes. Second,
what is the role of platform quality in influenc-
ing outcomes among competing platform-mediated
networks? This question becomes critical as plat-
form firms often have to deal with competing
objectives—entering a platform-mediated market
early to increase their chances of capturing early
market share and potentially sponsoring a dominant
platform versus delaying entry in the hope of releas-
ing a higher-quality product or service (Schilling,
2002). Third, how can indirect network effects be
conceptualized to better understand their impact on
platform competition? Extant research is ambigu-
ous regarding the impact of the sheer number of
complements on platform success, rather than other
strategies that platform providers can leverage for
competitive advantage. Fourth, how do complemen-
tor attributesplatform (McIntyre and Subramaniam,
2009). Thus, research on how platform firms can
design and modify their architectures can extend
our current understanding of indirect network
effects by focusing on how firms can augment
their base of complements to achieve competitive
advantage.
Recent studies in the area of technology manage-
ment have begun to address these issues by focus-
ing on the difference between open and proprietary
architectures in driving complementor support. By
opening up their platforms, platform firms typi-
cally publicize common design guidelines or archi-
tectures, and reduce limitations on interface use
by third parties. In contrast, closed or propri-
etary platforms conceal the underlying mechanisms
necessary for interaction among complementary
products, and significantly restrict the ability of
third parties to use their interface. Open standards
encourage greater participation from third-party
developers, and thus, tend to enhance the avail-
ability of complements (Boudreau and Jeppesen,
2015). On the other hand, proprietary standards,
such as the Keurig 2.0 coffee maker, provide greater
control and raise entry barriers for potential com-
petitors. How these choices influence the emer-
gence of complements, and their subsequent impact
on platform-based competition, represents a poten-
tially promising avenue of new research.
Additionally, the dynamics of
platform-complementor interactions are con-
tinuously evolving in tandem with broader
technological changes. Improvements in hardware,
the emergence of common third-party standards,
and overlap in functionality across platforms have
driven a trend toward convergence across platforms.
These shifts have resulted in the convergence of
previously disparate platform technologies as
diverse as PCs, video game consoles, handheld
devices, smart phones, and e-book readers in terms
of their functionality and portfolio of available
complements. Future research that focuses on
how platform firms can seek to extend their reach
to new markets, allowing them to leverage their
existing competencies and complementor net-
works, can provide important insights into how
competitive advantage emerges in increasingly
dynamic platform-based settings.
Toward a more comprehensive view
of networks, platforms, and strategy
In summary, research streams in IO economics,
strategic management, and technology management
have made substantial gains in our understanding
of the emergence of platforms and the dynamics
of platform-mediated networks. Yet, each stream
has been relatively confined to specific aspects of
these settings, lacking a broader view of strategy
considerations in the context of networks and plat-
forms. As a first step toward such a comprehensive
framework, Table 4 summarizes the critical unre-
solved research questions and gaps in the current
perspectives that we have described in the previous
sections.
In addition to further exploration of these ques-
tions, research on networks and platforms would
benefit from greater integration of insights from
multiple research streams and levels of analysis. For
example, the interplay between the strength of net-
work effects at the market level (IO economics) and
platform design choices at the firm level (technol-
ogy management) may lead to further insights about
why some industries tend to converge on a sin-
gle platform, while others foster the emergence of
multiple competing platforms. In turn, accounting
for a firm’s ability to leverage its existing network
(strategic management) along with complementor
attributes and incentives (technology management)
may explain the persistence of dominance by a
single firm once the platform has emerged. We
believe that future research will benefit from greater
recognition of the potential synergies in the three
existing streams described here, and that research
efforts that incorporate these streams while account-
ing for market, firm, and complementor dynamics
offer the greatest potential for furthering our under-
standing of strategy in the context of networks and
platforms.
CONCLUSION
Previous literature has described specific aspects of
platform-mediated networks in determining com-
petitive outcomes, yet their influence is increasingly
relevant across a broad spectrum of products and
markets. Thus, robust strategies for managing the
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 157
Table 4. Networks, platforms and strategy: five avenues of emerging and future research
Area of research Key research questions Research perspective(s)
Strength of network effects • What drives the strength of network effects, and
how do they manifest differently across markets
and platforms?
• How can variation in network effects be concep-
tualized and measured to predict differences in
competitive outcomes (e.g., single versus multiple
platforms) across settings?
• How can firms effectively leverage an existing
network across platforms and over time?
I/O Economics, Strategic
Management
Platform quality • When and how much does quality matter in
building and leveraging an installed base?
• What are the critical dimensions of quality to
users of competing platforms?
• How does the relative importance of quality
dimensions impact strategic choices such as entry
timing in platform markets?
Strategic Management, I/O
Economics
Drivers of indirect network
effects
• What is the impact of exclusivity of complements
on platform success?
• What aspects aside from total number of comple-
ments add value to users (e.g., variety, presence of
key complementors)?
• How do complementor design moves such as
porting influence platform competitive outcomes?
Strategic Management, I/O
Economics, Technology
Management
Nature and actions of
complementors
• What is the role of complementor attributes in
explaining their decisions to link to platforms?
• How does complementor age, size, and prior
experience influence their choice of platform?
• When does prior experience with a platform
enhance or constrain complementor adaptation?
Technology Management,
Strategic Management
Leveraging complementor
dynamics for competitive
advantage
• What are the optimal platform design strategies,
such as degree of openness, in building an ecosys-
tem of complementors?
• How can platform firms extend their reach to
newer markets by leveraging their existing archi-
tectures and complementor networks?
Technology Management,
Strategic Management,
I/O Economics
development of networks and platforms now merit
deeper theoretical and empirical consideration. We
have reviewed existing views on networks and plat-
forms from three perspectives: industrial organi-
zation (IO) economics, strategic management, and
technology management.
While these perspectives address important
issues with respect to platform-mediated networks,
they each have certain limitations that would benefit
from additional theoretical and empirical research.
In order to overcome these current limitations and
ambiguities, we suggest several distinct yet related
streams of future research grounded in these per-
spectives. Specifically, we base our future research
agenda around the nature and relative influence
of network effects and platform quality, drivers of
indirect network effects, the characteristics and
actions of complementors, and leveraging com-
plementor dynamics for competitive advantage.
We hope that future research in these domains
will offer substantial new insights into effective
strategies in the context of networks and platforms.
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
158 D. P. McIntyre and A. Srinivasan
ACKNOWLEDGEMENTS
We are very grateful to Tammy Madsen, Rodolphe
Durand, Robert Grant, and two anonymous review-
ers for their insights and guidance.
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Yoffie D, Kwak M. 2006. With friends like these: the art
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Zhu F, Iansiti M. 2012. Entry into platform-based markets.
Strategic Management Journal 33: 88–106.
SUPPORTING INFORMATION
Additional supporting information may be found
in the online version of this article:
File S1. Supplemental tables and concepts in
networks, platforms, and strategy.
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smjinfluence the nature and extent of their
support for a platform? The perspective of comple-
mentors, and their incentives to link with a specific
platform, is an often overlooked but important area
of research. Fifth, how can platform firms lever-
age complementor support for competitive advan-
tage? This is a critical question for firms hoping
to garner the support of third-party complemen-
tors as platforms continue to evolve and transcend
traditionally-defined industry boundaries.
By elaborating on the themes around these ques-
tions, we aim for greater integration and extension
of the three dominant perspectives on strategy and
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 143
competition among platform-mediated networks.
As networks and platforms play an increasingly
salient role in a multitude of settings, understand-
ing their core elements and consequences presents
a critical avenue of study for scholars and practi-
tioners of strategic management.
