SPECIAL COLLECTION

STRATEGY New Strategies for the To reap the rewards and avoid the risks, companies exploring a platform model must look carefully at their partnerships and growth strategy.

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SPRING 2021 NEW STRATEGIES FOR THE PLATFORM ECONOMY

SPECIAL REPORT 1 9 17 Competing on How Healthy Is Your Platform Scaling, Platforms Business Ecosystem? Fast and Slow

THE DOMINANT DIGITAL PLATFORMS are now among the world’s most phases. At each stage, there are specific early valuable — and most powerful — companies, leaving a huge swath of organizations forced indicators to look for that point to potential to play by their rules. In this new competitive environment, need new ways to failure. Tracking the appropriate metrics gain advantage despite platforms’ constraints and market clout. And businesses seeking to for each stage and being alert to red flags create successful platform ecosystems find that while the rewards can be great, the helps businesses pivot to a new approach or likelihood of failure is high. This special report examines the challenges faced by both limit their losses. platform owners and participants. Platforms aiming for market dominance have typically prioritized rapid growth. The asymmetries in power and infor- attention from U.S. and European regulators, However, Max Büge and Pinar Ozcan have mation between platform owners and the whose scrutiny of dominant platforms’ found that scaling quickly is not the right businesses reliant on them have implications practices may lead to shifts in the prevailing strategy in all circumstances: Pursuing fast for the traditional levers of competitive balance of power. growth in markets where regulatory risk strategy, argue Donato Cutolo, Andrew Given the rich rewards for developing a and complexity are high can lead to setbacks Hargadon, and Martin Kenney. The authors successful platform, it remains an attractive or failure. With governments increasingly show how the usual tools that businesses digital strategy, despite the high risk of focused on investigating and reining in employ to differentiate their offerings and failure in what has been typically a winner- platforms’ power, we may well see an gain competitive advantage can be blunted takes-all game. Ulrich Pidun, Martin Reeves, increase in the number of markets with such by platform operators, and they suggest and Edzard Wesselink analyzed more than challenging regulatory environments — and ways that businesses can better protect 100 failed digital ecosystems and found possibly a more cautious approach to their interests. They also point to increasing that ecosystems typically develop over four platform expansion. — Elizabeth Heichler

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COMPETING ON PLATFORMS Companies must find new competitive strategies to succeed on dominant platforms. BY DONATO CUTOLO, ANDREW HARGADON, AND MARTIN KENNEY

he dominant online platform companies are now dynamics and risks intrinsic to platform-controlled markets. And the most valuable companies in the world, and their they must develop strategies that leverage a platform’s resources growing power over other organizations is enabling while mitigating its power over them. them to rewrite the rules of business strategy. In the past decade, digital platforms have pro- How Platform Power Is Transforming Tfoundly reorganized markets and industries and redefined the Competitive Strategy dynamics of value creation and competition.1 They have created In early January 2019, after sealing a deal with Apple to sell more of its marketplaces that have spawned an enormous number of platform- products, sent a letter to small businesses selling refurbished native startups.2 And as these have grown and prospered, existing Apple products on the Amazon e-commerce platform. It read, in part, businesses have felt compelled to join the platform economy, view- “You are receiving this message because you are currently selling … ing participation as necessary for growth and even survival.3 Apple or Beats products. Your existing offers for those products will To date, most attention to platforms has focused on under- soon be removed from Amazon’s online store in the .” standing their advantages over traditional industrial structures As one reseller said, “Since 2011, I have sold over a million dol- and how to replicate platform successes. However, the vast major- lars of iPods on Amazon and this is going to severely impact me ity of companies will not own platforms but, rather, will and my family.” increasingly depend and compete on them. To do so effectively, For many resellers, the agreement between Amazon and Apple platform-dependent businesses must recognize the power spelled the end of their businesses and livelihoods. And this

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 1 THE

RESEARCH

The authors drew upon in-depth discussions and interviews with entrepreneurs in the U.S. and Europe, and ongoing research into the rise of the platform economy and the impact of platforms on entrepreneurship.

Their work is also informed by engagements as advisers to businesses and investors on their platform strategies, and to government organizations on regulating the platform economy.

LISA HENDERLING/THEISPOT.COM existential threat is not confined to small busi- customers while providing customers with a broad nesses. Discussing ’s ability to favor its own range of easily searchable offerings. For sellers and travel platform in search results, ’s CEO advertisers, entry costs are low. For buyers, there are said the internet was “littered with the bodies of none. The platform’s goal is to capture the largest companies put out of business by Google.” market share relative to other platforms — a This is a new, harsh competitive environment winner-takes-all strategy that achieves a near-mo- that nearly every business eventually will confront nopolistic position. as the platform economy matures.4 On these terms, a platform’s success comes when it An online platform’s success is predicated upon effectively owns the market and can “tax” all transac- providing sellers with a large base of potential tions that run through it. For example, Apple and

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Google take 30% of all revenues earned in their app quickly respond. According to a report from stores; Etsy takes 20 cents per item listed, as well as 5% Coresight Research and DataWeave, Amazon more of the transaction cost (including shipping), and fees than tripled the number of its own house-brand from its payment-processing system (which sellers are products from 2018 to 2020, to more than 23,000 required to use). YouTube takes 45% of the advertis- offerings that now compete with other products on ing revenue generated by its content creators. As the site. Amazon (and other platforms) can upend game-maker Epic Systems argued in its recent legal traditional forms of strategic differentiation simply complaints against Apple and Google, their fees are by identifying and replicating product features, nonnegotiable, regardless of how much revenue flows , market position, and whatever else can make through an app.5 Other companies, including its own products more competitive and attractive. and even , appear to be joining the criticism And the same complex, often opaque, algorithms of the stringent rules that owners impose. that connect online buyers and sellers can be mas- The fee controversy is only the tip of the iceberg. saged by platforms in ways that can produce sudden Platforms have almost godlike powers. They are drops in sellers’ search rankings and sales. gatekeeper, rule maker, judge, and jury. For busi- nesses dependent on a platform, this creates a The Risks of Platform Dependence dangerous situation. The platform is motivated by Given increasing evidence that platforms are likely to traditional business goals: It wants to grow revenues use their enormous powers for their own benefit, and profits and increase its market power. Just as im- businesses need a clear understanding of the implica- portant, it is constantly experimenting and evolving tions of operating on a platform in order to avoid unilaterally in ways that are beneficial to itself. The becoming subordinate entities.6 Competing effec- businesses transacting on it can only accept the plat- tively in these markets requires businesses to form’s rules, adapt to them strategically, or exit. recognize the ways platforms limit the control they In other words, a platform’s power dramatically have over the three sources of competitive advantage. constrains the freedom businesses possess to devise Platforms limit construction of a unique value and pursue competitive strategies. Since the 1980s, proposition. Developing a company’s value propo- our understanding of strategy has been dominated sition and presenting it to a target customer segment by Michael Porter’s definition of the sources of is core to competitive strategy. But for many plat- competitive advantage. To Porter, good competitive form-dependent businesses, the unique attributes strategy creates unique value for a particular set of and presentation of their offerings online (such as customers (in other words, differentiation). That search terms, product descriptions, images, and uniqueness is derived from companies’ ability to product reviews) are dictated by the platform, control three key sources of competitive advantage: whose goal is to allow customers to compare com- a distinctive value proposition that is designed for a peting offerings easily. This can happen only if particular set of customers and is delivered through products share common search terms and are pre- a particular configuration of activities difficult for sented to consumers in nearly identical ways. competitors to replicate. The more ways in which an Moreover, platforms can constrict strategic pric- organization can differentiate its sales, services, ing flexibility. For example, Amazon punishes features, production, distribution, design, and publishers on its Kindle platform selling at prices marketing, the greater its ability to establish and lower than $2.99 or higher than $9.99 by halving defend a strategic position. their revenues from 70% to 35% of the sales .7 In But platform owners don’t only reduce the setting this rule, Amazon believed it could sell more degrees of freedom a company has over each of e-books and, just as important, discourage other on- these sources of competitive advantage; at the same booksellers from entering the market. While time, they advance their own interests. pleasing customers, this slashed publishers’ margins. For instance, the same reach that enables compa- Because the platform is always considering its nies to find customers on Amazon enables the own interests, it can and will take actions detrimen- platform to recognize growth opportunities and tal to the interests of its dependent businesses.

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 3 When one is dependent on a platform, existential uncertainty is endemic, exacerbated by the ever-present possibility that anything a platform- dependent business can do can be blocked instantly and without warning.

