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Research summary: A substantial and burgeoning body of research has described the influence
of platform-mediated networks in a wide variety of settings, whereby users and complementors
desire compatibility on a common platform. In this review, we outline extant views of these
dynamics from the industrial organization (IO) economics, technology management, and strategic
management perspectives. Using this review as a foundation, we propose a future research
agenda in this domain that focuses the on the relative influence of network effects and platform
quality in competitive outcomes, drivers of indirect network effects, the nature and attributes of
complementors, and leveraging complementor dynamics for competitive advantage.
Managerial summary: In many industries, such as social networks and video games, consumers
place greater value on products with a large network of other users and a large variety of
complementary products. Such “network effects” offer lucrative opportunities for firms that can
leverage these dynamics to create dominant technology platforms. This article reviews current
perspectives on network effects and the emergence of platforms, and offers several areas of future
consideration for optimal strategies in these settings. Copyright © 2016 John Wiley & Sons, Ltd.
Caillaud and Julian 2003 RAND Journal of Theoretical; development of a model of optimal pricing Matchmaking
Economics strategies by platform providers, including subsidizing one intermediary/dating
side while profiting from the other side of the platform service
Evans 2003 Review of Network Theoretical; review of pricing strategies employed by Platforms in multiple
Economics multi-sided platform businesses to get the multiple sides of industries in early 2000s
DOI: 10.1002/smj
Strat. Mgmt. J., 38: 141–160 (2017)
145
Table 2. Selected studies from the strategic management perspective
146
Venkatraman and Lee 2004 Academy of Empirical (quantitative); network structure and 2,815 product launches in the
Management technology characteristics of platform inform U.S. video game industry
Journal coordination between producers and complementors between 1995 and 2002
Sheremata 2004 Academy of Theoretical; smaller entrants may successfully challenge Conceptual model of the
Management larger incumbents in network markets profitability of innovation by
Review new entrants in network
markets
Suarez 2005 Academy of Empirical (quantitative); strength of ties among local 2G wireless
DOI: 10.1002/smj
Strat. Mgmt. J., 38: 141–160 (2017)
Table 3. Selected studies from the technology management perspective
West 2003 Research Policy Empirical (qualitative case study); hybrid strategies that Focus on three platform
combine the advantages of open source software while vendors—Apple, IBM, and
retaining control and differentiation are critical for Sun. Microsystems
platform success 1995–2002
DOI: 10.1002/smj
Strat. Mgmt. J., 38: 141–160 (2017)
147
148 D. P. McIntyre and A. Srinivasan
and Ohashi, 2005; Evans, Hagiu, and Schmalensee, from the IO economics perspective provide limited
2006; Parker and Van Alstyne, 2005; Rochet and insight into how firms strategically design platforms
Tirole, 2003, 2006; Rysman 2009, etc.) with find- for success (Gawer, 2014). Thus, we argue that this
ings across multiple settings broadly suggesting that stream would benefit from additional research that
platform firms may subsidize one side of the plat- addresses these ambiguities, while taking an inte-
form by using deep discounts in order to attract the grative approach with the perspectives described in
other side to join. For instance, RealNetworks, the the following sections.
dominant streaming media producer of the 1990s,
gave away free versions of its media player to end Firm dynamics: the strategic management view
users while charging content providers for server
software (Parker and Van Alstyne, 2005). Theoretical and empirical contributions
Strategic management research has sought to build
Limitations of the IO perspective on economic perspectives of network effects by
focusing on strategic initiatives by which firms
Network effects have been studied comprehensively achieve competitive advantage and leverage the
across multiple settings by economists. Despite the benefits of positive feedback dynamics to early
large number of studies in this area, there are a market leaders. At a fundamental level, strategy
number of ambiguities that have constrained a more researchers have attempted to move from mar-
robust understanding of these dynamics. First, posi- ket structural explanations of competitive outcomes
tive feedback and the propensity for winner-take-all in network markets to firm-driven factors and
attributes are generally assumed to be exogenous actions that may influence success or failure. While
and constant factors in an industry, such that prior researchers at the nexus of strategy and economics
research has tended to downplay the importance have focused on understanding the pricing decisions
of specific firms’ attempts to strategically manipu- of platform firms to build large networks and subse-
late network effects (McIntyre and Subramaniam, quently, leverage the associated positive feedback,
2009). Second, network effects are often assumed other studies in the strategy realm have focused on
to be dichotomous, that is, their influence is either the impact of other drivers of competitive advantage
present or absent in a given context. As such, empir- such as entry timing of firms (Eisenmann, 2006;
ical approaches to network effects often focus on Schilling, 2002; Shapiro and Varian, 1998), incum-
a few high-technology industries and incorporate bent advantages such as firm size (Schilling, 2002;
relatively coarse metrics, such as total installed Sheremata, 2004) and platform features, and rela-
base size, to determine drivers of firm growth. Yet, tive quality (Liebowitz and Margolis, 1994; McIn-
a burgeoning body of research suggests that net- tyre, 2011; Tellis, Yin, and Niraj, 2009; Zhu and
work dynamics are more complex, such that the Iansiti, 2012).
