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 / Winter 2013 / Issue 73(originally published by Booz & Company)


From Netscape to eHarmony: The High Risks and Big Rewards of Platform Markets

Entering markets serving more diverse customers could prove more promising, as there are multiple possible submarkets to enter (or create), and the power of any dominant player in a submarket will likely be less than that of a dominant player in a homogeneous single market. It’s much easier, for instance, to provide a new, compelling twist on a dating site than to provide a new search engine.

The growth rate of technology-based businesses ensures that platforms will become an increasingly prevalent mode of operating in the marketplace, which raises important questions for your business strategy. Are you competing within a platform marketplace? Consider all the facets of your business. Even if your core business is not platform-based, supporting elements could be. If and where you are engaged in platform markets, could you be “tipped out” by a stronger player? Are you primed to dominate? Is the market homogeneous or heterogeneous? Can you define new segments? How do competitors stack up?

Unless your platform business has a distinct and recognized advantage, long-run success is unlikely. But those firms that provide a superior match between users in the most economically efficient fashion can become the sole dominant player in their industry, enjoying monopoly-like profits with a diminished threat of competitive entry from others.

Reprint No. 00218

Author Profile:

  • Dylan Minor is an assistant professor of managerial economics and decision sciences at Northwestern University’s Kellogg School of Management.
  • This article was published in print as "The High Risk of Platform Markets."
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