Ville Eloranta

Postdoctoral Researcher Aalto University

Taija Turunen

Assistant Professor Aalto University, School of Business

Approaching the “game-of-few” in platform economy: From mechanistic to organic platforms

The rapid transformation toward platform business models has created multibillion enterprises with global presence. However, the impact of platform businesses on society is perceived mixed and controversial. In domains where platforms have gained traction, the market structure has been strongly affected by so called “winner-take-all” phenomenon. The profits, as well as the power of defining industry architecture, seem to accumulate to the hands of few, which seems to have profound societal implications.

The policy makers are pondering on how to deal with the disruptive platform businesses. One of the key questions when forming policy for the platform domain is that is the power and profit accumulation – a “game-of-few” pattern – an inherent part of all platform implementations. Do all successful platforms act as “monopoly/oligopoly accelerators?”

“Is the game-of-few pattern an inherent part of all platform implementations?”

Our argument is that it is too early to establish these kind of overarching standpoints to platform businesses. While there is considerable evidence on the presence of the game-of-few pattern in the current platform industries, the platform business models seem to be still in transition. And most importantly, by recognizing this transition process, the policymakers, companies, and customers can affect the form and role the platform businesses will take in the society.

Current platform discourse is biased to favor the mechanistic assumptions and accumulation of power

The extant literature on platforms seems to be divided into two disciplines. The first is based on the product innovation and information systems domain, and talks about platforms in the context of 1) modular product families 2) information systems 3) technology platforms 4) supply chain platforms, and most recently 5) industry platforms. These five perspectives of using platforms seem to emphasize the governance paradigms of vertical and horizontal control and integration. These platforms are often used e.g. in auto (Volkswagen), aero (Boeing), marine (ABB) and constrution (Tekla BIM) industries, as well as in software development (Apple iOS SDK). The value appropriation models are primarily based on ownership of critical components, legitimacy and architectural control.

“In mechanistic approach, the value capture models are based on ownership of critical components, legitimacy and architectural control.”

Second discipline in extant research comes from economics and strategy reserach. In this context, the platforms have been analyzed from the perspective of “two-sided markets” and “multi-sided markets”. Practical examples of these platforms are e.g. Uber, Alibaba, Apple Store and Amazon.com. Within this domain, platforms are associated with products, services, firms, and institutions mediating transactions among different market actors. Network effects have been identified to have a significant relevance on platforms with this focus: the result is often a “winner-take-all” situation. Thus, the appropriation of value stems from the ownership of the marketplace, and related institutional mechanisms.

To conclude, the platform discourse, no matter whether it originates from product innovation, information systems, strategy or economics research, views platforms with mechanistic approach. Stability and hierarchy dominated approach is dominating. The paradigm of orchestration in platforms is based on control and command. The challenge for the platform owners, orchestrators and sponsors, but also policy makers, is how to reach the equilibrium state, how long to maintain it, and when to puncture it.

A new school of platform discussion is emerging viewing platforms as complex organic structures

There seems to a new line of platform research emerging, stressing organic and evolutionary thinking over mechanistic assumptions. In this logic of thinking, the platforms aim for continuous change and adaptability. The platforms are organized as a complex adaptive systems. The biggest questions for the platform stakeholders revolve around on how to ensure continous alignment with nonlinear changes of the environment.

The organic stream of platform thinking is visible especially in the organizational approach to platforms. Practical cases having this approach are e.g. Wikipedia, Linux, as well as various platform cooperatives (e.g. Fairmondo and Stocksy). In this line of research, the discourse transitioning toward viewing platforms as “meta-organizations”. The co-operation between platform stakeholders extends beyond leveraging external innovation or matching supply with demand. Overlapping and nested structures combining many organizations are formed.

“In the emerging organic approach, value is shared meritocratically among all platform stakeholders without major power accumulation.”

So to conclude, in organic platforms, the complexity is embraced. The resulted system evolves organically, thus it cannot be totally controlled by any party. Due to the decentralized governance structure of the platform, value is by definition shared meritocratically among all platform stakeholders without major power accumulation.

Steering the research further: how is it possible to capture value with organic platforms?

However, despite the emerging interest in platforms having organic approach, current platform theory does not provide much evidence on their value capture models. One of the most important dilemmas is that as the organic perspectives are based on the complex adaptive system paradigm, they make a trade-off between the resilience and effectivity of the system. Therefore, with organic approaches, the capitalization on efficiency and optimization is challenging if not paradigmatically impossible.

“The possible value capture models in organic platforms are under-researched.”

Thus, the organizational platforms face the classic paradox of “organizational ambidexterity”: the logic of organic approach is to continuously explore new innovations and break routines – however, at the same time, the successful value appropriation requires some level of exploitation of the emerged business possibilities.

In order to address the above-mentioned gaps in the current knowledge of platforms, we summarize this working paper by laying out following research questions to steer future research:

1. What are the possible value architectures and models of value appropriation in platforms that have an organic approach

2. What are the boundary conditions (e.g. industry and market type, phase of evolution of the industry and market, policy environment) for value appropriation with organic approach to platforms

3. How do different models of organizational ambidexterity (balancing exploration and exploitation) work in organizational platform structures

4. What is the role of policymaker in development of mechanistic vs. organic platforms (if there is a difference)?


Additional readings

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Brown, S. and Eisenhardt, K.M. (1998), Competing on the Edge: Strategy as Structured Chaos, Harvard Business School Press, Boston.

Ciborra, C.U. (1996), “The Platform Organization: Recombining Strategies, Structures, and Surprises”, Organization Science, Vol. 7 No. 2, pp. 103–118.

Eisenmann, T., Parker, G. and Van Alstyne, M.W. (2006), “Strategies for two-sided markets”, Harvard Business Review.

Eloranta, V. and Turunen, T. (2016), “Platforms in service-driven manufacturing: Leveraging complexity by connecting, sharing, and integrating”, Industrial Marketing Management, Vol. 55 No. May 2016, pp. 178–186.

European Commission. (2016), Online Platforms and the Digital Single Market Opportunities and Challenges for Europe, Brussels.

Evans, P.C. and Gawer, A. (2016), The Rise of the Platform Enterprise: A Global Survey, New York, NY, available at: http://www.thecge.net/wp-content/uploads/2016/01/PDF-WEB-Platform-Survey_01_12.pdf.

Farjoun, M. (2002), “Towards an organic perspective on strategy”, Strategic Management Journal, Vol. 23 No. 7, pp. 561–594.

Gawer, A. (2014), “Bridging differing perspectives on technological platforms: Toward an integrative framework”, Research Policy.

March, J.G. (1991), “Exploration and Exploitation in Organizational Learning”, Organization Science, Vol. 2 No. 1, pp. 71–87.

Mintzberg, H. (1979), The Structuring of Organizations, Prentice-Hall, Englewood Cliffs, NJ.

Rochet, J. and Tirole, J. (2003), “Platform Competition in Two-Sided Markets”, Journal of the European Economic Association, Vol. 1 No. 4, pp. 990–1029.

Schreyögg, G. and Kliesch-Eberl, M. (2007), “How dynamic can organizational capabilities be? Towards a dual-process model of capability dynamization”, Strategic Management Journal.

Thomas, L.D.W., Autio, E. and Gann, D.M. (2014), “Architectural Leverage: Putting Platforms in Context.”, Academy of Management Perspectives, Vol. 28 No. 2, pp. 198–219.

Tilson, D., Lyytinen, K. and Sorensen, C. (2010), “Research commentary-digital infrastructures: the missing IS research agenda”, Information Systems Research, Vol. 21 No. 4, pp. 748–759.

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