NETWORKS AND PLATFORMS:
CURRENT PERSPECTIVES
While the study of networks and platforms has
benefited from diverse theoretical perspectives, the
key constructs in this domain are easily conflated
given their conceptual overlap. Thus, it is important
to note the related yet conceptually distinct nature
of these terms.1
Networks can be broadly conceptualized as a
system of entities or nodes that are intercon-
nected (Borgatti et al., 2009; Eisenmann, 2007);
such nodes can be either individuals or “collec-
tive” participants, such as organizations Kane et al.,
2014). Platform-mediated networks describe more
specific contexts in which participants’ interac-
tions are influenced by network effects and facil-
itated by intermediaries (Evans and Schmalensee,
2007; Eisenmann, Parker, and Van Alstyne, 2006;
Rochet and Tirole, 2003; Suarez, 2005). Direct
network effects arise when the benefit of network
participation to a user depends on the number of
other network users with whom they can interact
(Eisenmann, Parker and Van Alstyne, 2008; Farrell
and Saloner, 1985; Katz and Shapiro, 1986). This
value can be augmented by indirect network effects,
whereby different “sides” of a network can mutu-
ally benefit from the size and characteristics of the
other side (Boudreau and Jeppesen, 2015; Evans,
2003; Hagiu, 2014; Rochet and Tirole, 2003). For
example, users of video streaming services such as
Netflix value a large number of available movies
and programs, while movie studios and other con-
tent providers benefit from a large base of view-
ers. Similarly, firms subscribing to an employment
listing site will benefit from a number of qual-
ified potential employees using the site; in turn,
job seekers will place a premium on sites with a
large and diverse array of firms listing employment
opportunities (Zhu and Iansiti, 2012). This mutual
1 A table summarizing these terms, their definitions, and relevant
references is available in the File S1 of the online version of the
article.
dependence often fosters the emergence of plat-
forms, as intermediaries seek opportunities to facil-
itate transactions among the users—individuals or
firms—of a network (Eisenmann et al., 2006; Evans
and Schmalensee, 2007; Rochet and Tirole, 2003).
The concept of platforms has received sig-
nificant attention from both IO researchers and
technology management scholars. From the IO
perspective, platforms can be conceptualized as
interfaces—often embodied in products, ser-
vices, or technologies—that can serve to mediate
transactions between two or more sides, such
as networks of buyers and sellers (for example,
eBay) or complementors and users (for example,
Linux in enterprise server software) (Evans, 2003;
Eisenmann, 2007; Gawer and Cusumano, 2002;
Hagiu, 2014; Rochet and Tirole, 2003; Rysman,
2009). Technology management scholars extend
this notion by emphasizing the additional function
of platforms as building blocks that serve as the
foundation on which other firms can build related
products or services (Gawer and Cusumano,
2002; Gawer and Henderson, 2007). Complements
describe goods and services built on a platform that
enhance the value of a core good to a network via
indirect network effects, such that the value of the
core good to adopters is greater in tandem with the
complement than without it (Brandenburger and
Nalebuff, 1996; Gawer, 2009; Yoffie and Kwak,
2006; Zhu and Iansiti, 2012). Complementors
are the independent providers of complementary
products to mutual customers (Boudreau and
Jeppesen, 2015; Yoffie and Kwak, 2006).
The broad term ecosystem has been frequently
used to describe a community of interacting firms
that and individuals who co-evolve their capabil-
ities and roles, and tend to align themselves with
the directions set by one or more central com-
panies (Iansiti and Levien, 2004). In the context
of platform competition, platform ecosystems refer
to the platform and its network of complemen-
tors that produce complements to enhance platform
value (Adner and Kapoor, 2010; Ceccagnoli et al.,
2012). From this perspective, platforms provide
value via a common architecture, the conceptual
specification of interfaces that allows an ecosystem
to be partitioned into a relatively stable platform
and a complementary set of modules, and governs
the interactions among these different components
(Baldwin and Woodard, 2009; Tiwana, Konsyn-
ski, and Bush, 2010). Similarly, standards define
the technical specifications of the platform (Suarez,
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
144 D. P. McIntyre and A. Srinivasan
2005) and ensure compatibility among architectural
components (Eisenmann, 2007). Dominant plat-
forms, and their sponsoring firms, may play a signif-
icant role in the formation of standards to the extent
that the specifications embodied in the platform can
be seen as de facto industry standards once the plat-
form has achieved a critical mass of network users
(Bonardi and Durand, 2003).
The following sections elaborate on current
research perspectives around these notions, from
market (industrial organization economics), firm
(strategic management), and integrative (technol-
ogy management) perspectives. Specifically, we
discuss the key contributions and limitations of
extant research from each of these three perspec-
tives, while Tables 1–3 highlight more specific
findings from recent work in these domains.2
Market dynamics: the IO economics view
Theoretical and empirical contributions
The concept of network effects has been studied
extensively by economists since the 1980s. Within
this strand of research, platform-mediated networks
are viewed as “conduits” that facilitate exchange
between two or more categories of users (Evans,
2003; Rochet and Tirole, 2006; Rysman, 2009). The
users, or nodes of the network, are “independent
actors—individuals and/or firms—who participate
in a network to interact” (Eisenmann, 2007: 6). As
such, the literature distinguishes between two main
kinds of network effects: direct network effects and
indirect network effects. As noted previously, direct
network effects arise when the benefit of network
participation to a user depends on the number of
other network users with whom they can interact
(Arthur, 1989; Eisenmann, Parker, and Van Alstyne,
2006; Farrell and Saloner, 1985; Katz and Shapiro,
1986), while indirect effects occur when different
sides of a network can mutually benefit from the size
and characteristics of the other side (Armstrong,
2006; Evans, 2003; Evans and Schmalensee, 2008;
Parker and Van Alstyne, 2005; Rochet and Tirole,
2003).
More recently, economists studying network
effects have focused their attention on indirect
network effects observed in two-sided networks,
2 Expanded versions of the tables, with additional information
about the methodology and limitations of each study, are available
in the File S1 of the online version of the article.with their focus largely on understanding the inter-
dependence in demand between a complementary
set of compatible technologies, and the subsequent
implications for how competition plays out in these
settings (Armstrong, 2006; Evans, 2003; Evans
and Schmalensee, 2008; Rochet and Tirole, 2006).
The fundamental assertion of studies in this realm
is that platforms are subject to positive feedback
loops through network effects in use (Katz and
Shapiro, 1986) and increasing returns in supply
(Arthur, 1989)—the greater the number of users of
a platform, the greater the incentive for third-party
developers to introduce more complementary
products, and vice versa (Cusumano and Gawer,
2002; Gupta, Jain, and Sawnhey, 1999).
A platform’s installed base, or number of active
users, influences the choices of developers of com-
plementary goods. For instance, in the video game
industry, supporting a platform with a large user
base is more valuable to game developers as it
offers a greater potential market for their games
relative to platforms with smaller subsets of users
(Venkatraman and Lee, 2004). The availability of
complementary goods, in turn, positively influences
the adoption decisions of consumers, which fur-
ther increases the installed base. Thus, complemen-
tors’ decisions to invest in and support a given
platform are likely to be strongly influenced by
the presence and strength of network effects for
the platform—complementors wishing to develop
products on a platform will find themselves bet-
ter off developing for the dominant platform, given
its large installed base of users. As a result of
these network dynamics, the literature suggests that
“winner-take-all” (WTA) outcomes are possible in
some platform-mediated networks as the platform
with the largest number of users “tips the market” in
its favor (Eisenmann et al., 2006; Katz and Shapiro,
1994; Shapiro and Varian, 1998). WTA outcomes
are especially salient in platform-mediated net-
works when multi-homing costs (the costs of affili-
ating with multiple platforms) are high for network
users and the demand for differentiated features is
limited (Hagiu, 2009).
