Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 16 Capturing Value by Controlling Bottlenecks in Open Platform Systems

25 Pages Posted: 8 Nov 2019

See all articles by Carliss Y. Baldwin

Carliss Y. Baldwin

Harvard Business School, Finance Unit

Date Written: November 5, 2019

Abstract

The purpose of this chapter is to investigate the means by which firms capture value in open platform systems. 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 flow 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.

Suggested Citation

Baldwin, Carliss Y., Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 16 Capturing Value by Controlling Bottlenecks in Open Platform Systems (November 5, 2019). Harvard Business School, Harvard Business School Research Paper Series # 20-054. 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, Finance Unit ( email )

Boston, MA 02163
United States

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