For example, Apple Music, Spotify, and YouTube suffered severe damage and have no recourse in an create playlists that include artists contracted to appeals process so capricious and opaque that one multiple labels. These labels aren’t happy about firm called it “Kafkaesque.” 8 seeing their artists grouped with (and therefore pro- Platform-dependent businesses lose room to moting) another label’s artists. Amazon can bundle maneuver. Strategy theorists argue that when products from as many vendors as it likes. Once that companies discover a profitable strategic fit, they happens, and consumers see competing providers maintain their position through a unique together on one screen, vendors are forced to com- configuration of activities that deliver added value pete within categories and segments they have no to a defined set of customers. The more freedom a power to define. They must attempt to differentiate company has in designing and configuring its their offerings based on price (if they can), thin activities to enhance the customer experience, the descriptions, and reviews (on an architecture de- more defensible its market position becomes. termined by the platform) rather than their own Competing on platforms creates a heightened strategic choices. risk that competitors will be able to imitate the su- Platforms own the customer relationship. As the perficial details of those activities, including product intermediary between the customer and the provider, descriptions, price points, and targeting the same the platform controls the relationship: The seller search terms. At the same time, a platform may favor knows only what the platform wants it to know. In some market participants over others, as Amazon fact, most platforms actively prevent off-platform did when it chose Apple over Apple resellers. contact between buyers and sellers, because that Benefiting from its godlike perch, the platform is would create the potential for . well positioned to recognize when innovative prod- Instead, the platform enforces a fundamental asym- ucts or services represent a business opportunity. metry in information about the customer in the The platform can then increase the commission it platform’s favor. charges a seller or introduce a competing product When one is dependent on a platform, existen- itself. Recent research shows that Amazon is more tial uncertainty is endemic, exacerbated by the likely to enter market segments created by its third- ever-present possibility that anything a platform- party sellers when those have proved successful.9 In dependent business can do can be blocked instantly this sense, a platform may use its dependent busi- and without warning. For example, if a market nesses as test beds to identify promising markets the participant is flagged for an alleged rule infraction — platform can appropriate. such as manipulating reviews — punishments can In one instance, Amazon employees accessed include suspension, delisting, or a ban. This hap- data about a bestselling car-trunk organizer sold by pened to a multimillion-dollar weapons accessory a third-party vendor; that data included its total business on Amazon that was temporarily suspended sales, how much it paid Amazon for marketing and after a rival hacked the business’s account and posted shipping, and how much Amazon made on each fake five-star reviews so it appeared that the seller had sale. Amazon’s private-label arm later introduced violated Amazon’s rules against buying favorable re- its own car-trunk organizer. Amazon denied that views. According to the weapons business’s owner, its employees examined specific data, but it’s the estimated sales loss for the company during the indisputable that Amazon possesses it.And it’s suspension was about $150,000. Even when such de- indisputable that Amazon can feature its own com- cisions are reversed, businesses may have already peting products more prominently. 10

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After entering an attractive market first Fortnite, shows that an early investment in cross- identified by a dependent business, a platform can platform availability was key to growing a larger use its search algorithms to point potential custom- customer base. Although it launched in 2017 on ers in the direction it prefers while adjusting its Xbox One with limited cross-platform support, ranking algorithms to favor its own products or today it is available on Android, iOS, macOS, services. A recent analysis by The New York Times11 Microsoft Windows, Nintendo, and PlayStation. discovered that Apple’s App Store systematically In some instances, platform multihoming can promoted its own offerings and ranked them ahead be simple. Entrepreneurs selling commodity of ecosystem incumbents that had made the App products on Amazon can easily and inexpensively Store successful in the first place. Ultimately, direct list those same products on eBay, Etsy, or competition with an omniscient and all-powerful .com. Similarly, the cost to hotels of experimenting platform makes it virtually impossible for an inno- with different online travel agencies like Booking vator to defend its position against a predatory .com, Expedia.com, Hotels.com, and others is low. platform partner. In contrast, porting apps from iOS to Android, or vice versa, can be difficult and expensive because Four Strategies for Thriving as a the apps must be modified. Platform-Dependent Business Multihoming does require effort and time Traditional assumptions about competitive strat- because each platform requires customization. It egy are no longer valid in platform-organized also introduces the risk that a company may lose markets, and in this new competitive landscape, the focus during the diversification process, thereby strategies necessary for businesses to succeed have impairing its performance.12 changed. Channel multihoming. Even platform-dependent We’ve identified four strategies that companies businesses can use different channels, such as a can experiment with to leverage the resources the proprietary or a brick-and-mortar store. If platform provides while mitigating the tendency alternate channels are successful, a business can not to become subservient to it. Organizations may only avoid the fees and limitations of platform mar- consider the following responses, depending on kets but also enhance its value proposition through their singular situations and needs. unique offerings and stronger customer relations through perks like better service, loyalty programs, 1. CHANGE CHANNELS. Multihoming is a way to and promotions. change the power dynamic by offering products or For example, online travel platforms prohibit services in multiple sales channels. The goal is to hotels from offering lower prices on other channels increase the business’s access to customers while im- or even on their own . But hotels can offer proving its ability to protect its value proposition better cancellation policies or special packages (free and reducing its dependence on a single platform spa treatments or tasting menus featuring regional owner. Types of multihoming include the following: foods, for example) that are not available through Platform multihoming. Offering goods or ser- the platform. These types of special offerings can vices through multiple platforms can have significant be promoted in various ways and delivered through benefits, especially when those platforms offer access owned channels such as a hotel’s website or at the to different customer segments. For instance, the suc- front desk. This approach can allow hotels to cess of Epic Games, the video game company behind cultivate different subgroups of customers, develop

Offering goods or services through multiple platforms can have significant benefits, especially when those platforms offer access to different customer segments.

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 5 loyalty, and weaken the ties that bind them to the mood, and they can give those businesses a bird’s- online travel platform. eye view of customer activities and preferences that But channel multihoming presents a dilemma: they can use to guide that advertising and make it How can a business extract value from the platform more effective. However, while investing resources in channel without cannibalizing its other channels or, platform advertising can boost revenue, that high- conversely, undermining its enormous platform level view is not granular; the company purchasing traffic and business? the advertising receives only the information the One response is to differentiate strategically and platform chooses to share. clearly between channels. For example, travel-book The business challenge is to develop marketing publishers have placed their high-demand products strategies that leverage the platform to strengthen on the Kindle e-book platform but have sold their one’s own brand without increasing one’s dependence most profitable books through the physical print on it. For example, Hootsuite, Marriot International, channel only, in hopes of attracting direct buyers and and Patagonia, among others, are using to retaining the higher profit margins for themselves.13 promote their values and corporate cultures as much Another strategy is to use channel multihoming as (if not more than) their offerings. And platforms to offer customers higher levels of customization. can be used to showcase new products and services For instance, the U.K. company Chilly’s Bottles sells before making large investments by testing market- reusable water bottles both on Amazon and on its ing concepts through low-cost online advertising, website, but only the Chilly’s Bottles website offers launching free apps in app stores, or conducting customers the opportunity to have bottles engraved low-volume experiments on Amazon. It is possible with their name. to leverage platforms in creative ways while mitigat- Platform multiplexing. Sellers and content pro- ing lock-in or overdependence. viders can adopt the different tools available from various platforms to develop new value propositions, 3. PLAY THE ALGORITHM GAME. Whether a reach new customer segments, or build new organi- business’s goal is to raise its visibility, gain more re- zational capabilities that would not be possible on views, or improve its search rankings, it’s necessary any single platform. Companies can use different ad- to game the system of algorithms that govern the vertising platforms to experiment with the relevance, platform. That does not mean breaking rules but quality, or keywords associated with their offerings. rather working them so they work for you. Many They can also offer limited production runs via plat- consulting businesses have emerged to help forms such as Instagram or to test new platform-dependent businesses leverage a plat- products while finding new customer segments and form’s algorithms and regulations to improve boosting brand awareness. Both startups and estab- customer engagement. They help them identify op- lished companies such as Coca-Cola, General timal days and times to post on particular platforms; Electric, Hasbro, and Lego have combined the mo- they design product names, keywords, descriptions, mentum of multiple platforms to get and hashtags that will improve platform perfor- low-cost and immediate feedback on new products mance; and they create engaging presentations to or services. Some have registered sales even before make a company’s goods and services stand out. production by using these platforms to promote The line between what platforms deem legiti- projects and drive customer awareness.14 mate or illegitimate is often blurry.16 For example, some companies have hired people to produce 2. USE THE PLATFORM TO MARKET YOUR- laudatory reviews on Amazon, a practice forbidden SELF. Just as it has become necessary for businesses under its terms and conditions. Recently, Amazon to transact on platforms, it is also critical for them deleted approximately 20,000 putatively fake re- to market on them. After all, 47% of consumers views from its U.K. website following a Financial begin their online product searches on Amazon.15 Times report on such activities. However, people Platforms ensure that a company’s advertising and companies are constantly testing such rules will be seen by customers when they are in a buying and sometimes develop new and effective tactics.