relative strength and structure of user networks Given that expectations of a platform’s growth
may be more informative than the absolute exis- potential can influence users’ product adoption
tence of network effects in a given setting (Afuah, choices, firms have strong incentives to signal and
2013; McIntyre and Subramaniam, 2009; Suarez, condition user expectations about their potential
2005). Third, most prior studies on indirect net- for future dominance (Chintakananda and McIn-
work effects have treated the relationship between tyre, 2014; Fuentelsaz et al., 2015). As such, sev-
complementors and firms as a “black-box,” and eral scholars have focused their attention on the
focus solely on the impact of the number of avail- impact of entry timing decisions to attract an early
able complements on market outcomes (Srinivasan critical mass of users and serve as a signal of
and Venkatraman, 2010). Such an approach effec- growth potential. While the traditional notion has
tively excludes the option of strategic positioning, been that early entry gives firms a better chance
and overlooks other attributes of relationships with to build their installed base to ensure future via-
complementors—such as securing exclusive agree- bility, recent studies have posited that early entry
ments for content distribution or garnering sup- may indeed be detrimental to a firm, with many
port from large, dominant complementors—that late entrants effectively outselling incumbents to
can have an impact on platform success above and prevent them from retaining their early leadership
beyond those explained by the sheer number of positions (Evans, 2003; Suarez, Grodal, and Got-
complements alone. As a result, studies emerging sopolous, 2015; Tellis et al., 2009). These studies
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 149
have underscored the need for more robust strate- this relationship in a multitude of settings, such as
gies around entry timing, rather than simply rush- telecommunications (Chacko and Mitchell, 1998)
ing to achieve first-mover status (McIntyre and and peer-to-peer file sharing networks (Asvanund
Subramaniam, 2009). Similarly, strategy scholars et al., 2004).
have also attempted to understand how new and These studies have provided valuable insights
emerging platforms can compete with incumbents, into competition in network markets. However, the
and in turn, how incumbents can retain their com- focus of this stream has largely been on only one
petitive advantage via an existing installed base side of the platform—individual users. Despite
(Eisenmann et al., 2011; Schilling, 2002; Shere- strong consensus among economists and strategic
mata, 2004).While Schilling (2002) found that poor management scholars that the management of
availability of complements increases the likelihood complements is particularly beneficial in network
of a platform firm’s lock-out, Sheremata (2004) and markets (Kapoor and Lee, 2013), there have been
Eisenmann et al. (2011) found that new entrants surprisingly few studies on strategies related
engaging in radical innovations or employing suc- to the effective management of complements.
cessful platform envelopment strategies can suc- Notable exceptions include Gupta, Sawhney, and
cessfully leapfrog dominant platform firms even Jain (1999), who found support for the critical
when network effects are strong. role of complementors—in this case, suppliers
Relatedly, some researchers have attempted to of high-definition television programming—in
determine the strategic relevance of a “superior” consumer adoption decisions. Other studies have
product in the emergence of a dominant platform. focused on the number of available complements in
Given the impact of network effects, some have driving the diffusion of CD players (Gandal et al.,
argued that a small lead in attracting early customers 2000), personal digital assistants (Nair, Chinta-
could tip the market in the favor of an early entrant gunta, and Dubé, 2004), and video game consoles
with an inferior product or service (Cowan, 1990; (Clements and Ohashi, 2005). In summary, an
Shapiro and Varian, 1998; Sheremata, 2004; Wade, emerging body of research has explored the exis-
1995). On the other hand, another subset of research tence of indirect network effects, and the mutually
holds that product quality is an important determi- beneficial relationship between complementors
nant of success in such markets, and that dominant and users. However, relatively few insights have
platforms tend to be those that exhibit the high- been offered as to how platform providers can
est quality (Liebowitz and Margolis, 1994, 1995; strategically manage or incentivize complementors
McIntyre, 2011; Tellis et al., 2009). For example, to benefit their particular platform.
