J Betriebswirtsch (2011) 61:179–226DOI 10.1007/s11301-011-0078-x

S TAT E - O F - T H E - A RT- A RT I K E L

Technological platformsAn assessment of the primary types of technological platforms,their strategic issues and their linkages to organizational theory

Henning Piezunka

Received: 12 January 2011 / Accepted: 19 September 2011 / Published online: 15 October 2011© Wirtschaftsuniversität Wien, Austria 2011

Abstract The concept of a platform describes a set of system components thatis strongly interdependent with most other system components, and that also co-determines the architecture of the system’s outcome. This concept underlies all kindsof technology-based products, collaborations that produce multi-product systems,and transactions between distinct sets of market participants. In this paper, I providean overview of the growing scientific literature on technological platforms, and alsoidentify three distinct, but related, literature streams: (1) product platforms; (2) indus-try platforms; and (3) two-sided markets. In doing so, I focus on empirical studies andmathematical models. For each stream, I then go on to describe the type of platformthat the stream relates to, review the stream’s major studies (sorted by key strategicissues), and summarize and synthesize the overall findings before linking them to or-ganizational theory and highlighting some potential gaps for future examination. Inclosing, I move to a comparison across streams and identify some currently unex-plored aspects of the platform concept.

Keywords Product platform · Industry platform · Two sided markets

JEL Classification M11 · M21

Zusammenfassung Das Konzept der Plattform beschreibt die Kernkomponenten ei-nes Systems, welche in starkem Maße mit komplementären Komponenten des Sys-tems verflochten sind und die Gesamtarchitektur des System mitbestimmen. DasKonzept einer Plattform liegt diversen technologischen Produkten, einer Vielzahl anMehrprodukt System und einer hohen Anzahl an Transaktionen zwischen Marktteil-nehmern zugrunde. In dieser Arbeit bespreche ich die rasch wachsende Literatur und

H. Piezunka (�)Huang Engineering Center, Suite 003 MC 4026, Stanford University, 475 Via Ortega Stanford,CA 94305-4121, USAe-mail: piezunka@stanford.edu

180 H. Piezunka

identifiziere drei separate, aber verwandte Strömungen in der Literatur: (1) ProduktPlattformen; (2) Industrie Plattformen; (3) Zweiseitige Märkte. Hierbei fokussiereich mich auf empirische Arbeiten und mathematische Modelle. Für jede Strömungbeschreibe ich die wesentlichen Charakteristika der Plattform, diskutiere die wesent-lichen strategischen Fragestellungen, fasse die wesentlichen Erkenntnisse zusammenund knüpfe die Verbindung zur Organisationstheorie. Abschließend vergleiche ichdie die drei Strömungen und zeige mögliche Forschungsrichtungen auf.

Schlüsselwörter Produkt Plattform · Industrie Plattform · Zweiseitige Märkte

1 Introduction

If you own a Volkswagen, a Microsoft Windows PC or use eBay, then you are us-ing a platform. The concept of a platform describes a set of system componentsthat is strongly interdependent with most other system components, and that also co-determines the architecture of the system’s outcome. Platforms underlie all kinds oftechnology-based products, collaborations that produce multi-product systems, andtransactions between distinct sets of market participants. They have also shaped theeconomic and technical evolution of entire sectors, such as the computing, credit cardand Web 2.0 sectors (Morris and Ferguson 1993; Bresnahan and Greenstein 1999;Gawer and Cusumano 2002). In all such sectors, platforms play a key role in the un-derlying business models of firms (Stabell and Fjeldstad 1998; Amit and Zott 2001;Brousseau and Penard 2007; Zott and Amit 2007). Furthermore, firms that ownplatforms, such as Intel or Microsoft, have created substantial and long-term com-petitive advantages for themselves (Iansiti and Levien 2004; Jacobides et al. 2006;Ozcan and Eisenhardt 2009); Eisenmann (2007) points out that 60 of the world’s 100largest corporations earn at least half of their revenue from platform markets. Be-yond economic sectors and individual firms, the influence of platforms also extendsinto broader society. To list only three examples, well-known platforms have changedthe way that we interact socially (Facebook), conduct economic transactions (eBay),and search for information (Google). It has even been argued that the prevalence ofplatforms has changed consumption patterns (Brynjolfsson et al. 2011) and the na-ture of work (Malone et al. 2011). As such, platforms are a ubiquitous and importantphenomenon in the modern world. I address this research opportunity in the currentpaper, focusing my attention primarily on technological platforms.

The existing work on technological platforms is highly fragmented, with stud-ies having been conducted across multiple disciplines and from differing theo-retical perspectives. Only recently have scholars begun to identify ways of or-ganizing and making sense of this vast literature (Baldwin and Woodard 2010;Gawer 2010). My proposed solution to this situation is an organizational frameworkthat is comprised of three literature streams (or perspectives on platforms): (1) prod-uct platforms; (2) industry platforms; and (3) two-sided markets (see Table 1 foran overview). The first stream builds on several classic product development studies(e.g. Wheelwright and Clark 1992a, 1992b; Sanderson and Uzumeri 1995; Meyer and

Technological platforms 181

Table 1 Comparison of the three streams

Internal platform Industry platform Two-sided market

Focus platformactivity

Production Coordination andproduction

Intermediation

Outcome Product family Multi-product system Transactions

Agents involved Single Firm Platform owner Platform owner

Complementors Set of distinct markets

Example of aplatform

Sony Walkman Microsoft Windows eBay

Re-usedcomponents

Subset of components Components provided bythe platform owner (e.g.technology, tools, rules)

Shared facility (e.g.website)

Architecturalcontrol/Rules/Intertwinement

• Clearly specified inter-faces

• Sharing of componentsrequires coherent archi-tecture

• Standardized interfaces• Falling back on tools

provided by the plat-form

• Terms• Rules guiding the trans-

action

Variety in inputs Attributes Complements Subjects

Objects

Variety inoutcomes

Variety of products in theproduct family

Variety of complementsincreases potentialre-combinations due tobundling by the customer

Great variety oftransaction

Lehnerd 1997), and involves a single firm producing a product family by re-using asingle product platform. The concept of a platform here describes a set of componentswhich is: (a) re-used across products; (b) strongly intertwined with other attributes ofthe product; and (c) a co-determinant of the product’s architecture. Firms then com-bine such a platform with differentiating attributes so as to differentiate their productsto meet consumer demands. Product platforms create value by enabling both varietyand economies of scale and scope. The key strategic issues of product platforms thatare discussed in the literature concern whether platform-based production is appro-priate, and if so, what design it should follow.

The second stream concerns industry platforms, and draws on research from tech-nology management (e.g. Bresnahan and Greenstein 1999; Gawer and Cusumano2002; Iansiti and Levien 2004). Here, the platform owner, in conjunction with ahost of complementors, creates a multi-product system that relies on a single in-dustry platform. This industry platform is a central component of the multi-productsystem—and since interfaces are embedded in the platform, it also co-determines thearchitecture of the multi-product system. Industry platforms create value by fosteringproduct variety, efficiency, innovation and reliability. Owners of industry platformsface several strategic issues, including the achievement and maintenance of platform

182 H. Piezunka

leadership, establishing the timing of the launch and the scope of the platform andthe firm, coordinating with partners, and internal organization.

Finally, the third stream concerns two-sided markets, and builds on industrialorganization (e.g. Rochet and Tirole 2003, 2004, 2006; Caillaud and Jullien 2003;Armstrong and Wright 2007). Here, the platform owner intermediates between twodistinct sets of agents that engage in a transaction. The platform itself is the sharedfacility across the transactions (the “middle-man”) which defines the transaction’sterms. Relying on a two-sided market platform creates value by enabling exchangeto occur between hitherto unconnected partners—as well as by reducing transac-tion costs and improving matchmaking. In two-sided markets, several strategic is-sues arise, including identifying optimal pricing structures, the establishment of theplatform, and access to exclusive agents.

For the review of these three streams, I have developed a structured survey-ing procedure. Centrally, my review focuses on empirical studies and mathemati-cal models—excluding those studies that primarily address a managerial audience.1

Since platforms are a relatively new area of inquiry, I have also included severalworking papers on the topic. I initially created a superset of more than 200 papersand books relating to platforms—but then, as the different streams began to form,I selected studies according to the rigor of their empirical analyses and the degree towhich they were cited by others. An overview of the selected papers is provided inTables 2, 3 and 4.

Using these resources, I attempt to provide a comprehensive and current overviewof the current literature on technological platforms. There have been few review arti-cles on the topic of platforms to date, with most only covering a subset of the papersincluded here (Roson 2005; Simpson 2005; Jiao et al. 2007; McIntyre and Subra-maniam 2009; Rysman 2009; Baldwin and Woodard 2010; Gawer 2010), and onlya small number covering the whole field of technological platforms. Of the techno-logical platform reviews that do exist, the closest to my efforts are those by Gawer(2010) and Baldwin and Woodard (2010). I build on their work, but add to it in thefollowing ways. First, my review takes into account recent work on platforms, andis consequently more comprehensive—a result achieved by my keeping track of thevast explosion of research in the field. Second, in addition to the phenomenologicalliterature on platforms, I explicitly include and link to organizational theory and strat-egy. Creating a stronger link between the mostly phenomenological-driven literatureon platforms and that concerning organizational theory and strategy offers potentialfor both types of research. For the literature on organizational theory and strategy,the phenomenon of platforms provides a particularly fertile context for the develop-ment of new theories. For the literature on platforms, organizational theory providesa powerful framework from which to analyze recorded observations. Despite estab-lishing these linkages in a separate chapter, I also integrate them within the review

1It includes studies that have been published in organizational, management and economics journals. I in-clude, among others, Administrative Science Quarterly, Academy of Management Review, Academy ofManagement Journal, Organization Science, Harvard Business Review, Management Science, Califor-nia Management Review, Research Policy, Industrial and Corporate Change, Journal of Economics andManagement Strategy, Journal of Industrial Economics, Rand Journal of Economics, Review of NetworkEconomics, American Economic Review, and Journal of Product Innovation Management.

Technological platforms 183

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Technological platforms 185

Table 3 Summary of the review of product platforms (Stream I)

Industry platform

Focus activity of platformowner

Production

Example Sony Walkman

Outcome Product family

Agents Single firm

Definition of a platform • Shared component

• Shared product architecture

• Variety due to differentiating attributes

Advantages • Breadth of product family / Product variety

• Speed of new products

• Efficiency

• Innovation

Strategic issues • Appropriateness of platform modularity

• Extent of commonality / which components are shared

• # of and scope of the platform

• # of derivative products per platform

• When to abandon an extant platform

Literature Product design

Research methods • Industry case studies

• Mathematical models

Shortcomings • Neglect of platform dynamics

• Not taking into account other reasons for the re-usage of component

of the three streams. This seems to be the most promising layout method for readerswho are familiar with one of the two literatures, as it should help in the identificationof helpful sources in other streams.

