Platform Play among Incumbent Firms: The Wrong Focus?
18 Pages Posted: 25 Apr 2017
Date Written: April 24, 2017
Scholars have been investigating the quick emergence of digital platforms, essentially through the lens of digital native firms. If there is limited occurrence of platforms launched by incumbent firms such as Daimler (Car2Go, Moovel) or Johnson Controls (Panopix), the economics of their strategic responses through platforms by incumbents merit attention. This paper provides the first large-scale empirical evidence on the incidence, nature and profitability of incumbent platforms. Our contribution is threefold: (1) only 10 to 30% of incumbent firms have already engaged in some platform play, with substantial heterogeneity across industries, however; (2) incumbent firms engage in such strategies with a strong focus on their supply chain, suggesting that their platform initiatives are biased toward supply-side economies of scale, rather than demand-side; and (3) platform strategies contribute to revenue and/or profit growth only when they are combined with a priority attached to the demand-side of the business (i.e. customers, instead of the supply chain), typically through the unbundling or rebundling of products or services, and are part of an offensive digital strategy at scale. These results are robust to a Heckman-selection equation and a number of changes to the specification and key measures.
Keywords: Digital Transformation, Digital Strategy, Platforms, Incumbent Capabilities, Demand-Side Economies of Scale
JEL Classification: L22, L25, M15, O33
Suggested Citation: Suggested Citation