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For example, specialized agencies have orchestrated Finding Your Balance “giveaways,” through which platform-dependent on the Platform businesses grow their Instagram followers by pay- Platform companies like Amazon and Google are ing famous influencers for sponsorships, or even among the most valuable businesses in the world for offering cash to new followers. In 2017, Domino’s good reason: They are able to take a cut of an increas- created an Instagram giveaway, offering people a ing share of the world’s commerce. Governments must chance to win $10,000 by following it and leaving a consider whether economies in which a few compa- comment on the company’s profile. The post re- nies capture an ever-increasing share of the globe’s ceived 25,564 views and more than 4,500 likes. wealth are healthy for enterprise. Indeed, in early A platform’s attitude toward this sort of gaming October 2020, the U.S. House Judiciary Committee varies based on whether the activity threatens its released a report criticizing Apple and other - power or degrades the user experience. For example, nology companies for stifling competition and startup Rap Genius tried to game Google’s algo- innovation for their own gain. Later that month, the rithms by launching a program to promote its users’ U.S. Department of Justice filed suit against Google, blog posts if those posts included references to the accusing it of “unlawfully maintaining monopolies in Rap Genius website. The result: Google manually the search and search advertising markets.”17 demoted Rap Genius to the sixth page of its search In addition to pursuing the strategies discussed results — a deliberate and targeted punishment. above to mitigate the power of platforms, businesses that depend on them can unite to increase the defen- 4. DIVERSIFY INCOME STREAMS. Establishing a sibility of their positions. In 2018, 582 antiquarian successful presence on a platform can produce an book dealers from 27 countries pulled more than enormous volume of traffic that can be leveraged to 3,700,000 books from AbeBooks, an Amazon diversify income streams. This diversification can subsidiary, after the platform abruptly banned book- take many forms. The first is simple product diversifi- sellers from a number of countries due to what it cation on the platform. For example, Chinese said was the increasing cost and complexity (to it) of electronics company Anker started selling replace- operating in those jurisdictions. After two days of ment laptop batteries on Amazon in 2011 and protest, AbeBooks apologized and retreated. became the most popular brand of portable battery Platform-dependent businesses can also engage packs on the platform. It then diversified into smart- with their governments to argue for new regulatory phones and wall chargers and now sells a wide variety frameworks to mitigate platforms’ power. In 2019, of electronic accessories. Its success in building a an association of small and -sized Indian strong brand enabled it to reach a level of customer retailers filed a complaint against Amazon.com and awareness that mitigates the platform’s leverage. Walmart’s platform for anti-competitive In other cases, alternative channels provide diver- practices. A subsequent probe by the Competition sification opportunities. Many YouTubers, having Commission of India resulted in a decision that established their reputations on the platform, now re- barred Amazon and Walmart from selling their own ceive income from making personal appearances, products alongside those of independent vendors. endorsing products, publishing books, selling their The commission also mandated that the govern- own lines of clothing or makeup, and engaging in ment must have access to the platforms’ source code many other activities. Rovio Entertainment (creator and algorithms. Government action in platform of the video game Angry Birds) not only introduced markets has also affected , , in-app purchases and advertisements as additional Microsoft, TikTok, and . The only consistently revenue sources but also expanded into merchandis- applicable advice for companies struggling with ing and entertainment with The Angry Birds Movie. As platform policies is to stay involved. In other words, this illustrates, new revenue streams can be developed you are either at the table or on the menu. far outside the ambit of the platform and, if suffi- Even as companies pursue strategies to mitigate ciently lucrative, can allow the business to become less platform power, that work must be ongoing as plat- dependent on the platform upon which it was born. forms endeavor to neutralize those strategies. An

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 7 NEW STRATEGIES FOR THE PLATFORM ECONOMY: COMPETITION

example of this arms race is YouTube’s acquisition 5. On Aug. 13, 2020, Epic Games’ popular multiplayer of FameBit, a company that allowed content cre- online game Fortnite, which people could download through Apple’s and Google’s app stores, rolled out an ators to bypass YouTube and connect directly to update that violated the platforms’ terms of service by brands to develop videos. With that move, YouTube allowing players to pay Epic directly, thereby avoiding the effectively shut down that workaround. platforms’ 30% fee on all revenues generated. In response, Apple and Google pulled the game from their Every organization dependent on a platform (or stores. Epic has filed lawsuits against both. considering becoming so) must be aware of the dan- 6. J. Rietveld, J.N. Ploog, and D.B. Nieborg, “Coevolution gers and, from the beginning, understand its options. of Platform Dominance and Governance Strategies: Every business must realize that on the other side of Effects on Complementor Performance Outcomes,” Academy of Management Discoveries 6, no. 3 the screen, the platform’s strategists and computer (September 2020): 488-513. scientists are accessing and analyzing ever-greater 7. R.D. Wang and C.D. Miller, “Complementors’ Engage- reservoirs of data and leveraging more sophisticated ment in an Ecosystem: A Study of Publishers’ E-Book algorithms to capture a greater portion of the total Offerings on Amazon Kindle,” Strategic Management Journal 41, no. 1 (January 2020): 3-26. value of the platform economy. But as we’ve shown, 8. J. Dzieza, “Prime and Punishment. Dirty Dealing in the the companies that live on those platforms are not $175 Billion Amazon Marketplace,” , Dec. 19, helpless, and there is an enormous amount of value 2018, https://www.theverge.com. in the market — certainly enough for platform own- 9. F. Zhu and Q. Liu, “Competing With Complementors: ers and platform-reliant organizations to share. An Empirical Look at Amazon.com,” Strategic Manage- ment Journal 39, no. 10 (October 2018): 2618-2642. 10. “The Investigation of Competition in Digital Markets: Donato Cutolo is a postdoctoral research fellow at Majority Staff Report and Recommendations” issued in the University of Bologna. Andrew Hargadon is the 2020 by the Subcommittee on Antitrust, Commercial, Charles J. Soderquist Chair in Entrepreneurship at the and Administrative Law of the Committee of the Graduate School of Management at the University of Judiciary of the U.S. House of Representatives, found California, Davis. Martin Kenney is a distinguished significant corroboration for an April 2020 Wall Street professor of community and regional development at Journal report on Amazon’s private-label product devel- the University of California, Davis. Comment on this opment practices, as well as substantial evidence of article at https://sloanreview.mit.edu/x/62304. such behavior in other cases.

ACKNOWLEDGEMENTS 11. J. Nikas and K. Collins, “How Apple’s Apps Topped Rivals in the App Store It Controls,” , The authors thank John Zysman for helpful comments. Sept. 9, 2019, www.nytimes.com. They also acknowledge support from the Ewing Marion 12. M.M. Tavalaei and C. Cennamo, “In Search of Kauffman Foundation and the German Ministry of Labor. Complementarities Within and Across Platform Ecosystems: Complementors’ Relative Standing REFERENCES and Performance in Mobile Apps Ecosystems,” Long Range Planning, forthcoming. 1. M.A. Cusumano, A. Gawer, and D.B. Yoffie, “The Business of Platforms: Strategy in the Age of Digital 13. Wang and Miller, “Complementors’ Engagement,” Competition, Innovation, and Power” (New York: 3-26. Harper Business, 2019); and G.G. Parker, M.W. 14. T.E. Brown, E. Boon, and L.F. Pitt, “Seeking Funding Alstyne, and S.P. Choudary, “Platform Revolution: in Order to Sell: Crowdfunding as a Marketing Tool,” How Networked Markets Are Transforming the Business Horizons 60, no. 2 (March-April 2017): 189-195. Economy — and How to Make Them Work for You” (New York: W.W. Norton, 2016). 15. L. Sullivan, “Amazon Still First Place Many Consum- ers Search for Products,” MediaPost, May 22, 2020, 2. D. Cutolo and M. Kenney, “Platform-Dependent En- www.mediapost.com. trepreneurs: Power Asymmetries, Risks, and Strategies in the Platform Economy,” Academy of Management 16. C. Petre, B.E. Duffy, and E. Hund, “‘Gaming the Perspectives, forthcoming; and S. Nambisan, “Digital System’: Platform Paternalism and the Politics of Entrepreneurship: Toward a Digital Technology Perspec- Algorithmic Visibility,” + Society 5, no. 4 tive of Entrepreneurship,” Entrepreneurship Theory and (October-December 2019): 1-12. Practice 41, no. 6 (November 2017): 1029-1055. 17. “Justice Department Sues Monopolist Google for 3. M. Kenney and J. Zysman, “The Rise of the Platform Violating Antitrust ,” U.S. Department of Justice, Economy,” Issues in Science and Technology 32, no. 3 Oct. 20, 2020, www.justice.gov. (spring 2016): 61-69. 4. M. Kenney, D. Bearson, and J. Zysman, “The Platform Reprint 62304. Economy Matures: Exploring and Measuring Pervasive- Copyright © Massachusetts Institute of Technology, 2021. ness and Power,” Socio-Economic Review, forthcoming. All rights reserved

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HARRY CAMPBELL/THEISPOT.COM HOW HEALTHY IS YOUR BUSINESS ECOSYSTEM? Paying attention to the right metrics and red flags will help leaders sidestep the most common pitfalls in the four phases of ecosystem development. BY ULRICH PIDUN, MARTIN REEVES, AND EDZARD WESSELINK

ompanies that start or join successful business eco- The seeds of ecosystem failure are planted early. Our new anal- systems — dynamic groups of largely independent ysis of more than 100 failed ecosystems found that strategic economic players that work together to create and blunders in their design accounted for 6 out of 7 failures. But deliver coherent solutions to customers — can reap we also found that it can take years before these design failures tremendous benefits. In the startup phase, ecosys- become apparent — with all the cumulative investment losses Ctems can provide fast access to external capabilities that may be too in time, effort, and money that failure implies.2 expensive or time-consuming to build within a single company. Once Witness Google, which made several unsuccessful attempts to launched, ecosystems can scale quickly because their modular struc- establish social networks. It invested eight years in Google+ before ture makes it easy to add partners. Moreover, ecosystems are very shutting down the service in 2019. One reason for the Google+ flexible and resilient — the model enables high variety, as well as a failure was its asymmetric follow model, similar to ’s, in high capacity to evolve. There is, however, a hidden and inconvenient which users can unilaterally follow others. This created strong ini- truth about business ecosystems: Our past research found that less tial growth but did not build relationships, which might have than 15% are sustainable in the long run.1 fostered greater engagement on the platform. The downfall of

