The Paradox of Platform-Based Entrepreneurship: Competing while Sharing Resources

Abstract

A large share of today’s entrepreneurship occurs “on top” of platforms. On the one hand, operating on top of a platform provides entrepreneurs with access to powerful platform tools and resources to facilitate innovation, entrepreneurial experimentation, and commercialization. On the other hand, we theorize that the provision of open access to a common set of powerful and easily-accessible platform resources can limit the scope for developing sustained competitive advantage. Entrepreneurs who turn out to be successful will then face challenges in sustaining their superior performance. We implement a precise statistical methodology to study the sustained success of market leaders in a representative context: game publishers operating in distinct submarkets on the Apple AppStore. Consistent with theory, we find that in the majority of cases the games publishers who do rise to a position of market leadership within their niches are no more capable of sustaining their performance and market position than are market followers. Consistent with a need to urgent shift beyond just exploiting platform resources, but to develop and harness “off-platform” resources, we find that the cases of market leaders statistically outperforming their followers are associated with continuously (re)exploiting unique intellectual property, in a highly deliberate and focused manner. We discuss implications for platform-based entrepreneurs, platform owners and platform design.

Keywords: Organizational capabilities, sustained performance, digitization, online marketplaces, competition, platforms, digitization, cloud-based businesses, complementors.