growing a platform business while adapting the industry phase
TRANSCRIPT
An exploratory case study on Billy operating the
Danish accounting industry
Philip Westerlin Roslyng Copenhagen Business School
Cand. Merc. Management of
innovation & Business Development
Master Thesis Supervisor: Maria Theresa Norn
1st of June 2016
Characters/pages: 152.032/76
Growing a platform business while
adapting the industry phase
“TheOnlyThingThatisConstant,isChange”―Heraclitus
ABSTRACT Platformbusinessesareoftencharacterizedastwo-sidedwithdistinctusergroups,butwho
needoneanotherandusestheplatformtotransact.Inaddition,theemergingphenomenon
ofplatformbusinessesoftenoperateonaneco-systemlevelwithpotentialtoimpact
concurrentindustries,suchasUberandAirbnbimpactingTaxicompaniesandHotels.
Thisthesisprovidesanexploratoryresearchintohowaplatform-basedaccountingbusiness,
Billy,experiencesgrowthontheDanishSMEmarket.Foundedinthetechnological
developmentofonline-platformbusinesses,thisthesisfinds,thatnewandemerging
accountingsystemshassuccessfullyshifteditstwo-sideduserfocusfrommainlyserving
auditorsandbookkeepers(specialists)tonowservingcompanies(end-users).Thishasthus
stirredthesomewhatconservativeandtraditionalindustryinitsentirety,whengoingfrom
complextosimpleprocessesforthebenefitoftheend-users.Therapidinnovationandend-
user-centricfocushascreatedamarket-rivalrywithemergingonlineaccountingplatforms
takingonestablishedandviceversa.Thecontextisfurthermoreparadoxicalchallenged,as
accountingplatformslikeBillyneedspecialiststogrow,butareincreasingspecialists’
redundancythroughinnovationdevelopment.
Thethesiswillidentifythedistinctcharacteristicsofplatform-basedbusinesses’inthe
contextualframeofaccounting.Thisisdonebyinvestigatingandessentiallyexplainingthe
strategicchallengesforBillyinorderto‘growtheirplatformbusinesswhileadaptingthe
industryphase’.Hereof,atheoreticalframeworkwillbedevelopedonmergingplatform
theoryandindustryphasetheory.Theoriginalframeworkwillbealteredthroughoutthe
researchinordertomatchthecaseofBilly.Thealteringiscomposedbyanalyzingempirical
datainatheoreticalcontext.
Findingspointtochallengesofapotentiallyindustryimpactbyanindustryphaseshift
towardsadiscontinuity.Combinedwithahighmarketrivalrytheresearchmakes
suggestionsonhowtoprepareBillyforsuchchallenges.Otherfindingshighlightedtheuse
ofinnovationcouldpotentiallyhelpBilly’sdisengagementfromthehighrivalry.A
suggestioninapproachingthischallengeisbybalancingBilly’swayofconnectingtheirusers
oftheirplatformona‘counselling’and‘routine-based’-workfunctioninglevel.
TABLEOFCONTENT
CHAPTER1:INTRODUCTION..............................................................................................11.2Researchquestion..........................................................................................................41.3Thesisstructure..............................................................................................................41.4Scope-&limitationsofthesis.........................................................................................5
CHAPTER2:BILLYASACASE..............................................................................................72.1Industrypresentation.....................................................................................................72.2Casepresentation...........................................................................................................8
CHAPTER3:MEHTODOLOGY&DATACOLLECTION............................................................93.1Researchphilosophy:Pragmatism.................................................................................93.2Researchapproach:Abduction....................................................................................103.3Researchdesign:Casestudy........................................................................................113.4Datacollection:Primary&Secondary..........................................................................123.5Datacollection:Reliability,Validity&Limitations........................................................16
PARTONE........................................................................................................................20
CHAPTER4:KEYCONCEPTS&THEORETICALBACKGROUND............................................204.1Platformbusinesstheory.............................................................................................20
4.1.1Thetrendofplatformbusinesses........................................................................................214.1.2Networkeffect....................................................................................................................214.1.3Switchingcosts&multi-homing.........................................................................................22
4.2Theindustryphase.......................................................................................................234.2.1S-curves&dominantdesigns..............................................................................................244.2.2IntroductiontoAfuahandUtterback.................................................................................25
CHAPTER5:THEORETICALFRAMEWORK.........................................................................265.1Structuringthetheoreticalframework........................................................................275.2Understandingthemarketlandscape..........................................................................30
5.2.1Ratingtheindustryattractiveness......................................................................................305.2.2Valuingthefirmassets.......................................................................................................315.2.3Summationofstepone.......................................................................................................32
5.3Adaptingtheindustryphase........................................................................................325.3.1Summationofsteptwo.......................................................................................................36
5.4Competingstrategically................................................................................................365.4.1Complementaryproducts...................................................................................................375.4.2Platformadoption...............................................................................................................385.4.3Networkeffects..................................................................................................................395.4.4Summationofstepthree....................................................................................................40
