Platforms, Markets and Innovation

Platforms, Markets and Innovation

Edited by Annabelle Gawer

Annabelle Gawer presents cutting-edge contributions from 24 top international scholars from 19 universities across Europe, the USA and Asia, from the disciplines of strategy, economics, innovation, organization studies and knowledge management. The novel insights assembled in this volume constitute a fundamental step towards an empirically based, nuanced understanding of the nature of platforms and the implications they hold for the evolution of industrial innovation. The book provides an overview of platforms and discusses governance, management, design and knowledge issues.

Chapter 6: Opening Platforms: How, When and Why?

Thomas R. Eisenmann, Geoffrey Parker and Marshall Van Alstyne

Subjects: business and management, strategic management, economics and finance, economics of innovation, industrial organisation, services, innovation and technology, economics of innovation

Extract

6. Opening platforms: how, when and why? Thomas R. Eisenmann, Geoffrey Parker and Marshall Van Alstyne INTRODUCTION Selecting optimal levels of openness is crucial for firms that create and maintain platforms (Gawer and Cusumano, 2002; West, 2003; Gawer and Henderson, 2007; Boudreau, 2008; Eisenmann, 2008; Parker and Van Alstyne, 2008). Decisions to open a platform entail tradeoffs between adoption and appropriability (West, 2003). Opening a platform can spur adoption by harnessing network effects, reducing users’ concerns about lock-in, and stimulating production of differentiated goods that meet the needs of user segments. At the same time, opening a platform typically reduces users’ switching costs and increases competition among platform providers, making it more difficult for them to appropriate rents from the platform. In this chapter, we review research on factors that motivate managers to open or close mature platforms. We focus on a subset of platforms: those that exploit network effects by mediating transactions between platform users (Eisenmann et al., 2006; Evans et al., 2006; Evans and Schmalensee, 2007). Our inquiry excludes platforms that do not mediate network transactions but instead enable a firm to offer product variety by sharing common components (as with Chrysler’s K-car or Boeing’s 777). A platform is ‘open’ to the extent that: (1) restrictions are not placed on participation in its development, commercialization or use; and (2) any restrictions – for example, requirements to conform with technical standards or pay licensing fees – are reasonable and non-discriminatory, that is, they are applied uniformly to all potential platform participants....

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