Platforms

🧑‍🔬 DI in Industry (DIiI)

Andy Weeger

Neu-Ulm University of Applied Sciences

February 13, 2024

Motivation

Digital platforms are transforming almost every industry today. De Reuver et al. (2018, p. 124)

Digital platforms are an omnipresent phenomenon that challenges incumbents by changing how we consume and provide digital products and services. Hein et al. (2020, p. 87)

Let’s discuss

What is a platform?

Non-digital platforms

Baldwin et al. (2009) see platform architectures as systems that are partitioned into:

1. a stable core, i.e. ,a set of stable components; and
2. a variable periphery, i.e., a set of complementary components that vary

The low-variety components constitute the platform. They are the long-lived elements of the system and thus imply or explicitly establish the system’s interfaces, the rules governing the interactions of the different parts. Baldwin et al. (2009, p. 15)

Platform architectures provide opportunities for distributed development and recombinant innovation through modularization (De Reuver et al., 2018; Henderson & Clark, 1990).

Types

A platform can be categorized in terms of its production process scope (Gawer, 2014):

1. Internal platforms, enabling recombination of sub-units within the firm
2. Supply-chain platforms coordinating external suppliers around an assembler; and
3. Industry platforms where a platform leader pools external capabilities from complementors.

Types 2 and 3 are typically denoted as multisided platforms as they do not only provide a stable core, but also mediate between different groups of users (De Reuver et al., 2018).

Network effects

As platforms bring together multiple user groups, they create the so-called network effects or network externalities (De Reuver et al., 2018).

Figure 1: Network effects

Network externalities, also known as network effects or demand-side economies of scale, refer to the phenomenon in which the value or utility of a product or service increases as more people use it. In other words, the value of a networked good or service depends not only on its inherent features but also on the number of other users or participants in the network. (Katz and Shapiro, 1985; Shapiro and Varian, 1998).

Typically, network externalities are direct if the value of the platform depends on the number of users in the same user group, i.e. the value of the product increases by others buying, connecting or using the same platform or services provided via the platform. Network externalities are indirect when the value of the platforms depends on the number of users in a different user group.

Network externalities can be positive or negative. Positive network externalities occur when the value of a product or service increases as more people use it (e.g., social media). On the other hand, negative network externalities, also called “congestion effects,” occur when the value of a product or service decreases as more people use it (e.g., traffic congestion).

Let’s discuss

How are digital platforms different?

While the literature on industrial innovation management of platforms usually assumes modularization driven by an overarching design hierarchy, this assumption does not necessarily hold for digital platforms. Features of digital technologies such as homogenization of data, editability, reprogrammability, distributability, and self-referentiality can lead to multiple inheritance in distributed environments. This means that there is often no single owner who owns the core of the platform and dictates its design hierarchy. In addition, the combination of modularity of physical goods and the layered architecture of software can lead to products that are open to new meanings after manufacture (e.g., as defined by the user).

Digital platforms

There are various conceptualizations (De Reuver et al., 2018), e.g.:

• Digital platforms can be defined as technical artefacts where the platform is an extensible codebase, and the ecosystem comprises third-party modules complementing this codebase (Tiwana et al., 2010) (technical perspective); or
• as a sociotechnical assemblage encompassing the technical elements (of software and hardware) and associated organisational processes and standards (De Reuver et al., 2018) (socio-technical perspective).

Digital platforms incorporate various modules that extend the functionality of the core (e.g., by means of apps developed by third-party developers) (De Reuver et al., 2018) and orchestrate an ecosystem of actors to co-create value (Vargo & Lusch, 2016).

Digital platforms are both a source of economies of scale and scope (ease of development) and economies of substitution¹ (substition of system components while retaining a stable core) (Hein et al., 2020).

Visualization

Digital platforms according to Tiwana (2013)

Figure 2: Digital platforms according to Tiwana (2013)

Boundary resource

To successfully build platform ecosystems, the focus of the platform owner must shift fromdeveloping applications to providing resources that support third-party developers in their development work Ghazawneh & Henfridsson (2013, p. 174)

Boundary resources (i.e., tools and regulations) ensure that complementors can develop and integrate modules without extensive knowledge of platform architectures, whereas the modular architecture allows for versatility and scalability of new modules (Tiwana et al., 2010), such as

• interfaces (e.g., APIs) representing standardized processes; or
• toolkits (e.g., SDKs) strengthening the interpretative flexibility

Openness

Boundary resources need to balance control rights against the autonomy of the actors (Hein et al., 2020).