Zhu and Iansiti (2012) found that installed base Last, strategic management scholars have begun
advantages alone do not always protect incum- to empirically examine the dynamic nature of
bents from new entrants in the video game industry, platform-mediated networks—how complemen-
and that incumbents need to achieve quality lev- tors choose to link to platforms over time, and
els comparable to the new entrant to retain mar- how such linkages subsequently impact platform
ket leadership. Thus, the strategic value of qual- dominance. For instance, Venkatraman and Lee
ity advantages in platform-mediated networks, and (2004) adopted the network perspective in their
the contextual factors that may enhance or mitigate study of the video game industry to determine
the advantage of a higher-quality platform, remain factors that influence the product launch decisions
ambiguous. of complementors on specific platforms, and found
While these and other studies have focused that the dominance and newness of a platform
on understanding strategies by which firms can condition complementor choices. Cennamo and
increase the size of their installed base, related Santalo (2013) extended this line of research
research has focused on the impact of installed and found that platform firms may benefit from
base size on future platform adoption decisions. For expanding the number and variety of applications
instance, Shankar and Bayus (2003) used the con- or securing exclusivity agreements, but concurrent
text of the video game console industry to under- attempts at both strategies are counterproduc-
stand the relationship between installed base size tive. Similarly, Boudreau and Jeppesen (2015)
and network growth, demonstrating that even a adopted the complementor perspective to find that
smaller installed base of users may be responsive to unpaid complementors in newer platform contexts
effective firm strategy. Other studies have examined such as online digital platforms responded to
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
150 D. P. McIntyre and A. Srinivasan
platform-installed base growth similarly to paid and entry timing, technology management scholars
complementors. have largely focused their attention on issues of
platform design and its subsequent impact on
Limitations of the strategy perspective generating network effects.
The technology management view treats plat-
Strategic management scholars have attempted to forms broadly as technological architectures that
address many issues related to firm-specific actions facilitate innovation (Gawer, 2014). Early concep-
to leverage network effects, yet significant uncer- tualizations of platforms treated them as systems
tainty remains about optimal strategies in platform that could be modified through the addition and
development and management. First, the impact removal of features (Wheelwright and Clark, 1992).
of firm-level strategies such as entry timing, and More recently, researchers have begun invoke prin-
platform quality and features remains largely unre- ciples from engineering design (Simon, 1962) to
solved (McIntyre and Subramaniam, 2009; Zhu and describe platforms as modular systems (Baldwin
Iansiti, 2012). Second, the primary focus of these and Clark, 2000; Baldwin and Woodard, 2009;
studies has been largely on one side—individual Gawer and Henderson, 2007; Gawer, 2009, 2014;
users—with limited attention to the perspective of Schilling, 2000) that facilitate innovation by break-
complementors. No study has so far attempted to ing up a complex system into discrete compo-
reconcile the fact that there is heterogeneity in com- nents that interact through standardized interfaces
plementor attributes and experience, and hence, in (Gawer, 2014; Langlois, 2002; Simon, 1962). While
their ability to leverage the resources provided by these concepts of platforms emerged in the context
platform sponsors to support multiple, contempora- of intra-firm platforms and supply-chain platforms,
neously existing platforms. In addition, there have scholars have begun to apply similar principles
been no studies examining heterogeneity in comple- to “innovation ecosystems” (Adner and Kapoor,
mentors’ motivation to support specific platforms, 2010; Tee and Gawer, 2009), whereby platforms
and the implications of their subsequent choices for serve as the essential building block on which other
competitive outcomes. firms develop complementary products or services
Finally, these studies have largely adopted a (Gawer, 2009, 2014). In this view, the fundamen-
static or cross-sectional view, and have not focused tal architecture of any platform includes a set of
on how platform-complementor interactions evolve stable core components with low variety, and a set
dynamically over time. The role of technological of peripheral components with high variety (Bald-
evolution, the introduction of new platform archi- win and Woodard, 2009). Thus, the platform is
tectures, and the emergence of new cross-boundary defined as the core and complements the periph-
standards in altering platform-complementor rela- eral components, and interaction between platforms
tionships have not been systematically examined. A and complements is facilitated by common inter-
notable exception is Eisenmann et al. (2011), who faces. The conceptual specification of the interfaces
took a more dynamic view in finding that entrants that governs the interaction among the platform and
can displace incumbents via “envelopment” strate- its complements describes the platform architecture
gies involving multi-platform bundles. Thus, we (Tiwana et al., 2010).
view further exploration of specific firm strategies A natural extension to this area of research has
that foster the emergence and persistence of plat- been the study of optimal design choices around
forms over time as a vital next step in this domain interfaces made by platform firms that allow for
for platform firms and complementors alike. faster and more systematic innovation. Specifically,
technology management research has focused on
Integrating firm and market: the technology how the decisions of platform owners—such as the
management view openness of their platform interfaces—influences
innovation through their ability to attract third-party
Theoretical and empirical contributions
complementors (Baldwin and von Hippel, 2011;
While economists have sought to understand Boudreau, 2010; Eisenmann, Parker, and Van
how network effects accrue in platform-mediated Alstyne, 2008; Lee and Mendelson, 2008; West,
networks, and strategists have focused on how 2003). The degree of openness of platforms has
platform providers can grow their installed base of been studied across a multitude of contexts, such
users through strategies such as pricing, quality, as the level of access to information on platform
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 151
interfaces, the cost of access, and the rules gov- studies and conceptual theorizing (for instance,
erning the use of the interface (Gawer, 2014). Gawer and Cusumano, 2002; Gawer and Hender-
Studies on platform openness have highlighted son, 2007). Therefore, a key limitation of research
the trade-offs between open and closed platforms in this area is a lack of empirical studies that test
(Gawer and Cusumano, 2008; Eisenmann, Parker, how platform providers’ design decisions impact
and Van Alstyne, 2008). These studies have found complementor choices to support the platform,
that while opening up interfaces typically increase and the subsequent success of these decisions.