Since the basic premise of economic models
is that competition among platform-mediated net-
works is driven by the adoption of the platform by
both users and complementors, several recent stud-
ies have focused on understanding how to attract
multiple sides to the platform (Gawer, 2014). To
that end, most economic models have focused on
pricing by platform firms (for example, Clements
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 145
Ta
bl
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Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
146 D. P. McIntyre and A. Srinivasan
Ta
bl
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2.
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rt
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ce
of
lo
ca
ln
et
w
or
k
dy
na
m
ic
s
in
de
te
rm
in
in
g
m
ar
ke
to
ut
co
m
es
N
/A
M
cI
nt
yr
e
an
d
Su
br
am
an
ia
m
20
09
Jo
ur
na
lo
f
M
an
ag
em
en
t
T
he
or
et
ic
al
;s
tr
at
eg
y
co
ns
id
er
at
io
ns
fo
r
ne
tw
or
k
in
du
st
ri
es
va
ry
ba
se
d
on
ch
ar
ac
te
ri
st
ic
s
of
m
ar
ke
ts
an
d
pr
od
uc
ts
E
xa
m
pl
es
ac
ro
ss
ne
tw
or
k
m
ar
ke
ts
E
is
en
m
an
n,
Pa
rk
et
,
an
d
V
an
A
ls
ty
ne
20
11
St
ra
te
gi
c
M
an
ag
em
en
t
Jo
ur
na
l
T
he
or
et
ic
al
;d
es
cr
ib
es
“e
nv
el
op
m
en
t”
st
ra
te
gi
es
ac
ro
ss
ne
tw
or
k
m
ar
ke
ts
,f
oc
us
in
g
on
be
ne
fit
s
of
pl
at
fo
rm
bu
nd
lin
g
to
le
ve
ra
ge
us
er
re
la
tio
ns
hi
ps
an
d
co
m
m
on
co
m
po
ne
nt
s
V
ar
io
us
ex
am
pl
es
of
ha
rd
w
ar
e
an
d
so
ft
w
ar
e
pl
at
fo
rm
s;
ec
on
om
ic
m
od
el
of
ne
tu
til
ity
of
pl
at
fo
rm
s
Z
hu
an
d
Ia
ns
iti
20
12
St
ra
te
gi
c
M
an
ag
em
en
t
Jo
ur
na
l
E
m
pi
ri
ca
l(
qu
an
tit
at
iv
e)
;s
uc
ce
ss
fu
le
nt
ry
in
ne
tw
or
k
m
ar
ke
ts
co
nt
in
ge
nt
on
in
di
re
ct
ef
fe
ct
s
an
d
co
ns
um
er
di
sc
ou
nt
fa
ct
or
of
fu
tu
re
im
po
rt
an
ce
A
pp
lie
s
th
eo
re
tic
al
m
od
el
to
th
e
vi
de
o
ga
m
e
co
ns
ol
e
in
du
st
ry
(M
ic
ro
so
ft
ve
rs
us
So
ny
)
A
fu
ah
20
13
St
ra
te
gi
c
M
an
ag
em
en
t
Jo
ur
na
l
T
he
or
et
ic
al
;s
tr
uc
tu
re
an
d
co
nd
uc
tw
ith
in
ne
tw
or
ks
m
ay
be
m
or
e
in
fo
rm
at
iv
e
st
ra
te
gi
c
va
ri
ab
le
s
th
an
si
ze
pe
r
se
N
/A
C
en
na
m
o
an
d
Sa
nt
al
o
20
13
St
ra
te
gi
c
M
an
ag
em
en
t
Jo
ur
na
l
E
m
pi
ri
ca
l(
qu
an
tit
at
iv
e)
;fi
rm
s
pu
rs
ui
ng
bo
th
gr
ea
te
r
av
ai
la
bi
lit
y
of
co
m
pl
em
en
ts
an
d
pr
op
ri
et
ar
y
ow
ne
rs
hi
p
of
co
m
pl
em
en
ts
m
ay
di
m
in
is
h
th
e
va
lu
e
of
ea
ch
st
ra
te
gy
86
0
pl
at
fo
rm
-m
on
th
ob
se
rv
at
io
ns
ac
ro
ss
14
vi
de
o
ga
m
e
co
ns
ol
es
K
ap
oo
r
an
d
L
ee
20
13
St
ra
te
gi
c
M
an
ag
em
en
t
Jo
ur
na
l
E
m
pi
ri
ca
l(
qu
an
tit
at
iv
e)
;fi
rm
-c
om
pl
em
en
to
r
in
ve
st
m
en
ts
pl
ay
an
im
po
rt
an
tr
ol
e
in
sh
ap
in
g
be
ne
fit
s
fr
om
ne
w
te
ch
no
lo
gy
5,
36
7
ho
sp
ita
ls
fr
om
19
95
to
20
06
B
ou
dr
ea
u
an
d
Je
pp
es
en
20
15
St
ra
te
gi
c
M
an
ag
em
en
t
Jo
ur
na
l
E
m
pi
ri
ca
l(
qu
an
tit
at
iv
e)
;u
np
ai
d
co
m
pl
em
en
to
rs
re
sp
on
d
to
pl
at
fo
rm
gr
ow
th
,b
ut
do
no
ts
tim
ul
at
e
ne
tw
or
k
ef
fe
ct
s
2,
24
0
pl
at
fo
rm
-m
on
th
ob
se
rv
at
io
ns
of
vi
de
o
ga
m
e
“m
od
s”
fr
om
20
02
to
20
04
Fu
en
te
ls
az
,G
ar
ri
do
,
an
d
M
ai
ca
s
20
15
Jo
ur
na
lo
f
M
an
ag
em
en
t
E
m
pi
ri
ca
l(
qu
an
tit
at
iv
e)
;fi
rm
s
ca
n
st
ra
te
gi
ca
lly
le
ve
ra
ge
ne
tw
or
ks
in
th
ei
r
fa
vo
r
by
in
flu
en
ci
ng
ex
pe
ct
at
io
ns
,
co
m
pa
tib
ili
ty
an
d
co
or
di
na
tio
n
M
ob
ile
te
le
co
m
m
un
ic
at
io
ns
in
du
st
ry
in
20
E
ur
op
ea
n
m
ar
ke
ts
be
tw
ee
n
19
98
an
d
20
08
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 147
Ta
bl
e
3.
Se
le
ct
ed
st
ud
ie
s
fr
om
th
e
te
ch
no
lo
gy
m
an
ag
em
en
tp
er
sp
ec
tiv
e
A
ut
ho
rs
Y
ea
r
Jo
ur
na
l
C
on
tr
ib
ut
io
n
In
du
st
ry
/d
at
a
W
es
t
20
03
R
es
ea
rc
h
Po
li
cy
E
m
pi
ri
ca
l(
qu
al
ita
tiv
e
ca
se
st
ud
y)
;h
yb
ri
d
st
ra
te
gi
es
th
at
co
m
bi
ne
th
e
ad
va
nt
ag
es
of
op
en
so
ur
ce
so
ft
w
ar
e
w
hi
le
re
ta
in
in
g
co
nt
ro
la
nd
di
ff
er
en
tia
tio
n
ar
e
cr
iti
ca
lf
or
pl
at
fo
rm
su
cc
es
s
Fo
cu
s
on
th
re
e
pl
at
fo
rm
ve
nd
or
s—
A
pp
le
,I
B
M
,a
nd
Su
n.