5.5Innovationdevelopment..............................................................................................415.5.1Ambidextrousorganization(ambidexterity).......................................................................425.5.2Userdrivencommunity.......................................................................................................435.5.4Summationofstepfour......................................................................................................44
5.6Aframeworkforgrowingaplatformwhileadaptingtheindustryphase....................44
PARTTWO.......................................................................................................................47
CHAPTER6:ANALYSIS.....................................................................................................476.1Marketlandscapeoftheaccountingindustry..............................................................48
6.1.1Industryhistoryonaccountingsystems..............................................................................496.1.2Theindustryofaccountingsystemsanditsdrivers(porterfiveforces)..............................516.1.3FirmresourcesofBilly.........................................................................................................56
6.2Thephaseoftheaccountingindustry..........................................................................576.2.1Identifyingthephase..........................................................................................................576.2.2Planningfornextphase&surroundingmarkets................................................................59
6.3Strategicdecisions........................................................................................................606.3.1Platformadoption...............................................................................................................606.3.2Networkeffects..................................................................................................................63
6.4DevelopingtheBillyplatform.......................................................................................646.4.1User-centricvs.“original”basedinnovations.....................................................................646.4.2Managingthreatsandopportunities..................................................................................65
6.5Summaryofanalysis.....................................................................................................66
CHAPTER7:DISCUSSION.................................................................................................677.1Competinginahighrivalrymarket..............................................................................697.2Theuncertaintiesininnovation....................................................................................727.3Summaryofdiscussion.................................................................................................73
CHAPTER8:MAINCONCLUSION......................................................................................75
REFERENCELIST...............................................................................................................77
APPENDICES....................................................................................................................92AppendixA:InterviewswithSpecialists–tableofcontent...............................................92AppendixB:InterviewswithBillyEmployees–tableofcontents...................................151AppendixC:BillyPresentationforSpecialist2016–tableofcontent.............................179
TableofFiguresFigure1-Thesisstructure&outline........................................................................................5Figure2-Billylogo...................................................................................................................8Figure3-Overviewoverinterviewees...................................................................................14Figure4-S-curve....................................................................................................................24Figure5-Catalystframework................................................................................................28Figure6-Structureoftheoreticalframework(Authorsown)...............................................29Figure7-Detailedtheoreticalframework(Authorsown).....................................................45Figure8-Historicoverviewindominantdesignofaccountingsystems...............................51Figure9-Portersfiveforces..................................................................................................51Figure10-Marketsharebymostsignificantaccountingsystems.........................................54Figure11-Mappingofrivalryinthecloud-basedaccountingindustry.................................55Figure12-AuthorstheoreticalframeworkwithBillychallengeshighlighted.......................68Figure13-Potentialinmarketrivalryofcloud-basedaccountingsystems...........................69Figure14-Billydifferentiationopportunity...........................................................................70Figure15-Adaptedtheoreticalframework(Authorsown)...................................................74
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CHAPTER 1: INTRODUCTION
Platformbusinesseshasoverthelastdecadesbecomeincreasinglyimportantinthe
economy(Cenamoretal.2013;Eisenmannetal.2011;Ceccagnolietal.2012).Thevariety
ofplatformsaremanyaswellasfirmsthatrevolvearoundthem.Someofthemostvaluable
companiesintoday’seconomyareplatformbased,suchasUber,Facebook,Airbnbor
Googletonameafew(Evans&Schmalensee,2016).Theseplatformsareoften
characterisedbyhavingnoinventory,andinstead,thriveononlinetechnologywhichserves
thetransactionbetweenconnectingtheiruserswitheachother.Moreover,theplatforms
areoftentwo-sidedwithadiverseuserbase.Aconstellationinwhichthetwoareco-
dependent,andwherevalueisprovidedthroughtheplatformswhenthetwosidestransact.
Platformshavehadanimmenseimpactoncurrentindustries.Uberinfluencestaxidriver
companies,Airbnbaffectsthehotelindustry,andbothhavestirredthepublicdebateabout
ethicsandgovernmentalrulesandregulations(Frizell,2014;Coldwell,2014).Inan
academiccontext,aninterestingaspectofthecurrentdebateishowtheseplatforms
competeonanecosystemlevelinsteadofonaproductbased(Sampere,2016).Itseems
thatthetechnologicalevolution,seeninthebloomingtrendonplatformbusinesses,have
createdaworldwithnoboundariesonanyindustry(Srinivasan,2016;Andersen,2015;
Accenture,2016).
