DILEMMAS OF PLATFORM STARTUPS Joni Salminen D.Sc. (Econ.)
[email protected] Marketing department, Turku School of Economics Abstract This paper explores the strategic problems of platform startups on the Internet: their identification and discovery of linkages between them form its contribution to the platform literature. The author argues that the chicken-and-egg problem cannot be solved solely with pricing in the online context – in fact, setting the price zero will result in a monetization dilemma, whereas drawing users from dominant platforms sets the startup vulnerable to their strategic behavior, a condition termed remora’s curse. To correctly approach strategic problems in the platform business, startup entrepreneurs should consider them holistically, carefully examining the linkages between strategic dilemmas and their solutions. Keywords: platforms, two-sided markets, startups, chicken-and-egg problem 1. Introduction 1.1 Research gap Approximately a decade ago, platforms began to receive the attention of scholars. Entering the vocabulary of economics, two-sided markets (Rochet & Tirole 2003) have become the focus of increased research interest in the field of industrial economics. The recent surge of platforms has been observed across industries, and businesses have swiftly adopted the platform strategy and terminology (Hagiu 2009). Eisenmann, Parker, and Van Alstyne (2011, 1272) found that “60 of the world’s 100 largest corporations earn at least half of their revenue from platform markets.” Related terms such as app marketplaces and ecosystem have gained popularity in other fields (see Jansen & Bloemendal 2013). Overall, the implications of two- sidedness have spread from economics to other disciplines such as information systems (Casey & Töyli 2012), strategic management (Economides & Katsamakas 2006), and marketing (Sawhney, Verona, & Prandelli 2005).