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another Google social network, , was built in the ecosystem, as well as the ecosystem leader or THE into its unusually open design, which let users orchestrator. They need to be able to gauge growth in know when their profiles were accessed by others. It RESEARCH terms of scale not only in ecosystem participation turned out that users were uncomfortable with this but also in the underlying operating model. And The authors built a lack of privacy, and the network went offline in database of more than most critically, they need metrics that reflect the suc- 2014, 10 years after its launch. 100 failed ecosystems, cess factors unique to each of the distinct phases of including B2C, C2C, and Typically, ecosystems are assessed using two kinds B2B platforms; social ecosystem development. of metrics: conventional financial metrics, such as networks; marketplaces; This article lays out a set of metrics and early software solutions; revenue, cash burn rate, profitability, and return on and payment, mobility, warning indicators that can help you determine investment; and vanity metrics, such as market size entertainment, and whether your ecosystem is on track for success and health care services. and ecosystem activity (number of subscribers, worthy of continued investment in each develop- clicks, or social media mentions). The former are not ment phase. They can also help you identify emerging They compared the failed very useful for assessing the prospects of ecosystems ecosystems with their issues and decide if and when you may need to cut because they are backward-looking. The latter can successful counterparts your losses in an ecosystem and/or reorient it. by industry using be misleading because they are not necessarily linked systematic qualitative and to value creation or extraction. They indicate the quantitative analysis. Four Phases in the Business current interest in the ecosystem, and presumably its Ecosystem Life Cycle potential, but may also reflect an ecosystem’s ability They studied the Our current research revealed that the growth of development of all the to spend investors’ money on marketing and other ecosystems and identified business ecosystems typically occurs in four phases. growth tactics more than its ability to generate value. key success metrics and Each encompasses unique jobs to be done with cor- red flags that are early To improve the odds of success and mitigate the indicators of emerging responding success factors and thus also requires high costs of failure, leaders must be able to assess challenges in each of the specific indicators and metrics for assessing ecosys- four life cycle phases. the health of a business ecosystem throughout its life tem health. cycle. They need metrics that indicate performance In the launch phase, the focus should be on and potential at the system level and at the level of developing a strong value proposition for all eco- the individual companies or partners participating system participants (the orchestrator, partners, and

HOW TO TRACK ECOSYSTEM HEALTH THROUGH ITS LIFE CYCLE LIFE CYCLE PHASES KEY SUCCESS METRICS RED FLAGS Launch: • Number and engagement level of • Critical partners do not join the ecosystem. Establish the ecosystem marquee partners • The wrong users subvert the value proposition of the ecosystem. in the market, introduce it • Number and engagement level of • Opinion leaders start to leave the ecosystem. to users, and prove the high-value customers • You frequently have to change your offering. viability of the concept. • Customer feedback Scale: • Number of new active customers • A persistent imbalance between participants on both sides of the Increase the amount of • Number of new active partners market develops. platform activity, expand • Number of successful transactions • Ecosystem growth reduces value for one side of the market. the operating model, and • Unit cost per transaction • Increasing numbers of users misuse the ecosystem. grow toward profitability. • Quality indicators begin to decline. • The operating model complexity begins to rise. Mature: • Churn rates of customers/partners • The engagement level of customers or partners declines. Consolidate and defend • Revenue per customer • Early ecosystem adopters start to leave. the ecosystem’s position. • Contribution margin per transaction • Aggressive copycats and/or niche competitors emerge. • Retention costs for customers/partners • Partners begin to create competing platforms of their own. • Acquisition costs for customers/partners • Successful ecosystems from other sectors expand into your field. Evolve: • Share of revenue from new products • The orchestrator’s take rate from partners rises. Continuously adapt, or services • Partners increasingly complain about predatory behavior. advance, and reinvent • Customer satisfaction • Negative coverage in (social) media begins to accumulate. the ecosystem. • Partner satisfaction • Legal actions against the ecosystem accelerate.

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 10 customers) and on finding the right initial design. • What is the definition of success? What are the After the ecosystem is established, it enters the primary milestones that you need to achieve to scale phase, in which the key focus is to increase master the current life cycle phase and enter into the number and intensity of interactions in the the next phase? ecosystem and to decrease the unit cost of each in- • What do you need to get right? What are the key teraction. An ecosystem that has successfully scaled factors that make the difference between success enters the maturity phase, in which growth slows and failure in this phase? and focus turns to bolstering customer and partner loyalty, and on erecting barriers to entry by com- • What are key success metrics? Which numbers petitors. Once a defensible position is attained, the should you track to assess the performance of ecosystem enters the evolution phase, in which the your ecosystem in this phase? focus shifts to expanding the offering and innovat- • What are red flags? What are early warning indica- ing continuously. tors that signal that your ecosystem may not be on To assess ecosystem health in each of these the path to success, that you may have to change phases, leaders need to ask and answer the follow- your initial design, or that you should shut it down? ing questions:

PHASE 1: Launch must be large enough to justify the invest- Third, the orchestrator must determine he goal in the launch phase is to ment required to establish it and attract the the proper level of openness for the ecosys- establish the ecosystem in the partners needed to operate it. This ultimately tem and create the standards, rules, and T market by introducing it to users depends on the value that the ecosystem can processes to regulate access and decision and proving the viability of the concept. To create for its customers and their willingness rights. Open ecosystems usually experi- this end, the orchestrator needs to formu- to pay for it. To achieve this, the ecosystem ence faster growth, particularly during late the value proposition and delineate must, for example, remove a substantial the launch phase. They enable greater the initial structure of the ecosystem. This source of friction for customers or fulfill a diversity and encourage decentralized in- work includes defining the activities and sizable unmet or new customer need. novation. Closed ecosystems allow for a partners needed to deliver the value prop- Second, the orchestrator must more deliberate design of the ecosystem osition, the links among them, the roles the required participants to commit and and for greater control over business part- and responsibilities of the different partic- contribute to the ecosystem. This is about ners and the quality of offerings. ipants, and the design of the governance not only the sheer number of participants Finally, the orchestrator must decide and operating models. We identified four but also the right participants (such as pop- how to charge for the ecosystem’s products key factors that make the difference ular developers on a gaming platform) in and services, and determine how to share between success and failure during the the right proportions (a balanced number the value created in ways that motivate launch phase. of drivers and riders on a ride-hailing plat- participants to foster ecosystem growth. First, the profit potential of the ecosystem form, for example).

Metrics: Many metrics can be tracked during the launch phase of • Number and engagement level of high-value customers. For a your ecosystem, including marketing expenses, technology costs, gaming platform, this might be heavy users who buy add-ons to revenues, funding, burn rate, total number of users, and media at- enhance play; for a B2B marketplace, it might be the largest com- tention. But to assess ecosystem health during this phase and panies in target sectors; and for a social media platform, it might evaluate the odds of success, we suggest focusing on the following be prominent opinion leaders. three key metrics: • Customer feedback. This is measured based on quality ratings • Number and engagement level of marquee suppliers. For ex- of the ecosystem’s products and services in comparison to ample, a restaurant booking platform would want to track the competing offerings, or Net Promoter Scores in customer number of subscriptions and reservations among the leading res- surveys. In this case, aggregated metrics should be augmented taurants in key cities. with qualitative feedback from individual customers

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to understand the root causes of customer Frequent changes sued by several record labels for billions of satisfaction or dissatisfaction. to the value dollars, and it had to install a strong copy- right identification system and monetization Red flags: If your scores on these three met- proposition suggest options for copyright holders.4 rics are strong and trending higher, it is likely that the ecosystem • Opinion leaders begin to leave the ecosys- that your ecosystem is performing well in the is not sufficiently tem. In the DVD player war that started in launch phase. If, however, any of the follow- compelling or that 2005, the HD DVD platform, developed by ing red flags appear, your ecosystem may be it appeals to too Toshiba, Microsoft, and others, initially sold veering off the path to success, and you may few customers. more players than the Blu-ray platform, have to change your initial design or shut championed by Sony and Apple. However, down altogether: the HD DVD camp had to concede defeat • Critical partners do not join the ecosystem. after large film studios, including Warner Better Place was founded in 2007 to provide an infrastructure for Brothers and Fox Searchlight Pictures, defected to Blu-ray.5 the efficient charging or exchange of batteries. In this • The ecosystem’s value proposition is changed frequently. model, a buyer purchased a vehicle without a battery and paid a Frequent changes to the value proposition suggest that it is not mileage-based monthly fee for leasing, charging, and exchanging it. sufficiently compelling or that it appeals to too few customers. Better Place failed in 2013, after receiving more than $900 million in Club Nexus, created at Stanford in 2001, was the first college- funding, because it was unable to secure the participation of auto- specific social network. It reached 1,500 members within six makers, an essential group of partners in the ecosystem.3 weeks of its launch, but growth leveled off just as quickly. The • The wrong users subvert the value proposition of the ecosys- network responded by adding new features, such as chat, email, tem. YouTube was set up as a platform for people to share classified ads, articles, and events. However, the added complex- personal videos, but in its early years many people used the plat- ity only made the platform more difficult to use, and the network form to post illegally copied content. As a result, YouTube was soon closed down.6

PHASE 2: Scale of scale. Direct network effects occur of the ecosystem’s operating model to keep hen ecosystems survive the when the value derived by users on one up with growing demand and realize econ- launch phase, the focus of side of an ecosystem grows as their num- omies of scale. Successful digital W orchestrators shifts toward bers increase (such as social network ecosystems benefit from asset-light busi- increasing the amount of platform activ- users). Indirect network effects manifest ness models, low-to-zero marginal costs, ity, scaling the operating model, and when the value derived by participants on and increasing returns. However, the econ- growing toward profitability. Two key fac- one side of an ecosystem grows with the omies afforded by supply-side scale can be tors determine the difference between number of participants on another side limited by rising marketing, recruiting, success and failure during this phase. (for example, drivers on a ride-hailing and technology expenses. As networks The first factor is the ability to establish platform prosper as the number of riders grow, increased complexity and quality and harness strong positive network ef- increases). control can drive up costs and diminish fects that provide demand-side economies The second success factor is the ability economies of scale, too.