ThetrendofonlineplatformshasalsoreachedtheaccountingindustryinDenmark
(Sørensen,(a)2011;Christensen,2013;Mygind,(a)2008;Mygind,(b)2008).Accounting
systemsfundamentallyfunctionasatoolforkeepingcompanies’accountinguptodate.
AndcompaniesareobligatedtoactbytheDanishaccountinglegislation(Tax,2016;Skat(a),
2016;Erhvervsstyrelsen(a),2016;Erhvervsstyrelsen(b),2016;Retsinformation,2016),
whichrulesaremanyandcanbeverycomplicated.Becauseofthis,accountingsystems
oftenoperateasatwo-sidedplatformwithcompanies/end-usersononeside,whoneeds
helpwiththeiraccounting,andbookkeeperandauditorsontheother,whocanprovidethe
firstsidewithinformationandhelp.Ihavechosentocallbookkeepersandauditorsfor
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specialistsfromnowoninthisthesis.Thereasoningbehindthis,isnotonlythatthe
understandingwillnotbelost,butmoreover,thefactthatspecialists(bookkeeperand
auditors)hasspecialisedthemselveswithinaccountancy.Infact,anentireindustryisbased
onspecialistswithinthefield,suchasPwc,DeloitteandErnst&Youngtonameafewactors
ontheDanishmarket.
Despitethehighcomplexityofaccounting,manynewonlineaccountingsystemshaveseen
thelight.Manyofthemhavecomewithanewapproachofsimplifyingthecomplexityof
accounting.Before,anaccountingsystemwouldserveasatoolforthespecialisttoperform
theaccountancy–irrespectivetothecomplexityorknowledgeneededinordertoservethe
system.Thenewapproachisbuildingonline-accountingsystemswithsuchanintuitive
interface,thatpracticalanyonewithoutpriorknowledgewouldimmediatelybeabletodo
theaccountingthemselves(Finans,2014;Boye,2014;Jensen,2013;Wittorff,2011).With
theshiftfromcomplexitytosimplicity,ashiftoffocushasfollowedfromaccommodating
specialists,toagreaterextentaccommodatingcompanies/end-users.
Fosteredmyinterest(Purposeandrelevance)
Inmyprofessionallife,IhaveworkedinDeloitteasaprojectconsultantwhereIhadclose
relationswiththeaccountingdepartment.OurclientsweretypicallySMEsandinorderto
servethemasbestpossible,weusedanonlineaccountingplatformthatwasprovidedbya
thirdcompany,hence,anaccountingplatformcombiningDeloittewiththeirclients.Here,I
gottoseefirst-handhowtheindustryworks,andmoreover,theimpactofthetechnological
developmentnewaccountingsystemspotentiallyhad/have.Firstly,thesenewsystemsomit
theneedforfinancial/professionaltermssuchasdebit/credit,whichisthemostessential
thingtounderstandinaccounting(Spec2,2016;Spec3,2016;Spec6,2016).Obviously,this
createsscepticismforspecialistsastheirprofessionisbeingdevalued.Secondly,several
onlineaccountingsystemshaveopenlyarticulatedhowtheirtechnologicaldevelopment
wouldeliminatetheneedforspecialists(Simonsen,2016;Moses,(b)2013).Thisimmediate
radicalchange,however,hasnothappenedquiteyet.Anexplanationforthiscanbegiven.
Thehighswitchingcostsandtherelativelylowcomplexitythatthenewaccountingsystems
possess,whichmeansonlyclientswithlowaccountingneedscanusethem.Toillustratethe
contradictingaspect,thesameaccountingsystemswhoarticulatedtheeliminationofneed
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forspecialistsarereferringtheirend-userstoconnectwithspecialists(Dinero,2016;Billy
(a),2016).Acontextualexplanationtothiscanperhapsbefoundinthefactthatthe
specialists,whooperateasprofessionalswithintheirprofession,havelongfunctionedas
ambassadorsfortherespectiveaccountingsystem(Riis,2014;Spec5,2016;Spec6,2016;
Spec7,2016;Spec8,2016).
Theabovedescriptionsparkedmypersonalinterestforwritingthisthesis.Thechallengefor
atwo-sidedplatformtoexperiencegrowth,butisparadoxicallychallengedbytheir
positioningwithintheindustryofaccounting.Theparadoxicalchallengeisseen,asthe
platformneedsspecialistsbutcontradictoryareincreasingthespecialists’redundancywith
everyinnovationmadebytheplatform.