complementors’ incentives to innovate (Boudreau, Notable exceptions include an examination of inno-
2010), too much openness leads to a loss of revenue vation incentives and platform openness in hand-
and profit (Eisenmann, Parker, and Van Alstyne, held devices by Boudreau (2010), who found that
2008). Therefore, additional research is imperative platform firms that grant greater levels of access
to understand the contingencies that drive optimal to third-party complementors experience a rapid
openness decisions for platform success. acceleration in the rate of new complement devel-
These ideas have been further extended to opment.
understand how platform firms can facilitate and Another key limitation of technology manage-
incentivize increased support from third-party ment research, which is shared by the IO eco-
complementors. Relationships with complementors nomics and strategy perspectives, is that there is
provide resources critical to the success of plat- relatively little understanding of platform dynam-
forms due to inherent mutual dependence between ics and their evolution, with platforms being treated
the parties within the system (Venkatraman and as systems that remain relatively stable over time.
Lee, 2004). Platform providers invest significant However, it is our contention that a more thorough
resources to attract complementors to their plat- understanding of the evolution of platform-based
form; complementors, in turn, commit resources competition is especially critical given the rate of
to develop complements for a platform over time. change in high-technology settings, with integrated
Thus, recent studies have focused on the efforts of circuits and many other electronic components con-
platform providers to attract developers not just by tinually becoming better, faster, and cheaper, pro-
creating platforms of superior technical quality, but viding opportunities to improve existing systems
also by providing them with toolkits that simplify and design new kinds of platforms (Bresnahan and
the development process for complements. For Greenstein, 1999). This rapid rate of technolog-
example, studies have illustrated the value that ical change implies that technology architectures
such toolkits provide in the form of basic training are dynamic and continuously evolving over time;
to the developers, but also from their libraries of this phenomenon can be seen in contexts such as
commonly used modules that the developer can video games, where consoles with improved speed,
incorporate into their design3 (Evans et al., 2006; memory, and graphics capabilities are launched
Von Hippel and Katz, 2002; Yoffie and Kwak, at frequent intervals (Clements and Ohashi, 2005;
2006). Gallagher and Park, 2002). As a result, additional
research is needed that focuses on how platform
firms manage and leverage their portfolio of com-
Limitations of the technology management plements during regimes of frequent technological
perspective change.
While the core concepts of indirect network effects In summary, each of the research streams
and platform design strategies have been used described in the preceding sections has offered
by technology management researchers to study critical insights into our understanding of the evo-
the underlying dynamics of platform-mediated net- lution of networks and platforms, and implications
works, most of the studies in this area have focused for optimal strategies in these settings. However,
on platform leadership through the use of case further advances in strategy have been hindered
by ambiguity regarding several key constructs
and measures in this domain. Even fundamental
3
An example of a toolkit provided to third parties is the new concepts, such as the intensity of network effects
Apple Watch developer toolkit “HealthKit” that allows software
designers to leverage access to the key components, such as
and the quality of competing platforms, largely lack
motion sensors and heart rate monitors, to build more intelligent cohesive definitions and accompanying measures.
apps. Furthermore, each stream has focused largely on
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
152 D. P. McIntyre and A. Srinivasan
specific phenomena with regard to networks and specific industries such as software or video
platforms, leaving other questions unaddressed. For cassettes, where network dynamics were offered
example, an IO economics perspective might focus as a compelling rationale for the emergence of a
on establishing the presence of strong network single dominant platform. Yet, more recent work
effects in a given market and describing the evolu- has suggested that understanding the antecedents,
tion of a dominant platform, without examining the drivers, and mechanisms by which network effects
distinct strategic choices that allowed a specific firm manifest across various markets may result in
to achieve such dominance. Similarly, a technology more robust implications for strategy than the mere
management approach might describe an optimal establishment of their presence.
ecosystem of complementors for a platform firm, For example, an emerging body of work sug-
without accounting for the incentives of such gests that factors such as the strength of ties among
complementors to actually produce goods for the network participants (Suarez, 2005), the structural
platform. In the following section, we integrate characteristics of the network and focal product
these different strands of research toward a more (Afuah, 2013; McIntyre and Subramaniam, 2009),
robust understanding of the role of strategy in the costs of users’ “multi-homing” or engaging mul-
competition among platform-mediated networks. tiple platforms (Hagiu, 2009; Rochet and Tirole,
2003), and conduct by network participants (Afuah,
2013; Lee, Lee, and Lee, 2006) may be more rel-
NETWORKS AND PLATFORMS: NEXT evant considerations for effective strategy than the
STEPS total size of the user network. These advances sug-
gest a broader thematic shift in research on strategy
Building on the existing gaps and ambiguities and platform-mediated networks: from implications
discussed in the literature review, we identify of the existence of network effects in certain mar-
several prominent research questions that merit kets to the implications of the relative influence of
further exploration. Subsequently, we expand network effects across a wide spectrum of markets.
