Design Rules Volume 2: Chapter 16—Capturing Value by Controlling Bottlenecks in Open Platform Systems

26 Pages Posted: 8 Nov 2019 Last revised: 15 Mar 2022

Date Written: August 7, 2021

Abstract

The purpose of this chapter is to investigate the means by which firms capture value in open platform systems. It combines the theory of a platform as a provider of options with the theory of bottlenecks developed in Chapters 7, 8 and 9. I argue that, in an open platform system, firms capture value by: (1) controlling one or more strategic bottlenecks; (2) finding and fixing flow bottlenecks at the core of the system; (3) introducing accelerators and/or subsidiary platorms; and (4) avoiding disintermediation of the parts of the platform they control.

I begin by arguing that the surplus value created by complementarities within a technical system will be split among the owners of the unique and essential components—the strategic bottlenecks in the system. However, most platforms must also execute a series of steps which are subject to “flow production” bottlenecks. Finding and fixing these technical bottlenecks is another way to capture value.

In addition, two types of platform improvements provide further opportunities for value capture. “Accelerators” speed up the processing of options, while “subsidiary” platforms increase the range of options available to users. Finally, members of a platform system or new entrants may seek to supplant the owner of a strategic bottleneck by “disintermediating” platform components. I describe four generic methods of disintermediation: substitution; reverse engineering; platform independent complements; and platform envelopment.

Keywords: Technology, Organizations, Modularity

JEL Classification: L1, L2, O3

Suggested Citation

Baldwin, Carliss Y., Design Rules Volume 2: Chapter 16—Capturing Value by Controlling Bottlenecks in Open Platform Systems (August 7, 2021). Design Rules Volume 2: How Technology Shapes Organizations, Available at SSRN: https://ssrn.com/abstract=3482538 or http://dx.doi.org/10.2139/ssrn.3482538

Carliss Y. Baldwin (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

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