Research Summary

Managing Networked Businesses

by Thomas R. Eisenmann

Description

Platform-based businesses that leverage network effects face a distinctive set of management challenges. A platform encompasses components and rules that facilitate interactions between the platform's users. A platform-based product or service exhibits a network effect when the platform's value for any one user depends on the number of other users with whom the focal user can interact. When network effects are strong, increasing returns to scale may lead to winner-take-all (WTA) outcomes. Competition in platform-mediated networks can be unforgiving: if winners take all, losers take nothing. Consequently, if they confront WTA dynamics, managers must decide whether to race to acquire customers and whether to share their new platform with rivals rather than fight for dominance. They also must contend with boom-bust valuations engendered by investors' expectations for rapid growth, and with government policy-makers' concerns about monopolies' market power. Finally, managers must design organization structures and governance processes suited for making 'bet-the-company' decisions. Eisenmann's research addresses these management challenges, focusing on: 1) contingencies under which accelerated growth strategies are attractive; 2) when aspiring platform providers should pool efforts with prospective rivals versus developing proprietary platforms; 3) conditions under which "closed" platforms—that is, platforms that restrict participation at the provider and/or user level—should be opened as they mature, and vice versa; and 4) how dominant platform providers in one market can envelop platforms in adjacent markets through bundling strategies.