on these questions, framing a research agenda In building on this shift, several additional ques-
in this domain. We argue that future research tions about network and participant characteristics
should focus on several critical issues, integrating may yield greater insights in to effective strategies
the IO economics, strategic management, and in this domain. First, how can researchers and prac-
technology management perspectives: First, how titioners effectively conceptualize the strength or
strong are network effects in a given setting? intensity of network effects in a given setting? It
Second, what is platform “quality” in the context is well established that while network effects may
of platform-mediated networks, and when does manifest in many different settings, their influence
quality matter? Third, what factors beyond the on competitive dynamics and market outcomes is
sheer number of available complements may drive stronger in certain contexts. For example, in social
competitive advantage via indirect network effects? networks, the intensity of network effects is high as
Fourth, how do complementor attributes—such consumers are more likely to account for the size
as age, size, and prior experience—drive the of an existing network when selecting a technol-
incentives and ability of complementors to extend ogy. When the ability to interact with the largest
support to platforms? Fifth, how can platform available installed base is vital, the market will tend
firms effectively leverage the support of third-party to converge on a single, dominant platform. Yet, in
complementors? We discuss each of these areas in other contexts such as credit cards, ridesharing, or
the following sections. HMO networks, consumers may be less concerned
with the total size of the network than with the par-
ticipation of smaller networks of key contributors.
How strong are network effects?
In such cases, multiple platforms may emerge to
A key contribution of recent research on cater to the heterogeneous needs of consumers.
platform-mediated networks has been a richer, How can strategy researchers effectively con-
more nuanced notion of the influence of network ceptualize and empirically measure such varia-
effects on platform emergence and optimal firm tion in the influence of network effects in mean-
strategies. Many extant views of network effects ingful ways? It is logical that in markets with
focused on patterns of technology diffusion in stronger network effects, installed base size will
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 153
have a greater impact on future growth, yet such product in an adjacent platform (XBOX)? As tech-
size-on-growth dynamics are likely a consequent nologies increasingly converge toward ecologies
of strong network effects rather than a measure of integrated hardware and software functions, the
of their intensity per se. One possibility in the ability of managers to leverage network dynamics
search for effective measures of the intensity of net- over time and across product space is vital.
work effects is to look at analogous measures. For
instance, social network analysis measures which
What is platform “quality” and when does it
account for the degree, symmetry, and strength of
matter?
network ties among participants may offer a more
nuanced notion of network intensity in a given set- As described previously, there is significant ambi-
ting (Kane et al., 2014). Given that network effects guity in the literature on strategy and network
are fundamentally a demand-side phenomenon, the effects regarding the nature and strategic impact of
development of survey-based measures may also platform quality. Traditional views of direct net-
represent a promising avenue of future research. work effects hold that they may foster low-quality
Such surveys could usefully gauge the value of net- platforms as consumers flock to early, leading tech-
work membership to consumers in terms of the pro- nologies that may be inferior to later alternatives
portion of a product’s total value that is conferred by (David, 1985). Yet, an increasing number of empir-
network membership. In cases where the consumers ical studies suggest that consumers do indeed tend
identify network interaction as more important than to prefer higher-quality alternatives, even in markets
stand-alone features of the product, higher network with strong direct network effects (McIntyre, 2011;
intensity could be inferred. Robust and validated Tellis et al., 2009).
measures of network intensity represent a critical Does quality matter in platform-mediated
next step in determining the antecedents and con- networks or do consumers simply prefer the
sequents of network effects across numerous indus- earliest viable platform? This question has signif-
tries. For example, can the network intensity of a icant implications for firm strategy, as timing is
given product predict a priori the likelihood of a sin- critical—firms that enter markets early increase
gle dominant platform emerging in a given market their chances of capturing early market share, gain-
versus multiple competing platforms? ing visibility with potential complementors, and
Finally, even within industries, certain firms potentially sponsoring a dominant platform, while
seem better able to develop stronger, more per- firms that delay entry in the hope of developing
sistent, and more responsive networks of users a higher-quality platform might find themselves
(Shankar and Bayus, 2003). This notion, that the too late to hold a viable competitive position
intensity of network effects can vary both across in the market (Schilling, 2002). Thus, the more
and within markets, gives rise to a more funda- appropriate questions from a strategy perspective
mental strategy question—how persistent is the may be: “What is quality, and when and how much
competitive advantage offered by firms’ networks? does quality matter?”
