strategy+business Winter 2013 : Page 10

10 strategy+business issue 73 leading ideas leading ideas We found, however, that despite allowing for switching costs, over time users ultimately all choose the superior platform. This suggests that the winner will be decided by the platform that can provide the most value to both of its user types. This result persists even when we al-low an inferior platform to have a head start—to gain dominant mar-ket share and lock in customers who want to avoid switching costs. Per-haps, then, there is hope yet for Google+, assuming it can deliver the kind of step change in user experi-ence that Facebook delivered in comparison with MySpace. How does a platform business achieve a better value proposition than its rivals? The primary factors are increasing the quality of matches between complementary users and charging the most competitive fees. Examples of the first variable in-clude eHarmony’s promise of a superior pairing through its ad-vanced user profiling process or eBay’s user-generated ratings of sell-ers and buyers. With respect to fees, there are a host of options. The two main class-es are one-time charges to “join” the platform and those based on usage (such as transaction fees, service charges, and pay for placement). One could also charge fees based on match quality. Although less fre-quently employed, this strategy of-fers interesting potential. For in-stance, when the band Radiohead used its online delivery platform to provide downloads of its album In Rainbows in 2007, users paid what-ever they wanted according to what they perceived as its value (or the quality of the match between album and fan). Sometimes it makes sense to forgo fees on one side of the plat-form to bring users to the other. Consider a nightclub that is attract-ing a disproportionately large per-centage of men. It could waive en-trance fees for women or offer other incentives such as drink specials in order to attract more women. We know this as “Ladies’ Night.” Once a platform market tips, the winner can consider modifica-tions to its fee strategy. Netflix used to offer unlimited video streaming as a benefit for subscribers of the company’s DVD rental services. However, after amassing an enor-mous user base, it now charges sepa-rately for streaming. Despite the long history of tip-ping, some platform markets seem impervious. The gaming console market appears to be stable with three platform companies: Ninten-do’s Wii, Microsoft’s Xbox 360, and Sony’s PlayStation 3. Under what conditions can firms coexist in a platform market, escaping the doom (or missing the riches) of a single, surviving market leader? active yoga programs. Where differ-ent platforms serve different sectors of the market, multiple platforms can coexist. Of course, that’s only at one level. When you define most seem-ingly heterogeneous markets one layer deeper—where customers with similar tastes reside—you’ll find most platforms do, in fact, tip. Thus, one essential element of success is accurately defining the market you intend to dominate: Is it video-game consoles or video-game consoles for sports enthusiasts? The former serves a heterogeneous market, the latter a homogeneous one. This prompts other questions: How can you identify a platform market that is attractive to enter, and under which conditions is it ap-pealing? If you seek to enter a mar-ket serving a relatively homogeneous set of customer needs—such as computer operating systems or cred-it card platforms—you must come equipped with a competitive advan-tage that allows you to provide a Imagine an entrant wanting to displace eBay. Few sellers would join a new site with no buyers, and few buyers would join a site with no sellers. We repeatedly found one condi-tion that allowed multiple platforms to coexist for the long run or at least give the appearance they were doing so: heterogeneous consumer tastes within a given market. Dating sites provide a strong example: eHar-mony, JDate, ChristianMingle, and Cougar Life each aspire to connect two sides of the romance market, but each serves a different preference among a diverse customer base. And in the gaming market, some users are seeking graphically intensive war games, while others want physically match between users (or an im-proved pricing scheme) that can overcome switching costs. When a market has not yet tipped, this can be a successful strategy. If the cur-rent market has already tipped to a dominant platform, however, it will be considerably more difficult to si-multaneously pull enough users on both sides of the market away from the current winner. Imagine an en-trant wanting to displace eBay. Few sellers would want to join a new site with no buyers, and few buyers would join a site with no sellers. The

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