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Vol. 0, No. 0, xxxx–xxxx 2012, pp. 1–15 ISSN 1059-1478|EISSN 1937-5956|12|0|0001 DOI 10.1111/j.1937-5956.2012.01344.x © 2012 Production and Operations Management Society Commercialization of Platform Technologies: Launch Timing and Versioning Strategy* Hemant K. Bhargava Graduate School of Management, University of California Davis, GH-3108, Davis, California 95616, USA, Byung Cho Kim Graduate School of Management of Technology, Sogang University, 35 Baekbeom-ro (Shinsu-dong), Mapo-gu, Seoul, 121-742, Korea, Daewon Sun Department of Management, Mendoza College of Business, University of Notre Dame, Room 359, Notre Dame, Indiana 46556, USA, any emerging entrepreneurial applications and services connect two or more groups of users over Internet-based information technologies. Commercial success of such technology products requires 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—such that the size of each market positively impacts participation in the other. In addition, our model allows for sequential unfolding of consumer and developer participation, and for uncertainty regarding developer participation. We demonstrate that product versioning is an especially attractive strategy for platform firms, that is, the trade-off 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, 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. M Key words: technology commercialization; product launch strategy; platform technology; versioning; uncertainty History: Received: September 2010; Accepted: January 2012 by Moren Le´vesque and Nitin Joglekar, after 3 revisions. formats?), the challenge of convincing consumers to pay high (and definitive) up-front costs in return for small (and uncertain) benefits delivered over a long time (e.g., residential solar power), and the growth vs. profitability dilemma (e.g., should a vendor of an e-book technology sacrifice margin and profits in return for high market share, to entice publishers toward its technology?). This article examines this final challenge, that is, the growth vs. profitability dilemma, for technology goods. Our research focuses on technology products that operate as platforms in a two-sided market. These are products that exhibit positive cross-network effects between two distinct networks of players, that is, market adoption on one network influences, and depends on, the desirability of adoption on the other network (Eisenmann 2007, Eisenmann et al. 2006). For example, video gaming consoles serve (i) gamers, by giving them technology for playing complex video games and (ii) game developers, by giving them a 1. Introduction and Motivation Technological innovation is an expensive and uncertain process which often requires high-end research and development of new components, production processes, and underlying technologies. Often, entrepreneurs and firms are unable to successfully commercialize their innovation despite having technologically sophisticated products. Success requires clearing many hurdles and adoption of astute business strategies (Christensen and Bower 1996, Daneels 2004, Moore 1991). Challenges include the “chicken and egg problem” (e.g., a new payment technology will be adopted only if accepted by sufficient number of merchants, but merchant adoption will itself depend on a sufficient installed base of users), uncertainty in product design and compatibility (e.g., should—or will— all electric car technologies employ the same battery that can be charged at every battery station, or will the market be fragmented among multiple technology 1

Commercialization of Platform Technologies: Launch Timing and Versioning Strategy

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