Metrics: To assess the extent to which your ecosystem is fulfilling • Number of successful transactions. Increasing the number these success factors during the scale phase, we suggest that you of transactions is crucial because ecosystems create value for focus on the following four key metrics: customers, partners, and orchestrators through transactions, • Number of new active customers. Rapidly attracting new active not through media attention, number of registered users, or customers to the ecosystem is the key to achieving scale on the click rates. demand side. • Unit cost. Unit cost — that is, the average total ecosystem cost per • Number of new active partners. Increasing the scope, diversity, transaction — must decrease during the scale phase in order for and scale of the offering is an important precondition for appeal- ecosystem growth to provide value for all participants. ing to new customer segments.

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 12 Red flags: In addition to these metrics, a number of early warning the platform, and in 2004 it was sold for just $7 million.8 signs may indicate that your ecosystem is not on track during the • Increasing numbers of users misuse the ecosystem. As OpenTable, scale phase and that you need to adjust its design or governance the restaurant booking platform, scaled, the incidence of no-show model: reservations grew along with it, alienating its restaurant partners. To • A persistent imbalance develops between the number of partici- mollify them, the platform introduced a policy that banned users pants on different sides of the market. U.S. fleet-card companies, who failed to show up or canceled reservations less than 30 minutes such as Comdata (now owned by FleetCor Technologies) and Wex, in advance four times within a 12-month period.9 sought to orchestrate ecosystems that cut maintenance and adminis- • Quality indicators begin to decline. If the quality of an ecosystem’s trative costs for the owners of truck fleets and drove business to truck offerings deteriorates during the scale phase, a downward spiral in stops. But they found it hard to scale initially because they could not both supply and demand can develop. For example, social media convince enough fleet operators to pay for the service. To resolve the platform MySpace did not require users to provide their real identity. imbalance and attain profitable scale, the orchestrators changed As a result, the platform became littered with spam and attracted their pricing structure from one in which truck fleets paid and truck inappropriate content, which, in turn, made it less attractive for stops were subsidized to one in which truck stops contributed major brands to be associated with the ecosystem and ultimately considerably more to revenues than fleets.7 contributed to its demise.10 • Ecosystem growth reduces value for one • Operating model complexity begins to rise. side of the market. Covisint, an auction In the early days of the internet, Yahoo be- marketplace in which automotive suppliers Orchestrators came a leading internet portal and search bid for contracts from car manufacturers, need to find ways engine by manually curating and categorizing quickly attracted $500 million in funding to enhance the websites into topic areas. This operating from five major automakers. But as the eco- model worked well until the internet started system reached the scale phase, it became loyalty of ecosystem to grow exponentially and the number of increasingly unattractive for suppliers: As participants, because websites exploded. It quickly became appar- more of them joined the ecosystem, the competitors will ent that Yahoo’s model was not scalable, and competition for contracts led to lower and increasingly try it was overtaken by Google and its automatic lower winning bids. Suppliers abandoned to poach them. page-rank algorithm.11

PHASE 3: Maturity failure during the maturity phase. Second, orchestrators of mature eco- n the maturity phase, the growth of First, the orchestrator needs to find systems must erect barriers to entry to the ecosystem begins to slow because ways to enhance the loyalty of ecosystem defend their positions against incursions I its market is increasingly saturated participants, because competitors will by competitors and imitators. Digital eco- and it has captured a substantial share. increasingly try to poach them. This is a systems require lower initial investments, Now, management’s primary objective particularly dangerous threat when eco- and their network effects are weaker and shifts to consolidating and defending the system participants can simultaneously can be more easily reversed than the physi- ecosystem’s position. This can be challeng- join multiple competing ecosystems and/ cal network effects of, say, a railroad or ing because competitive attacks can target or easily switch between ecosystems. For telephone network. To build barriers to either the demand or the supply side of the example, restaurants and consumers often entry, orchestrators can harness network, ecosystem. Moreover, mature ecosystems use more than one food- plat- scale, and learning effects (such as using must avoid complacency and continue form. To reduce this risk, orchestrators customer data and advanced analytics to being the technology and innovation lead- can offer additional services to partici- continuously improve and personalize of- ers in their industries. Two key factors pants and add user incentives, such as ferings) that are difficult for new entrants make the difference between success and loyalty programs. to match.

Metrics: To assess ecosystem health during the maturity phase, or- percentage rates at which customers stop using an offering or part- chestrators and partners should focus on the following five metrics: ners stop contributing to the ecosystem, are the most direct measures • Churn rates of customers and partners. Churn rates, the annual of loyalty and performance vis-à-vis competing ecosystems.

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• Revenue per customer. This metric quantifies users’ engagement competitor has emerged. At the time of this writing, Twitch is the levels and loyalty. Increasing revenue per customer is an important dominant platform for livestreaming online video games; it had a growth lever after a high level of market penetration is achieved. 73% market share at the end of 2019.13 However, some of its key • Contribution margin per transaction. This metric reflects the early adopters are switching to competing platform YouTube. For value that consumers assign to the transactions within the ecosys- instance, Activision Blizzard announced a multiyear exclusivity tem. Declining contribution margins per transaction indicate deal with YouTube in January 2020, which means that Twitch has increasing price pressure and competitive intensity. lost what was at one time its second-most-watched gaming • Retention costs for customers and suppliers. Frequently, reten- channel, Overwatch League. In addition, a few high-profile tion costs are treated as a fixed cost or not explicitly measured at gamers with millions of followers have switched from Twitch to all, but they can undermine the of the ecosystem if YouTube.14 they continuously escalate. • Aggressive copycats and/or niche competitors emerge. Successful • Acquisition costs for customers and partners. Similar to retention business models attract competition from me-too players that costs, acquisition costs are frequently not broken out separately, but offer a similar value proposition at a lower price and from niche they are also potentially detrimental to ecosystem economics. competitors that bring specialized offerings to specific segments of the market. For example, Upwork, the leading marketplace for Red flags: A number of early warning signs can help you recognize freelance labor, faces competition from hundreds of niche plat- if your ecosystem is not on track during the maturity phase and forms that focus on specific industries, job types, and locations. when you need to take action: • Ecosystem partners begin to create competing platforms of • The engagement level of customers or partners declines. their own. Sometimes partners in successful ecosystems decide Declining levels of engagement among ecosystem participants to become orchestrators of their own ecosystem. Handset maker often presage revenue declines. The demise of MySpace was fore- Samsung, for example, is a partner in Google’s Android ecosys- told when the frequency of use began falling (with only 3% of tem but has developed its own app store, the Samsung Galaxy users checking the app multiple times Store, that is in direct competition with the daily), while more than 30% of users of Google Play Store. emerging competitor Facebook checked • Successful ecosystems from other sectors that app multiple times per day. This was at launch competitive thrusts. Ecosystem least partially caused by design choices: Sustainable ecosys- carryover — the expansion of a successful MySpace was profile-based, and most pro- tems expand their business ecosystem into a neighboring files were static; Facebook was feed-based value propositions, domain — is an important route for and constantly delivered new content to such as by adding ecosystem growth and expansion, but it is users.12 new products or also a substantial threat for incumbent • Early ecosystem adopters begin to leave. ecosystems. For example, the credit card Early adopters are always in search of the services, expanding ecosystems orchestrated by Visa and most exciting and advanced offering in a into adjacent mar- Mastercard are under pressure from given domain. If they are leaving your eco- kets, or via full eco- marketplaces that are moving into payment system, there is a good chance that a serious system carryovers. services.

PHASE 4: Evolution First, ecosystem success over the long flexibility and adaptability into their hen ecosystems master the term depends on the ability to both learn platforms. maturity phase, they shift and innovate faster than competitors. The Second, sustainable ecosystems find W their focus to continuously exact evolution of a business ecosystem ways to expand their value propositions. adapting, advancing, and reinventing cannot and should not be planned in ad- This expansion can stem from the addition themselves before their competitors do. vance. Instead, a key strength of the model of new products or services to an existing According to our research, three key fac- is its responsiveness to customer needs and ecosystem (such as LinkedIn’s addition of tors explain most of the difference between technological changes. To support this, online recruiting and content publishing success and failure during the evolution orchestrators must be open to the creativ- services), expanding into adjacent markets phase. ity of ecosystem participants and build (such as the expansion of ride-hailing

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 14 platforms into ), or full eco- may have significant negative impacts on regulators (the , which system carryovers (such as Apple leveraging internal and external stakeholders, who fined Google for anticompetitive behavior its strong position in the music player will naturally push back. Such pushback in the Android ecosystem). Ecosystems ecosystem to conquer the can come from incumbents (local taxi that succeed over the long term avoid ecosystem). companies that fight Uber), partners (who predatory behavior, ensure fair value dis- Third, as the ecosystem expands, risk complain about unfair pricing on the tribution among all relevant stakeholders, management strategies become increas- Amazon marketplace), users (who criticize and proactively manage stakeholder ingly important. Dominant ecosystems Facebook’s data privacy policies), or perceptions.

