Launchworks & Co’s founders Laure Claire and Benoit Reillier launched the Platform Leaders initiative in 2020 to build a broad community of platform experts. Platform Leaders regularly convenes to bring together entrepreneurs, policy makers, academics, investors and practitioners to exchange insights and best practices on the future of digital platforms and their ecosystems. These communities are collectively building tomorrow’s platform economy and it is vital that they talk to one another. Platform Leaders provides strategic insights into key topics and allow experts to share complementary perspectives to shape the debate so that the potential of digital markets can be unlocked for all.
In order to further foster this dialogue between different communities and facilitating the sharing of insights on digital platforms, Platform Leaders decided to award a prize to an academic paper that demonstrates exceptional relevance and practical applications to the business world.
Platform Leaders 2024 Academic Prize
We are delighted to announce that the winners of the inaugural Platform Leaders Academic Prize winners at the Platform Leaders Conference on the 13th of November 2024 are Joe Ploog, Assistant Professor at IE Business School, and Joost Rietveld, Associate Professor at UCL Business School, for their paper: Rolling the dice: Resolving demand uncertainty in markets with partial network effects, Academy of Management Journal, 2024.
The paper, summarised below provides deep insights into some of the key success factors for platforms and network effect based businesses. It highlights the importance of launch timing, competitive forces and feature sets for network effects businesses. The prize winners presented their research and discussed its business implications, alongside a specially commissioned illustrated video produced by Launchworks & Co.
When network effects become a strategic choice
When we think about network effects, the typical assumption is that they benefit all competing products equally. But what if leveraging network effects wasn’t just a given, but a strategic choice? In markets characterised by “partial network effects,” some products are designed with social features to unlock added network value, while others compete on standalone merit.
This decision – whether or not to embed network effects – is a strategic gamble. It can amplify both the rewards and the risks of a product’s launch, making it a high-stakes choice for managers.
A case in point: Video games and board games
Consider the video game industry. Multiplayer titles like Fortnite thrive on social interaction and network value, while single-player games such as The Legend of Zelda cater to individual experiences. Similarly, in the board game industry, collectible games like Magic: The Gathering and Warhammer 40k depend on trading and competitive interactions to create value, unlike standalone games like Monopoly, which offer self-contained fun.
If you own a copy of Monopoly, you wouldn’t want your friends to bring their copies to a game night – it doesn’t add value. But if you play Magic: The Gathering, having your friends bring their own cards enhances the experience by enabling trades and competitions. This leads to an essential question: when does adding such social features make sense, and when could they hurt product performance?
The challenges of demand uncertainty
Joe Plogg and Joost Rietveld’s research, based on a study of nearly 20,000 board games from BoardGameGeek.com, reveals a critical insight: network products face significantly higher demand uncertainty compared to standalone products.
At launch, network products start from zero network value – their value only materialises as more people adopt them. Imagine trying to sell the first-ever telephone – its value depends entirely on convincing others to join the network. Consumers hesitate to adopt these products early on, unsure of whether they will achieve critical mass. This hesitation introduces significant demand uncertainty.
Key drivers of success or failure
The research identifies three strategic factors that can influence the diffusion of network products, either reducing or exacerbating demand uncertainty:
- Product novelty: While innovation can attract early adopters, it also increases perceived risks – especially for network products that need rapid adoption. Highly novel designs often fail to achieve the critical mass needed to unlock their network value.
- Early adopters: Crowdfunding platforms like Kickstarter help products gain early traction. However, the findings show that network products benefit less from this approach than standalone ones. The gap between the campaign’s conclusion and the product’s broader launch can sap momentum, making it hard to sustain the buzz.
- Competition: Intense competition or the presence of a dominant “hit” product hurts network products more than standalone ones. Network products depend on user convergence, and a crowded market fragments potential users, making critical mass harder to achieve.
Implications for managers
For managers considering adding social features to their products, two key lessons emerge:
- Network effects are not guaranteed: Embedding network effects is a deliberate decision, and while it can unlock immense value, it also raises the stakes. Products with network effects are risky; failure to achieve widespread adoption can result in market lockout.
- Anticipate demand uncertainty: Factors like novelty, competition and timing significantly impact a network product’s success. For instance, launching an innovative network product in a crowded or hit-dominated market can delay adoption as risk-averse consumers hold off.
Managers incorporating social features into their products are essentially rolling the dice. While successful network products can dominate the market, they also face the highest risks of failure.
The takeaway?
Network effects can be powerful but are not a guaranteed path to success. As you craft your platform strategy, you have to think carefully about product features, market dynamics, launch timing and consumer behaviour.
Congratulations again to Joe Ploog and and Joost Rietveld for their remarkable work and winning the Platform Leaders 2024 Academic Prize! 🎉