M
ic
ro
sy
st
em
s
19
95
–
20
02
G
aw
er
an
d
C
us
um
an
o
20
08
Sl
oa
n
M
an
ag
em
en
t
R
ev
ie
w
T
he
or
et
ic
al
;f
ou
r
le
ve
rs
of
pl
at
fo
rm
le
ad
er
sh
ip
in
cl
ud
e
fir
m
sc
op
e,
te
ch
no
lo
gy
de
si
gn
,r
el
at
io
ns
w
ith
co
m
pl
em
en
to
rs
,
an
d
in
te
rn
al
or
ga
ni
za
tio
n
E
xa
m
pl
es
of
pl
at
fo
rm
s
ac
ro
ss
th
e
te
ch
no
lo
gy
in
du
st
ry
su
ch
as
G
oo
gl
e,
L
in
ux
B
al
dw
in
an
d
W
oo
da
rd
20
09
P
la
tf
or
m
s,
M
ar
ke
ts
an
d
In
no
va
ti
on
T
he
or
et
ic
al
;p
la
tf
or
m
s
ar
e
ch
ar
ac
te
ri
ze
d
by
a
m
od
ul
ar
ar
ch
ite
ct
ur
e
an
d
ar
e
st
ru
ct
ur
ed
ar
ou
nd
a
co
re
an
d
pe
ri
ph
er
y
N
/A
E
is
en
m
an
n,
Pa
rk
er
,
an
d
V
an
A
ls
ty
ne
20
09
P
la
tf
or
m
s,
M
ar
ke
ts
an
d
In
no
va
ti
on
T
he
or
et
ic
al
;r
ev
ie
w
of
re
se
ar
ch
on
fa
ct
or
s
th
at
m
ot
iv
at
e
fir
m
s
to
op
en
or
cl
os
e
m
at
ur
e
pl
at
fo
rm
s
V
ar
io
us
ex
am
pl
es
of
te
ch
no
lo
gy
pl
at
fo
rm
s
G
aw
er
20
09
P
la
tf
or
m
s,
M
ar
ke
ts
an
d
In
no
va
ti
on
T
he
or
et
ic
al
;t
he
m
od
ul
ar
ar
ch
ite
ct
ur
e
of
pl
at
fo
rm
s
is
cr
iti
ca
l
to
st
im
ul
at
in
g
in
no
va
tio
n
in
co
m
pl
em
en
ta
ry
pr
od
uc
ts
,
te
ch
no
lo
gy
,a
nd
se
rv
ic
es
E
xa
m
pl
es
of
in
du
st
ry
pl
at
fo
rm
s,
su
pp
ly
ch
ai
n
pl
at
fo
rm
s,
an
d
in
te
rn
al
pl
at
fo
rm
s
Te
e
an
d
G
aw
er
20
09
E
ur
op
ea
n
M
an
ag
em
en
t
R
ev
ie
w
E
m
pi
ri
ca
l(
qu
al
ita
tiv
e
ca
se
st
ud
y)
;e
xa
m
in
at
io
n
of
th
e
ro
le
of
in
du
st
ry
ar
ch
ite
ct
ur
e
in
dr
iv
in
g
va
lu
e
cr
ea
tio
n
an
d
va
lu
e
ca
pt
ur
e
in
pl
at
fo
rm
ec
os
ys
te
m
s
D
ep
lo
ym
en
to
f
th
e
i-
M
od
e
m
ob
ile
In
te
rn
et
se
rv
ic
es
in
Ja
pa
n
an
d
N
et
he
rl
an
ds
B
ou
dr
ea
u
20
10
M
an
ag
em
en
tS
ci
en
ce
E
m
pi
ri
ca
l(
qu
an
tit
at
iv
e)
;d
if
fe
re
nt
ap
pr
oa
ch
es
to
op
en
in
g
up
a
pl
at
fo
rm
(o
ut
si
de
r
ac
ce
ss
ve
rs
us
ce
di
ng
co
nt
ro
l)
di
ff
er
en
tia
lly
im
pa
ct
s
th
e
ra
te
of
in
no
va
tio
n
H
an
dh
el
d
co
m
pu
tin
g
in
du
st
ry
be
tw
ee
n
19
90
an
d
20
04
T
iw
an
a
et
al
.
20
10
In
fo
rm
at
io
n
Sy
st
em
s
R
es
ea
rc
h
T
he
or
et
ic
al
;d
ev
el
op
m
en
to
f
a
fr
am
ew
or
k
fo
r
as
se
ss
in
g
co
-e
vo
lu
tio
n
of
de
si
gn
an
d
go
ve
rn
an
ce
ch
oi
ce
s
of
pl
at
fo
rm
ow
ne
rs
an
d
th
ei
r
ev
ol
ut
io
na
ry
dy
na
m
ic
s
So
ft
w
ar
e
pl
at
fo
rm
s
Fu
en
te
ls
az
,G
ar
ri
do
,
an
d
M
ai
ca
s
20
14
St
ra
te
gi
c
M
an
ag
em
en
t
Jo
ur
na
l
E
m
pi
ri
ca
l(
qu
an
tit
at
iv
e)
;v
al
ue
of
co
m
pl
em
en
ta
ry
as
se
ts
to
in
cu
m
be
nt
s
af
te
r
a
te
ch
no
lo
gi
ca
lc
ha
ng
e
va
ri
es
ac
co
rd
in
g
to
co
nt
ex
tu
al
fa
ct
or
s
Pa
ne
lo
f
3,
50
9
ob
se
rv
at
io
ns
of
m
ob
ile
te
le
co
m
m
un
ic
at
io
ns
pr
ov
id
er
s
ac
ro
ss
39
m
ar
ke
ts
G
aw
er
20
14
R
es
ea
rc
h
Po
li
cy
T
he
or
et
ic
al
;c
on
ce
pt
ua
liz
es
pl
at
fo
rm
s
as
ev
ol
vi
ng
or
ga
ni
za
tio
ns
an
d
de
ri
ve
s
a
m
od
el
of
th
e
in
te
ra
ct
io
n
be
tw
ee
n
pl
at
fo
rm
in
no
va
tio
n
an
d
co
m
pe
tit
io
n
E
xa
m
pl
es
of
in
du
st
ry
pl
at
fo
rm
s,
su
pp
ly
ch
ai
n
pl
at
fo
rm
s,
an
d
in
te
rn
al
pl
at
fo
rm
s
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
148 D. P. McIntyre and A. Srinivasan
and Ohashi, 2005; Evans, Hagiu, and Schmalensee,
2006; Parker and Van Alstyne, 2005; Rochet and
Tirole, 2003, 2006; Rysman 2009, etc.) with find-
ings across multiple settingsbroadly suggesting that
platform firms may subsidize one side of the plat-
form by using deep discounts in order to attract the
other side to join. For instance, RealNetworks, the
dominant streaming media producer of the 1990s,
gave away free versions of its media player to end
users while charging content providers for server
software (Parker and Van Alstyne, 2005).
