Platform failures : lessons for strategic management

Abstract

Most internet business models today are positioned as platforms that connect two or more groups of users. From online social networking to electronic retail, we find that multi-sided platforms are penetrating consumers' lives more deeply with time. There has been significant amount of research around what it takes to establish a successful platform and the strategies to compete in a platform market. However, there is a significant research gap in a systematic analysis of the spectacular failures that platform markets have witnessed over the last couple of decades. This paper studies these failures and derives lessons from them, in order to add a unique and much needed perspective to the various platform success stories. After conducting a comprehensive literature review to determine the various factors that are critical in determining a platform's success, this paper defines a systems model to analyze platforms. This model is then used as a base for analyzing failed platforms, picked from three different software niches - Online Social Networks, Question & Answer Platforms and Instant Messengers. The analysis of each platform concludes with isolated primary points of failure. It is found that the root causes behind platform failure vary across market niches and timelines. For instance, the failure of an online social network in the early 90s (Myspace) is found to be different from the failure of such a platform today (Google Plus). A recurring theme across the analyzed failures was the need to focus on Design and User Experience, which has been identified as a new axis of differentiation in platform markets. User experience is found to evolve over time with changing consumer expectations. This underscores the need for platforms to keep in sync with evolving consumer needs. This, in turn, implies that platforms need to be agile to respond quickly to market shifts and should look to leverage community innovation by opening the platform. Lastly, envelopment has been identified as a potent strategy to compete in platform markets and to trounce well-ensconced competitors.