Metrics: In addition to the health metrics for Rising take rates While Etsy continues to do well, this alien- the maturity phase, which continue to be may drive partners ated many partners, leading some of them highly relevant, ecosystems should focus on to protest and leave the platform.15 three additional key metrics during the evo- to leave and can • Partners increasingly complain about lution phase: indicate that the predatory behavior. Successful orchestra- • Share of revenue from new products or orchestrator is more tors can be tempted to exploit their services. The revenue derived from new focused on extract- dominant position and impose unfair additions to the ecosystem are a direct mea- ing value from the terms and conditions on the ecosystem. sure of ability to innovate and of progress in ecosystem than on Take, for example, EU regulators’ investiga- expanding the offering. growing it and tion into Amazon’s marketplace practices • Customer satisfaction. This is a defensive creating attractive and its dual position as both retailer and measure that not only alerts orchestrators if new opportunities. platform. That scrutiny was spurred by crit- their ecosystem is losing its edge but also re- ics’ accusations that Amazon used sales data flects the quality of the expanded offering. from its third-party merchants to launch its As in the launch phase, aggregated mea- own competing product lines and unfairly sures of customer satisfaction should be promoted its own brands.16 Perceptions of complemented by one-on-one conversations and qualitative predatory behavior create opportunities for competing ecosystems feedback. to attract important partners. • Partner satisfaction. This measures the extent to which part- • Negative coverage in (social) media begins to accumulate. ners feel they are treated fairly and are loyal to the ecosystem, Network effects cut both ways. When negative comments accu- and it reflects the new business opportunities provided by the mulate, they can become amplified and lead to a downward spiral expanding ecosystem. Again, it is important to listen carefully that threatens the viability of an ecosystem. This is what hap- to qualitative feedback from partners and to act on what you pened to MonkeyParking, a platform that enabled drivers to hear. auction vacated public parking spaces to other drivers. After being broadly criticized for privatizing and monetizing a public Red flags: A number of early warning signs may indicate that your good, MonkeyParking pivoted into a platform that helps owners ecosystem is not on track during the evolution phase and that you of parking spaces rent them.17 need to adjust your development path or behavior: • Legal actions against the ecosystem accelerate. Napster, a peer- • The orchestrator’s take rate from partners rises substantially. to-peer file-sharing website, didn’t check the copyright status of Rising take rates can significantly alter partner economics and files that were shared on its platform, leading many people to use may encourage partners to leave the ecosystem. They can also in- it for illegal music sharing. At its peak, Napster had 80 million dicate that the orchestrator is more focused on extracting value registered users, but too many of them illegally shared copy- from the ecosystem than on growing it and creating attractive righted content. As a result, Napster was sued by several record new opportunities. For example, Etsy, which offers a marketplace labels and popular musicians, such as Metallica and Dr. Dre. In for craftspeople and artists, recently raised its take rate from 3.5% 2001, it was forced to shut down after losing a major lawsuit. The to 5%, forced its partners to use its internal payment platform, company tried, but failed, to relaunch with appropriate copy- and required participation in a program that charges an addi- right filters, and eventually its name was sold and used to rebrand tional 12% to 15% on sales resulting from Etsy ad click-throughs. an online music store.18

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Be open to failure and have a clear pivot or exit plan. Given the reality that 85% of ecosystems fail to achieve long-term sustainability, the ecosystem you set up or join will most likely not succeed.

Conducting an Ecosystem Business Ecosystems Fail?” Consulting Group, Health Assessment June 22, 2020, www.bcg.com. The odds are against ecosystem success, but if you 3. R. Adner, “The Wide Lens: A New Strategy for Innovation” (New York: Penguin/Portfolio, 2012). are an orchestrator or a partner, you can improve 4. B. Popper, “YouTube to the Music Industry: Here’s the your odds by using the metrics and red flags Money,” The Verge, July 13, 2016, www.theverge.com. described above. To be successful, you should 5. Y. Kageyama, “Toshiba Quits HD DVD Business,” recognize that different phases of ecosystem devel- , Feb. 19, 2008. opment require very different managerial focal 6. D. Kirkpatrick, “The Facebook Effect: The Inside points and explicitly adopt new metrics as needed. Story of the Company That Is Connecting the World” (New York: Simon & Schuster, 2010). Incorporate the metrics into your management 7. D.S. Evans and R. Schmalensee, “Matchmakers: information system and discuss them and the red The New Economics of Multisided Platforms” flags in your strategy reviews. If you find that your (Boston: Harvard Business Review Press, 2016). ecosystem is performing weakly on one or more 8. “Covisint Price Tag: $7 Million,” aftermarketNews, metrics or experiencing the red flags, seek to iden- June 10, 2004, www.aftermarketnews.com. tify the underlying drivers so that you can address 9. J. Phillips, “OpenTable Launches New Campaign to Combat Reservation No-Shows,” them and prevent future damage. Chronicle, March 21, 2017, www.sfchronicle.com. Be open to failure and have a clear pivot or exit 10. F. Gillette, “The Rise and Inglorious Fall of plan. Given the hard reality that 85% of ecosystems MySpace,” Bloomberg Businessweek, June 22, 2011, fail to achieve long-term sustainability, the ecosystem www.bloomberg.com. you initially aim to set up or join will most likely not 11. G. Press, “Why Yahoo Lost and Google Won,” , July 26, 2016, www.forbes.com. succeed. This means that it is critical to have clear tar- Kirkpatrick, “The Facebook Effect.” gets and plans for when and how to change course. 12. The metrics and red flags described above aren’t 13. A. Yosilewitz, “State of the Stream 2019: Platform Wars, the New King of Streaming, Most Watched Game the only metrics needed to assess a business, but and More!” StreamElements Blog, Dec. 19, 2019, they can help you track the key drivers of ecosystem https://blog.streamelements.com. health and ensure that your company beats the 14. A. Khalid, “YouTube Is Now the Biggest Threat to odds and succeeds. Twitch,” , Jan. 28, 2020, https://qz.com. 15. L. Debter, “Etsy’s Push to Compete With Amazon Leaves Sellers Squeezed by Rising Costs,” Forbes, Ulrich Pidun is a partner and director at Boston Con- Feb. 27, 2020, www.forbes.com. sulting Group and a fellow at the BCG Henderson Institute. Martin Reeves (@martinkreeves) is a senior 16. K. Cox, “Antitrust 101: Why Everyone Is Probing partner at Boston Consulting Group and chairman of Amazon, Apple, Facebook, and Google,” , the BCG Henderson Institute. Edzard Wesselink is a Nov. 5, 2019, https://arstechnica.com. principal at Boston Consulting Group and an ambas- 17. T.S. Perry, “Drawing the Line Between ‘Peer-to-Peer’ sador at the BCG Henderson Institute. Comment on and ‘Jerk’ Technology,” IEEE Spectrum, July 18, 2014, this article at https://sloanreview.mit.edu/x/62307. https://spectrum.ieee.org. 18. M. Harris, “The History of Napster: How the Brand REFERENCES Has Changed Over the Years,” Lifewire, Nov. 18, 2019, www.lifewire.com. 1. M. Reeves, H. Lotan, J. Legrand, et al., “How Business Ecosystems Rise (and Often Fall),” MIT Sloan Manage- Reprint 62307. ment Review, July 30, 2019, https://sloanreview.mit.edu. Copyright © Massachusetts Institute of Technology, 2021. 2. U. Pidun, M. Reeves, and M. Schüssler, “Why Do Most All rights reserved.

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PLATFORM SCALING, FAST AND SLOW Conventional wisdom says digital platform businesses should scale quickly, but that’s a mistake in some markets. BY MAX BÜGE AND PINAR OZCAN

hortly after its 2009 founding in San Francisco, subsidized fares to attendees of large conferences and other high- Uber executed a simple strategy that rapidly led to profile events, signing them up and then gaining thousands more its expansion on a global scale. To achieve network riders through word of mouth.1 effects by connecting as many drivers and passen- Rapid scaling, as exemplified by Uber, is a core element of plat- gers as quickly as possible, the company prioritized form strategy, with speed considered the decisive factor in the race Slaunches in new cities. It hired core teams of general managers, op- to succeed in winner-takes-all and winner-takes-most markets.2 erations managers, and community managers in multiple cities at But we’ve found that rapid scaling may not be the best strategy for once. In each city, these teams attracted drivers by offering existing all platforms. In some cases, a more careful, incremental, and thus black-car services an app — and sometimes a free smartphone — slower approach to scaling is more beneficial. to monetize their idle time. To attract riders, the teams offered In studying platform businesses, including Airbnb, Amazon,

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 17 THE

RESEARCH

The authors analyzed a wide range of digital busi- ness platforms, including Airbnb, Amazon, Apple, Ex- pedia, Facebook and its Libra project, Google, Grindr, LinkedIn, , PayPal, and Uber.

They examined the platform companies’ scaling strategies and the regulatory obstacles they encountered.

The research hypotheses and findings were corrobo- rated by interviews with industry experts, as well as representatives of finance ministries and central belonging to the G-20, a forum for the world’s 19 wealthiest countries and the European Union.