I have also limited this review to technological platforms—although as scholarshave recently pointed out, the findings made in this literature are also relevant fororganizations in general. As an example, the interdependence observed between mul-tiple audiences of a single technological organization has prompted the identificationof parallels between the technological platform literature and the challenges faced byother organizations such as universities and shopping centers (Boudreau and Hagiu2010). While I consider such an application of the findings discussed in this liter-ature review as both possible and legitimate, the review itself, as stated, discussesonly technological platforms. It is here that I consider the challenges associated withplatforms to be especially salient—and moreover, an extension seems to be a slipperyslope, as to give up the concept of a shared (set of) technological component(s) wouldrequire an examination of how other resources, such as core competences (Prahalad

186 H. Piezunka

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190 H. Piezunka

and Hamel 1990) or status (Jensen 2003), are leveraged across activities and markets.Instead, I draw on literature from outside the realm of technological platform litera-ture so as to show how this might improve our understanding of technical platformsmore specifically.2 A richer understanding of the organizational challenges that tech-nological platforms face will then also allow for the application of such findings inother realms.

Over the course of the paper, I develop the three streams outlined above, with eachstream’s development following a similar structure. First, I begin by describing thetype of platform and the value that it creates, before then providing some examplesto aid with clarification. Next, I review the stream’s major studies—sorted by thekey strategic issues discussed in the literature. I then summarize and synthesize theoverall findings and highlight some potential gaps in the literature that would benefitfrom further research. Lastly, after all of the streams have been covered, I move to acomparison across the streams and identify some unexplored aspects of platforms.

2 Literature review

2.1 Product platform

Much of the literature concerning platforms focuses on single firms that produce aproduct family by re-using a single product platform. In this stream, the conceptof a platform describes a set of components which is (a) re-used across products;(b) strongly intertwined with other project attributes; and (c) a co-determinate in thedesign of these other attributes (Meyer and Lehnerd 1997; Krishnan and Gupta 2001;Gawer and Henderson 2007). As such, the sharing of a set of components is a nec-essary, but insufficient, condition to qualify as a platform. Instead, there must also bestrong interdependence with other components of the product, and the platform com-ponent must similarly co-determine the product’s overall shape—helping to establishthe arrangement of the product’s functional elements and also specifying the inter-faces that exist among interacting components (Ulrich 1995). The other components,i.e. the product’s non-platform components, are added, substituted or removed to dif-ferentiate the products of a product family (Wheelwright and Clark 1992b, 1992b).Consequently, products within one product family have both components with low

2The need to focus a literature is related to the problem that at a certain level of abstraction, any twothings can be taken as similar (e.g. they are things). Jacques Barzun described this using the example ofstudying an apple (Barzun 1983): “If the user of concepts—which is to say everybody—habitually failsto think of persons, things and events as they happen in the world of particulars, steady abstraction willland him in sheer nonsense or dangerous folly. For abstractions form a ladder which takes the climber intothe clouds where diagnostic differences disappear. Take, for example, this small, hard, round red objectthat fills your present sight, touch, and sense of smell, and that you immediately “identify” as a McIntoshApple. By naming it, you merge millions of similar items, each in some way different from the one in yourhand. If you use the word “apple,” the concept now includes yellow and green color and possible elongatedforms of dissimilar size and taste. Your apple has twice been lost sight of. If anyone goes on to speak of a“piece of fruit,” the term lacks all power to compel a correct image of what is in your hand. By the time“foodstuff” is invoked, only the most general idea of function remains. Then comes “organic matter,” andthe nest step is a bare “object,” at which point all things whatsoever are “the same.” ”

Technological platforms 191

variety and high reusability (that is, the platform), and other components with highvariety and low reusability (Baldwin and Woodard 2010). Tables 2 and 3 provide anoverview of the literature and key topics for this stream.3

Product platforms create value in a number of ways, with the combination of thecommonality of a subset of components and architecture and the variation of othercomponents acting as the core source of these advantages. As one value benefit, afirm becomes able to increase the breadth of its product portfolio as well as thespeed and flexibility of its product development process. New products can thenbe developed simply by either adding, substituting or removing features (Wheel-wright and Clark 1992b, 1992b). The relative ease of adapting a product makesit simpler for firms to differentiate the product to serve multiple market segments(Lancaster 1990), or even to mass-customize it for a single customer (Pine 1993;Kotha 1996). As another value benefit, product platforms enable economies of scaleand scope (Panzar and Willig 1981; for an overview Bailey and Friedlander 1982).Reliance on the same product platform across multiple products leads to: (a) lowercosts in developing additional products (economies of scope); and to (b) increases inthe volume of platform component production (economies of scale). For these rea-sons, the literature provides a generally positive assessment of the use of platforms inproduct development.4

The Sony Walkman offers a classic example of product platforms (Sanderson andUzumeri 1995). To address different customer segments, Sony relied on three dif-ferent product platforms: the first was used to build miniature Walkman models, thesecond to target the market for audiophiles, and the third to build low cost modelsfor price sensitive consumers. Each of these product platforms included a shared setof components (e.g. motor, tape drive) that conferred architectural control over theWalkman’s other components. Sony then used attributes such as a radio, remote con-trol and music search to differentiate the product. This combination of re-using somecomponents but altering others allowed for great variation in the outcome—allowing

3The expression of a platform has been used more evocatively than the definition that I have providedhere—including to denote a firm’s knowledge (Kim and Kogut 1996) or a firm’s complementary assets(Ciborra 1996). Equally, Sawhney (1998) explores the concept of a platform in terms of a firm’s valuechain. He frames a firm’s global presence—its customer base, its global reach, its technology and itsproduct—as a platform. Robertson and Ulrich (1998) also propose a very broad definition which entailsnot only the architecture and the components, but also the relationships, knowledge, facilities and people.4Counterintuitively, the re-usage does not reduce, but rather increases, flexibility. Iansiti and Levien (2004)point out that “diversity at one level is reduced to create a platform that enables greater and more meaning-ful diversity at higher levels.” Recently, Baldwin and Woodard (2010) have suggested a parallel to biology:building upon the work by Dawkins (1989), biologists have argued that the huge variety in outward formsof multi-cellular organisms is in fact accomplished through the conservation of core metabolic processes atthe cellular level (Kirschner and Gerhart 1998). Smith et al. (2002) show in an NK based model of an evo-lutionary process the superiority of retaining a partial solutions of previous generations even in fast movingenvironments. This is consistent with the findings of strategy-related simulation, where Davis et al. (2009)show it to be superior to maintain part of the structure over time. In general, across disciplines, evolutionproceeds via the mechanisms of variation and selective retention of advantageous forms (Campbell 1965)The majority of work on loosely coupled system focuses on the degree of structure. The particularly ofplatform-based systems, i.e. the split into a set of components with low variety and high reusability, andanother set with high variety and low reusability is less examined in this field and thus requires furtherexamination.

192 H. Piezunka

the firm to develop more than 250 Walkman models for the U.S. market in the 1980s.The combination also led to an increase in efficiency, since approximately 85% ofSony’s models were produced from minor rearrangements of existing features andcosmetic redesigns of the external case. Other examples in which firms have success-fully deployed product platforms are car manufacturers (Nobeoka and Cusumano1997), spacecrafts (Caffrey et al. 2002), and Black and Decker’s power tools (Meyerand Lehnerd 1997).

2.1.1 Strategic issues

The literature on product platforms discusses several distinct, key strategic issues.One body of work explores the conditions under which platform-based production isappropriate. In most cases, scholars have suggested that product platforms are ben-eficial. However, this does not have to be the case; while a product platform offersseveral advantages, these advantages are contingent on several factors. For example,Krishnan and Gupta (2001) examine the case of a firm which serves two verticallydifferentiated customer segments. Using an application-driven mathematical model,they compare the alternatives of: (a) introducing two separate products (one for eachcustomer segment) but based on a common platform; (b) introducing two separateproducts that have been developed independently of one another; (c) offering oneproduct that serves both segments; and (d) introducing one product that caters toonly one of the two segments. In contrast to other studies that focus on either costor revenue implications, Krishnan and Gupta continue to develop a cross-functionalmathematical model that integrates the revenue as well as cost implications of lineextension for platform-based products. They show that for strongly vertically differ-entiated market segments, platform-based production might result in the overdesignof lower end variants. In other words, platform-based design is only superior if theproduct’s demand characteristics allow for the realization of economies of scale.

The literature also examines the extent of commonality across products, i.e. howmany components should be shared. These studies again answer the issue regard-ing the appropriate use of product platforms, suggesting that the appropriate level ofcommonality is contingent on a firm’s product portfolio, consumer demand, and gen-eral firm capabilities. For example, Fisher et al. (1999) conduct an empirical analysisinto what leads firms to share components across a product platform. To do this, theystudy the production of automotive brakes in six large firms (GM, Honda, Chrysler,Ford, Nissan, Toyota) between 1982 and 1992—ultimately showing that levels ofsharing decrease with an increase in volume (larger economies of scale allow for theefficient production of more components) and with the weight-range across the firm’sproducts. In contrast, levels of sharing increase as the variation in volume increasesacross models. In other words, if a firm sells a high number of units of a single carmodel but few of another, then that firm has a high incentive to use the componentsof the high volume car for the low volume car as well. These arguments suggest thatthe factors controlling the level of component sharing across platforms are the natureof the product lines that a firm offers and its sales volumes. Collectively, studies onthe extent of commonality point out its contingency on both the product portfolio andwider capabilities of the firm.

Technological platforms 193

Another set of studies focuses on which derivative products should be built fora given product platform. The optimal number of derivative products depends uponthe potential ramifications to costs and revenues. Ramdas and Sawhney (2001) con-sider these ramifications, and develop an optimization model for selecting a profit-maximizing set of product line extensions as a result. In doing so, they develop, asKrishnan and Gupta (2001), a cross-functional mathematical model that integratesboth the revenue and cost implications of line extensions. On the one hand, morederivative products yield additional sales. On the other hand, however, the value ofthese additional sales will diminish due to both fewer attractive opportunities beingtargeted and cannibalization effects. Moreover, economies of scale are also lost, asfewer parts get re-used. Ramdas and Sawhney note in particular that managers whoact in accordance with common managerial heuristics tend to introduce too manyproducts. Sony succeeded in managing its product portfolio in spite of its high num-ber of derivative products merely because it offered only about 20 products at thesame time (Sanderson and Uzumeri 1995). In a study of 174 US firms between 1980and 1996, Sorenson (2000) further examines the relationship between the numberof products and performance—subsequently showing the positive effect of multipleproduct offerings, but also the positive effect of regular culling. A firm’s choice ofproduct variety therefore depends upon: (a) the economies of scope; and (b) the po-tential for increasing demand by offering more products.

The literature similarly addresses how both the product family and the productplatform change over time. However, the majority of studies concerning the sharingof components across products give no consideration to time. This raises the ques-tion of platform renewal. Meyer et al. (1997) take up this question with an analysisof five platforms that each had a product family built upon them—concluding thatthe effectiveness and efficiency of a product platform changes over time. Platformeffectiveness measures the commercial productivity of a series of related products bycomparing the invested resources to the commercial outcomes. As the Meyer et al.study shows, this figure is high in the beginning due to optimal market fit, but it di-minishes over time. Platform efficiency increases in the beginning due to learning, butthen decreases due to increasing adjustment costs. When both platform effectivenessand efficiency have significantly diminished, the platform “hits a wall” and needs tobe renewed. As a byproduct of their analysis, Meyer et al. also develop an extensiveset of metrics for the special purpose of measuring platform developments. They thusprovide an insight into the life cycle of a single platform.

