Navigating the Platform Power Play: How Digital Giants Reshape Competitive Landscapes
In a rapidly evolving digital world, understanding how firms navigate competition within platform ecosystems has become crucial. A recent study led by Aldona Kapačinskaitė of Bocconi’s Department of Management and Technology and Ahmadreza Mostajabi (London Business School) and published in the Strategic Management Journal sheds light on this dynamic by exploring how companies react when platform owners, like Apple, enter markets traditionally dominated by smaller, independent developers.
The study centers on Apple's 2017 launch of the Files app on its App Store, a move that sent ripples through the ecosystem of file management apps. Prior to Apple's entry, the market was essentially divided among independent developers who had carved out niches on App Store. However, Apple's move into this space—using its control over the platform to promote its app—dramatically altered the competitive landscape.
The key finding from this research is that companies operating on these platforms do not respond uniformly to such incursions. The study reveals a significant difference between "specialist" firms, which focus exclusively on one platform, and "generalist" firms, which operate across multiple platforms. When Apple introduced its Files app, specialist firms, which had invested heavily in their presence on the App Store, doubled down on their efforts, enhancing their existing products in an attempt to hold onto their market share. In contrast, generalist firms, which had the flexibility to operate on other platforms like Google Play, shifted their focus away from Apple's platform, reallocating their resources to other areas where competition was less intense.
This distinction between generalists and specialists is critical for understanding the broader implications of platform dominance. The researchers argue that platform owners like Apple possess an inherent advantage due to their control over the platform’s infrastructure and their ability to leverage inside knowledge about the market. This control allows them to not only enter markets with a competitive edge but also to shape the competitive environment to their favor, often at the expense of smaller, independent developers.
"Our findings,” Kapačinskaitė notes, “demonstrate that generalists, who face a relatively low cost to reposition to other platforms, are more likely to decrease their efforts on the original platform following a platform owner's entry." This strategic retreat allows these firms to avoid direct competition with the platform owner and instead capitalize on their presence in less contested spaces.
In contrast, the behavior of specialist firms is rooted in their deep investment in the platform. "For specialists, the cost of repositioning to another platform is high," Kapačinskaitė continues. "Thus, they are more inclined to stay and fight, intensifying their efforts on the focal platform despite the increased competition. In the paper, we document rather sophisticated strategies of both fighting it out in the contested space while also reallocating some effort towards unaffected areas on the focal platform."
The study also highlights the unique challenges of competing directly with platform owners. Unlike typical markets, where incumbents might enjoy advantages like brand recognition and customer loyalty, platform owners can engineer the rules of the game. They can usually make their products appear on top of search results, access extensive data about competitor apps, and charge fees that don’t apply to themselves. This creates an uneven playing field, making it extraordinarily difficult for independent developers to compete. Some of these challenges have been targeted in the EU via the Digital Markets Act but its effects are yet to play out.
Kapačinskaitė and Mostajabi provide a nuanced view of how companies navigate competition within platform ecosystems. It underscores the importance of strategic positioning—whether as a generalist or specialist—in determining a company's response to competitive threats from platform owners.
