Assembling Platforms: Strategy and Competition
15 Pages Posted: 20 Jan 2014
Date Written: November 2, 2008
Strategic behaviour in digital markets is difficult to interpret as these industries compete via alternative business models, rather than competing via an accepted business format. Digital market strategies are also more sophisticated and dynamic along product positioning and pricing, alliance, merger and acquisition, and innovation activity dimensions.
This paper analyses key variables to be considered in the design of digital business models. First, the trade-offs specific to matching, assembling and knowledge management are presented. Then, the strategic interdependency among these dimensions is related to the main features characterising demand: heterogeneity in users preferences, willingness to pay for quality, and organised solidarity among users. Furthermore, the firm’s challenge is not only to establish a market niche or to obtain a gatekeeper position, since in an industry characterised by permanent innovation and a ‘winner-takes-all’ race firms must add new functions to their portfolios in an ongoing manner. Such ‘agility’ or adaptability is required to preserve competitive advantage. The inherent difficulty in managing innovative capability and commercial image, when the supply of services is continually being extended to new domains (that require new capabilities and the evolution of commercial practice) are also underlined. The framework attempts to identify the principal trade-offs among alternative digital strategies. The analysis also stresses the importance of uncertainty regarding digital market competition due to the threat of market invasion by rivals. Rivalry can spoil market positioning because of interdependency among business models due to direct network externalities and competitors’ indirect revenues.
Keywords: digital economy, digital business models, digital strategy
JEL Classification: L10, L86
Suggested Citation: Suggested Citation