Thomas R. Eisenmann
Harvard University - Entrepreneurial Management Unit
Marshall W. Van Alstyne
Boston University - Department of Management Information Systems; Massachusetts Institute of Technology (MIT) - Sloan School
July 27, 2010
Forthcoming 2011, Strategic Management Journal
Harvard Business School Entrepreneurial Management Working Paper No. 07-104
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.
Number of Pages in PDF File: 23
Keywords: Market entry, platforms, network effects, bundling, foreclosure
Date posted: June 28, 2007 ; Last revised: August 27, 2013
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