Platform Envelopment

23 Pages Posted: 28 Jun 2007 Last revised: 27 Aug 2013

Thomas R. Eisenmann

Harvard University - Entrepreneurial Management Unit

Geoffrey Parker

Dartmouth College

Marshall W. Van Alstyne

Boston University – Questrom School of Business; Massachusetts Institute of Technology (MIT) - Sloan School

Date Written: July 27, 2010

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 entry, platforms, network effects, bundling, foreclosure

Suggested Citation

Eisenmann, Thomas R. and Parker, Geoffrey and Van Alstyne, Marshall W., Platform Envelopment (July 27, 2010). Forthcoming 2011, Strategic Management Journal; Harvard Business School Entrepreneurial Management Working Paper No. 07-104. Available at SSRN: https://ssrn.com/abstract=1496336 or http://dx.doi.org/10.2139/ssrn.1496336

Thomas R. Eisenmann (Contact Author)

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

Geoffrey Parker

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-9075 (Phone)

HOME PAGE: http://engineering.dartmouth.edu/people/faculty/geoffrey-parker

Marshall W. Van Alstyne

Boston University – Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-358-3571 (Phone)

HOME PAGE: http://questromapps.bu.edu/mgmt_new/Profiles/VanAlstyneMarshall.html

Massachusetts Institute of Technology (MIT) - Sloan School ( email )

Center for Digital Business
5 Cambridge Center - NE25, 7th Floor
Cambridge, MA 02142
United States
617-253-0768 (Phone)

HOME PAGE: http://web.mit.edu/marshall/www/home.html

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