MICHAEL GLENWOOD GIBBS/THEISPOT.COM

Apple, Expedia, Facebook (particularly its e-payment Plotting Regulatory project, Libra), Google, Grindr, LinkedIn, Netflix, Complexity and Risk PayPal, and Uber, we found that regulatory Regulatory complexity describes the current level of complexity and regulatory risk are two significant legal and regulatory barriers that govern platform but often neglected factors in platform scaling entry and operations in a sector. The costs of operat- decisions. Moreover, they are likely to become in- ing in sectors with high levels of regulatory creasingly important in the years ahead as efforts to complexity, such as financial services or pharmaceu- regulate tech companies gain momentum and as ticals, can be significant, but legal and compliance more companies in a greater variety of sectors and teams can analyze and accurately predict them. markets seek to capture the benefits of platforms. Regulatory risk refers to the probability of an

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increase in legal and regulatory costs and complex- It is notoriously difficult to predict policy ity in the future. It includes a higher degree of outcomes or even attribute odds to different out- uncertainty than regulatory complexity. For in- comes.6 But there are some objective and quantifiable stance, until a few years ago, public opinion of tech metrics for calculating regulatory risk, such as ongo- companies and their platform businesses was ing legal cases, probes and inquiries by government largely positive, and policy makers were lenient. agencies, and the number and political influence of Recently, however, a majority of Americans have lawmakers who argue for tighter regulation. said that they want tougher regulations for tech A simple way for platform owners and operators companies, and lawmakers in the U.S., U.K., Israel, to understand the potential combinations of regu- Japan, and the European Union have called for latory complexity and risk is to think of the two stricter antitrust, taxation, consumer and data pro- factors as the axes in a 2×2 matrix. (See “Mapping tection, financial, and labor laws and regulations for Regulatory Risk and Complexity.”) technology companies.3 Such regulations can result LinkedIn and Expedia are two examples of plat- in considerable expense: Witness California forms exposed to low levels of regulatory Assembly Bill 5, which limited the ability of compa- complexity and risk. Compliance costs are relatively nies to classify gig workers as independent low in their sectors, as well as in sectors such as contractors and threatened the platform models of software (like .com) or entertainment companies such as DoorDash, , and Uber. Along (like Netflix). In addition, there are no serious with and , those companies debates among lawmakers and policy makers in the spent $224 million — a record-breaking amount in U.S. and elsewhere regarding whether to restrict a California proposition campaign — to success- their business models or operations. fully convince voters to pass Proposition 22, which PayPal is among the platforms operating in mar- exempted them from some provisions of the bill.4 kets with high levels of regulatory complexity but Likewise, Google is likely to face considerable costs low levels of regulatory risk. The company is in the arising from the antitrust suit that has been brought highly regulated financial services sector, where against it by the U.S. Department of Justice.5 overall compliance spending amounts to $270 bil- lion, and 10% to 15% of the workforce is employed in governance, risk management, and compliance MAPPING REGULATORY RISK AND COMPLEXITY activities.7 The platform successfully navigates this Platforms face a unique combination of regulatory risk and complexity that they must evaluate as they enter new markets, and adapt scaling strategies regulatory environment by carefully weighing regu- accordingly. latory complexity when it chooses which services to offer its 300 million customers. For instance, PayPal didn’t seek its first banking license for Europe — a move that would have significantly increased regu- High complexity, High complexity, HIGH latory complexity and scrutiny — until 2007, five low risk high risk years after its . But its regula- tory risk is low, because the company is not at the REGULATORY SCALE QUICKLY SCALE SLOWLY center of current policy debates. COMPLEXITY Some platforms face low regulatory complexity but high regulatory risk. Online dating doesn’t Low complexity, Low complexity, involve a high degree of regulatory complexity, but LOW low risk high risk Chinese gaming company Beijing Kunlun Tech didn’t anticipate regulatory risk when it purchased SCALE QUICKLY SCALE QUICKLY a majority stake in the dating app Grindr in 2016 and acquired full ownership in 2018. Kunlun was LOW HIGH planning to grow the platform and launch an IPO, but then the Committee on Foreign Investment in REGULATORY RISK the United States (CFIUS) stepped in. Concluding

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 19 that the platform’s data could potentially be used in which the brain operates under different circum- by the Chinese government to blackmail U.S. offi- stances. He asserted that fast thinking prevails in cials or military personnel, CFIUS forced Kunlun situations requiring rapid and intuitive action (such to divest from Grindr.8 as if you hear a rattlesnake), whereas slow thinking Platforms occupying the quadrant with low occurs in situations requiring more deliberate, or- regulatory complexity but high regulatory risk derly, and computational mental work (such as when include more and more companies, such as Airbnb, you calculate your annual income tax). Amazon, Facebook, Google, and Uber. A closer Analogous to Kahneman’s distinction, we argue look reveals that many of them are operating in a that platform owners and operators should explicitly regulatory void — that is, a context without estab- decide whether to scale their user base fast or slow. lished and powerful regulatory authorities, a tight Fast scaling, which has also been called blitzscaling by net of rules, and strict barriers to entry. Accordingly, Reid Hoffman and Chris Yeh, means prioritizing there is a high degree of uncertainty regarding how speed over efficiency.12 The strategic objective in fast regulators may react, which makes it difficult for scaling is to grow rapidly, experiment quickly to these businesses to develop discrete policy scenar- improve product-market fit, and leverage strong net- ios, attribute probabilities, and make robust work effects to attain and maintain a leading market assumptions on timing.9 share. Slow scaling entails detailed scenario planning Finally, some platforms are in markets where and actor analysis, careful risk management, incre- they must contend with high regulatory complexity mental geographic expansion, and continual and high regulatory risk. In 2019, Facebook and a investment in the platform’s reputation and trust- consortium of international partners announced worthiness. It does not exclude the pursuit of network the Libra project, a -based payment effects, which are a prerequisite of success for system. Since the release of Bitcoin in 2009, the platform businesses, but it prioritizes analysis, cryptocurrency market had been rapidly develop- iterative growth, and risk minimization over speed. ing, with some countries, such as China and India, Increasingly, regulatory complexity and risk are choosing a restrictive approach and most Western becoming the determining factors in the choice nations favoring a more nuanced approach that between fast and slow scaling. Legislators and tempered regulation to encourage technological regulators were initially slow to react to the experimentation. Nevertheless, Libra triggered im- disruptive effects of the platform economy, but that mediate alarm among policy makers and regulators, is changing: Currently, there are vivid debates on as well as a precipitous rise in the entire sector’s reg- the appropriate policy landscape for platform ulatory risk. This occurred for three reasons: a businesses in countries as diverse as France, general lack of trust in Facebook; the potential reach , Israel, Japan, Mexico, , the United of Libra, given Facebook’s 2.4 billion users; and the Arab Emirates, the U.K., and the U.S. These debates Libra consortium’s inability (or unwillingness) to are resulting in legislative and regulatory changes at explain how it would obviate negative effects in sen- an accelerating pace.13 sitive areas such as terrorism financing, tax evasion, In low-risk regulatory contexts, fast scaling is and money laundering.10 As a result, in 2020 necessary to activate three interrelated positive- Facebook and its partners had to drastically revamp feedback loops: 14 their institutional efforts and downgrade their am- • A network loop, in which growing numbers of bitions for Libra to, as the put it, users make the platform more useful and valuable “appease wary regulators.”11 to new users. Scaling Decisions in • A data loop, in which more data yields more in- the Four Quadrants sights regarding consumer preferences, market Nobel Prize-winning behavioral economist Daniel structure, and market trends, which are used to Kahneman made a distinction between “fast” and improve the platform’s product-market fit, mak- “slow” thinking to illustrate two very different modes ing it more attractive to new users.

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• A capital loop, in which high growth rates make within 24 hours.18 TfL relented and granted Uber the platform more attractive to investors — gen- several extensions. Similarly, when the controver- erating the funding and know-how needed to sial Stop Online Piracy Act was introduced in the support continued growth. U.S. House of Representatives in 2011, more than 7 million Google users signed a petition against it.19 If any of these loops cannot be activated, scaling The bill died in committee. And when they are un- takes longer or becomes impossible to achieve, and able to influence legislators, as with California’s the platform can become an also-ran. MyTaxi, a Assembly Bill 5, the platform companies don’t only ride-hailing platform founded in Hamburg, have the financial resources to draft and finance Germany, in 2009 — shortly before the launch of measures such as Proposition 22 but can also use Uber in the U.S., Halo in the U.K., and GetTaxi in their platforms to influence users: Customers in Israel — is a good example. MyTaxi’s business California were targeted with in-app campaign model was similar to Uber’s, its technology was well messaging and via stickers on delivery bags from engineered, and early feedback from drivers and Instacart and DoorDash.20 riders was overwhelmingly positive. Yet MyTaxi These examples suggest that the ability to was unable to raise the capital it needed to scale fast leverage a scaled-up user base as advocates in the (mainly because of Germany’s shallow venture political sphere provides a strong incentive for ).15 As a result, MyTaxi had to merge companies facing low regulatory complexity but with a car-sharing platform, and today its rides and high regulatory risk to scale fast. Moreover, in the revenue are only a fraction of Uber’s.16 short term, the risks of slow scaling in terms of Fast scaling is also the most appropriate strategy networks, data, and capital outweigh the risk of for platforms facing low regulatory complexity and attracting regulatory scrutiny. It is possible that high regulatory risk. This seems counterintuitive the benefits of a switch to slow scaling may be in a context where fast scaling may arouse the substantive in the long term, but that is neither attention of policy makers and regulators, à la clear nor tangible given the residual uncertainty in Kunlun’s plans for Grindr. However, our analysis this context. finds that the powerful advantages of the three In arenas with both high regulatory complexity feedback loops outweigh the regulatory risks, at and high regulatory risk, however, slow scaling is least in the short term. the most prudent strategy. Facebook demonstrated Witness the current situations in which some of the pitfalls of fast scaling in this quadrant with its the world’s largest platform companies, including Libra project. Our interviews, as well as public Amazon, Apple, Facebook, and Google, find statements, revealed that financial regulators were themselves. All of them started out in a context of surprised by the project’s fast-scaling strategy, low regulatory complexity and low regulatory risk, which they found highly inappropriate, especially and they scaled fast. Now, because of their success in light of Facebook’s involvement in data misuse and the dominant market positions they have scandals and the project’s disruptive potential vis- attained, they have increasingly attracted the à-vis national financial and monetary policies. attention of lawmakers and oversight authorities; “Libra, like any [cryptocurrency] project with in essence, they have migrated to the quadrant of global scale and scope, must address a core set of low complexity but high risk. legal and regulatory challenges,” said U.S. Federal In reaching scale, however, they have also gained Reserve governor Lael Brainard in a December a powerful resource that helps mitigate regulatory 2019 speech. “A significant concern regarding risk: a huge base of users, who can serve as powerful Facebook’s Libra project is the potential for a political advocates.17 Thus, in 2017, when payment system to be adopted globally in a short for (TfL) stripped Uber of its license to op- time period and to establish itself as a potentially erate in the city because of safety failures, Uber was new unit of account.”21 able to respond with a petition to renew its license As Brainard’s comment suggests, Facebook’s that was signed by more than 500,000 people fast-scaling approach in an environment of high

