Research Summary
Research Summary
Overview
By: Feng Zhu
Description
Professor Zhu’s research focuses on the design of platform business models and its impact on platform performance. Platforms have become central to our economy. A platform is a product or service that enables two or more customer groups to interact. For example, marketplace platforms, such as eBay, connect buyers and sellers; content-sharing platforms, such as YouTube and Wikipedia, connect content creators and consumers; and smartphone platforms, such as Android, connect app developers and users. There is a high variation in performance across platform firms. While some—such as Google, Apple, and Ant Financial—develop enormous user bases and become highly profitable, many—such as Uber and Homejoy—struggle for sustainable performance and even suffer massive losses.
Professor Zhu has developed three research streams that examine how firms (1) design their platform business models to react to the properties of their networks, (2) manage their network participants, and (3) respond to competition.
Professor Zhu has developed three research streams that examine how firms (1) design their platform business models to react to the properties of their networks, (2) manage their network participants, and (3) respond to competition.
- How the design of a platform’s business model is shaped by its network properties. Although all platforms exhibit multi-sidedness because they connect multiple customer groups, their network properties often vary. For example, Uber’s network consists of many local clusters, with riders mostly matched to drivers in the same local market, while Airbnb’s network is more globally connected, with travelers from one market typically matched to hosts in other markets. Some platform networks, such as Homejoy, a marketplace for home services, are more vulnerable to disintermediation—participants transacting off-platform after being matched on a platform—while others, such as Amazon Marketplace, are less so. Professor Zhu investigates how five such network properties (e.g., the degree of network clustering and vulnerability to disintermediation) drive platform performance and provides recommendations on designing a business model to influence these properties to a platform’s advantage.
- The impact of platform business model design on network participants. A platform’s success hinges on participants’ willingness to participate. Professor Zhu’s research shows that platform policies to incentivize participation by complementors (such as app developers, content contributors, and service providers) often involve tradeoffs and thus require careful consideration. For example, he finds that the exit of contributors with extreme viewpoints on Wikipedia helps it achieve a neutral point of view. It may thus be optimal for a platform firm to design processes to filter participation rather than maximizing it. His research also examines the impact of platform-owner entry into spaces occupied by complementors (e.g., Amazon sells products already sold by third-party sellers and Apple offers iPhone features already provided by third-party app developers). While platform-owner entry often threatens complementors, his research shows that it may create some benefits to consumers or society and that the impact of such entry varies across empirical settings. Overall, this stream of Professor Zhu’s research illustrates how a platform firm can design its business model to influence network participants based on its performance objectives.
- How business model designs shape platform competition and performance. As an example, a platform, being multisided, can choose whether to generate the most profits from consumers or from complementors. In the e-reader market, Apple generates most of its profits from hardware sales, while Amazon generates most of its profits from e-book sales. Professor Zhu’s research finds that this difference creates incentives for Apple and Amazon to collaborate by making Amazon’s Kindle Reader available on Apple’s iPad, increasing both Apple’s hardware sales and Amazon’s e-book sales. His research in this stream illustrates how platform firms can design business models when interacting with firms with different business models to take advantage of such opportunities and how to address challenges.