Limitations of the IO perspective
Network effects have been studied comprehensively
across multiple settings by economists. Despite the
large number of studies in this area, there are a
number of ambiguities that have constrained a more
robust understanding of these dynamics. First, posi-
tive feedback and the propensity for winner-take-all
attributes are generally assumed to be exogenous
and constant factors in an industry, such that prior
research has tended to downplay the importance
of specific firms’ attempts to strategically manipu-
late network effects (McIntyre and Subramaniam,
2009). Second, network effects are often assumed
to be dichotomous, that is, their influence is either
present or absent in a given context. As such, empir-
ical approaches to network effects often focus on
a few high-technology industries and incorporate
relatively coarse metrics, such as total installed
base size, to determine drivers of firm growth. Yet,
a burgeoning body of research suggests that net-
work dynamics are more complex, such that the
relative strength and structure of user networks
may be more informative than the absolute exis-
tence of network effects in a given setting (Afuah,
2013; McIntyre and Subramaniam, 2009; Suarez,
2005). Third, most prior studies on indirect net-
work effects have treated the relationship between
complementors and firms as a “black-box,” and
focus solely on the impact of the number of avail-
able complements on market outcomes (Srinivasan
and Venkatraman, 2010). Such an approach effec-
tively excludes the option of strategic positioning,
and overlooks other attributes of relationships with
complementors—such as securing exclusive agree-
ments for content distribution or garnering sup-
port from large, dominant complementors—that
can have an impact on platform success above and
beyond those explained by the sheer number of
complements alone. As a result, studies emerging
from the IO economics perspective provide limited
insight into how firms strategically design platforms
for success (Gawer, 2014). Thus, we argue that this
stream would benefit from additional research that
addresses these ambiguities, while taking an inte-
grative approach with the perspectives described in
the following sections.
Firm dynamics: the strategic management view
Theoretical and empirical contributions
Strategic management research has sought to build
on economic perspectives of network effects by
focusing on strategic initiatives by which firms
achieve competitive advantage and leverage the
benefits of positive feedback dynamics to early
market leaders. At a fundamental level, strategy
researchers have attempted to move from mar-
ket structural explanations of competitive outcomes
in network markets to firm-driven factors and
actions that may influence success or failure. While
researchers at the nexus of strategy and economics
have focused on understanding the pricing decisions
of platform firms to build large networks and subse-
quently, leverage the associated positive feedback,
other studies in the strategy realm have focused on
the impact of other drivers of competitive advantage
such as entry timing of firms (Eisenmann, 2006;
Schilling, 2002; Shapiro and Varian, 1998), incum-
bent advantages such as firm size (Schilling, 2002;
Sheremata, 2004) and platform features, and rela-
tive quality (Liebowitz and Margolis, 1994; McIn-
tyre, 2011; Tellis, Yin, and Niraj, 2009; Zhu and
Iansiti, 2012).
Given that expectations of a platform’s growth
potential can influence users’ product adoption
choices, firms have strong incentives to signal and
condition user expectations about their potential
for future dominance (Chintakananda and McIn-
tyre, 2014; Fuentelsaz et al., 2015). As such, sev-
eral scholars have focused their attention on the
impact of entry timing decisions to attract an early
critical mass of users and serve as a signal of
growth potential. While the traditional notion has
been that early entry gives firms a better chance
to build their installed base to ensure future via-
bility, recent studies have posited that early entry
may indeed be detrimental to a firm, with many
late entrants effectively outselling incumbents to
prevent them from retaining their early leadership
positions (Evans, 2003; Suarez, Grodal, and Got-
sopolous, 2015; Tellis et al., 2009). These studies
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 149
have underscored the need for more robust strate-
gies around entry timing, rather than simply rush-
ing to achieve first-mover status (McIntyre and
Subramaniam, 2009). Similarly, strategy scholars
have also attempted to understand how new and
emerging platforms can compete with incumbents,
and in turn, how incumbents can retain their com-
petitive advantage via an existing installed base
(Eisenmann et al., 2011; Schilling, 2002; Shere-
mata, 2004).While Schilling (2002) found that poor
availability of complements increases the likelihood
of a platform firm’s lock-out, Sheremata (2004) and
Eisenmann et al. (2011) found that new entrants
engaging in radical innovations or employing suc-
cessful platform envelopment strategies can suc-
cessfully leapfrog dominant platform firms even
when network effects are strong.
Relatedly, some researchers have attempted to
determine the strategic relevance of a “superior”
product in the emergence of a dominant platform.
Given the impact of network effects, some have
argued that a small lead in attracting early customers
could tip the market in the favor of an early entrant
with an inferior product or service (Cowan, 1990;
Shapiro and Varian, 1998; Sheremata, 2004; Wade,
1995). On the other hand, another subset of research
holds that product quality is an important determi-
nant of success in such markets, and that dominant
platforms tend to be those that exhibit the high-
est quality (Liebowitz and Margolis, 1994, 1995;
McIntyre, 2011; Tellis et al., 2009). For example,
Zhu and Iansiti (2012) found that installed base
advantages alone do not always protect incum-
bents from new entrants in the video game industry,
and that incumbents need to achieve quality lev-
els comparable to the new entrant to retain mar-
ket leadership. Thus, the strategic value of qual-
ity advantages in platform-mediated networks, and
the contextual factors that may enhance or mitigate
the advantage of a higher-quality platform, remain
ambiguous.
While these and other studies have focused
on understanding strategies by which firms can
increase the size of their installed base, related
research has focused on the impact of installed
base size on future platform adoption decisions. For
instance, Shankar and Bayus (2003) used the con-
text of the video game console industry to under-
stand the relationship between installed base size
and network growth, demonstrating that even a
smaller installed base of users may be responsive to
effective firm strategy. Other studies have examined
this relationship in a multitude of settings, such as
telecommunications (Chacko and Mitchell, 1998)
and peer-to-peer file sharing networks (Asvanund
et al., 2004).
These studies have provided valuable insights
into competition in network markets. However, the
focus of this stream has largely been on only one
side of the platform—individual users. Despite
strong consensus among economists and strategic
management scholars that the management of
complements is particularly beneficial in network
markets (Kapoor and Lee, 2013), there have been
surprisingly few studies on strategies related
to the effective management of complements.Notable exceptions include Gupta, Sawhney, and
Jain (1999), who found support for the critical
role of complementors—in this case, suppliers
of high-definition television programming—in
consumer adoption decisions. Other studies have
focused on the number of available complements in
driving the diffusion of CD players (Gandal et al.,
2000), personal digital assistants (Nair, Chinta-
gunta, and Dubé, 2004), and video game consoles
(Clements and Ohashi, 2005). In summary, an
emerging body of research has explored the exis-
tence of indirect network effects, and the mutually
beneficial relationship between complementors
and users. However, relatively few insights have
been offered as to how platform providers can
strategically manage or incentivize complementors
to benefit their particular platform.
Last, strategic management scholars have begun
to empirically examine the dynamic nature of
platform-mediated networks—how complemen-
tors choose to link to platforms over time, and
how such linkages subsequently impact platform
dominance. For instance, Venkatraman and Lee
(2004) adopted the network perspective in their
study of the video game industry to determine
factors that influence the product launch decisions
of complementors on specific platforms, and found
that the dominance and newness of a platform
condition complementor choices. Cennamo and
Santalo (2013) extended this line of research
and found that platform firms may benefit from
expanding the number and variety of applications
or securing exclusivity agreements, but concurrent
attempts at both strategies are counterproduc-
tive. Similarly, Boudreau and Jeppesen (2015)
adopted the complementor perspective to find that
unpaid complementors in newer platform contexts
such as online digital platforms responded to
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
150 D. P. McIntyre and A. Srinivasan
platform-installed base growth similarly to paid
complementors.
Limitations of the strategy perspective
Strategic management scholars have attempted to
address many issues related to firm-specific actions
to leverage network effects, yet significant uncer-
tainty remains about optimal strategies in platform
development and management. First, the impact
of firm-level strategies such as entry timing, and
platform quality and features remains largely unre-
solved (McIntyre and Subramaniam, 2009; Zhu and
Iansiti, 2012). Second, the primary focus of these
studies has been largely on one side—individual
users—with limited attention to the perspective of
complementors. No study has so far attempted to
reconcile the fact that there is heterogeneity in com-
plementor attributes and experience, and hence, in
their ability to leverage the resources provided by
platform sponsors to support multiple, contempora-
neously existing platforms. In addition, there have
been no studies examining heterogeneity in comple-
mentors’ motivation to support specific platforms,
and the implications of their subsequent choices for
competitive outcomes.