Furthermore,Ifindpurposeinassistingafirmwithpracticalrelevance,whichiswhyI
ultimatelychooseBillyApsasmycasestudy.Billyisanonlineaccountingplatformandis
amongthefirst-moverswiththeintuitiveapproach.Moreover,theyareamongthosewho
havearticulatedspecialists’redundancy(Moses,(b)2013;Spec2,2016).Billymainly
focusesoncompanies/end-users,whichwillbeelaboratedoninchaptertwo.
Naturally,understandinghowtogrowaplatformhasmanyaspects.Forthisthesis,Iinclude
twodifferenttheoriesinordertogiveathoroughunderstandingofthefield.Thefirst
frameworkisthecatalystframeworkofEvans&Schmalensee(2007),whichwillalsoserve
asthestructureforthethesis’theoreticalframework.Tobetterunderstandthe
technologicalevolutionaspect,thethree-stepprocessbyAfuah&Utterback(2007)willbe
includedandmergedwithEvans&Schmalensee’.Alongsidethis,Iwillcomplementthe
theoreticalframeworkwithotherscholarsandinterestingliteratureonthefield,aswellas
presentingmyempiricalfindings.
Throughouttheexplorativeandempiricalcasestudy,therewillbeelementsofabductive
reasoning.Thedevelopedtheoreticalframeworkwillserveacombinationofplatform
theoryandindustryphase.Throughtheempiricalfindings,thecompany’sstrategic
challengesinrelationtothecontextspecifiedresearchareawillbeanalysed.Themaingoal
wasnevertogeneralise,however,onecannotargueagainstthethereofpossibilitytowards
similarbusinessesinsimilarcontext.
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1.2Researchquestion
Incontinuationoftheabovedescriptionofanexpandingplatformbusiness,thatistwo-
sided,andwhosesidesincomparisonareveryunbalancedintermsofunderstandingthe
subjectofaccounting,Iwillattempttoanswerthebeneathresearchquestion.Inaddition,
theclaimoftechnologyovertakingtheonesideisalsoconsidered.
• HowcanBillyexperiencegrowth?
Andinordertoanswertheabovemainresearchquestion,Iwillhavetoanswerbeneath
sub-questions.Thefirsttwosub-questionsrepresentthetheoreticalpart,andthelattertwo
representstheempiricalpart.
1. What are the challenges to growing a platform business?
2. What additional challenges does the industry phase create for growing a
platform business?
3. Howdo the challenges effect the case company?
4. WhatmeasuresareneededforBillytoovercomeimposedchallenges?
1.3Thesisstructure
Thestructureofthisthesiswillhaveanintroductorysection,whichwillserveasacourseof
action.Thefollowingwillbedividedintotwolargerparts,withpartonefunctioningasthe
theoreticalpart,andparttwofunctioningastheempiricalpart.Anillustrationofthe
structureisindicatedbelowinfigure1.
TheintroductionwillcontainthecurrentChapteroneaswellasChaptertwoofcaseand
industrypresentation.Chapterthreewillincludethemethodanddatacollection.Combining
thefirstthreechapterswilltherebyfunctionasathoroughintroductiontothemainthesis
in-depthinvestigation.
ThefollowingPartoneservesasthetheoreticalpart,whichwillproduceatheoretical
catalystframeworkwithafocusongrowingaplatformbusinesswhileadaptingtheindustry
phase.Thispartwillprovidetheanswersforthefirsttwosub-questions.
5
Lastly,Parttwowillserveastheempiricalpart,wherethefindingswillbeanalysedand
subsequentlydiscussed.Thiswillthenprovideanswersforthelattertwosub-questions.
Andfinally,amainconclusionwillbemade,formingananswerforthemainresearch
question
1.4Scope-&limitationsofthesis
Duetothenaturalextentofscopeforaresearchpaperlikethis,thetheoreticaland
empiricallimitationswereimplemented.
AfuahandUtterback(2007)serveaninfluentialelementinstructuringthethesis,andits
theoreticalframework.AfuahandUtterback(2007)presentathree-stepprocesstoanalyse
thetechnologicalevolutionandhowacompanyadaptsaccordingly.Theyalsoproposethe
analysisofallgivenphases,whichIwillnot.Thisisnotonlybecauseofthe
comprehensivenessofsuchanalysis,butalsobecauseunderstandingthepresentphase
wouldserveasthehighestrelevancetoBilly.Iwill,however,discussthefollowingphase,
butwillnotanalyseittothesameextentasthepresentphase.
Segmentation
Inordertoillustratethecomplexsubjectofaccounting,thefollowingsegmentswere
needed.Ihavesoughttosegmentwithoutlosingcontextoftheoverallunderstandingof
subject,whichIhaveachieved.However,onecannotarguethelossofnuanceswithinthe
subject.Again,thiswasneededduetothenaturalextentofscopeforaresearchpaperlike
this.