Uzumeri and Sanderson (1995) extend this work by examining the evolution ofmultiple product families and platforms over time. In doing so, they suggest differentscenarios that build upon the two independent dimensions of need for: (a) change;and (b) variety. Based upon these two dimensions, they then identify four differentscenarios for how a firm’s portfolio of platforms (not products) develops over time.First, for a low rate of product family change and product variety, the firm uses asingle platform for the long-term. Second, if the product family variety is high butthe change is low, then the firm might operate a diverse set of platforms. Third, if theneed for variety is low but the rate of product family change is high, then the firmmight pass through numerous platform generations. Finally, if both product varietyand product change is high, then the firm may opt to develop several platforms con-tinuously and also change the number of platforms in operation. Taken together, the

194 H. Piezunka

studies mentioned above therefore examine why platforms exist over time, the lifecycle of a single platform, and the life cycle of a portfolio of platforms.

2.1.2 Summary and conclusion

Overall, studies in this stream provide a positive assessment of product platforms.Such platforms benefit from the sharing of components and a common architecture,allowing firms to produce products of greater variety more efficiently, faster, andmore flexibly. My review highlighted not only the advantageousness of platforms,but also identified the key strategic issues with regard to their appropriate use. Theseinclude the conditions for the appropriateness of platforms, the extent of common-ality, the types of derivative products that should be developed, and the timing ofplatform renewals.

One shortcoming of the literature is its lack of examination of performance dif-ferences between firms that rely on platforms. Although the superiority of productplatforms is asserted, there are no empirical studies on performance variation acrossfirms that use product platforms. Similarly, the literature fails to explain why somefirms succeed in deriving benefits from platform modularity while others fail. Theliterature does mention anecdotally some of the problems associated with establish-ing a platform (Meyer and Lehnerd 1997; Krishnan and Gupta 2001), but at no pointcontinues to study these systematically. As examples, Meyer and Lehnerd (1997)as well as Krishnan and Gupta (2001) point out managers’ fixations on the fixedcosts of platform development, even when these costs are very small compared tothe overall profit of the product family. To explain such performance differences,various literatures might be used. For example, the literature on resource allocationand incumbent failure might help to explain why platform-based production is vul-nerable to failure (Henderson and Clark 1990; Burgelmann 2002). In this context,it is notable that Sony, which excelled with the Walkman as described above, failedto successfully conquer the market for MP3 players. Equally, the literature on prod-uct variety, diversification and consumer theory might be consulted so as to gain abetter understanding of which kinds of products may be produced—and that willeventually go on to create value—by relying on a platform (e.g. Siggelkow 2003;Ren et al. 2011).

Another shortcoming of the literature is its failure to explore other potential ratio-nales for the re-use of components. While economies of scale and scope are evident,I would argue that a thorough examination could find organizations that follow differ-ent rationales. These might include facilitating cooperation with external partners indifferent and sometimes surprising ways. As an example, a leading application devel-oper for the Apple iPhone remarked: “When we create an application for the iPhone,you know it’s going to run exactly as you tested it on every single model. The sameisn’t true for the rest of the smartphones, which have varying screen sizes, processorspeeds and form factors” (Wortham 2009). As such, it is not just standardized inter-faces that facilitate cooperation, but also the re-usage of a set of components. Anotherrationale might be that the re-usage of components across products facilitates and ac-celerates the process of regulatory approval. The Novartis drug Gleevec was initiallyapproved for a rare blood cancer that strikes just a few thousand people each year, for

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instance, but it has since proven effective against six other life threatening diseases(Capell 2009). As regulators have approved the drug once, they may be more inclinedto approve it again for the targeting of other diseases. As these anecdotes illustrate,exploring other rationales for the re-usage of components across products may be aproductive area for future inquiry.

Finally, the literature would also profit from a detailed examination of the emer-gence of product platforms within a firm. Anecdotal evidence suggests that either thedecision to create a platform or the decision to create platform-based products mightoften be unplanned, if not accidental. For example, Pixar began as a firm that devel-oped software that was supposed to be used by others in the creation of animationmovies. The original short movies that it produced were intended as proof of con-cepts. Only at a later stage did the firm use its technology as a platform from whichto develop movies itself (for a more detailed account see Harford 2011). If richeraccounts of the emergence of product platforms were available, this would also pro-vide insight into the question “When is it the appropriate moment to switch from aproduct-by-product approach to a platform-based approach—or vice versa?” From atheoretical standpoint, an answer to this question would inform real options theory,as it would provide insight into whether mangers actually deployed such logic whenplanning a product (portfolio), or if, more often than not, such statements must beattributed to the realm of sense making (Weick 1995).

2.2 Industry platforms

In this stream, the platform owner—in collaboration with complementors—creates amulti-product system that relies on the industry platform. Here, the industry plat-form is either a central component or a subsystem of the multi-product system,and is also strongly intertwined with other complementary products. The industryplatform additionally confers architectural control over those complements. Otherproducts of a multi-product system often rely on the industry platform, building“on top” of the platform and using services or functionalities of the platform com-ponent. While the underlying idea of product architecture corresponds to the firststream, the industry platform now serves as a coordination point for the indus-try’s participants. In industry platform-based industries (or ecosystems),5 one or-ganization (the platform owner) provides the core component and defines the sys-tem architecture, but a larger set of firms (the complementors) produce additionalproducts that make the entire system more valuable (Langlois and Robertson 1992;Baldwin and Clark 2000). Platform-based industries are thus characterized by inter-firm modularity (Baldwin and Clark 2000; Schilling 2000), wherein compatibilityamong complements is ensured by design rules or standards (Baldwin and Clark2000). These design rules also prescribe the system architecture. The technological

5A variety of terms has been used to describe this collection of firms responsible for the collective pro-duction, e.g. virtual organization (Chesbrough and Teece 1996), network organization (Miles and Snow1986), modular organization (Sanchez and Mahoney 1996), open innovation network (Chesbrough 2005),value net (Brandenburger and Stuart 1996) and industry cluster (Baldwin and Clark 2000).

196 H. Piezunka

Table 5 Summary of the review of industry platforms (Stream II)

Industry platform

Focus activity of platform owner Coordination and production

Example Microsoft Windows

Outcome Multi-product system

Agents • Platform owner

• Complementors

Definition of a platform • Shared component

• Standardized interfaces

• Variety due to recombination by the consumer

• Agents of the ecosystem: platform owner and complementors

Advantages • Product variety

• Efficiency

• Innovation

• Reliability

Strategic issues • Ways to achieve and maintain platform leadership

• Launch timing

• Scope of the platform

• Scope of the firm

• Coordination

• Synchronization

• Internal organization

Literature • Technology Strategy

Research methods • Empirical based reasoning

• Industry case studies

• Mathematical models

Shortcomings • Neglect of platform dynamics

• Lack of perspective regarding the complementor

platform and the platform owner both also play a critical role in steering the collec-tive of firms that constitutes the ecosystem.6 Tables 4 and 5 provide an overview ofthe literature and key topics for this stream.

Industry platforms create value in a number of ways, although all use the relianceof a multi-product system’s multiple contributors to a single industry platform as their

6I will focus here on proprietary platforms in this literature review, i.e. those owned by a single firm. Thereare, however, studies which compare differing modes of organization and reflect on whether differentmodes are adequate in different stages (Eisenmann 2008). Scholars have also examined the competitionthat exists between proprietary platforms and open source platforms (Casadesus-Masanell and Ghemawat2006; Economides and Katsamkas 2006).

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core value source. First, platform-based industries have strong potential for innova-tion, as a plethora of firms can either build on or add to the system (Nelson and Winter1982; Chesbrough 2005; Boudreau 2010). This factor leads to greater variety, as thenumber of possible configurations of a multi-product system increases exponentiallywith the number of products available (Schilling 2000). The greater variety in turnyields greater flexibility, as new entrants join the collective production while obsoleteones depart. The ecosystem around the platform thus constantly evolves through vari-ation and selection. Second, platform-based industries are vertically disintegrated andoffer high efficiency. This is because a multi-product system can be derived from theoutput of the most efficient contributors (Farrell et al. 1998). Such a combination offlexibility and efficiency permits the ecosystem to survive in an environment of highuncertainty, rapid change and competitive pressure (Brown and Eisenhardt 1997).

A classic example of an industry platform is Microsoft Windows (Bresnahan andGreenstein 1999; Bresnahan 2002; Iansiti and Levien 2004). The operating systemis the central component of a multi-product system, and as such is strongly inter-twined with other system products: software applications programmed for MicrosoftWindows often rely on the programming libraries that go along with Windows, forexample. The Microsoft Windows platform thus provides services which enable thedevelopment and running of complementary applications—leading to the platform’sgeneration of a high variety of products from complementary firms (e.g. QuickBooks,TurboTax, Roxio) (Iansiti and Levien 2004). As application programmers can rely onthe toolbox provided by Microsoft Windows, they also face lower costs of entry, andthis drives down the costs of the entire system.

2.2.1 Strategic issues

Scholars of this stream often examine how a platform owner takes and maintainsthe position of market leadership. As a result, they describe a variety of strategicactions by which a platform owner can achieve this leadership position, capture /appropriate value from this position, and exert architectural control over the system(Gawer and Cusumano 2002; Iansiti and Levien 2004). In the early stages of an in-dustry, for example, it may be unclear whether the industry will become platform-based and which firm will come to occupy the position of platform leader. Santosand Eisenhardt (2009), in their inductive study of five entrepreneurial firms in theinternet and communications sectors, demonstrated how those firms use a variety ofstrategies to become the cognitive referent of a sector and so transform such sec-tors into platform-based industries (see also McGahan et al. 1997). The platformowner encourages the development of complementary applications by providing de-velopers with sophisticated toolboxes that help them to create new, useful applica-tions (Microsoft and Facebook are exemplars of this practice) (Garud et al. 2002;Iansiti and Levien 2004). To capture some of the value that is created, a platformowner then needs to increase the complementarity that exists among the platformand its complementors. However, it also needs to encourage competition in the mar-ket so that complementors drive down the price of the overall system, and also soas to prevent complementors from capturing all of the value (Jacobides et al. 2006;Cennamo and Santaló 2010). The platform owner must equally defend its position as

198 H. Piezunka

platform owner, i.e. ensuring that other firms cannot replace the platform owner in itscentral position (Shapiro and Varian 1999; Jacobides et al. 2006).

In addition to general discussion of platform leadership, the literature also identi-fies several other key strategic issues for industry platforms. As an example, it high-lights the timing of the launch of a platform as essential to the establishment of asuccessful platform. Scholars have suggested that there are particular time windowsthat are especially suitable for platform launches (Bresnahan and Greenstein 1999;Schilling 2002); if a firm enters too late, then a competing platform owner is likelyto profit from network externalities and advancement on the experience curve. Thisthen results in a substantial and potentially insurmountable barrier to entry for theinitial platform. If, in contrast, a platform enters too early, then the technology maynot be fully developed and so complementors may await a more promising platform.Zhu and Iansiti (forthcoming) demonstrate this latter point by showing how a laterentrant with superior product quality can succeed against an incumbent even in thepresence of network effects. Zhu and Iansiti empirically tested their model in theplatform-based video game console market, examining the rivalry between the in-cumbent PlayStation 2 (Sony) and the challenger Xbox (Microsoft). This showed thata small quality advantage and consumer patience for the availability of applications(games) allowed Microsoft’s Xbox to enter the market later, but still successfully.Overall, this conclusion suggests that a platform owner’s ability to time the market iscrucial to its ability to succeed.