Finally, these studies have largely adopted a
static or cross-sectional view, and have not focused
on how platform-complementor interactions evolve
dynamically over time. The role of technological
evolution, the introduction of new platform archi-
tectures, and the emergence of new cross-boundary
standards in altering platform-complementor rela-
tionships have not been systematically examined. A
notable exception is Eisenmann et al. (2011), who
took a more dynamic view in finding that entrants
can displace incumbents via “envelopment” strate-
gies involving multi-platform bundles. Thus, we
view further exploration of specific firm strategies
that foster the emergence and persistence of plat-
forms over time as a vital next step in this domain
for platform firms and complementors alike.
Integrating firm and market: the technology
management view
Theoretical and empirical contributions
While economists have sought to understand
how network effects accrue in platform-mediated
networks, and strategists have focused on how
platform providers can grow their installed base of
users through strategies such as pricing, quality,
and entry timing, technology management scholars
have largely focused their attention on issues of
platform design and its subsequent impact on
generating network effects.
The technology management view treats plat-
forms broadly as technological architectures that
facilitate innovation (Gawer, 2014). Early concep-
tualizations of platforms treated them as systems
that could be modified through the addition and
removal of features (Wheelwright and Clark, 1992).
More recently, researchers have begun invoke prin-
ciples from engineering design (Simon, 1962) to
describe platforms as modular systems (Baldwin
and Clark, 2000; Baldwin and Woodard, 2009;
Gawer and Henderson, 2007; Gawer, 2009, 2014;
Schilling, 2000) that facilitate innovation by break-
ing up a complex system into discrete compo-
nents that interact through standardized interfaces
(Gawer, 2014; Langlois, 2002; Simon, 1962). While
these concepts of platforms emerged in the context
of intra-firm platforms and supply-chain platforms,
scholars have begun to apply similar principles
to “innovation ecosystems” (Adner and Kapoor,
2010; Tee and Gawer, 2009), whereby platforms
serve as the essential building block on which other
firms develop complementary products or services
(Gawer, 2009, 2014). In this view, the fundamen-
tal architecture of any platform includes a set of
stable core components with low variety, and a set
of peripheral components with high variety (Bald-
win and Woodard, 2009). Thus, the platform is
defined as the core and complements the periph-
eral components, and interaction between platforms
and complements is facilitated by common inter-
faces. The conceptual specification of the interfaces
that governs the interaction among the platform and
its complements describes the platform architecture
(Tiwana et al., 2010).
A natural extension to this area of research has
been the study of optimal design choices around
interfaces made by platform firms that allow for
faster and more systematic innovation. Specifically,
technology management research has focused on
how the decisions of platform owners—such as the
openness of their platform interfaces—influences
innovation through their ability to attract third-party
complementors (Baldwin and von Hippel, 2011;
Boudreau, 2010; Eisenmann, Parker, and Van
Alstyne, 2008; Lee and Mendelson, 2008; West,
2003). The degree of openness of platforms has
been studied across a multitude of contexts, such
as the level of access to information on platform
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DOI: 10.1002/smj
Networks, Platforms, and Strategy 151
interfaces, the cost of access, and the rules gov-
erning the use of the interface (Gawer, 2014).
Studies on platform openness have highlighted
the trade-offs between open and closed platforms
(Gawer and Cusumano, 2008; Eisenmann, Parker,
and Van Alstyne, 2008). These studies have found
that while opening up interfaces typically increase
complementors’ incentives to innovate (Boudreau,
2010), too much openness leads to a loss of revenue
and profit (Eisenmann, Parker, and Van Alstyne,
2008). Therefore, additional research is imperative
to understand the contingencies that drive optimal
openness decisions for platform success.
These ideas have been further extended to
understand how platform firms can facilitate and
incentivize increased support from third-party
complementors. Relationships with complementors
provide resources critical to the success of plat-
forms due to inherent mutual dependence between
the parties within the system (Venkatraman and
Lee, 2004). Platform providers invest significant
resources to attract complementors to their plat-
form; complementors, in turn, commit resources
to develop complements for a platform over time.
Thus, recent studies havefocused on the efforts of
platform providers to attract developers not just by
creating platforms of superior technical quality, but
also by providing them with toolkits that simplify
the development process for complements. For
example, studies have illustrated the value that
such toolkits provide in the form of basic training
to the developers, but also from their libraries of
commonly used modules that the developer can
incorporate into their design3 (Evans et al., 2006;
Von Hippel and Katz, 2002; Yoffie and Kwak,
2006).
Limitations of the technology management
perspective
While the core concepts of indirect network effects
and platform design strategies have been used
by technology management researchers to study
the underlying dynamics of platform-mediated net-
works, most of the studies in this area have focused
on platform leadership through the use of case
3 An example of a toolkit provided to third parties is the new
Apple Watch developer toolkit “HealthKit” that allows software
designers to leverage access to the key components, such as
motion sensors and heart rate monitors, to build more intelligent
apps.
studies and conceptual theorizing (for instance,
Gawer and Cusumano, 2002; Gawer and Hender-
son, 2007). Therefore, a key limitation of research
in this area is a lack of empirical studies that test
how platform providers’ design decisions impact
complementor choices to support the platform,
and the subsequent success of these decisions.
Notable exceptions include an examination of inno-
vation incentives and platform openness in hand-
held devices by Boudreau (2010), who found that
platform firms that grant greater levels of access
to third-party complementors experience a rapid
acceleration in the rate of new complement devel-
opment.
Another key limitation of technology manage-
ment research, which is shared by the IO eco-
nomics and strategy perspectives, is that there is
relatively little understanding of platform dynam-
ics and their evolution, with platforms being treated
as systems that remain relatively stable over time.
However, it is our contention that a more thorough
understanding of the evolution of platform-based
competition is especially critical given the rate of
change in high-technology settings, with integrated
circuits and many other electronic components con-
tinually becoming better, faster, and cheaper, pro-
viding opportunities to improve existing systems
and design new kinds of platforms (Bresnahan and
Greenstein, 1999). This rapid rate of technolog-
ical change implies that technology architectures
are dynamic and continuously evolving over time;
this phenomenon can be seen in contexts such as
video games, where consoles with improved speed,
memory, and graphics capabilities are launched
at frequent intervals (Clements and Ohashi, 2005;
Gallagher and Park, 2002). As a result, additional
research is needed that focuses on how platform
firms manage and leverage their portfolio of com-
plements during regimes of frequent technological
change.
In summary, each of the research streams
described in the preceding sections has offered
critical insights into our understanding of the evo-
lution of networks and platforms, and implications
for optimal strategies in these settings. However,
further advances in strategy have been hindered
by ambiguity regarding several key constructs
and measures in this domain. Even fundamental
concepts, such as the intensity of network effects
and the quality of competing platforms, largely lack
cohesive definitions and accompanying measures.
Furthermore, each stream has focused largely on
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
152 D. P. McIntyre and A. Srinivasan
specific phenomena with regard to networks and
platforms, leaving other questions unaddressed. For
example, an IO economics perspective might focus
on establishing the presence of strong network
effects in a given market and describing the evolu-
tion of a dominant platform, without examining the
distinct strategic choices that allowed a specific firm
to achieve such dominance. Similarly, a technology
management approach might describe an optimal
ecosystem of complementors for a platform firm,
without accounting for the incentives of such
complementors to actually produce goods for the
platform. In the following section, we integrate
these different strands of research toward a more
robust understanding of the role of strategy in
competition among platform-mediated networks.