Figure1-Thesisstructure&outline
INTRODUCTION PARTONE PARTTWO
Researchquestionetc. AnalysisKeyconcepts
Case-&industrypresentation DiscussionTheoreticalbackground
Method&datacollection ConclusionFrameworkdevelopment
6
AlthoughBillyalsohasoperationsintheUS(Bil1,2016),thisthesiswillsolelyfocusonthe
Danishmarket.Thisisbecauseofthecomplexityoflawsetc.thatanaccountingsystem
possesses,whichhereofincreasessubstantiallywhencomparingdifferentcountries.More
thoroughresearchwouldarguablybeneededfortheindividualstudyofeachcountryin
ordertocompare.
Theoverallfocusoncompanies/end-usersneededsegmentationaswell.Inthisthesis,Iwill
focusontheSME(Smallandmedium-sizedenterprises)market.Thereasoningbehindthisis
simplyduetoBilly’ssystemnothavingthecomplexitytoservelargeenterprises.This
therebydisclaimstheimmediateimportanceforBilly.Additionally,Irecognisetheexistence
ofcompaniesthatdonotoutsourcetheiraccounting,butinsteadhaveemployeeswho
managetheaccounting.Theseemployeesfunctionasspecialistswithinthecompany,which
signifiesanothersegmentIwillnotfocuson.Thisisbecausethesegmentislargely
associatedwithlargesenterprises.Andmoreover,theoneswhodofitthesegmentofSME
willhaveanentirelydifferentadoptionprocess,havehigherswitchingcosts,andultimately,
arenotasegmentthatBillyfocuseson(Bil1,2016;Bil2,2016).TheinterestingpartforBilly
isthecouplingofspecialistsandend-users.
Ialsorecognisethelimitationaspectindefiningbookkeeperandauditorsasspecialists.I
understandthedifferencesbetweenState-authorizedauditors,auditors,bookkeepersand
thefactthatneitherauditornorbookkeeperisaprotectedtitle(Fsr,2013).Thismeans
anyoneisallowedtocallthemselvesthat.Theargumentfordefiningthemasoneunitis
baseduponthedifferentiatingamongthesetitlesaremuchmoreclearthemore
complicatedtheaccountingisorthebiggersizethecompanyhas.AsBilly’ssystemisfor
relativelysimpleaccounting,andbecauseitservestheSMEmarket,itstrengthensthe
argumentforaminimumoflossindefiningthemasspecialists.SMEsareobligatedtoreport
theiraccounting,whichtheytechnicallycandothemselves,butarenotobligatedtohave
theiraccountingauditedbyanauditor(Erhvervsstyrelsen(c)2016).
Lastly,thedifferentiationbetweencounsellingandroutine-basedworkrequiresthe
reasoningbehind.Iunderstandthedifferentiationisonagenerallevel,whichtherebycan
influencethenuancesoftheunderstanding.Irecogniseaspecialists’pricelistwillbemore
diversethantwodifferentpricesbasedonanhourlyrate.Touseanexample,thespecialist
7
mighthaveafixedpricefordoingaclient’syearlyaccounting.However,thefixedpricewill
becomputedbythelevelofcounsellingvsroutine-basedaspect.Andhereby,the
significationofdifferentiationisarguablyreinforced.Moreover,thecomprehensionofa
specialistwillthroughoutthethesisbebetterassisted.
CHAPTER 2: BILLY AS A CASE
Billyoperatesasatwo-sidedplatformwithintheaccountingindustry,wherealarge
segmentofthesetup’sindisputablefunctionsononesidewithcompanieshavingto
producetheiraccounts,andontheotherside,amarketwithspecialistsspecialisinginthe
verytopicofaccounting,ultimatelytryingtoservetheothersideofcompanies.
Asmentioned,thissetuphasexistedforalongtime,whichtherebysignifiesthereasoning
fordescribingtheaccountingindustryinordertobetterdescribeBilly,andultimately
reasoningthecontextwhichBillyoperateswithin.
2.1Industrypresentation
CompaniesinDenmarkareobligatedtoreporttheirtaxesandaccounting
(Erhvervsstyrelsen,(b)2016;Skat,2011).Theselaws,definedbythegovernment,aremany
andcanquicklybecomedifficulttounderstandfully.Thisincentivisesopportunitiesinthe
marketforsegmentstospecialisewithin,hencebookkeepersandauditors(specialists).The
abovedescriptionisnottospeakagainstspecialists’rightsorvalue-addingfoundation
towardsthemarket,butrathertoillustratehowthemarketoperates.Furthermore,are
theselawsultimatelyincentivisingtransparencywithinthemarket,whichisagoodthing.