SPECIAL COLLECTION • NEW STRATEGIES FOR THE PLATFORM ECONOMY • MIT SLOAN MANAGEMENT REVIEW 21 regulatory complexity and risk led to its quick shut- for the are still in their infancy. down by powerful financial market supervisors.22 A Investment in trust: Too often, companies slower, more careful scaling strategy would have focus their efforts on innovative technology and at- been less controversial and more likely to have led tractive user interfaces but neglect the potential to Libra’s success. societal consequences of their platforms. In a recent survey of 34,000 people in 28 countries, more than How to Scale Slow 60% of the respondents said they are worried that Platform businesses operating in high-risk, high- tech companies are “out of control” and that gov- complexity environments might avoid the ernments are not regulating them effectively.24 challenges faced by the Libra initiative by using a Such public sentiment, and the demands of inves- slow-scaling strategy that has four key ingredients: tors and other stakeholders, are driving leaders to analysis of the macro environment, careful risk place a higher priority on seeing that their compa- management, investment in stakeholder trust, and nies behave in a trustworthy and reliable manner.25 incremental geographic expansion. Trustworthiness is especially important in Analysis of the macro environment: Analysis contexts of high regulatory complexity and risk. To begins with the selection of the strategy team. In attain this status, platform operators should contexts of high regulatory risk, platform owners understand the underpinnings of public and and operators need to predict policy dynamics and institutional trust, and invest resources to maintain identify potential regulatory scenarios. This and enhance trust from regulators and consumers. requires that they supplement their legal, technical, Narrow geographical focus, incremental ex- and business teams with policy experts, risk pansion: Because trying to achieve global scale in analysts, and scenario planners. sectors typified by high regulatory complexity and These experts should provide in-depth risk is hazardous, platform expansion should be analyses — and mapping before and during project more cautious. Experimental techniques that have development — to identify relevant institutional become a mainstay of improving product-market actors and understand their mandates and priori- fit, such as A/B testing, can be difficult or strongly ties along with the broader economic, social, and limited in highly complex and risky regulatory political effects and implications of the platform. contexts. Such analyses are a prerequisite for identifying risks, One alternative is to test the waters in selected making underlying probability assumptions, and jurisdictions. The resulting interactions with developing strategic responses. regulators and consumers can provide important Careful risk management: As a natural exten- insights and highlight previously undetected risks. sion of the above analysis, platforms need to Before committing to geographic expansion, these identify risks and develop a sound risk manage- findings can be fed into product development and ment system in the context of high regulatory political strategy. complexity and risk. Introducing a risk manage- ment system too late can be costly in terms of time, “SUCCESSFUL TECH BUSINESSES need to un- money, and reputation. Thus, early in the process derstand how to navigate through the complex, and of strategy making, risk management and scenario not always coherent, regulation that global law- planning should receive the same level of attention makers are rolling out,” concluded international by senior management as the platform’s technology law firm Hogan Lovell after surveying new tech and business models. regulations in 16 jurisdictions across the globe.26 Technology companies can identify and manage We expect this advice to apply to more and more a wider range of risk by adapting the environmental, platforms in the coming years. social, and governance (ESG) mechanisms already Daniel Kahneman proposed a more nuanced in place in other sectors. A broad set of ESG stan- understanding of human cognition based on the dards and risk management tools already exists.23 idea that thinking fast is advantageous in some situ- However, ESG mechanisms designed specifically ations while thinking slow is better in others.

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Similarly, our research suggests that a more nuanced 10. C. Condon, “Fed’s Brainard Raises Red Flags Over understanding of platform scaling is needed. We Facebook’s Libra Project,” , Dec. 18, 2019, www.theguardian.com. think that understanding should include regulatory 11. H. Murphy and I. Kaminska, “Facebook’s Libra complexity and regulatory risk — two parameters Overhauls Core Parts of Its Digital Currency Vision,” that enable platform owners to plumb the macro Financial Times, April 16, 2020, www.ft.com. environment and design sound and context- 12. In “Blitzscaling,” Hoffmann and Yeh also employ the specific scaling strategies. We foresee that these pa- term “fast scaling,” but with a different meaning than rameters will become increasingly important for used here. tech companies in the future, especially as digital 13. Hogan Lovells, “A Turning Point for Tech.” disruption expands to more strictly regulated sec- 14. For a more detailed discussion of the specific charac- tors, and policy makers and regulators increasingly teristics of platform business models, see, for instance, G. Parker, M. van Alstyne, and S. Choudary, “Platform redesign legal frameworks in the era of the plat- Revolution: How Networked Markets Are Transforming form economy. the Economy — and How to Make Them Work for You” (New York: W.W. Norton, 2016). Max Büge is a visiting scholar at Saïd Business 15. C. Keese, “The Challenge: A Wake-Up School at the University of Oxford. Pinar Ozcan Call for Europe” (Munich: Penguin Verlag, 2016). (@profpinar) is a professor of entrepreneurship and innovation at Saïd Business School. Comment on 16. C. Kapalschinski and L. Holzki, “ Will zur this article at https://sloanreview.mit.edu/x/62303. Roller-Plattform Werden,” Handelsblatt, Nov. 7, 2019, www.handelsblatt.com. REFERENCES 17. B. Uzunca, J.P. Coen Richtering, and P. Ozcan, “Sharing and Shaping: A Cross-Country Comparison of 1. Y. Moon, “Uber: Changing the Way the World Moves,” How Firms Shape Their Institutional case no. 316101 (Boston: Environment to Gain Legitimacy,” Academy of Manage- Harvard Business School Publishing, 2015). ment Discoveries 4, no. 3 (September 2018): 248-272. See, for example, R.I. Sutton and H. Rao, “Scaling Up 2. 18. M. Farrer and N. Khomami, “More Than 500,000 Sign Excellence: Getting to More Without Settling for Less,” Petition to Save Uber as Firm Fights London Ban,” The (New York: Crown Business, 2014); and R. Hoffman and Guardian, Sept. 23, 2017, www.theguardian.com. C. Yeh, “Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies” (New York: Currency, 19. E. Engleman, “SOPA Bill Petition Collects 7 Million 2018). Signatures, According to Google,” , Jan. 19, 2012, www.washingtonpost.com. 3. A. Breland, “Americans Want Tougher Regulations for Tech Companies: Poll,” The Hill, April 20, 2018, 20. S. Harnett, “Gig Companies Are Making Their https://thehill.com; Hogan Lovells, “A Turning Point for Workers Promote Prop. 22,” KQED, Oct. 20, 2020, Tech: Global Survey on Digital Regulation,” Oct. 30, 2019, www.kqed.com. www.hoganlovells.com; and G. Edelman, “Congress 21. L. Brainard, “Update on Digital Currencies, Stable- Unveils Its Plan to Curb Big Tech’s Power,” Wired, coins, and the Challenges Ahead” (remarks at Monetary Oct. 6, 2020, www.wired.com. Policy: The Challenges Ahead — An ECB Colloquium 4. R. Menezes, M. Moore, and P. Do, “Billions Have Been Held in Honour of Benoît Cœuré, , Germany, Spent on California’s Ballot Measure Battles. But This Dec. 18, 2019). Year Is Unlike Any Other,” Los Angeles Times, Nov. 13, S. Webb, “Facebook’s Libra Is a ‘Failure,’ Says Swiss 2020, www.latimes.com. 22. President,” Coin Rivet, Dec. 30, 2019, https://coinrivet 5. “Justice Department Sues Monopolist Google for .com. Violating Antitrust Laws,” U.S. Department of Justice, Oct. 20, 2020, www.justice.gov. 23. W. Henisz, T. Koller, and R. Nuttall, “Five Ways That ESG Creates Value,” McKinsey Quarterly, Nov. 14, 2019, 6. N. Silver, “The Signal and the Noise: Why So Many www.mckinsey.com. Predictions Fail — but Some Don’t” (New York: Penguin Press, 2012). 24.“Edelman Trust Barometer 2020,” Edelman, January 2020, www.edelman.de. 7. KPMG, “There’s a Revolution Coming: Embracing the Challenge of RegTech 3.0,” 2018, https://assets.kpmg. 25. N. Megaw, “Index Ventures’ Jan Hammer: Bringing Perspective to Single-Minded Tech Founders,” Financial 8. Y. Yang and J. Fontanella-Khan, “Grindr Sold by Chinese Times, March 8, 2020, www.ft.com. Owner After U.S. National Concerns,” Financial Times, March 7, 2020, www.ft.com. 26. Hogan Lovells, “A Turning Point for Tech.” 9. K. Gurses and P. Ozcan, “Entrepreneurship in Highly Regulated Markets: The Battle for Pay TV in the U.S.,” Reprint 62303. Academy of Management Journal 58, no. 6 (December Copyright © Massachusetts Institute of Technology, 2021. 2015): 1709-1739. All rights reserved.

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