In the fast-changing world of digital platforms, becoming the dominant player in the market is difficult when new competitors keep popping up. Take Facebook, for instance. It used its strong network of users to become the leading social media platform, surpassing Orkut, which was already popular at the time.
Following are the four strategies designed to navigate the competitive terrain and emerge victorious in the battle for market dominance.
#1 Build Strong Network Effects
When a platform enjoys robust network effects, its value increases with growth in engaged users on each side. As users become deeply vested in the platform, it becomes increasingly challenging for new entrants to lure them away. For instance, as the user base of Instagram expands, so does the engagement with influencers' posts, consequently attracting more influencers to the platform. This, in turn, fosters the creation of additional content for users to consume.
#2 Avoid Network Clustering
Some platforms exhibit fragmented networks, consisting of local clusters of users. For instance, a ride-hailing platform, Uber demonstrates a strong network effect at the city level. Conversely, few platforms establish networks on a global scale. Take Instagram, for example; it enables connections with users from any corner of the globe. Platforms with global networks face fewer vulnerabilities to challenges, as it proves daunting for new rivals to compete on a worldwide stage. However, due to Uber's localized network effects, a newcomer like Blu Smart managed to capture a significant market share in the Delhi NCR region and is now strategizing expansion city by city.
#3 Reduce Multi-Homing
Multihoming occurs when users easily adopt multiple platforms due to low switching costs. For instance, when searching for a ride, a user might check Uber, Ola, Rapido, and others to compare prices and wait times. Platforms can mitigate multihoming by winning user loyalty on at least one side. For example, Uber offers bonuses to drivers who complete a targeted number of rides per month. Uber also ensures that the drivers receive new ride requests before completing the current one, thus enhancing driver engagement and retention. This strategy not only attracts more riders to Uber through network effects but also creates hurdles for new entrants seeking to onboard drivers.
#4 Build Bridges among Networks
Platforms can create powerful synergies by connecting different networks, thereby enhancing platform stickiness. For instance, Amazon leverages its Prime Membership to bridge users across e-commerce and OTT multimedia consumption networks. Similarly, with the introduction of Amazon Pay, it establishes a connection between users who frequently use UPI for payments and those who shop online. These bridges foster the growth of each business segment and sustain the scale of their respective networks. Consequently, new entrants in each industry, such as PayZapp for UPI payments and JioCinema for OTT, face significant costs to onboard users, requiring extensive marketing strategies and partnerships.
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Resources to learn more on Platform Ecosystem
- The Age of the Platform by Phil Simon (Kindle | Paperback)
- Matchmakers by David S. Evans and Richard Schmalensee (Kindle | Audiobook | Hardcover)
- Platform Scale by Sangeet Paul Choudary (Kindle | Hardcover)