Besides market timing, one of the most prevalent strategic issues raised in the in-dustry platform literature is the optimal degree of openness of a platform. The degreeof openness describes which components of the multi-product system are bundledinto the platform and which are provided as complementary products. If, for exam-ple, Microsoft integrates its Media Player into Windows, then it reduces the degreeof openness, as more components of the overall system are directly bundled into theplatform. Such bundling strategies have been subject to detailed examination as partof the Microsoft trial (Bresnahan 2002). The platform owner therefore needs to de-cide which elements should be bundled as components that will be bundled upstreaminto the platform, and which elements should be complements that will be bundleddownstream by consumers or system integrators. Farrell et al. (1998) address thisquestion by developing a mathematical model to compare the closed organization ofvertically integrated firms and the open organization of independent firms. They findthat the closed organization configuration leads to lower social efficiency but higherfirm profits—although also demonstrate that this is not a stable equilibrium, as theconfiguration is susceptible to competition from outside firms that organize openly.They subsequently show the formation of exclusive clusters to be a profitable andsustainable solution.

Researchers have continued to be interested in this open vs. closed tradeoff ofplatforms, and have recently extended their analysis to other outcomes such as in-novation. In general, it is assumed that open platforms facilitate a broad range ofinnovations, as a plethora of firms can innovate on the platform. As an example,Boudreau (2010) conducts a quantitative analysis of the mobile handheld industrybetween 1990 and 2004 so as to explore the effects that opening up a platform haveon innovation and the production of complementary products. He finds that while

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opening the platform architecture itself had no effect, opening the platform for ex-ternal complementors increased the rate of innovation five-fold (as measured in thenumber of applications available). The question of the degree of openness, which ishighly related to the question of the degree of commonality as discussed in the firststream, also remains of great interest to practitioners. In few sectors has this becomemore evident than in the mobile phone industry, where firms such as Apple, Google,Nokia, RIM and Microsoft have continued to shift with respect to their degree ofvertical integration when fostering their software platform. For example, the recenttakeover of Motorola by Google extended Google’s vertical integration with respectto Android. I view the better understanding of such challenges as crucial, as collec-tively, the studies referenced above demonstrate that an increase in openness resultsin higher efficiency and innovation output.

The optimal degree of openness is also contingent on factors such as competi-tive pressure, technical uncertainty and problem complexity. West (2003) analyzesthe platform strategies of Apple, IBM and SUN from 1995 to 2002, and shows thatall of these firms generally prefer the superior rent-capturing regime of a closedorganization—but that competitive pressures force them to increase their degree ofopenness. In other words, platform owners prefer a closed, proprietary platform un-less they are forced by competing platforms to open up the platform (a result con-firmed by Parker and van Alstynes’ (2008) mathematical model). The logic underly-ing this balance is that more openness will diminish control, but will also result in:(a) greater product variety; (b) higher efficiency; and (c) more differentiation potentialfor complementors. Adner and Kapoor (2010) extend this analysis by incorporatingthe role of technical uncertainty. In a longitudinal analysis of 33 firms in the semi-conductor lithography industry from 1962 to 2005, they show that the advantages ofvertical integration are contingent upon technical uncertainty—and that a decreasein technical uncertainty renders vertical integration more beneficial. Along the samelines, Almirall and Casadesus-Masanell (2010) examine whether the optimal degreeof openness is contingent on a multi-product system’s complexity. In an NK simu-lation, they assume that a higher degree of openness will result in more innovation,but at the same time has the potential to lead to the diminishment of cohesion ofincentives. They show that for an intermediate degree of complexity, an open orga-nization yields the best performance—but for high or low values of complexity, aclosed organization is superior. Collectively, this body of work highlights some ofthe contingencies associated with the degree of openness of platforms.

One of the corresponding challenges faced by open platforms is whether and howa platform owner should itself engage in the production of complementary products(also referred to as “first party content”; for a recent overview, see Hagiu and Spulber2011). The literature reflects examples such as Microsoft’s decision to develop itsown applications and potentially compete with application developers—providingsoftware products such as Microsoft Office, games and other applications. Equally, inBresnahan and Greensteins’ (1999; Bresnahan 2002) examination of the PC industry,it is observed that many other platform owners act in a similar manner. The literatureoffers two main rationales as to why a firm should engage in this activity.

First, by investing itself in complementary products, the platform owner shiftsthe industry structure in his favor. Particularly in the early stages of competi-

200 H. Piezunka

tion among markets, this shift helps the platform owner to overcome the chicken-and-egg-problem (Evans 2010) and establish a dominant platform (Evans 2010;Cennamo 2011; Hagiu and Spulber 2011). Moreover, entering this market is likelyto increase the variety of complementary products, in turn increasing competitionand thus driving down prices as well as increasing the number of platform-exclusiveproducts. All of these factors have been found to have a positive effect on platformdemand (Parker and Van Alstyne 2000; Lee 2009; Cennamo and Santaló 2010).

Second, involvement in the complementary product market may give firms abetter understanding of the interaction between the platform and complementaryapplications. For example, there might be a strong interaction between differenttypes of complements that the platform owner needs to understand, e.g. betweenPC peripherals (e.g. keyboard) and PC games (Parmigiani and Mitchell 2009).The parallel between complementary products that are developed by the plat-form owner and those that are developed by complementors resembles the co-existence of internal and external sourcing which has been studied under labelssuch as “hybrid sourcing” and “concurrent sourcing” (Gulati and Puranam 2006;Parmigiani 2007). This work has in turn shown that collaboration with both inter-nal and external partners provides a firm with access to different kinds of infor-mation (Bradach 1997). While previous research has suggested that one expects tohave superior information flow within a firm’s boundaries (Kogut and Zander 1992;Foss 1996), for instance, external complementors might provide richer accounts ofhow a platform could be approved due to their lack of career concerns.

However, the co-existence of internal and external sourcing, as well as the po-tentially intensive competition among external complementors that this can lead to,come with various challenges. The presence of the platform owner in the market forcomplements brings with it the danger that external complementors are always at riskof being squeezed out. Platform owners are very aware of this problem, as the follow-ing quote from SAP ex-CEO Henning Kagermann (2006) illustrates: “We have to beextremely clear with our partners about what they can expect. One rule is that we can-not protect the partner forever—[we cannot guarantee] that there may not be a timewhen SAP is forced to enter this space”.7 In such a situation, a complementor mightonly enter if it possesses intellectual property rights and downstream complementarycapabilities that allow it to adequately compete against the platform owner (Cecca-gnoli et al. 2010; Huang et al. 2010). The platform owner’s presence in the market

7In such a competition, the platform owner often has the upper hand with regard to market power. For arecent discussion of the legal dimension, see Lemley and Shapiro (2006, 2007), Lemley (2007), Bakos andKatsamakas (2008). While in general a positive link is identified between a firms’ power and its abilityto capture resources, recent studies outside of the realm of platforms have shown potentially detrimentaleffects. Several studies show how such a power imbalance can be detrimental for the firm in this regard.Piskorski and Casciaro (2006) study dyadic relations in 77 different industries between 1977 and 1992,for example. Consistent with claims for resource dependency theory, they show that an increase in rel-ative power will increase a firm’s share of the expected transaction, but will also reduce the exchangefrequency—and the overall effect on each of the partners will be negative. In contrast to suggestions ofresource dependency, an increase in power can thus be detrimental to a firm. Other studies show that firmsmight restrain from tie formation as they fear misappropriation of their own resources by their partners(Gulati and Singh 1998; Ahuja 2000; Katila and Mang 2003, Katila et al. 2008). Consequently, a firmneeds to find a way to deal with its power.

Technological platforms 201

for complements might not only reduce a complementor’s likelihood of joining theplatform, however: it is also likely to have a negative effect on the quality of coopera-tion. In a detailed ethnographic account of US pharmaceutical companies, it has beenshown how firms failed to establish a fertile collaboration with research contractorsdue to the co-existence of internal and external sourcing (Azoulay et al. 2010). Thecompetition among external complementors can also have negative side effects. Forexample, the attraction of too many sellers will increase competition and so may pre-vent new sellers from joining the platform (Venkatraman and Lee 2004). Moreover,it has been shown that such competition also decreases innovation incentives amongcomplementors that have already joined the platform (Boudreau and Lakhani 2011;Boudreau forthcoming).

In consequence, scholars have also examined the ways in which platform own-ers might mitigate the detrimental side effects of excessive competition. Gawer andHenderson (2007), for example, examine how Intel relies upon a particular form ofinternal organization for this purpose—using three primary mechanisms to achieveits goal. First, its widely publicized internal organizational structure for divisionswhich produce complements signals that it will not engage in subsidizing these di-visions and instead expects them (and so their external competition) to make moneyin complementary markets. Second, it lowers the costs of entry for complementorsby the development and widespread dissemination of intellectual property (see alsoIansiti and Levien 2004; Evans et al. 2006). Third, the Intel Architecture Lab divi-sion has exclusive responsibility for promoting the health of the ecosystem. A firm’sinternal organization is thus critical to attracting and coordinating complementors.Platform owners might also find ways to decrease competition among the sellers.Taken together, a firm’s internal organization is critical to attracting and coordinatingcomplementors.

In addition, effective internal organization also ensures the efficient coordinationof complementors. Effective internal organization ensures the efficient coordinationof complementors. In contrast, without organizing effectively, a platform owner mightdiscourage potential complementors and so fail to ensure the integrity of the system.First, a platform needs to ensure effective communication with its partners. There hasbeen a significant body of literature focusing on internal communication and informa-tion sharing with regard to a firm’s innovation capability (Tushman and Nadler 1978;Eisenhardt and Tabrizi 1995). In the highly networked world of ecosystems, the ques-tion then becomes how the internal organizational design of the firm affects the co-ordination of external partners. For platforms, Staudenmayer et al. (2005) propose tocategorize and manage relationships by internally clustering differing types of rela-tionships (see also Iansiti and Levien 2004). Platforms might also profit from mod-eling their internal structure according to their external partners; Maurer and Ebers(2006) show how a reflection of external stakeholders in the internal organizationalstructure helps to cope with competing requests. In organizing their various externalrelationships, platform owners might also profit from visualizing their relationships totheir complementors and the relationships among them (Ozcan and Eisenhardt 2009).

