Platform envelopment

TLDR

Entrants in platform markets must offer revolutionary functionality to overcome network effects and switching costs. The study investigates platform envelopment as a non‑innovative entry strategy and develops a typology of envelopment attacks, analyzing when each is likely to succeed. Envelopment allows a provider to bundle its own platform with a target’s, leveraging shared users to foreclose incumbents and capture market share by exploiting their network effects. © 2011 John Wiley & Sons, Ltd.

Abstract

Abstract Due to network effects and switching costs in platform markets, entrants generally must offer revolutionary functionality to win substantial market share. We explore a second entry path that does not rely upon Schumpeterian innovation: platform envelopment. Through envelopment, a provider in one platform market can enter another platform market, and combine its own functionality with that of the target in a multi‐platform bundle that leverages shared user relationships. Envelopers capture market share by foreclosing an incumbent's access to users; in doing so, they harness the network effects that previously had protected the incumbent. We present a typology of envelopment attacks based on whether platform pairs are complements, weak substitutes, or functionally unrelated and we analyze conditions under which these attack types are likely to succeed. Copyright © 2011 John Wiley & Sons, Ltd.