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'Multihoming' costs a factor in platform competition for market share

How do platform businesses gain market share? According to Sangeet Paul Choudary, an expert in platform competition, paths vary. A Facebook or a LinkedIn, for example, have cornered the market in their respective niches. These market aggregators, with their massive community platforms enabled by cutting-edge technology and sophisticated data analytics, make it difficult for other like-businesses to compete. Other companies, however, take a big-tent approach, providing a gathering place for other businesses and customers to coalesce around a theme -- for example, fitness or telehealth.

In this segment of a multipart video series filmed at the recent MIT Platform Strategy Summit in Cambridge, Mass., Choudary, founder of think tank Platformation Labs, explains some of the basics of platform competition, including why "multihoming" costs are an important issue.

Is there a limit to the number of platform businesses that can remain viable in a given market segment?

Sangeet Paul Choudary: Once platforms become successful, they often move in the direction of winner-takes-all because, as more of the ecosystem participates, the rest of the ecosystem also wants to come in and coalesce around the single platform.

Now there are certain platforms that integrate the whole market, and it becomes difficult for somebody else to do the same thing. If you think of Facebook [or] LinkedIn, they don't have competitors because it's just difficult for anybody else to do the same thing. It's just more valuable for the whole market to come in one place.

But there are also certain platforms that are not market aggregation platforms. They are more of thematic platforms. So, if you think of Nike, Nike today is building a platform around the idea of fitness. And when you think of what Nike is doing, it's using data about the users to bring in third parties [that] would want to target those users. If you think of Walgreens, Walgreens is trying to move from retailer to a platform, whereas using the patient data in terms of what kinds of medicines they buy to actually connect them with a telehealth platform, with experts who can help them manage their health better.

These are platform plays that are not bringing a whole market together; they're bringing participants around the theme together.

How do developers aid or hinder a winner-take-all scenario?

Choudary: If you think of Apple and Android, it's very expensive for a developer to build simultaneously for two different platforms. That is why Steve Jobs disabled Flash on Apple because what Flash allowed a developer to do was to create once and deploy across multiple platforms. So the "multihoming cost" is an important issue. You're not going to see winner-takes-all when multihoming costs are low. It's going to take an incredible amount of competition before you actually see that. Facebook has very high multihoming costs, but Uber has very low multihoming costs. If you think of Uber, a taxi driver can exist simultaneously on Uber and Lyft. In fact, if he has two phones, he can have both of them on at the same time.

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