Firms such as Microsoft have demonstrated capa- What is quality? Whether lower quality platforms
bilities in leveraging existing networks, both ver- may come to dominate network markets depends,
tically in terms of retaining users over multiple in part, on the focal definition of quality. If qual-
generations of products (e.g., office productivity ity is defined as technical superiority along specific
software) and horizontally into adjacent platforms dimensions of a product (e.g., processing power,
(e.g., video game consoles). Yet, studies suggest speed), then it is plausible that “inferior” technolo-
that dominant platform firms can be “leapfrogged” gies may persist in network competition. The clas-
by new entrants, even when network effects are sic case of the QWERTY keyboard is one such
strong (Eisenmann et al., 2011; Schilling, 2003; example, as consumers have long been unwilling to
Sheremata, 2004; Suarez and Kirtley, 2012). What incur the costs of learning ostensibly faster, more
firm-level characteristics and strategies enable the efficient keyboard designs (David, 1985). Yet, in
persistence of competitive advantage over time evaluating competing platforms, consumers may
and across platforms? In what contexts might we account for myriad aspects of a product in form-
observe cross-platform network effects, whereby ing a quality judgment; elements of price, ease
membership in one network (Microsoft Windows) of use, reliability, brand, and user support may
increases the likelihood of a consumer adopting a all be salient concerns (Kay, 2013). Furthermore,
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
154 D. P. McIntyre and A. Srinivasan
consumers’ notions of quality may also vary across users. For example, the success of Microsoft with
product markets. For example, for ridesharing ser- the Windows platform has largely been driven by
vices, consumers may view geographic coverage the availability of corresponding office productiv-
and timeliness as the primary metrics for evaluat- ity software. Despite large amounts of anecdo-
ing the quality of competing platforms. By contrast, tal evidence on the value of complementary prod-
for Web-based travel review sites or online auctions, ucts, empirical examinations of the importance of
information quality may be paramount—that is, third-party complements and complementor firms
how accurate is the information being conveyed by that support platforms have been relatively scarce.
network participants? Thus, future research in this Moreover, findings across empirical studies on the
area should seek richer, multidimensional measures role of complements have been inconsistent—due
of quality that account for such complexity. Ana- in part to the empirical difficulty of parsing the cor-
lyzing industry outcomes over time, in conjunction related benefits of both installed base size and avail-
with multi-dimensional consumer evaluations of the ability of complements, commonly referred to as the
quality of competing platforms, would add signifi- “chicken-and-egg problem” (Caillaud and Jullien,
cantly to our understanding of the role of quality in 2003; McIntyre and Subramaniam, 2009; Stremer-
platform-mediated networks. sch et al., 2007).
When and how much does quality matter? As We further posit that a potential reason for
noted previously, in markets that are strongly depen- the inconsistency of findings across studies has
dent on direct network effects, users are more likely been the treatment of indirect network effects as
to converge on the earliest viable platform as mem- a “black-box.” Specifically, previous works have
bership in a large network of users presents the not addressed how platform firms may strategize
greatest value proposition. Later entrants may strug- to develop a differentiated set of complementary
gle to gain traction as consumers place far less products to drive installed base advantages. For
value on incremental enhancements to the plat- instance, in the battle for smart phone dominance,
form’s interface or functionality than on the abil- both Apple and Google have been wooing game
ity to interact with a large number of other users. developers to ensure that top-ranked game titles
However, in markets where network effects exist arrive first on their platforms. While such moves
but their intensity is lower, firms may benefit from have received attention in the business press, there
delaying releases to improve quality. For example, has been limited empirical attention to how other
network effects in the smart phone operating sys- attributes above and beyond the sheer number of
tem industry are less intense than those in social complements may drive platform success.
networks as consumers can easily interact and com- We argue that an important avenue of future
municate across platforms. Thus, Google’s Android research is to focus on more nuanced conceptual-
technology has been able to capture significant mar- izations of indirect network effects, such as exclu-
ket share in the industry despite its relatively late sivity of complements on a platform (Cennamo and
start. Future research in this stream should exam- Santalo, 2013; Corts and Lederman, 2009; Srini-
ine the interplay among network intensity, timing vasan and Venkatraman, 2010), the variety of com-
of entry, and product quality to describe specific plements, and the ability of platform firms to garner
contextual factors that enhance the overall value of support from dominant complementors. Specifi-
platform membership to consumers. cally, when do exclusive commitments from com-
plementors enhance platform value to the end user?