Technologyhasthen,throughtime,createdtoolsformaintainingcompaniesaccounting,
whichspecialistshaveusedwithgreatcareandcompanieshavepaidfor(Iwillelaborateon
thisaspectinsection6.1.1–Industryhistory).Theconstantevolutionwithintechnologyhas
reachedtheaccountingsystems,andhasnowrevolutionisedthewayaccountingis
produced(Christensen,(a)2013;Svarre,(b)2009).
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InreferencetothesegmentofSMEsandthestartingofacompany,itisrarelyaccounting
thatisthefirst-priority(Bil1,2016;Spec2,2016;Spec3,2016;Spec5,2016).Whena
hairdresser,designerorcraftsmanetc.startstheirbusiness,itisnotbecausetheyaregood
withnumbers,accountingoradministrativeworkingeneral–infact,theymightstartin
spiteofthat.Thisdescriptionisfundamentallythefoundationoftheapproachthatnew
accountingsystemshaveutilised.Theevolutionoftechnologyhasreachedalevelwhere
processeswithintheaccountingfieldarebeingsimplifiedtothelevelwherepeoplewithout
anaccountant-orauditorbackgroundcanmanageit(Jensen,2013;Wittorff,2011;Moses,
(b)2013;Simonsen,2016).Thesesimplifyingprocessesserveadditionalaspects,where
somearemorecomplicatedthanothers.Inordertoillustrate,thesimplicityexercisedby
thesenewaccountingsystemscan,amongothers,beshownbythesystematicelimination
ofusingprofessional/technicalterms.Professional/technicaltermsthatformerlywereonly
ofusetospecialists(Spec3,2016;Spec4,2016;Spec6,2016;Spec7,2016).Thismay
ultimatelydevalueoratleastcreatetheillusionofadevaluationofthespecialists.
2.2Casepresentation
“Billyisthepersonificationoftheaccounting
system”(Bil2,2016).Theirsystemiscloud-
basedandoperatesasaSaaSsolution.
Moreover,Billydifferentiatesthemselvesasan
alternativetocomplexandprofessional
accountingsystems,andfurtherenablessmallbusinessestobeabletodomostoftheir
accountingthemselveswithoutbeinggreatatunderstandingdebit/creditorotherfinancial
terms(Bil1,2016;Bil2,2016).Billy’saccountingsystemhasaveryintuitive-basedapproach
withahighfocusontheend-users’perspective(Boye,2014;Wittorff,2011;Bil1,2016;Bil
2,2016;Bil3,2016;Spec3,2016).Everythingissimplifiedinordertoforcetheusertoface
aminimumofdecision-making;incomparingBillywiththeircompetitorE-conomic,Billy-
userswouldonlyhavetousetwenty-onemouse-clicksinordertocreateaninvoice,
whereasE-conomic-userswouldneedfifty-six(Bil2,2016).Billy’scustomersaretypical
companieswithonetotenemployees,andarepreferablySMEs,withanemphasisonsmall
Figure2-Billylogo
9
firms.Thisisconnectedtotherelativelylowlevelofcomplexitythattheirsystempossesses
(Bil1,2016;Bil2,2016;Bil3,2016).
Billy’shastworevenuestreams,whichincorporatesapricingstructureadjustedtoend-
usersandspecialists,respectively.Forend-users,Billyoperatesafreemiummodel.
Specialistspayasmallmonthlyfeeperclient(account)theyoperateinthesystem,which
getscheaperperclient(account)themoretheyoperate(Billypresentation,slide21,2016).
Billyhasapproximately35.000end-usersusingthefreeversion,andanadditional7.050
payingcustomers(Bil2,2016;Billypresentation,slide5,2016).
Billycurrentlyhasnineteenemployees,whichisroughlydividedintooneCEO,a
marketing/communicationdepartmentofsevenpeople,acounsellingdepartmentofsix
people,andadevelopmentdepartmentoffivepeople(Billy(b),2016).
CHAPTER 3: MEHTODOLOGY & DATA
COLLECTION
Thepurposeforthischapteristoprovideanoverviewoftheresearchmethodologythathas
beenadoptedinordertobestservethemaingoalofansweringthemainresearchquestion.
ThemainfocusforthisthesishasbeenassistingthecasecompanyofBilly.Thishas,among
other,beendonebydevelopingatheoreticalframeworkwithmergingplatformtheoryand
industryphasewithcomplementsofothertheoristsandliterature.InthischapterIwilltry
toenlightenhowmychoicesonresearchphilosophy,-approachand-designareinterrelated
andhowtheyaffectmychoiceofresearchmethodology.Last,Iwillprovideanoverviewon
myempiricaldataandgiveacriticalperspectiveonmyuseofmethodology.