Such coordination is crucial for a well-functioning ecosystem around the plat-form. Platform-based ecosystems consist of a variety of interdependencies, and suc-cessful platform owners have to be able to manage these interdependencies so as

202 H. Piezunka

to maintain the integrity of the system. It is the responsibility of a platform own-ers to ensure the availability, functionally, and compatibility of all sub-systems sothat the overall system works. In contrast to the idea of “nearly decomposable sys-tems” (Simon 1962), Staudenmayer et al. (2005) find that interdependencies re-main in ecosystems and are very nearly ubiquitous. In a study of seven firms inthe software industry in 1999, 2000 and 2003, they demonstrate that firms copewith these interdependencies by investing in firms that produce complementaryproducts, by sharing product development personnel with other firms, by reinte-grating across modular boundaries, and by engaging in testing the quality of com-plementors’ products. In particular, testing the quality of complementors turns outto be essential as the platform owner adopts the role of quality guarantor for thewhole system—protecting customers against “lemons” (Garella and Peitz 2000;Jacobides et al. 2006). Another way to coordinate the system is by embedding ar-chitectural control in the key component, i.e. using the architecture of the product tofacilitate and guide coordination. This is achieved by investment in connector tech-nologies (Gawer and Henderson 2007), changes in the modular architecture of theplatform (Baldwin and Clark 2006), and providing toolboxes to application develop-ers (Iansiti and Levien 2004).

One mechanism for managing interdependencies and maintaining the integrity ofthe system is for platform owners to ensure the temporal synchronization of activities.Such synchronization naturally involves collaborative innovation among a variety ofactors so that products are available at the same time. A good example is Moore’slaw (promulgated by platform owner Intel), which states that the number of transis-tors on an integrated circuit should double every two years. This law dominated thecomputing industry and served as a temporal pacing mechanism for other firms inthe ecosystem. At the other end of the spectrum, Adner (2006) describes Michelin’sfailure to bring its innovation of the run-flat tire to the marketplace. In contrast toconventional tires, run-flat tires require a connection to a car’s electronic system—and the necessary electronic systems could only be implemented when a new car wasdesigned. As a result, Michelin had to wait until a new design window to be opened.Even after nine years, the innovation was standard in only a handful of cars. As theMichelin delay suggests, firms across the ecosystem could collectively benefit if theywere subject to rhythmic, time-paced transition processes (Brown and Eisenhardt1997)—and it is platform owners which are sometimes able to instill such rhythms.

There are both opportunities and challenges associated with the temporal syn-chronization of activities in an ecosystem. As an example, Casadesus-Masanell andYoffie (2007) show how difficult it is to reach a rhythm within a product ecosystem.Inspired by the co-opetition of Microsoft and Intel, they formulate a mathematicalmodel which shows that as the two firms’ profit models differ due to the their in-stalled customer base, their preferred product release time also differs and cannot besynchronized. Their model suggests that the problem may lie in the conflict that ex-ists between two powerful complementors. Davis (2011), on the other hand, showsin a simulation how independent firms might achieve synchronization (of product re-leases) even without a central coordinator (platform owner). Strong ties between fewfirms allow for the establishment of a rhythm between core groups that can then cas-cade into the rest of the network. Counterintuitively, he also shows that clusters within

Technological platforms 203

the network slow down the speed of synchronization, as different clusters rarely comeinto synchronization with each other. While this research has produced mixed find-ings, it collectively highlights the need for temporal synchronization to be achieved.

Most recently, scholars have begun to examine the concept of platform dynamics(Ciborra 1996; Gawer 2010; Eisenmann et al. forthcoming). This has included ex-aminations of how platforms continue to enter new fields by a strategy referred toas “platform envelopment” (Eisenmann et al. forthcoming). An impressive study inthis context is that by Rindova and Kotha (2001), which describes how Yahoo andExcite (try to) leverage past successes into future success. In leveraging their pres-ence in one market into another, they profit from inter-temporal economies of scope(Helfat and Eisenhardt 2004). Such platforms might also benefit from non-technicaleconomies of scope, as they can transfer their status into new markets (Jensen 2003).The platform uses its access to a particular customer group and then leverages this soas to enter new markets and fields. Such actions by a platform owner can be orderedinto one of the following categories: (a) connecting previously unconnected sets ofcustomers; (b) identifying new opportunities of transactions among existing partners;and (c) finding new intermediation mechanisms. As an example, Amazon.com origi-nally started intermediating between publishers and readers in the US. Since then,it has (a) connected new types of participants (e.g. geographical expansion, sell-ers of used goods); (b) established new products as objects of the transaction (e.g.online videos, cloud computing); and (c) created new ways of intermediation (e.g.1-Click, Amazon Prime, and Kindle).8 Scholars have recently begun to explore plat-form owner transformations, and more specifically how these platform owners enternew fields.

2.2.2 Summary and conclusion

This stream describes the organization of ecosystems by platform owners. It sug-gests that platform owners can assume a central leadership role in markets if theyare able to overcome the challenges associated with coordinating the ecosystem—inturn making the organization of the ecosystem their strategy. The key subjects dis-cussed include the achievement and maintenance of platform leadership, timing, theplatform’s openness, the firm’s scope, the management of interdependencies and theplatform’s internal organization. The literature also discusses a variety of strategicissues that allow a platform owner to create and capture value.

A further examination of dynamics appears promising. Thinking across the firstand second literature streams, it is of particular interest to understand how firmstransform an internally focused product platform into an industry platform (cf. Bald-win and Woodard 2010). While scholars have conducted extensive studies on howorganizations change their boundaries (Jacobides 2005), we know very little aboutthe processes that platforms rely on when adapting their boundaries. One of the

8An alternative setting for such a study could be the historical examination of an intermediary. An existingexample is the study by Chiles et al. (2004; also see Meyer et al. 2005) of the city of Branson, which pointsout several aspects of intermediation. Another example may be the stock exchange as Chicago, where onemight examine how Chicago evolved from the center for sales of wheat and corn in the mid-nineteenthcentury to today’s leading market for futures.

204 H. Piezunka

critical challenges of this process might be how many complementors the plat-form owner should invite to join the platform, and then what kind of relation-ships it should have with them. It is possible, for example, that a different num-ber of complementors and different types of relationships might be optimal at dif-ferent stages of the platform’s development. Early on, the platform owner mayrely on trust-based relationships with a small set of complementors, for instance,as these allow for the development of the system architecture. Too many comple-mentors at this early stage may result in: (a) an inefficient development process;(b) a premature lock-in to inferior technology; or (c) a lack of capacity to ade-quately cope with the number of complementors involved. As such, if the plat-form owner adhered to a “the-more-the-merrier” logic without restraint, then itwould be set onto a “too big too fast” trajectory (Sterman and Wittenberg 1999;Sterman et al. 2007). The trajectory of platform owners such as Google or Netscape,which languished for a long time with no or few complementors before eventuallytaking off (Chesbrough 2006), indicates the viability of a slower strategy—which alsoallows the platform owner to profit from the information exchange that is often associ-ated with embedded relationships (Granovetter 1985; Uzzi 1996, 1997). Furthermore,early collaboration with a limited number of complementors might help to foster syn-chronous action between the platform owner and its complementors (Adner 2006;Davis 2011). It is in this early stage that the platform owner is most likely to profitfrom the input of other players in terms of conceptual input and testing (Stauden-mayer et al. 2005). Along the same line, it might be optimal to add arms-length re-lationships so as to achieve a critical mass of complementors that allows increasingdiversity and profiting from (indirect) network externalities. The parallel co-existenceof embedded and arm’s length relationships might then help the platform to overcomethe paradox of embeddedness (Uzzi 1997).

Failure to adjust to the type of relationship and to increase the number of comple-mentors may lead the platform owner to have too few partners. The growth trajectoryof intermediary platforms is thus characterized by an optimal speed of adding part-ners and a transformation of the type of relationship held with those partners overtime. In consequence, the examination of the growth trajectory of a platform seemsto be a promising area for future research (Ceccagnoli et al. 2010).

2.3 Two-sided markets

In this stream, the platform owner intermediates between two or more distinct groupsof customers that make a transaction based upon the platform. The decision of eachset of customers affects the outcomes of the other sets of agents, i.e. indirect networkeffects exist. This means that the more participants there are in one side of the market,the more valuable participation becomes for members in the other side of the market.Such a platform is referred to as a two-sided market, and is composed of a sharedfacility (e.g. a website) in which the transaction takes place among the customers.This shared facility confers rules on the transaction, e.g. in the form of particularcontract terms. In contrast to previous streams, however, the platform itself is notpart of a product or a system—but is instead just the location of the transaction.The platform owner relies mainly on prices or participation fees to influence both

Technological platforms 205

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Technological platforms 207

Table 7 Summary of the review of two-sided markets (Stream III)

Two-sided market

Focus activity of platform owner Intermediation

Example eBay auction

Outcome Transaction

Agents • Platform owner

• Distinct sets of market participants

Definition of a platform • Interaction / Transaction between two distinct groups

• Indirect network effects between distinct groups

• Shared facilities and rules across transactions

• Variety in traded objects and participant combinations

Advantages • Enabling exchange by bringing both sided on board (incentivizing)

• Lowering of transaction costs (shared facilities; mitigation of moralhazard) hazard

• Facilitated matching

Strategic issues • Pricing

– Who to discount

– Access vs. usage fee

– Discrimination

– (Non-)Negative prices

• Chicken and egg

• Exclusive access

Literature Industrial organization

Research methods • Mathematical models

• Quantitative analyses

Shortcomings • Assumptions (e.g. homo oeconomicus; market power)

• Failure to explain performance differences among platform

• Neglect of strategic means mechanisms beyond prices

• Neglect of platform dynamics

the number of market participants and the volume of their transactions. However,due to the indirect network effects, price modifications in one market will not onlyaffect the number of participants in that market, but indirectly also those in the othermarket. Such interdependencies often lead to a feedback loop in which the numbers ofparticipants in both markets affect each other recursively. One of the major strategicchallenges for the platform owner is therefore to cope with such interdependenciesand to intermediate between the distinct sets of customers. Tables 6 and 7 provide anoverview of the literature and key topics relevant to this stream.

208 H. Piezunka

Two-sided markets create value in a number of ways when compared to directexchange or non-technological platforms (e.g. a shopping mall). Collectively, the lit-erature identifies three core mechanisms by which platform owners create value (e.g.Spulber 1999; Evans et al. 2006). First, platforms create exchange opportunities bybringing both sides “on board.” This is often done through the use of incentives. Webpublishers give their content away for free, for example, so as to enable the match-ing of readers and advertisers. Without a platform, these distinct groups of customersmight never have had an opportunity to encounter one other. Second, platforms re-duce the transaction costs associated with exchanges between agents in different mar-ket sites—for example by providing shared facilities for each transaction which arere-used across transactions (e.g. an auction site with one set of rules and contracts).Transaction costs are also lowered because platforms mitigate the risk of moral haz-ard by excluding malevolent market participants and by incentivizing fair behavior(e.g. by an evaluation system). Third, platforms facilitate the matching of buyers andsellers by reducing search costs. For example, the categorization of customer seg-ments or automatic matching will facilitate the identification of adequate transactionpartners. In contrast to non-technological platforms (e.g. a shopping mall), technolog-ical platforms have important advantages such as lower transactions costs and no ge-ographical constraints. As these three core mechanisms demonstrate, platform-basedintermediation is in many respects superior to a direct exchange between buyers andsellers.