Is there a differential impact in net support from a
Drivers of indirect network effects
few large, well-known complementors as opposed
A key focus of research on platform-mediated net- to support from the largest overall number of com-
works by both economists and strategy scholars plementors? Does the variety of complements have
has been on strategies that increase direct network a larger impact on platform success than the number
effects via building an early, large installed base of of complements?
users. A smaller set of studies has begun to exam- These issues can be better informed by drawing
ine the role of complementary products in driv- on concepts from strategic management, specifi-
ing indirect network effects, and thereby, platform cally on inter-organizational networks (for instance,
success. Complementary products play an essen- Powell et al., 2005; Uzzi, 1997; Venkatraman and
tial role by increasing the value of platforms to Lee, 2004), to understand how the preferential
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 155
attachment choices of third-party developers and likely to respond to these changes differently, there
platform providers influence platform success. is likely to be heterogeneity in when, how, and why
Research on inter-organizational networks has complementors embrace a platform.
largely focused on management choices and Prior research has illustrated the difficulty that
actions that govern the formation and success of firms experience in responding to even minor tech-
relationships among network partners. As such, nological shifts (Henderson and Clark, 1990; Tush-
many studies on inter-organizational networks have man and Anderson, 1986). As a result, a number of
drawn on concepts from network theory such as studies have sought to understand how firm-specific
centrality, embeddedness, and prior ties to under- attributes such as age, size, and prior experience
stand the determinants of partner selection and influence the ability of firms to adapt to inno-
success (Ahuja, 2000; Gulati, 1995; Podolny, 2001; vations (for instance, Nelson and Winter, 1982;
Uzzi, 1997). Since platform-complementor rela- Hannan and Freeman, 1989; Sørensen and Stuart,
tionships are a special form of inter-organizational 2000). However, our understanding of these issues
networks, future research could benefit from invok- is fairly limited in the context of platform-mediated
ing these concepts and theories to develop a better settings. We believe that an important avenue of
understanding of how specific linkage choices by future research in platform settings will be to adopt
platform firms and complementors can influence a complementor perspective to understand how
performance outcomes. complementors’ attributes and structural positions
The technology management notion of platforms in the platform-complementor ecosystem influence
as collective innovation systems (Gawer, 2014) can their likelihood of support to a platform. Stud-
also be expanded to better conceptualize indirect ies that systematically explain the incentives and
network effects. For instance, the support a com- actions of third-party complementors as a function
plementor extends to a platform can be conceptu- of these factors would be a critical first step to
alized in terms of design moves such as porting understand how network effects emerge and evolve
(re-launching an existing complement on a com- in dynamic platforms. Specifically, future studies
peting platform) or augmentation (launch of an could seek to examine how factors such as the age
exclusive complement on a platform) that differen- and size of complementors influence their ability
tially impact the value of the platform (Baldwin and to support competing platforms as well as their
Clark, 2000). This conceptualization allows us to mode of support extended to platforms. In addition,
understand the relative impact of competing based understanding the extent to which a complemen-
on the strength (number) and distinctiveness (exclu- tor’s experience with a prior platform either enables
sivity) of complements at a given point in time. The or constrains in its ability to adapt to technologi-
findings from such studies are likely to have impor- cal change and support newly emerging platforms
tant implications for firms seeking to leverage the could shed light into the dynamics of adaptation as
power of network effects and capture a differentia- platforms continue to evolve over time.
tion advantage over competing platforms.
Leveraging complementor dynamics
Nature and actions of complementors for competitive advantage
The success of platforms often relies on the A key limitation of prior research on
provision of complementary products to increase platform-mediated networks is that it tends to
platform attractiveness to end users. Despite the consider the availability of complementary prod-
importance of complements to platform success, ucts as an exogenously determined fact rather than
there has been inadequate focus on the nature a construct that could be strategically manipulated
of third-party complementors. Specifically, very (McIntyre and Subramaniam, 2009). However, we
little attention has been paid to the antecedents argue that even within industries, the influence
of complementor support—how complementor of network effects is not simply given, but can
attributes influence their incentives to support be enhanced by conscious and sustained resource
specific platforms. When new platforms emerge or commitment from both platform providers and
existing platforms evolve, they require significant third-party complementors. Platform firms invest
changes in routines for third-party developers to create an ecosystem of complementors, who, in
seeking to extend their support. Since firms are turn, assess and commit their resources to support
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
156 D. P. McIntyre and A. Srinivasan
one or more platforms over time (Venkatraman competitive advantage emerges in increasingly
and Lee, 2004). Since indirect network effects dynamic platform-based settings.
accrue to a platform when independent companies
decide to align their products and services with
Toward a more comprehensive view
the platform’s core architecture, an important
of networks, platforms, and strategy
driver of network effects is the basic architecture
of the platform (McIntyre and Subramaniam, In summary, research streams in IO economics,
2009). Thus, research on how platform firms can strategic management, and technology management
design and modify their architectures can extend have made substantial gains in our understanding
our current understanding of indirect network of the emergence of platforms and the dynamics
effects by focusing on how firms can augment of platform-mediated networks. Yet, each stream
their base of complements to achieve competitive has been relatively confined to specific aspects of
advantage. these settings, lacking a broader view of strategy
Recent studies in the area of technology manage- considerations in the context of networks and plat-
ment have begun to address these issues by focus- forms. As a first step toward such a comprehensive
ing on the difference between open and proprietary framework, Table 4 summarizes the critical unre-
architectures in driving complementor support. By solved research questions and gaps in the current
opening up their platforms, platform firms typi- perspectives that we have described in the previous
cally publicize common design guidelines or archi- sections.