3.1Researchphilosophy:Pragmatism
Researchphilosophyrelatestothedevelopmentofknowledgeandthenatureofthat
knowledge(Saundersetal.2009).AsmystudyrevolvesaroundacasestudyIwantedto
help,Itookapragmatismapproach.Iunderstandthepossibilityofnumerous
interpretationsofgivenphenomenon’s,whichiswhymygoalwasnevertoachievea
10
definitetruth.
TashakkoriandTeddlie(1998)contendthatpragmatismisintuitivelyappealing,largely
becauseitavoidstheresearcherengaginginwhattheyseeasratherpointlessdebates
aboutsuchconceptsastruthandreality.Pragmatismistherebycentredonproblem-solving
andassessestheoryonthecriteriaofthetheoriescapacityforsolvingproblems.A
pragmatismstudyapproachshouldfocusoninterestandvalue;whichresultsshouldbeof
valueaccordingtotheresearchers’valuesystem.Pragmatismfurtherdefendsthepossibility
ofworkingwithvariationsofsources,methodsandsciencemethods,asthefreedomof
choiceprovidesthemostreliableanswer(Saundersetal.2009).
3.2Researchapproach:Abduction
Thelogicbehindthisresearchevolvedwiththedeepeningofresearch.Initially,theresearch
wasinfluencedbyaninductiveapproach(Saundersetal.2009)–theoryfollowsdata.The
investigationpriortothisthesisisarguable.However,onecannotdenymyinsightintothe
industryreasonedbymyprofessionalcareerinDeloitte.Iindisputablegainedinsightinto
howaspecialistoperates,aswellastheeffectinnovationwithinaccountingsystemshadon
them.Iwillfurtherelaborateonthisformofdatacollectionin3.4.Nonetheless,these
insightsfosteredmyinterestfortheindustryphase,hencethelinkbetweentheplatform
theoryandtheindustryphase.Essentially,laidoutthefoundationforpurposely
constructingtheinitialframework.
Theinductiveapproachisfurtherdescribedbythelessstructuredapproach,andhowit
mightrevealalternativeexplanations.Additionally,itismoreconcernedwiththecontextof
eventstakingplace,whichgivesreasontostudysmallersamplesofsubjectsinsteadof
largerones.(Saundersetal.2009)
Mythoroughresearchinvestigationopenedmyawarenessforundiscoveredaspects.
Combiningtheinitialframeworkwithempiricalfindingsandcaseanalysisshowedtheneed
fortheframeworktoevolvethroughoutthethesis.Thisaspectrequiredmetoobtainan
abductiveapproach,whichislinkedwithmovingbackandforthbetweendataandtheory
(Dubois&Gadde2002;Saundersetal.2009).Theabductiveapproachfurtherstresses
11
theorydevelopmentratherthantheorygeneration,meaningfocusingontherefinementof
existingtheoryratherthaninventingnewones(Dubois&Gadde2002).
Theabductiveapproachisseenthroughoutmyresearch.Myunderstandingevolved
throughanalysingdata,whichhasforcedmetoreturntomyinitialframeworkandmake
modifications.Myproposedframeworkendedintwointerrelatedstagemodelinsteadof
theformerfour-stage.
3.3Researchdesign:Casestudy
Thefoundationofthethesisisbasedonacomprehensivecasestudy.Themajorityofthe
datahasbeencollectedthroughsemi-structuredinterviews,whichIwillelaborateonlater
insection3.4.
Selectingthecasestudydesignwasnotbasedonresearchingexistingtheories,butbased
onresearchingthecompanywiththehelpoftheories,andultimately,supportingthecase
companyinevolvingitsplatform.
Acasestudyhasbeendefinedasagoodstrategyforresearching“particularcontemporary
phenomenonwithinitsreallifecontext”(Saunderset.al.2009page145).Furthermore,a
casestudyserveswellforsourcingmultipledatatypes,alsoreferredtoastriangulation
(Saunderset.al.2009page146).Andalthoughsomeprefermultiplecasestudies
(Eisenhardt1989),singlecasestudieshavealsobeenpreferredasthebasisforadeeper
understandingofcontextisemphasised(Dyer&Wilkins1991).Moreover,acasestudy
designevokesthepossibilityofanalysingonmultiplelevels,whichtherebylaysthe
foundationforpossiblygeneratingtheory(Eisenhardt1989).Dyer&Wilkins(1991)further
arguethatsinglecasestudiesarebetteratfocusingonthesocialsetting.Sincemultiplecase
studiescanpossiblybebiased,byfocusingonthecarefulselectionoftheminstead,which
mightbedoneinordertobetterillustratethetheoreticalconstructorpointbeingmade.
