Platform Competition in Digital Systems: Architectural Control and Value Migration

• Main Author: WOODARD, C. Jason
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2008
• Subjects: IT impacts on industry and market structure; competitive aspects of IS; product architecture; computational simulation; Computer Sciences; Management Information Systems
• Online Access: https://ink.library.smu.edu.sg/sis_research/885; https://ink.library.smu.edu.sg/context/sis_research/article/1884/viewcontent/woodard2008platform.pdf
• Institution: Singapore Management University

Digital systems give rise to complex layered architectures in which products at one layer serve as platforms for applications and services in adjacent layers. Platform owners face a difficult balancing act. On one hand, they need to make their platforms attractive to potential complementors by mitigating the threat of architectural lock-in. On the other hand, platform owners must be careful not to give away too much too soon, or risk being unable to recoup their own investments. This paper presents an agent-based model that explores this tension at both the firm and industry levels. Computational experiments show that boundedly rational platform owners learn to attract complementors by voluntarily limiting their exercise of architectural control. When rents from architectural control are strongly appropriable, firms enjoy substantial early-mover advantages. Later entrants do surprisingly well, however, because they are able to be more selective in choosing product niches to develop. The model highlights the underappreciated role of product architecture in mediating the relationship between firm strategy and competitive outcomes, and suggests that deeper architectures—which are fostered by more “open” technologies and practices—may enhance industry innovation and profitability.