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Abstract: The article challenges the common assumption that platform markets will inevitably consolidate around a single dominant player in a "winner-takes-all" dynamic. It argues that network effects, while providing advantages to early leaders, do not predetermine long-term market structure. Rather, differences in strategy, business models, and community relationships allow multiple platforms to coexist by catering to specific user groups. The article presents examples from the ride-sharing and e-commerce industries showing how platform leaders have prospered by embracing a "positive-sum" philosophy - empowering diverse participants, fostering interoperability, and cultivating vibrant multi-sided communities. The authors conclude that a pluralistic, community-centric mindset positions platform leaders to become prosperous nodes within continually expanding and valuable technological networks, rather than pursuing market dominance alone.
The emergence of digital platforms has disrupted many industries and shifted power away from large corporations towards more distributed networks (Parker et al., 2016). However, there persists a widely held belief that in the long run, platform markets will consolidate around a single dominant player in a "winner-takes-all" dynamic (Shapiro and Varian, 1999).
Today we will argue that the platform economy challenges traditional assumptions of winner-takes-all outcomes, and that organizations would be wise to avoid overly competitive "zero-sum" thinking in platform markets. Rather than pursuing market dominance, companies operating platform business models would be better served focusing on cooperation, community-building, and leveraging network effects to become important nodes within flourishing multi-sided markets.
Network Effects and the Myth of Winner-Takes-All Outcomes
A defining characteristic of digital platforms is the presence of network effects, where the value of a good or service increases with the number of users on each side of the market (Eisenmann et al., 2006). The classic example is telecommunications - a phone is more useful the more people you can call. Strong network effects are often cited as reasons why platform markets will naturally concentrate around a dominant player (Katz and Shapiro, 1985). However, closer examination of the research finds this assumption of inevitable winner-takes-all outcomes to be an oversimplification.
Network effects favor early large players but do not predetermine long-term market structure (Eisenmann et al., 2011). Differences in strategic focus, business models, and community relationships mean that multiple platform businesses catering to specific user groups can coexist.
"Tippy" network effects where small differences in scale result in disproportionate value leads to "de facto" standards emerging, but "damped" network effects are more common, allowing competition between close alternatives (Katz and Shapiro, 1994).
Multi-homing, where users participate on multiple platforms simultaneously, limits the lock-in power of network effects (Rochet and Tirole, 2003). This creates interoperability between ecosystems and lowers switching costs.
Complementors like developers, merchants, and content providers exert countervailing power and can choose where to direct their efforts based on which platforms best support their interests (Eisenmann et al., 2009).
While network effects provide important advantages, they do not dictate a universal "winner-takes-all" result. A more diversified, cooperative approach is viable long-term for platforms.
Positive-Sum Thinking in Platform Industries
Rather than obsess over becoming the sole dominant player, leaders in platform-based industries have recognized they can better serve their self-interest by enabling positive relationships across the entire ecosystem. Two illustrative examples are the ride-sharing and digital marketplace industries.
Ride-Sharing Platforms
Uber's initial strategy tightly controlled the driver experience and viewed competitors as threats to be eliminated (Newcomer, 2017). However, after years of unrest and regulatory pushback, the company now takes a more collaborative view. Drivers can work across multiple services like Lyft through driver apps that integrate multiple platforms. Passengers also multi-home and make price comparisons between Uber and Lyft.
Both companies benefit from the increased driver supply and passenger demand that results from their intertwined yet competitive ecosystems. Importantly, drivers and passengers have more choices tailored to individual preferences and circumstances. While Uber remains the largest player, a positive-sum mindset has allowed both businesses to find long-term success through differentiated rather than commoditized offerings.
Online Marketplaces
E-commerce giants like Amazon and Alibaba could control their massive third-party seller networks. However, both embrace a "curation not ownership" philosophy that supports many independent merchants and makes room for specialist marketplaces (Parker et al., 2017).
For example, while Amazon remains the 800-pound gorilla, sites like Etsy thrive as a differentiated destination for handmade goods. Similarly, specialized B2B sites like ThomasNet.com allow industrial suppliers to reach niche professional buyer audiences unattended by general e-marketplaces. All parties gain as different platforms cultivate distinct communities focused on variety, not price competition alone.
Rather than declaring "winner-takes-all", these examples illustrate how platform leaders have prospered by empowering a flourishing variety of participant-focused businesses within their broader ecosystems. Cooperation and specialization have created more value than consolidation ever could.
Implications for Platform Leaders
Based on the above research and industry lessons, there are several strategic implications for companies operating within evolving platform-based economies:
Focus on building vibrant multi-sided communities, not market share for its own sake. Nurture relationships and offer real value to all participant groups.
Leverage network effects via open platforms and interoperability. Loose coupling between systems maintains consumer choice while increasing overall scale.
Differentiate through niches and cultivating niche verticals within the ecosystem. Foster specialized players that expand overall value, not just commoditize offerings.
Keep complementors and business partners positively aligned. Prioritize mutual benefit over unilateral control so the entire sector grows in parallel.
Cooperate to solve common challenges and develop industry standards. Inter-platform collaboration maximizes network benefits across all participants.
Accept pluralism and healthy competition between alternative providers. Diversified models create better outcomes than any single dominant approach.
Conclusion
Viewing platform markets only through the lens of "winner-takes-all" thinking risks curtailing long-term growth potential and damaging business relationships. The examples explored in this essay demonstrate how embracing positive-sum cooperation as a core philosophy enables platform companies to better leverage network effects, empower business partners, and cultivate vibrant ecosystems where diverse companies can thrive together. Overall, a pluralistic, community-centric mindset positions platform leaders to become prosperous nodes within continually expanding and valuable technological networks.
References
Eisenmann, T., Parker, G., & Van Alstyne, M. W. (2006). Strategies for two-sided markets. Harvard Business Review, 84(10), 92.
Eisenmann, T., Parker, G. G., & Van Alstyne, M. W. (2011). Platform envelopment. Strategic Management Journal, 32(12), 1270-1285.
Eisenmann, T. R., Parker, G., & Van Alstyne, M. W. (2009). Opening platforms: How, when and why? In Platforms, markets and innovation (pp. 131-162). Edward Elgar Publishing.
Katz, M. L., & Shapiro, C. (1985). Network externalities, competition, and compatibility. The American Economic Review, 75(3), 424-440.
Katz, M. L., & Shapiro, C. (1994). Systems competition and network effects. Journal of Economic Perspectives, 8(2), 93-115.
Newcomer, E. (2017, June 23). Uber's vicious workplace culture becomes a black eye. Bloomberg.
Parker, G. G., Van Alstyne, M. W., & Choudary, S. P. (2016). Platform revolution: How networked markets are transforming the economy and how to make them work for you. WW Norton & Company.
Parker, G., Van Alstyne, M., & Jiang, X. (2017). Platform ecosystems: How developers invert the firm. MIS Quarterly, 41(1).
Rochet, J. C., & Tirole, J. (2003). Platform competition in two-sided markets. Journal of the European Economic Association, 1(4), 990-1029.
Shapiro, C., & Varian, H. R. (1999). The art of standards wars. California management review, 41(2), 8-32.
Jonathan H. Westover, PhD is Chief Academic & Learning Officer (HCI Academy); Chair/Professor, Organizational Leadership (UVU); OD Consultant (Human Capital Innovations). Read Jonathan Westover's executive profile here.
Suggested Citation: Westover, J. H. (2025). Why Winner-Takes-All Thinking Doesn't Apply to the Platform Economy. Human Capital Leadership Review, 18(3). doi.org/10.70175/hclreview.2020.18.3.6