A classic example of a platform-based exchange is the online auction website,eBay, which intermediates between buyers and sellers who are searching for poten-tial trading partners. This website benefits from numerous indirect network effectsthat exist between buyers and sellers. The presence of buyers yields remarkable buy-ing power, for example, which in turn attracts more sellers. Similarly, the presenceof sellers increases choice and lowers costs, which in turn attracts more buyers. It isthis feedback loop that has allowed eBay to dominate new entrants to the online auc-tion market. The website also creates value in several ways. Its pricing structure, forinstance, brings both buyers and sellers on board—achieved by lowering transactioncosts between buyers and sellers by offering a highly-functional transaction platform,a payment service (PayPal), standardized terms and two-way evaluations. Finally,eBay improves matching by providing a sophisticated directory of its sellers’ offer-ings and a powerful search engine. Besides auction sites such as eBay, other industrieswhich have been examined from the perspective of two-sided markets include: ad-vertising supported media; shopping malls; credit cards; dating sites; communicationnetworks; electronic markets; software platforms; and stock exchanges (Baxter 1983;Cabral 2005; Evans and Schmalensee 2005; Emch and Thompson 2006).

2.3.1 Strategic issues

According to the literature, platform owners in two-sided markets face many prob-lems relating to optimal structure, i.e. how much to charge one side of the market.In contrast to traditional pricing, platform owners must not only take into accountthe elasticity of demand and costs, but also the indirect network effects (Liebowitz

Technological platforms 209

and Margolis 1994; Rochet and Tirole 2004; Weyl 2010).9 Moreover, it is not onlythe absolute price charged per transaction that is relevant, but also which group re-ceives this charge. Charging more to one side of the market and reducing the pricepaid by the other side by an equal amount results in a different equilibrium (Ro-chet and Tirole 2004, 2006). Collectively, scholars have suggested that the platformowner should discount the side that has the stronger positive indirect network effecton the other market (Rochet and Tirole 2004, 2006; Parker and Van Alstyne 2005;Weyl 2010). For example, online publishers subsidize their readers because they havea positive indirect network effect on the market for advertising. The consequences ofignoring indirect network effects can be severe. In 2001, for instance, Yahoo, the sec-ond largest online auction site at the time, raised its seller fees. In consequence, sellerlistings dropped by 90 per cent and buyers stopped coming to the site (Hansell 2001).In contrast to the general literature on pricing, therefore, scholars covering two-sidedmarkets strongly emphasize the need to take into account indirect network effects.

As another aspect of optimal structure, the literature examines the ramifications ofcharging access fees (fees for joining / presence on the platform), usage fees (fees pertransaction), or both. As an example, a credit card issuer can charge its holders for theownership of a card and / or per transaction. This distinction only makes sense, how-ever, if the participants’ decision to join the two-sided market is logically separatedfrom the later choice of making a transaction (Caillaud and Jullien 2003). If thesedecisions are in fact separate, then access fees mainly affect the decision to join aplatform (membership), and usage fees affect how many transactions (usage) to con-duct. Interestingly, membership and usage exert different kinds of indirect networkeffects. In the credit card industry, for instance, usage of the credit card drives theindirect network effect, but in the publishing industry, it is joining the platform, i.e.buying the newspaper or visiting the website, that drives the indirect network effect.Technology can also restrict the types of fees charged, which is an important consid-eration when setting economically optimal prices. A printed newspaper, for example,can charge an access fee, but hardly any usage fees. Technology-based platforms aretherefore often superior with regard to their realizable pricing structures.

9The literature has refined the conceptual understanding and empirical knowledge of indirect networkeffects (Gandal 1995; Gandal et al. 1999, 2000; Kaiser and Wright 2006). The literature distinguishes:(a) the single-interaction indirect network effect which describes the single matching between two entities(matching improves as more alternatives become available) (e.g. dating); and (b) the multi-interactionindirect network effect which describes when more interactions are possible if more complementors areavailable (e.g. a game console owner can buy several games).

The literature also examines the potential combination of direct and indirect network effects—whichcan either be positive or negative. Of particular interest is the case in which positive indirect networkeffects come along with negative direct network effects (Anderson et al. 2005, 2010; Belleflamme andToulemonde 2009). For example, an increase in the adoption of cars will increase the availability of repairstations (positive indirect), but will also increase congestion (negative direct).

Indirect network effects can also be asymmetrical. One group of customers might have a positive indi-rect network effect, but another group may receive the opposite (Reisinger 2004). For example, newspaperadvertisers profit from a larger audience, but the audience prefers to have less advertising. Such effectsare not necessarily monotonic, as readers might enjoy some advertising, but not too much. Moreover, sucheffects depend on the local context. For instance, Ferguson (1983) showed that an increase in advertis-ing was valued by US newspaper readers, while Sonnac (2000) showed that European readers are averseto advertising. As the two-sided market literature is about the intermediation between two markets, anunderstanding of the indirect network effects is essential for the determination of the right price structure.

210 H. Piezunka

Price discrimination also affects optimal pricing structure. The term “price dis-crimination” describes the policy of charging different prices to different customerswithin one market. This option is important for platform owners, because they canuse it to reach a more profitable equilibrium and so extract more value out of themarket. The resulting higher value extraction on one side of the market may thenallow them to levy lower prices on the other side and thus achieve higher mar-ket participation (Weyl 2010). Moreover, the platform owner may be able to offerlower prices to buyers or sellers who have particularly high indirect network ef-fects. As an example, Microsoft attracted Electronic Arts to produce games for theXbox platform by offering them reduced fees (Eisenmann et al. 2006). Despite thebenefits of price discrimination and its observed existence, however, the literatureoften assumes the absence of such discrimination (Chakravorti and Emmons 2003;Rochet and Tirole 2006). This assumption is due to both the literature’s methodolog-ical limits and its frequent examination of non-technological platforms, where pricediscrimination is harder to realize.

Starting a new two-sided market is particularly challenging, as it can delivervalue to one side of the platform only if there are participants on the other sideof the platform. Platform owners are thus faced with a chicken-and-egg problemin reaching a critical mass in both markets—despite researchers showing how vi-tal the attraction of complementors is with respect to the overall success of theplatform (Cennamo 2011). The literature identifies different strategic actions thata platform owner can take to solve this problem. First, the platform owner mightrely on pricing to attract initial users. In general, platform owners try to lowerentry costs for potential market participants (Iansiti and Levien 2004), but theydo not pay them (charge negative prices). Paying them would eliminate (at leastpart of) the incentive to develop successful products and would thus create amoral hazard problem (Gawer and Henderson 2007)—meaning that the literatureon two-sided markets tends to assume non-negative prices (Rochet and Tirole 2004;Armstrong and Wright 2007). Second, the platform owner can address the two sidessequentially (Hagiu and Eisenmann 2007; Ozcan and Eisenhardt 2009; Evans 2010;Eisenmann et al. forthcoming). This involves first focusing on one side and only later,once the critical mass is reached, focusing on the other. In following this course ofaction, platform owners are likely to address market participants that have strong in-direct network effects so as to reach the critical mass quickly. Google first ensured acritical mass of users of its search engine, for example, before addressing potentialadvertisers. To do so, however, the platform owner has to create value for one mar-ket without having the other market on board. Third, the platform owner might useprospective ties, i.e. enticing a potential participant in one market by offering accessto a prospective customer in the other market and vice versa (Ozcan and Eisenhardt2009). This may then allow the platform owner to address both markets even if theyare interdependent. All of these mechanisms provide alternative ways of overcomingthe chicken-and-egg problem that is presented by two-sided markets.

Other work has examined the competition that can arise among platform own-ers, and also how some platform owners compete more effectively than others.Some of this competition gets reflected in exclusivity—and if customers on oneor both sides of the market engage exclusively on a single platform, then that

Technological platforms 211

platform becomes an industry bottleneck (for a general overview on exclusive ac-cess see Rey and Tirole 2007). As an example, the videogame Halo II is exclu-sively available for Microsoft’s Xbox game console. Players who want to play thegame must therefore join the platform by purchasing that console, as competitors’consoles, such as Sony’s PlayStation, cannot offer them the access required. Lee(2009) shows in a quantitative analysis of the U.S. videogame industry from 2000to 2005 that a single exclusive title may increase the installed base of a consoleby up to 8%. If, in contrast, buyers or sellers are present on several platforms—so-called “multi-homing”—then a platform owner’s pricing power and ability to attractcustomers decreases severely (Caillaud and Jullien 2003; Rochet and Tirole 2003;Armstrong and Wright 2007). If multi-homing is possible, then it is likely that oneside of the market will engage partially in multi-homing, while the other side will not(Armstrong 2006). Continuing with the videogame console example, for instance,since consumers are unlikely to have different types of consoles (e.g. Xbox, PlaySta-tion, Wii), it is likely that game developers will be present on multiple platforms. Suchmarkets are therefore also unlikely to tip to “the-winner-takes-all” markets (Sun andTse 2007). Given the importance of exclusive access, platform owners’ profitabilitydepends on their ability to obtain exclusive access to customers on at least one sideof the market.

Initially, however, such exclusive access appears difficult to reach. Continuingwith the game console example, exclusive contracts became the subject of an-titrust investigations related to Atari Games Corp. v. Nintendo of America, Inc.[975 F2d 832m] (1992) (Shapiro 1999; Kent 2001)—and since then, exclusive con-tracts have almost disappeared from the game console industry. Moreover, multi-homing has been facilitated as transfer costs, i.e. the costs of transferring an ap-plication which has been developed for one platform to another platform, have di-minished due to platform-independent programming languages such as Java (Lee2009). Despite these difficulties in establishing exclusive access, though, 64 per-cent of all games are exclusive to a single game console (Corts and Lederman 2009;Lee 2009). There has been very little work to date that examines this phenomenon,explaining how firms ensure exclusive access despite difficult odds. A notable excep-tion is Hagiu and Lee (2011), who show that platform owners might gain exclusiveaccess by granting more freedom to customers with regard to price setting. For ex-ample, if Apple iTunes allowed record labels to set their own prices (in contrast tothe current situation in which Apple determines their levels), then multi-homing maybe reduced.

Recently, the literature has also started to examine other strategic issues facingplatform owners. By conducting case studies, (e.g. Boudreau and Hagiu 2010), schol-ars have shown that the strategic means most often discussed in the literature, i.e.prices, do not represent those that firms apply in practice. Often these examples callinto question simple management heuristics, as is shown in Hagiu’s (2009) examina-tion of how platform owners intentionally exclude some offers from their platforms.This exclusion serves the purpose of raising the average quality of the platform, whichis particularly relevant if buyers have no reliable information about product quality;in effect, the platform owner takes on the role of a quality guarantor. Another exam-ple is discussed by Hagiu and Jullien (2011), who show that platform owners may

212 H. Piezunka

benefit from increasing search costs. In the same way a supermarket places the milkat the end of the store (so that customers are presented with the opportunity to buyother products on their way to it), transaction numbers may be increased on two-sided market platforms if goods are placed so that other goods are encountered onthe way to them. Yet another strategic issue is consideration of the optimal kind ofcompetition that the platform owner wants in its markets. While in general schol-ars have argued for increased competition so as to increase variety and drive downprices (Jacobides et al. 2006), too much competition might have detrimental effects.For example, too much competition might drive out innovation investments and sobe detrimental to the platform’s well-being (see also Casadesus-Masanell et al. 2008;Boudreau forthcoming). In general, therefore, the recent literature has started to ex-amine a much greater variety of the strategic issues that are encountered by two-sidedmarkets.

