Platform Envelopment
Thomas Eisenmann, Geoffrey Parker, Marshall Van Alstyne
Revised, August 11, 2008
ABSTRACT
Due to network effects and switching costs, platform providers often become
entrenched. To dislodge them, entrants generally must offer revolutionary products. We
explore a second path to platform leadership change that does not rely on Schumpeterian
creative destruction: platform envelopment. By leveraging common components and
shared user relationships, one platform provider can move into another’s market,
combining its own functionality with the target’s in a multi-platform bundle. Dominant
firms otherwise sheltered from entry by standalone rivals may be vulnerable to an
adjacent platform provider’s envelopment attack. We analyze conditions under which
envelopment strategies are likely to succeed.
Keywords: Platforms, network effects, bundling, two-sided markets, complements,
convergence
Platform-mediated networks encompass network users along with intermediaries who
provide components and rules that facilitate users’ interactions (Gawer & Cusumano,
2002; Rochet & Tirole, 2003; Eisenmann, Parker & Van Alstyne, 2006; Evans &
Schmalensee, 2007). Examples are as diverse as video games, container shipping, credit
cards, instant messaging, package delivery, web search, real estate brokerage, HMOs,
shopping malls, DVDs, online dating services, travel reservation systems, stock
exchanges, and barcodes. Such businesses comprise a large and rapidly growing share of
the global economy: ranked by market value, 60 of the world’s 100 largest corporations
earn at least half of their revenue from platform-mediated networks (Eisenmann, 2007).
Established platform intermediaries can b ...