Opening Platforms: How, When and Why?
Executive Summary — It is crucial for firms that create and maintain platforms to select optimal levels of openness. Decisions to open a platform entail tradeoffs between adoption and appropriability, and opening a platform can spur adoption by harnessing network effects, reducing users' concerns about lock-in, and stimulating production of differentiated goods that meet the needs of user segments. At the same time, opening a platform typically reduces users' switching costs and increases competition among platform providers, making it more difficult for them to appropriate rents from the platform. This paper describes research on factors that motivate managers to open or close mature platforms. Key concepts include:
- Absent careful definitions, it is not possible to make general statements about the attractiveness of open versus closed platform strategies.
- Platform openness occurs at multiple levels depending on whether participation is unrestricted at the demand-side user (end-user), supply-side user (application developer), platform provider, or platform sponsor levels. These distinctions in turn give rise to multiple strategies for managing openness.
- Forces tend to push both proprietary and shared platforms over time toward hybrid governance models typified by central control over platform technology and shared responsibility for serving users.
Platform-mediated networks encompass several distinct types of participants, including end users, complementors, platform providers who facilitate users' access to complements, and sponsors who develop platform technologies. Each of these roles can be opened-that is, structured to encourage participation-or closed. This paper reviews factors that motivate decisions to open or close mature platforms. At the platform provider and sponsor levels, these decisions entail: 1) interoperating with established rival platforms; 2) licensing additional platform providers; or 3) broadening sponsorship. With respect to end users and complementors, decisions to open or close a mature platform involve: 1) backward compatibility with prior platform generations; 2) securing exclusive rights to certain complements; or 3) absorbing complements into the core platform. Over time, forces tend to push both proprietary and shared platforms toward hybrid governance models characterized by centralized control over platform technology (i.e., closed sponsorship) and shared responsibility for serving users (i.e., an open provider role).