2.3.2 Summary and conclusion

Overall, the articles highlight platform owners’ roles as market intermediaries, en-abling and facilitating transactions between distinct groups of customers in a two-sided market. To establish a two-sided market, platform owners have to overcomethe chicken-and-egg problem defined above—and once a two-sided market has beenestablished, they then have to intermediate between the distinct sets of customers’required use of the price system. Research has also explored how platform ownerscompete against other platforms through the use of exclusive access to complemen-tors, and more recently, the literature has moved beyond pricing and exclusivity toexamine a broader range of strategic actions that are available to platform owners intwo-sided markets.

The theoretical approach in this stream corresponds to the general literature onindustrial organization. In particular, the work on two-sided markets is composed ofmathematical models (Rochet and Tirole 2004, 2006; Weyl 2010) and, more recently,quantitative empirical analysis. The empirical work has focused on specifying thedifferent types of indirect network effects (see footnote 9), but has now also started totake into account platform challenges and platform competition (Lee 2009; Zhu andIansiti forthcoming). As a result, the literature has benefited from the establishmentof well-specified theoretical mechanisms and also the quantitative validation of thesemechanisms.

A shortcoming of the literature is its oversimplified and unrealistic assumptions.This not only leads to reliance on classical economic assumptions regarding dimin-ishing returns, but also causes the results from the theoretical models to be highlycontingent on these assumptions. As a result, the literature is well specified, but issimilarly neither very deep nor very rich. As an example, Bresnahan (personal com-munication) notes that everything important that there is to know about two-sidedmarkets could be learned in the first 15 minutes. It is especially surprising that thebehavioral economics revolution that has been recently sweeping so many economicfields has not yet penetrated the literature on two-sided markets—which continues toassume the classical homo oeconomicus. Such a perspective may be the theoreticallens that enriches this stream of research (especially given the fact that people are

Technological platforms 213

on both sides of a two-sided market). Another unrealistic assumption is the concep-tualization of the platform owner as a price setter. Given the market concentrationthat a platform owner faces in some markets, one can expect customers to exert influ-ence not only with regard to the prices that they get charged, but also with regard tothe prices that the other side gets charged. Yet another unrealistic assumption is, aspreviously stated, the absence of price discrimination. Collectively, these restrictiveassumptions restrain the explanatory power of the stream (e.g. with regard to the lowdistribution of multi-homing). As more economists have begun doing case studies(Boudreau and Hagiu 2010) and empirical work on platforms, this oversimplificationhas come prominently to light.

The literature’s second main shortcoming is its failure to explain performance dif-ferences between competing platform owners. The literature treats two-sided marketsalmost as black boxes which differ only in their pricing and access to exclusive partic-ipants. Some scholars have suggested, however, that platform owners differ in otherrespects. Shankar and Bayus (2003) find strong evidence for variance in the strengthof indirect network effects across platforms (in their case, Sega and Nintendo), forinstance, and both Delaney (2006) and Evans (2008) point out that search enginesdiffer with regard to their revenues per search. At present, the literature does not ad-dress such efficiency-related performance differences, which appear to be rooted inthe intermediation mechanism itself. The literature also fails to provide informationon innovation by the platform owner. A platform owner might innovate by identifyingor creating a new indirect network effect between currently unconnected markets. Itmight also find a superior way of connecting those two markets. The literature, how-ever, does not examine innovation with regard to intermediation.

Another fertile avenue of investigation might be the gathering of more empiri-cal data on actual prices and revenue models. Despite the rich works that alreadyexist on prices, so far only very little data exists on actual price formation. Giventhe co-existence of various price models and advertising-based models, such stud-ies have the potential to deliver insightful results. For an example of such a study,see Zhu and Seamans (2010) investigation into how the emergence of the websiteCraigslist has changed the pricing structure of local newspapers. Scholars might alsoinvestigate new revenue models associated with platforms that have so far found onlylittle coverage in the scientific debate—as well as using the extensive data that suchplatforms gain access to. Twitter, for instance, generates it main income by makingits data available on a short-term basis to search engines that then identify recentweb trends based on this information. Instead of charging the interacting partner,these platforms profit from a byproduct of the interaction, i.e. the information base.Examining the conflict that the role of the intermediary brings with it could alsooffer valuable insights. Two kinds of problems exist around this topic. First, the in-terest of one side of the market might not be well aligned with the other side ofthe market. In the case of search engines, for example, multiple market sides areconnected: the users, the sites displayed in regular search requests, and the adver-tising. To create a high quality match to a user’s request, a site may need to bedisplayed that decreases the search engine’s opportunity to generate revenue fromadvertising (White 2008). Following this approach, they therefore take the sugges-tion of other scholars in the platform field who have pointed to the role of internal

214 H. Piezunka

structure with respect to dealing with competitive structure (Maurer and Ebers 2006;Gawer and Henderson 2007). However, even if the owners of platforms have success-fully created corresponding internal structures, it has been shown that such conflictsof interest might not always be overcome (Hayward and Boeker 1998). A firm suchas Google has, for this purpose, established a separate internal unit for search thatis completely separate from its advertising division. The studying of such agencyconflict thus seems a fertile area for further studies.

3 Conclusion

3.1 Common themes across the three streams

I have identified and reviewed three distinct streams in the scientific literature onplatforms: (1) product platforms; (2) industry platforms; and (3) two-sided markets.I have then roughly mapped empirical examples and the academic literature ontothese three literature streams, and have also examined the strategic issues discussed inthe three streams. Building on recent work on technological platforms (Baldwin andWoodard 2010; Gawer 2010), the result advances our understanding of technologicalplatforms and discovers clear similarities across the three streams; the question ofwhich components should be included in a platform is addressed in the stream onproduct platforms (extent of commonality), for instance, as well as in the stream onindustry platform (degree of openness). In consequence, the existing literature’s lackof connection between different streams is resolved, and several opportunities forestablishing a more integrated framework are also revealed.

Despite the distinct sets of literature and the diversity of my empirical examples,I argue for an underlying concept of a platform that is evident across all three lit-erature streams. This concept describes a platform as a set of system componentsthat is strongly interdependent with most of the other components in the system, andthat also has architectural control over them. In the first stream on product platforms,the product platform was re-used across the products of an entire product family—remaining strongly intertwined with other parts of the product while also conferringarchitectural control on the overall product. Variation was achieved through differen-tiating attributes that could be added, removed or substituted as necessitated. In thesecond stream on industry platforms, the industry platform served as the base of amulti-product system. It also conferred architectural control on the overall system—which was more essential than in the first stream, as the platform owner in this streamcould not rely on hierarchical control over the multi-product system’s other contribu-tors. In the third stream on two-sided markets, the platform was composed of a sharedfacility that imposed the same rules on each transaction. Table 1 provides a structuredoverview of how the three streams meet these defining criteria.

Across the three streams, platforms also increase efficiency by fostering economiesof both scope and scale. Similarly, platform-based organization increases the varietyavailable in each platform type’s corresponding outcome, i.e. the variety of products,systems, and transactions. Despite such commonalities, however, the three streamsdiffer in several respects—including the role of the platform owner, the means of

Technological platforms 215

steering and controlling the platform, the agents involved, and their outcomes. In thefirst stream, a single firm produces products that belong to a product family. In thesecond stream, the platform owner still produces a core component, but their focusshifts to coordinating the complementors so as to ensure a working multi-productsystem. The platform owner in this stream also has to rely on the product architectureand find other means of coordinating the ecosystem. In the third stream, the platformowner acts as an intermediary between distinct sets of markets and so mainly re-lies upon designing contracts and regulating platform access. The three streams thusdiffer with regard to the roles that the firm plays.

For a better understanding of the parallels and differences that exist between thethree streams, it is useful to compare adjacent streams. For example, the first and thesecond streams differ with regard to the mode of production. In the first stream, onefirm (the platform owner) is responsible for the overall production process. In thesecond stream, however, several firms are responsible for the production of systemcomponents, meaning that the production process crosses firm boundaries. Similarly,the platform owner does not conduct the bundling of the system in this stream, butinstead leaves this task to either the client or a system integrator. However, the streamsare also closely related, and this is often overlooked; both streams examine analogousphenomena (the extent of commonality and the degree of openness), for example, butdo so without taking into account the arguments laid out in the other stream. Therelatedness of the two streams becomes especially evident when a product movesbetween the two types of production. In summary, the two streams share the design ofa platform-based product/system in which a central platform component is combinedwith varying products/attributes, but they differ as a single firm is involved in thefirst stream, while the platform owner cooperates with external complementors in thesecond.

The second and third stream differ with regard to the composition of the platform,their outcome, and the activity focus of the platform owner. In the second stream,the platform involves a shared component that is a central component of the finalmulti-product system. The platform owner thus acts as producer of the central com-ponent. In the third stream, by contrast, the platform owner facilitates the transaction,but plays no role once the transaction has been concluded. The platform owner onlyacts as an intermediary—but similar to the second stream, still exerts control overthe participants in the transaction. The difference is exemplified by firms that haveactivities that correspond to both streams, for which Facebook is a good example.In accordance with the second stream, Facebook provides developers with a plat-form that offers a set of application programming interfaces (APIs), a query languageand a markup language. Based upon these, programmers then develop applicationsfor the firm. In accordance with the third stream, Facebook offers advertisers a plat-form on which they can place advertisements that may then result in a successfultransaction when a user clicks on a relevant link. In this case, the platform intermedi-ates between the two sides by providing the shared facility (the website), setting theprices, and defining the rules of the transaction (e.g. the kind of advertising). Face-book thus shows how one platform often embodies the characteristics of both typesof platforms. In summary, the two streams share the idea that the platform has a coor-dinating effect, but differ with regard to the outcome (system vs. transaction) and the

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focus activity (coordination vs. intermediation). Collectively, these arguments showthe commonality which classifies all three as a platform, but also their distinctness asdifferent types of platforms.

The three streams similarly suggest that platform owners should think holisticallyabout their platform on the single product or single transaction level. It is insufficientto think about one product or dyad at a time, and thinking of two-sided markets asone-sided markets has tremendously detrimental consequences (Wright 2004). Simi-larly, successful product design requires managers to think in terms of an entire prod-uct portfolio. Coordination by platform requires managers to think about their entireecosystems of complementors—and equally, successful intermediation in two-sidedmarkets necessitates that platform owners consider the different sides (and poten-tially future sides) at the same time. Research provides some evidence of how man-agers struggle in meeting these requirements (Staudenmayer et al. 2005), and alsomakes suggestions as to how firms might cope with this problem. Some of these sug-gestions include visualizing relations (Ozcan and Eisenhardt 2009), using a productplan (Robertson and Ulrich 1998), and establishing a suitable organizational structure(Staudenmayer et al. 2005).

3.2 An outlook into future work

In the following section, I make several suggestions with respect to potential futureavenues of investigation for the literature on technological platforms.

3.2.1 Organizational theory

As I have addressed in this literature review, a major shortcoming in the literatureof this field is the lack of attention that it pays to organizational theory. This isin large part due to the majority of existing platform literature being developed bythose involved in operations research, technology strategy and economics. Never-theless, organizational theory is of much potential use to gaining a comprehensiveunderstanding of platforms. For example, over the last decades, organizational the-ory has focused heavily on the relationship of organizations to their environments.Similarly, existing literature on platforms and ecosystems is strongly connected toseveral organization theory foundation papers that address interdependence betweenfirms (Thompson 1967), the “open systems” character of ecosystems (Buckley 1967;Zald 1970), and the need for firms to manage outside of their boundaries (Pfeffer andSalancik 1978). This literature seems a particularly suitable perspective from whichto examine how platform owners depend on their complementors (second stream) ortrading partners (third stream).