NETWORKS AND PLATFORMS: NEXT
STEPS
Building on the existing gaps and ambiguities
discussed in the literature review, we identify
several prominent research questions that merit
further exploration. Subsequently, we expand
on these questions, framing a research agenda
in this domain. We argue that future research
should focus on several critical issues, integrating
the IO economics, strategic management, and
technology management perspectives: First, how
strong are network effects in a given setting?
Second, what is platform “quality” in the context
of platform-mediated networks, and when does
quality matter? Third, what factors beyond the
sheer number of available complements may drive
competitive advantage via indirect network effects?
Fourth, how do complementor attributes—such
as age, size, and prior experience—drive the
incentives and ability of complementors to extend
support to platforms? Fifth, how can platform
firms effectively leverage the support of third-party
complementors? We discuss each of these areas in
the following sections.
How strong are network effects?
A key contribution of recent research on
platform-mediated networks has been a richer,
more nuanced notion of the influence of network
effects on platform emergence and optimal firm
strategies. Many extant views of network effects
focused on patterns of technology diffusion in
specific industries such as software or video
cassettes, where network dynamics were offered
as a compelling rationale for the emergence of a
single dominant platform. Yet, more recent work
has suggested that understanding the antecedents,
drivers, and mechanisms by which network effects
manifest across various markets may result in
more robust implications for strategy than the mere
establishment of their presence.
For example, an emerging body of work sug-
gests that factors such as the strength of ties among
network participants (Suarez, 2005), the structural
characteristics of the network and focal product
(Afuah, 2013; McIntyre and Subramaniam, 2009),
the costs of users’ “multi-homing” or engaging mul-
tiple platforms (Hagiu, 2009; Rochet and Tirole,
2003), and conduct by network participants (Afuah,
2013; Lee, Lee, and Lee, 2006) may be more rel-
evant considerations for effective strategy than the
total size of the user network. These advances sug-
gest a broader thematic shift in research on strategy
and platform-mediated networks: from implications
of the existence of network effects in certain mar-
kets to the implications of the relative influence of
network effects across a wide spectrum of markets.
In building on this shift, several additional ques-
tions about network and participant characteristics
may yield greater insights in to effective strategies
in this domain. First, how can researchers and prac-
titioners effectively conceptualize the strength or
intensity of network effects in a given setting? It
is well established that while network effects may
manifest in many different settings, their influence
on competitive dynamics and market outcomes is
stronger in certain contexts. For example, in social
networks, the intensity of network effects is high as
consumers are more likely to account for the size
of an existing network when selecting a technol-
ogy. When the ability to interact with the largest
available installed base is vital, the market will tend
to converge on a single, dominant platform. Yet, in
other contexts such as credit cards, ridesharing, or
HMO networks,consumers may be less concerned
with the total size of the network than with the par-
ticipation of smaller networks of key contributors.
In such cases, multiple platforms may emerge to
cater to the heterogeneous needs of consumers.
How can strategy researchers effectively con-
ceptualize and empirically measure such varia-
tion in the influence of network effects in mean-
ingful ways? It is logical that in markets with
stronger network effects, installed base size will
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 153
have a greater impact on future growth, yet such
size-on-growth dynamics are likely a consequent
of strong network effects rather than a measure
of their intensity per se. One possibility in the
search for effective measures of the intensity of net-
work effects is to look at analogous measures. For
instance, social network analysis measures which
account for the degree, symmetry, and strength of
network ties among participants may offer a more
nuanced notion of network intensity in a given set-
ting (Kane et al., 2014). Given that network effects
are fundamentally a demand-side phenomenon, the
development of survey-based measures may also
represent a promising avenue of future research.
Such surveys could usefully gauge the value of net-
work membership to consumers in terms of the pro-
portion of a product’s total value that is conferred by
network membership. In cases where the consumers
identify network interaction as more important than
stand-alone features of the product, higher network
intensity could be inferred. Robust and validated
measures of network intensity represent a critical
next step in determining the antecedents and con-
sequents of network effects across numerous indus-
tries. For example, can the network intensity of a
given product predict a priori the likelihood of a sin-
gle dominant platform emerging in a given market
versus multiple competing platforms?
Finally, even within industries, certain firms
seem better able to develop stronger, more per-
sistent, and more responsive networks of users
(Shankar and Bayus, 2003). This notion, that the
intensity of network effects can vary both across
and within markets, gives rise to a more funda-
mental strategy question—how persistent is the
competitive advantage offered by firms’ networks?
Firms such as Microsoft have demonstrated capa-
bilities in leveraging existing networks, both ver-
tically in terms of retaining users over multiple
generations of products (e.g., office productivity
software) and horizontally into adjacent platforms
(e.g., video game consoles). Yet, studies suggest
that dominant platform firms can be “leapfrogged”
by new entrants, even when network effects are
strong (Eisenmann et al., 2011; Schilling, 2003;
Sheremata, 2004; Suarez and Kirtley, 2012). What
firm-level characteristics and strategies enable the
persistence of competitive advantage over time
and across platforms? In what contexts might we
observe cross-platform network effects, whereby
membership in one network (Microsoft Windows)
increases the likelihood of a consumer adopting a
product in an adjacent platform (XBOX)? As tech-
nologies increasingly converge toward ecologies
of integrated hardware and software functions, the
ability of managers to leverage network dynamics
over time and across product space is vital.
What is platform “quality” and when does it
matter?
As described previously, there is significant ambi-
guity in the literature on strategy and network
effects regarding the nature and strategic impact of
platform quality. Traditional views of direct net-
work effects hold that they may foster low-quality
platforms as consumers flock to early, leading tech-
nologies that may be inferior to later alternatives
(David, 1985). Yet, an increasing number of empir-
ical studies suggest that consumers do indeed tend
to prefer higher-quality alternatives, even in markets
with strong direct network effects (McIntyre, 2011;
Tellis et al., 2009).
Does quality matter in platform-mediated
networks or do consumers simply prefer the
earliest viable platform? This question has signif-
icant implications for firm strategy, as timing is
critical—firms that enter markets early increase
their chances of capturing early market share, gain-
ing visibility with potential complementors, and
potentially sponsoring a dominant platform, while
firms that delay entry in the hope of developing
a higher-quality platform might find themselves
too late to hold a viable competitive position
in the market (Schilling, 2002). Thus, the more
appropriate questions from a strategy perspective
may be: “What is quality, and when and how much
does quality matter?”
What is quality? Whether lower quality platforms
may come to dominate network markets depends,
in part, on the focal definition of quality. If qual-
ity is defined as technical superiority along specific
dimensions of a product (e.g., processing power,
speed), then it is plausible that “inferior” technolo-
gies may persist in network competition. The clas-
sic case of the QWERTY keyboard is one such
example, as consumers have long been unwilling to
incur the costs of learning ostensibly faster, more
efficient keyboard designs (David, 1985). Yet, in
evaluating competing platforms, consumers may
account for myriad aspects of a product in form-
ing a quality judgment; elements of price, ease
of use, reliability, brand, and user support may
all be salient concerns (Kay, 2013). Furthermore,
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
154 D. P. McIntyre and A. Srinivasan
consumers’ notions of quality may also vary across
product markets. For example, for ridesharing ser-
vices, consumers may view geographic coverage
and timeliness as the primary metrics for evaluat-
ing the quality of competing platforms. By contrast,
for Web-based travel review sites or online auctions,
information quality may be paramount—that is,
how accurate is the information being conveyed by
network participants? Thus, future research in this
area should seek richer, multidimensional measures
of quality that account for such complexity. Ana-
lyzing industry outcomes over time, in conjunction
with multi-dimensional consumer evaluations of the
quality of competing platforms, would add signifi-
cantly to our understanding of the role of quality in
platform-mediated networks.
