Repositioning and Cost-Cutting: The Impact of Competition on Platform Strategies

Robert  Seamans; Feng  Zhu

Article | Strategy Science

Repositioning and Cost-Cutting: The Impact of Competition on Platform Strategies

by Robert Seamans and Feng Zhu

Abstract

Organizational structures are increasingly complex. In particular, more firms today operate as multi-sided platforms. In this paper, we study how platform firms use repositioning and cost-cutting in response to competition, elucidate external and internal factors that constrain or enable these responses, and examine how the firms’ responses affect their performance. Our empirical context is the U.S. newspaper industry, which has experienced increased competition following the entry of Craigslist, an online provider of classified ads. We find that when Craigslist enters a newspaper’s market, the newspaper repositions itself away from other newspapers by changing its content. This results in greater differentiation between newspapers in a market but occurs primarily in markets in which reader preferences are heterogeneous. When reader preferences are homogeneous, newspapers are more likely to engage in cost-cutting. Both responses are more pronounced for newspaper firms whose sister firms have already experienced Craigslist’s entry. We also find that failure to design the right response harms competitive viability. These findings offer important implications for many platform firms operating in today’s digital economy.

Keywords: multi-sided platforms; platform strategy; repositioning; cost-cutting; intra-firm learning; Multi-Sided Platforms; Cost Management; Product Positioning; Organizational Structure; Competitive Strategy; Knowledge Acquisition; Journalism and News Industry;

Format: Print

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Citation:

Seamans, Robert, and Feng Zhu. "Repositioning and Cost-Cutting: The Impact of Competition on Platform Strategies." Strategy Science 2, no. 2 (June 2017): 83–99.

ZBJ.com (ZBJ), an online platform that connects knowledge workers to small- and medium-sized enterprises, is China’s largest outsourcing platform. Founded by Mingyue Zhu in 2006, ZBJ had grown into a unicorn with 4,000 employees and a daily transaction volume of RMB15 million by 2017. During the company’s 11-year history, ZBJ had launched ten transformation campaigns to overcome various challenges by changing its products, operations, and business model. For example, it encountered a winner-takes-all competition, disintermediation (when service providers and clients took transactions off the platform to avoid the platform’s 20% commission fees), the rise of fake transactions, member management issues, and difficulties in delivering satisfactory services to large enterprises. Zhu must decide how to use the next campaign to address challenges that had emerged since the last campaign as well as how ZBJ should expand globally.

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Repositioning and Cost-Cutting: The Impact of Competition on Platform Strategies

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