I have stressed the importance of organizational theory throughout this literaturereview by paying particular importance to literature that conducts research on plat-forms without relating this to platform-specific studies (e.g. Rindova and Kotha 2001;Garud et al. 2002; Venkatraman and Lee 2004; Santos and Eisenhardt 2009). I havealso drawn on recently discussed problems in organizational theory literature thatseem particularly relevant to the existing literature on platforms (e.g. concurrentsourcing Parmigiani 2007, multiple audiences Maurer and Ebers 2006, and conflicts

Technological platforms 217

of interest Hayward and Boeker 1998). This relevance is of no surprise, as organiza-tional scholars recognized early on the value of the platform analogy (Ciborra 1996;Kim and Kogut 1996). The results make clear my suggestion that organizational the-ory provides numerous fertile avenues for the development of platform literature.

Three theoretical constructs seem particularly promising for the creation of link-ages between platform and organizational theories. First, upper echelon theory (Ham-brick and Mason 1984) could provide insights into how platform strategies might bedriven by manager background. For example, Steve Jobs pursued similar platformstrategies for the Mac in the 1980s as he did for the iPhone in the 2000s, but withvarying results. Second, the organizational theory literature on competitive moves(Smith et al. 2001) provides a helpful framework for analyzing platforms and theiractions. In this regard, it seems a particularly fertile endeavor to study the competi-tion between platforms—following the template of Ferrier et al. (1999). One couldspecifically examine, for example, the competition between platforms in various sec-tors by coding their competitive moves. Third, I suggest there to a be a link betweenplatforms and the promising topic of emergence (Padgett and Powell 2011). Scholarshave already begun to study the emergence of new industries (Powell and Sandholtz2011), and I would argue that technological platforms can play a crucial role in thisarea. As an example, the widespread diffusion of the Apple iPhone and iPad has fos-tered the establishment of a sector such as “mobile health”. Before the emergence ofthe Apple iPhone and iPad, health-related software applications were difficult to selldue to a lack of diffusion of the devices required to run such software. In consequence,software application developers often had to extend their verticalintegration and pro-vide hardware devices that became prohibitively expensive. Since the diffusion ofthe iPhone, however, mobile health has established itself as a vital and growing sec-tor. Platforms might thus be crucial to understanding the emergence of a particularsector. Improving links between organization theory and platforms provides a veryfertile nexus.

3.2.2 A taxonomy of platforms

Technological platforms have diffused across all parts of the economy and have beenstudied in multiple forms. Most recently, this expansion has seen the phenomenonoriginally associated with technological platforms used to analyze various organiza-tions such as universities and shopping centers (Boudreau and Hagiu 2010). As such,I argue that the creation of a taxonomy of platforms could help to improve our under-standing of this field. The value of taxonomies in this regard has already been stated(McKelvey 1978). Although all platforms connect sellers and buyers, they vary in theeffort and expertise that goes into the matching process. Platforms also differ withrespect to how they connect buyers and sellers. For example, the connection betweena seller and buyer of real estate might be created by a realtor who presents the realestate to a potential buyer, or a real estate website that provides an online listing ofthe real estate available. The role of a platform can be fulfilled by different types ofactors, such as individuals (e.g., a real estate agent), organizations (e.g., a publisher,a retailer), or marketplaces (e.g., eBay, the New York Stock Exchange). Such a tax-onomy would also help in capturing the dynamics of platforms (Rindova and Kotha

218 H. Piezunka

2001). The value of such endeavors has recently been illustrated in other fields: inthe literature on collective intelligence, for instance, scholars have begun to create acategorization of different kinds of collective intelligence forms (Malone et al. 2010).On a theoretical level, Gould and Fernandez (1989) have equally improved our un-derstanding of brokerage by identifying the various types of brokerage in existence.

The creation of a platform taxonomy would also be likely to lead to more industrycrossing work, which has been shown to be a fertile avenue for new findings (Eisen-mann et al. forthcoming). Existent work that has compared platform architecture invarious industries (Evans et al. 2006) or differing types of pricing structures (Evansand Schmalensee 2007) has already indicated the value of such research. Defining thecriteria for such a taxonomy would likely be an iterative process, as the various plat-form types are compared to one another and are clustered—although obvious char-acteristics for inclusion are an understanding of the industry structure, the process ofintermediation, and the relationship between the platforms and their complementors.In short, a differentiation between the structural position of a platform and the pro-cesses associated with acting as a platform (for an analogous discussion, see Obstfeldet al. (2011) on brokerage) seems particularly valuable and productive with respectto the advancement of the understanding of platforms.

3.3 Research methodologies

Another potentially useful avenue for the literature is an extension of researchmethodologies. At present, the literature is built mainly on case studies and mathe-matical models (see Tables 2, 4 and 6). Davis et al. (2007) reference this limited use ofresearch methodologies by describing platform research as having reached a state of“simple theory”, in which research “has only few constructs and related propositionswith modest empirical or analytical grounding”. In consequence, the field consists of“basic processes that may be known (e.g. competition, imitation), but that have inter-actions that are only vaguely understood, if at all.” An underemployed methodologythat may correct this issue is simulation, as recent works that deploy the method-ology have already shown (Almirall and Casadesus-Masanell 2010; Davis 2011;Zhu and Iansiti forthcoming). Simulation could, for example, improve our under-standing of the (emergence of) industry structure; while we know that platform-based ecosystems can have very different structures (Langlois and Robertson 1992;Baldwin and Clark 2000; Staudenmayer et al. 2005), we know very little about thecauses of such variation. As the literature on platforms advances and approaches thestate of “normal science”, I would therefore expect a shift towards the deployment ofsimulation.

In addition to the use of simulation, I also expect the research to profit from newdata sources. Recent years have seen the establishment of new types of platformsand the transformation of established firms into platforms; firms such as Facebook,Twitter and Salesforce make very active use of platform strategies. Moreover, we con-tinue to see how new marketplaces are established in various fields—such as mone-tary lending (Kiva) or the trading of firmly illiquid assets (Secondmarket). Equally,in the vibrant economy associated with the “Web 2.0” label, almost all firms have aplatform strategy as they make use of APIs . While the studying of these phenomena

Technological platforms 219

will require researchers to build new types of datasets and gain access to proprietarydatasets, I would argue that this has the potential to be a very promising avenue forinvestigation.

3.3.1 Challenges of management outside the boundaries of the firm

The diffusion of platform-based ecosystems brings a major paradigm shift for man-agers, in that they can no longer rely on the management tools classically associatedwith hierarchy, i.e. control and incentive. I would therefore argue that it is valuable toassess how managerial work has changed as a result to this development (Mintzberg1973). Recent fieldwork on the management of operations has provided a better un-derstanding of how to manage cooperation (Davis and Eisenhardt forthcoming), butthe crucial contribution for establishing a platform comes from a plethora of exter-nal organizations. In some cases, such organizations might not yet exist, but mayinstead be established with the purpose of contributing to particular ecosystems. Asan example, a whole “App Developer” economy has around the Apple iPhone. Inconsequence, the platform owner may not only need to convince actors to adapt theirproduct—but instead actually to become entrepreneurs. Given the plethora of poten-tial complementors, firms also need to carefully consider who they allow onto theirplatform. While the platform owner has an incentive to invite contributors to its plat-forms, it has at the same time an incentive to limit access (Hagiu 2009). In effect, thefirm moves into the role of a regulator (Boudreau and Hagiu 2010). For reference,former Apple CEO Steve Jobs explained some of the challenges faced in setting upand enforcing regulations as to what kind of applications are allowed onto the iPhone(Jobs 2010). A platform owner also needs to be savvy when it comes to spottingdeficits within its ecosystems. As an example, Ethiraj (2007) provides a detailed ac-count as to how actors in the PC market identify components that constrain the overallperformance of the system and so allocate resources correspondingly. Equally, Adner(2006) describes the case of Michelin’s run-flat tire innovation, for which Michelinfailed to provide either complementary innovation or complementary challenges. De-spite the existence of these multiple studies, I would argue that there is still consider-able value to be gained from improving our understanding of the particular challengesfacing platform development.

Managing in such an ecosystems also requires a new set of managerial means.Rather than exclusively relying on coercion or direct rewards to force behavior, forexample, managers might also rely on subtle influencing mechanisms that lead oth-ers to willingly behave in ways that benefit them. Reliance on such mechanisms hasbeen described as “soft power” (Nye 1990, 2004). Recent studies have suggested thatsoft power could act as a theoretical lens for studying how firms influence the be-havior of others, e.g. by defining roles and shaping means (Santos and Eisenhardt2009). As examples, Yoffie and Kwak (2006) provide anecdotal evidence about howplatform owners use soft power to govern an ecosystem, and Garud et al. (2002)demonstrate how the attraction and steering of complementors may occur not only—or even principally—in the economic realm, but also in the political and psycholog-ical realms. The reflection through the lens of social psychology thus aims to betterunderstand the means by which platform owners may use soft power to establish,steer and maintain their ecosystems.

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3.3.2 Complementors’ perspective

Another potential avenue for advancing the existing literature on platforms is to takenot only the perspective of the platform owner, but also the perspective of other ac-tors in the ecosystem. The majority of current studies examine a variety of strate-gic issues from the perspective of the platform-owning firm. Dominant questionsare, for example: How should Sony use platform-based production to maximize thevalue of its product portfolio? How should PC platform owners such as Microsoftand Intel coordinate and organize their ecosystem of complementors so as to gen-erate profit? How can eBay solve the chicken-and-egg problem and set rules to fa-cilitate transactions between buyers and sellers? Almost absent from these analy-ses is the perspective of non-platform owning players such as competitors, com-plementors, and the sides that make up a two-sided market. Only a few excep-tions to this trend exist, such as Huang and his co-authors (Ceccagnoli et al. 2010;Huang et al. 2010), who have examined the point at which complementors join anecosystem and the degree to which they profit from it. By doing so, they particularlyemphasize the subliminal conflict that a platform owner might face in misappropri-ating assets and otherwise competing against a complementor—a conflict which hasalso been addressed in the literature on platforms (Gawer and Henderson 2007) aswell as in the literature on alliances in general (Katila et al. 2008). The fertility ofwork which takes the complementor’s perspective also becomes evident in the re-search undertaken by Venkatraman and Lee (2004), who examine game developers’decisions of platforms. While such a broad perspective is clearly relevant for a man-agerial audience (Hagiu and Yoffie 2009), it has been largely absent from the theo-retical debate. As such, additional opportunities might arise if researchers were moreoften to consider the perspectives of non-platform owners.

Acknowledgements I thank Kathleen Eisenhardt, Riitta Katila, Rory McDonald, and participants ofthe Stanford Technology Venture Program research seminar for their helpful feedback and comments onthis paper. Moreover I thank the editor Nikolaus Franke and two anonymous reviewers for their thoughfulcomments.

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