When and how much does quality matter? As
noted previously, in markets that are strongly depen-
dent on direct network effects, users are more likely
to converge on the earliest viable platform as mem-
bership in a large network of users presents the
greatest value proposition. Later entrants may strug-
gle to gain traction as consumers place far less
value on incremental enhancements to the plat-
form’s interface or functionality than on the abil-
ity to interact with a large number of other users.
However, in markets where network effects exist
but their intensity is lower, firms may benefit from
delaying releases to improve quality. For example,
network effects in the smart phone operating sys-
tem industry are less intense than those in social
networks as consumers can easily interact and com-
municate across platforms. Thus, Google’s Android
technology has been able to capture significant mar-
ket share in the industry despite its relatively late
start. Future research in this stream should exam-
ine the interplay among network intensity, timing
of entry, and product quality to describe specific
contextual factors that enhance the overall value of
platform membership to consumers.
Drivers of indirect network effects
A key focus of research on platform-mediated net-
works by both economists and strategy scholars
has been on strategies that increase direct network
effects via building an early, large installed base of
users. A smaller set of studies has begun to exam-
ine the role of complementary products in driv-ing indirect network effects, and thereby, platform
success. Complementary products play an essen-
tial role by increasing the value of platforms to
users. For example, the success of Microsoft with
the Windows platform has largely been driven by
the availability of corresponding office productiv-
ity software. Despite large amounts of anecdo-
tal evidence on the value of complementary prod-
ucts, empirical examinations of the importance of
third-party complements and complementor firms
that support platforms have been relatively scarce.
Moreover, findings across empirical studies on the
role of complements have been inconsistent—due
in part to the empirical difficulty of parsing the cor-
related benefits of both installed base size and avail-
ability of complements, commonly referred to as the
“chicken-and-egg problem” (Caillaud and Jullien,
2003; McIntyre and Subramaniam, 2009; Stremer-
sch et al., 2007).
We further posit that a potential reason for
the inconsistency of findings across studies has
been the treatment of indirect network effects as
a “black-box.” Specifically, previous works have
not addressed how platform firms may strategize
to develop a differentiated set of complementary
products to drive installed base advantages. For
instance, in the battle for smart phone dominance,
both Apple and Google have been wooing game
developers to ensure that top-ranked game titles
arrive first on their platforms. While such moves
have received attention in the business press, there
has been limited empirical attention to how other
attributes above and beyond the sheer number of
complements may drive platform success.
We argue that an important avenue of future
research is to focus on more nuanced conceptual-
izations of indirect network effects, such as exclu-
sivity of complements on a platform (Cennamo and
Santalo, 2013; Corts and Lederman, 2009; Srini-
vasan and Venkatraman, 2010), the variety of com-
plements, and the ability of platform firms to garner
support from dominant complementors. Specifi-
cally, when do exclusive commitments from com-
plementors enhance platform value to the end user?
Is there a differential impact in net support from a
few large, well-known complementors as opposed
to support from the largest overall number of com-
plementors? Does the variety of complements have
a larger impact on platform success than the number
of complements?
These issues can be better informed by drawing
on concepts from strategic management, specifi-
cally on inter-organizational networks (for instance,
Powell et al., 2005; Uzzi, 1997; Venkatraman and
Lee, 2004), to understand how the preferential
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DOI: 10.1002/smj
Networks, Platforms, and Strategy 155
attachment choices of third-party developers and
platform providers influence platform success.
Research on inter-organizational networks has
largely focused on management choices and
actions that govern the formation and success of
relationships among network partners. As such,
many studies on inter-organizational networks have
drawn on concepts from network theory such as
centrality, embeddedness, and prior ties to under-
stand the determinants of partner selection and
success (Ahuja, 2000; Gulati, 1995; Podolny, 2001;
Uzzi, 1997). Since platform-complementor rela-
tionships are a special form of inter-organizational
networks, future research could benefit from invok-
ing these concepts and theories to develop a better
understanding of how specific linkage choices by
platform firms and complementors can influence
performance outcomes.
The technology management notion of platforms
as collective innovation systems (Gawer, 2014) can
also be expanded to better conceptualize indirect
network effects. For instance, the support a com-
plementor extends to a platform can be conceptu-
alized in terms of design moves such as porting
(re-launching an existing complement on a com-
peting platform) or augmentation (launch of an
exclusive complement on a platform) that differen-
tially impact the value of the platform (Baldwin and
Clark, 2000). This conceptualization allows us to
understand the relative impact of competing based
on the strength (number) and distinctiveness (exclu-
sivity) of complements at a given point in time. The
findings from such studies are likely to have impor-
tant implications for firms seeking to leverage the
power of network effects and capture a differentia-
tion advantage over competing platforms.
Nature and actions of complementors
The success of platforms often relies on the
provision of complementary products to increase
platform attractiveness to end users. Despite the
importance of complements to platform success,
there has been inadequate focus on the nature
of third-party complementors. Specifically, very
little attention has been paid to the antecedents
of complementor support—how complementor
attributes influence their incentives to support
specific platforms. When new platforms emerge or
existing platforms evolve, they require significant
changes in routines for third-party developers
seeking to extend their support. Since firms are
likely to respond to these changes differently, there
is likely to be heterogeneity in when, how, and why
complementors embrace a platform.
Prior research has illustrated the difficulty that
firms experience in responding to even minor tech-
nological shifts (Henderson and Clark, 1990; Tush-
man and Anderson, 1986). As a result, a number of
studies have sought to understand how firm-specific
attributes such as age, size, and prior experience
influence the ability of firms to adapt to inno-
vations (for instance, Nelson and Winter, 1982;
Hannan and Freeman, 1989; Sørensen and Stuart,
2000). However, our understanding of these issues
is fairly limited in the context of platform-mediated
settings. We believe that an important avenue of
future research in platform settings will be to adopt
a complementor perspective to understand how
complementors’ attributes and structural positions
in the platform-complementor ecosystem influence
their likelihood of support to a platform. Stud-
ies that systematically explain the incentives and
actions of third-party complementors as a function
of these factors would be a critical first step to
understand how network effects emerge and evolve
in dynamic platforms. Specifically, future studies
could seek to examine how factors such as the age
and size of complementors influence their ability
to support competing platforms as well as their
mode of support extended to platforms. In addition,
understanding the extent to which a complemen-
tor’s experience with a prior platform either enables
or constrains in its ability to adapt to technologi-
cal change and support newly emerging platforms
could shed light into the dynamics of adaptation as
platforms continue to evolve over time.
Leveraging complementor dynamics
for competitive advantage
A key limitation of prior research on
platform-mediated networks is that it tends to
consider the availability of complementary prod-
ucts as an exogenously determined fact rather than
a construct that could be strategically manipulated
(McIntyre and Subramaniam, 2009). However, we
argue that even within industries, the influence
of network effects is not simply given, but can
be enhanced by conscious and sustained resource
commitment from both platform providers and
third-party complementors. Platform firms invest
to create an ecosystem of complementors, who, in
turn, assess and commit their resources to support
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
156 D. P. McIntyre and A. Srinivasan
one or more platforms over time (Venkatraman
and Lee, 2004). Since indirect network effects
accrue to a platform when independent companies
decide to align their products and services with
the platform’s core architecture, an important
driver of network effects is the basic architecture
of the