When organizations enter in a platform competition, the most dominant strategy to use is the “Get-Big-Fast” (GBF-) strategy (Oliva et al., 2003). If the strategy succeeds in its effect to take on the competition, platforms often end up having to defend their market share from envelopment attacks. The goal is to reach such a market dominance that a winner-take-all result will be obtained. However, GBF-strategies are very costly and because technological developments enter the markets more and more rapidly, there is little time for management to consider alternative effective strategies themselves. But when the platforms grow and platform competition evolves through envelopments would it not be strange to expect that platform competition will always end in a winner-take-all result?
“The more people searched, the more data they gave Google to make its index better, smarter, faster, and, eventually, more personal. In short: as Google got bigger, it got better, which made it bigger still. Google is a winner that has taken it all.” – Om Malik, founder of GigaOm
Driver of winner-take-all outcomes
We speak of a winner-take-all outcome when a market demonstrates positive network effects (van Alstyne et al., 2016), a technology or firm (or platform for that matter) that somehow gets ahead, increases its market share and corners the market, thereby driving out the firms or technology that lag behind who lose their market share.
In particular, are the indirect network effects considered to be the most important driver. These indirect network effects can also be considered as having a ‘focality advantage’ where a low-quality platform with strong indirect network effects or ‘local bias’ are still able to win the market or let the market tip when the consumer believes the network size or -intensity is more important. Therefore, consumer beliefs could shape the platform competition outcome in winner-take-all.
“In some industries, digitalization and globalization have created a winner-take-all game in which the company that wins the game accrues almost all the pay-off. How? By attaining either a scale or a network advantage.”– Dan Neiweem, co-founder and principal at Avionos
Winner-take-some outcome
However, there is a considerate amount of literature that challenge the general winner-take-all outcome in platform competition. There are four ways in which a winner-take-all outcome is not obtained in platform competition:
First, winner-take-all results are not obtained when multihoming is available on both sides. This happens mostly through a combination of indirect network effects and the development of low-cost conversion technologies that enable more multihoming (Iansiti and Lakhani, 2018).
Second, when platform business model complexity is low, then a winner-take-all result will not be obtained because the openness of its architecture is easily adapted and perfected by competitors (Zhao et al., 2019).
Third, it could also happen that multiple platforms enter the platform competition early in a platform life-cycle. In that case there is a higher chance that they will coexist considered they have the same network and business opportunities. Thus a winner-take-all result not to be obtained.
Finally, platform path dependency can determine whether or not a winner-take-all result can be obtained. This means that if a platform has a successful history in the market, it is more likely that a winner-take-all result will be obtained, and if less successful, this likelihood is reduced. Therefore when the platform has some downfalls in it’s market-performance, it could indicate negative spiral downwards (Schilling, 2002).
References:
– van Alstyne, M. W., Parker, G. G., & Choudary, S. P. (2016). Pipelines, Platforms, and the New Rules of Strategy. Harvard Business Review. https://hbr.org/2016/04/pipelines-platforms-and-the-new-rules-of-strategy
– Iansiti, M., & Lakhani, K. R. (2018). Managing Our Hub Economy. Harvard Business Review. https://hbr.org/2017/09/managing-our-hub-economy
– Malik, O. (2017, June 19). In Silicon Valley Now, It’s Almost Always Winner Takes All. The New Yorker. https://www.newyorker.com/tech/annals-of-technology/in-silicon-valley-now-its-almost-always-winner-takes-all
– Mourdoukoutas, P. (2019, February 16). How To Compete In A Winner-Takes-All Digital Global Economy. Forbes. https://www.forbes.com/sites/panosmourdoukoutas/2019/02/16/how-to-compete-in-a-winner-takes-all-digital-global-economy/#25420386c22d
– Oliva, R., Sterman, J. D., & Giese, M. (2003). Limits to growth in the new economy: exploring the ‘get big fast’ strategy in e-commerce. System Dynamics Review, 19(2), 83–117. https://doi.org/10.1002/sdr.271
– Schilling, M. A. (2002). Technology Success and Failure in Winner-Take-All Markets: The Impact of Learning Orientation, Timing, and Network Externalities. Academy of Management Journal, 45(2), 387–398. https://doi.org/10.5465/3069353
– Zhao, Y., von Delft, S., Morgan-Thomas, A., & Buck, T. (2019). The evolution of platform business models: Exploring competitive battles in the world of platforms. Long Range Planning, 101892. https://doi.org/10.1016/j.lrp.2019.101892