Figure 3: Control rights vs. autonomy

• Enabling innovation, design and development of new functionality to the platform; while
• safeguarding control of the platform and its evolution in some desired direction

Digital platform ecosystems

A digital platform ecosystem comprises a platform owner that implements governance mechanisms to facilitate value creating mechanisms on a digital platform between the platform owner and an ecosystem of autonomous complementors and consumers. Hein et al. (2020, p. 90)

Visualization

Figure 4: Digital platform ecosystems based on Tiwana (2013)

Let’s discuss

How do digital platform ecosystems differ?

Ownership

Platform ownership is not just about the legal entity that owns the digital platform; it also relates to the distribution of power in the ecosystem, which can be centralized or decentralized. It also describes the relationships among partners in the ecosystem (Hein et al., 2020).

• Centralized digital platform ecosystems controlled by a single owner
• Ecosystems formed by a consortium, implying that a group of actors owns the digital platform
• Decentralized digital platform ecosystems governed by peer-to-peer communities

Platform value-creating mechanisms

Successful digital platforms facilitate value-creating mechanisms in the platform ecosystem.

These mechanisms are based on the efficient and convenient facilitation of transactions and the provision of opportunities that make the digital platform a fertile soil for innovation (Hein et al., 2020).

• Easing transactions (intermediary function) — digital platforms help complementors and consumers locate and interact with each other and exchange value in a mutually beneficial manner (e.g., Amazon marketplace)
• Providing innovation capabilities — digital platforms enable complementors to create solutions complementary to the platform core (e.g., SAP cloud platforms)

Complementor autonomy

The autonomy of complementors describes the degree of freedom complementors have when co-creating value with the digital platform (Ye & Kankanhalli, 2018).

• High autonomy — complementors are loosely coupled to the digital platform and contribute to the variety and amount of complements
• Low autonomy — complementors are tightly coupled strategic partners; both the platform owner and the complementor are mutually dependent and aligned

Digital platforms can build upon both high- and low-autonomy complementors.

Let’s discuss

When to create and when to join a digital platform ecosystem?

Q&A

Literature

Baldwin, C. Y., Woodard, C. J., et al. (2009). The architecture of platforms: A unified view. Platforms, Markets and Innovation, 32, 19–44.

De Reuver, M., Sørensen, C., & Basole, R. C. (2018). The digital platform: A research agenda. Journal of Information Technology, 33(2), 124–135.

Gawer, A. (2014). Bridging differing perspectives on technological platforms: Toward an integrative framework. Research Policy, 43(7), 1239–1249.

Ghazawneh, A., & Henfridsson, O. (2013). Balancing platform control and external contribution in third-party development: The boundary resources model. Information Systems Journal, 23(2), 173–192.

Hein, A., Schreieck, M., Riasanow, T., Setzke, D. S., Wiesche, M., Böhm, M., & Krcmar, H. (2020). Digital platform ecosystems. Electronic Markets, 30, 87–98.

Henderson, R. M., & Clark, K. B. (1990). Architectural innovation: The reconfiguration of existing product technologies and the failure of established firms. Administrative Science Quarterly, 9–30.

Tiwana, A. (2013). Platform ecosystems: Aligning architecture, governance, and strategy. Newnes.

Tiwana, A., Konsynski, B., & Bush, A. A. (2010). Research commentary—platform evolution: Coevolution of platform architecture, governance, and environmental dynamics. Information Systems Research, 21(4), 675–687.

Vargo, S. L., & Lusch, R. F. (2016). Institutions and axioms: An extension and update of service-dominant logic. Journal of the Academy of Marketing Science, 44, 5–23.

Ye, H. J., & Kankanhalli, A. (2018). User service innovation on mobile phone platforms: Investigating impacts of lead userness, toolkit support, and design autonomy. MIS Quarterly, 42(1), 165–188.

Footnotes

1. Economies of substitution exist when the cost of designing a higher performance system through the partial retention of existing components is lower than the cost of designing the system afresh.