Commercialization of Platform Technologies: Launch Timing and Versioning Strategy

Many emerging entrepreneurial applications and services connect two or more groups of users over Internet-based information technologies. Commercial success of such platform technology products requires adoption of astute business practices related to product line design, price discrimination, and launch timing. We examine these issues for a platform firm that serves two markets, labeled as user and developer markets, with the latter emerging after the user market is proven. While the size of each market positively impacts participation in the other, our model allows for uncertainty regarding developer participation. We demonstrate that product versioning is an especially attractive strategy for platform firms, i.e., the tradeoff between market size and margins is tilted in the direction of more versions. However, when expanding the product line carries substantial fixed costs (e.g., marketing cost, cost of additional plant, managing multiple sets of inventory, increased distribution cost) then the uncertainty in developer participation adversely impacts the firm’s ability to offer multiple versions. We show that for established firms with lower uncertainty about developer participation, the choice is essentially between an expanded or minimal product line. Startups and firms that are entering a new product category are more likely to benefit from a “wait and see” deferred expansion strategy. Still, we demonstrate that uncertainty in developer participation can make early expansion desirable because it expands the installed base and, with the consequent increase in developer participation levels, increases the long-term incremental gain from product line expansion.