December 2011
Article
Strategic Management Journal

Platform Envelopment

By: Thomas R. Eisenmann, Geoffrey Parker and Marshall Van Alstyne

Format:Print
| Pages:16

Abstract

Due to network effects and switching costs in platform markets, entrants generally must offer revolutionary functionality. We explore a second entry path that does not rely upon Schumpeterian innovation: platform envelopment. Through envelopment, a provider in one platform market can enter another platform market, combining its own functionality with the target's in a multi-platform bundle that leverages shared user relationships. We build upon the traditional view of bundling for economies of scope and price discrimination and extend this view to include the strategic management of a firm's user network. Envelopers capture share by foreclosing an incumbent's access to users; in doing so, they harness the network effects that previously had protected the incumbent. We present a typology of envelopment attacks based on whether platform pairs are complements, weak substitutes, or functionally unrelated, and we analyze conditions under which these attack types are likely to succeed.

Keywords

Market Platforms; Multi-Sided Platforms; Two-Sided Platforms; Business and Stakeholder Relations; Economic Systems; Development Economics; Business or Company Management; Business Strategy; Network Effects; Online Technology; Information Technology Industry; Technology Industry

Citation

Eisenmann, Thomas R., Geoffrey Parker, and Marshall Van Alstyne. "Platform Envelopment." Strategic Management Journal 32, no. 12 (December 2011): 1270–1285.