tectures, and reduce limitations on interface use In addition to further exploration of these ques-
by third parties. In contrast, closed or propri- tions, research on networks and platforms would
etary platforms conceal the underlying mechanisms benefit from greater integration of insights from
necessary for interaction among complementary multiple research streams and levels of analysis. For
products, and significantly restrict the ability of example, the interplay between the strength of net-
third parties to use their interface. Open standards work effects at the market level (IO economics) and
encourage greater participation from third-party platform design choices at the firm level (technol-
developers, and thus, tend to enhance the avail- ogy management) may lead to further insights about
ability of complements (Boudreau and Jeppesen, why some industries tend to converge on a sin-
2015). On the other hand, proprietary standards, gle platform, while others foster the emergence of
such as the Keurig 2.0 coffee maker, provide greater multiple competing platforms. In turn, accounting
control and raise entry barriers for potential com- for a firm’s ability to leverage its existing network
petitors. How these choices influence the emer- (strategic management) along with complementor
gence of complements, and their subsequent impact attributes and incentives (technology management)
on platform-based competition, represents a poten- may explain the persistence of dominance by a
tially promising avenue of new research. single firm once the platform has emerged. We
Additionally, the dynamics of believe that future research will benefit from greater
platform-complementor interactions are con- recognition of the potential synergies in the three
tinuously evolving in tandem with broader existing streams described here, and that research
technological changes. Improvements in hardware, efforts that incorporate these streams while account-
the emergence of common third-party standards, ing for market, firm, and complementor dynamics
and overlap in functionality across platforms have offer the greatest potential for furthering our under-
driven a trend toward convergence across platforms. standing of strategy in the context of networks and
These shifts have resulted in the convergence of platforms.
previously disparate platform technologies as
diverse as PCs, video game consoles, handheld
devices, smart phones, and e-book readers in terms CONCLUSION
of their functionality and portfolio of available
complements. Future research that focuses on Previous literature has described specific aspects of
how platform firms can seek to extend their reach platform-mediated networks in determining com-
to new markets, allowing them to leverage their petitive outcomes, yet their influence is increasingly
existing competencies and complementor net- relevant across a broad spectrum of products and
works, can provide important insights into how markets. Thus, robust strategies for managing the
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
Networks, Platforms, and Strategy 157
Table 4. Networks, platforms and strategy: five avenues of emerging and future research
Strength of network effects • What drives the strength of network effects, and I/O Economics, Strategic
how do they manifest differently across markets Management
and platforms?
• How can variation in network effects be concep-
tualized and measured to predict differences in
competitive outcomes (e.g., single versus multiple
platforms) across settings?
• How can firms effectively leverage an existing
network across platforms and over time?
Platform quality • When and how much does quality matter in Strategic Management, I/O
building and leveraging an installed base? Economics
• What are the critical dimensions of quality to
users of competing platforms?
• How does the relative importance of quality
dimensions impact strategic choices such as entry
timing in platform markets?
Drivers of indirect network • What is the impact of exclusivity of complements Strategic Management, I/O
effects on platform success? Economics, Technology
• What aspects aside from total number of comple- Management
ments add value to users (e.g., variety, presence of
key complementors)?
• How do complementor design moves such as
porting influence platform competitive outcomes?
Nature and actions of • What is the role of complementor attributes in Technology Management,
complementors explaining their decisions to link to platforms? Strategic Management
• How does complementor age, size, and prior
experience influence their choice of platform?
• When does prior experience with a platform
enhance or constrain complementor adaptation?
Leveraging complementor • What are the optimal platform design strategies, Technology Management,
dynamics for competitive such as degree of openness, in building an ecosys- Strategic Management,
advantage tem of complementors? I/O Economics
• How can platform firms extend their reach to
newer markets by leveraging their existing archi-
tectures and complementor networks?
development of networks and platforms now merit ambiguities, we suggest several distinct yet related
deeper theoretical and empirical consideration. We streams of future research grounded in these per-
have reviewed existing views on networks and plat- spectives. Specifically, we base our future research
forms from three perspectives: industrial organi- agenda around the nature and relative influence
zation (IO) economics, strategic management, and of network effects and platform quality, drivers of
technology management. indirect network effects, the characteristics and
While these perspectives address important actions of complementors, and leveraging com-
issues with respect to platform-mediated networks, plementor dynamics for competitive advantage.
they each have certain limitations that would benefit We hope that future research in these domains
from additional theoretical and empirical research. will offer substantial new insights into effective
In order to overcome these current limitations and strategies in the context of networks and platforms.
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj
158 D. P. McIntyre and A. Srinivasan
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 141–160 (2017)
DOI: 10.1002/smj