MyanalysiswilldescribetwoaspectswithBillyasthecaseandtheindustryforwhichthey
operatein.Moreover,asIultimatelywantedtohelpBilly,thetheorywillbeadaptedto
serveBillybestaspossible.Thisleadstogeneratingatheoreticalframework,whichIwill
elaborateoninchapterfive.
12
3.4Datacollection:Primary&Secondary
ThefollowingdataresourceswereusedinordertofullyaccommodatetheresearchofBilly.
Thus,thedatacollectionwasderivedfromdifferentsourcesinordertosupportthesub-
questionsandoverallresearchquestion.Primarydatahasbeenconductedthroughtheuse
ofsemi-structuredinterviewsand,whatIdefineas,“observer”observation.Secondarydata
consistsofarticles,literatureandinternetsources.Thecombinationofsecondarydataand
“observer”observationsservedthefundamentalchoiceofBillyascasestudyandthe
developmentofthetheoreticalframework.Thecombinationofprimarydatawithsemi-
structuredinterviewsandsecondarydatahasallowedtheprogressionofthethesisprocess
tobesomewhatflexible.Ithasallowedmetogainathoroughknowledgeofthefieldin
developingandredefiningthetheoreticalframeworkusedinthisthesis.
Primary–Semi-structuredinterviews
Tomakethemostoutoftheinterviews,Ichoseasemi-structuredinterviewapproach
whereopen-endedquestionswereused.Iusedopen-endedquestionsinordertoavoid
simpleanswerslike“yes”and“no”.IinterviewedBillyasthecase,andfurthermore
interviewedspecialistsworkingintheindustry,asthecontextofwhichBillyisaffectedby.I
hadfourareasofinterestbeforestartingtheinterviews,butwantedtheoftenprovided
advantagethatasemi-structuredinterviewprovides,whichisallowingnewideasetc.tobe
broughtupduringtheinterviewandthemeanstovarythequestionsaccordinglytoserve
theinterviewbestpossible(Saunderset.al.2009page320).Thefourareasofinterestwere;
(1)Interviewee’spersonalbackground,their(2)viewontheaccountingindustry,(3)useof
system/Billy’sapproachtotheirusersandtheir(4)viewoninnovationintheindustry.For
theinterviews,Iusedasemi-structuredinterviewguideasaguidelinetoensurethe
relevanttopicswhereaddressed.
Thisstudycanfurtherbecategorizedasanexploratoryresearch,wheretheemphasisison
thesemi-structuredinterviews,whichservewellforin-depthinterview.Semi-structured
interviewscanoftenbehelpfulinfindingout‘whatishappening’andto‘seeknewinsights’
(Saunderset.al.2009page322),whichisinlinewithexploratorystudies(Saunderset.al.
2009page139).
13
Ihadeightintervieweeswithspecialists,whocoveredadiversityofmanagerswithinlarge
companiessuchasBDOandVisma,andcompanieswithuptofouremployeestosmaller
self-ownedbusinesses.Theseintervieweesfurthercoveredtheaccountingroleofauditors
andauditorswithbookkeepingfunctions.Thiswasdoneinordertoreachthehighest
knowledgewithinaccountingsystemsoftheSMEmarket.ItherebybelieveIachievedthe
aimofinterviewing‘experts’withinthefieldofuseforSMEaccounting.Thisisinlinewith
anexploratorystudy(Saunderset.al.2009,page140).Bycombiningthediversityin
accountingrolesandcompanieswithprovidedanswers,IfurtherbelievethatIreacheda
respectivesaturation.IninterviewingBillyasthecase,Ihadthreeinterviews,which
comprisedoftheCEO,headofmarketingandasoftwaredeveloper.Inlinewiththeabove
descriptionofspecialist-interviews,Ibelievebycomparing,respectively,thesame
foundationof‘expert’interviewingandsaturationwasachieved.Anoverviewofthespecific
interviewscanbeseeninbeneathtable3.Inaddition,Itranscribedeveryinterview,which
canbefoundinappendixA&B.
14
Table3–overviewoverinterviewees.Name&Initials Jobtitle Accounting
functionDate&Duration
Type
ClausDyrelundJohansen(Spec1)
Manager&responsibleforOdenseandKoldingatVisma
AuditorroleApril19th,4:00P.M(19min)
Phone-interview
MetteQuottrup(Spec2)
Ownerandstate-authorizedpublicaccountantatMQRevision
Stateauthorizedaccountant
April25th,10:00A.M(54min)
In-person
DorteViborg(Spec3)
OwnerofJuelViborgRegistreredeRevisorer
Stateauthorizedaccountant
April25th,6:00P.M(38min)
In-person
ChristianLysehøj(Spec4)
Auditor&ownerofRevisorfirmaetLysehøj Auditorrole
April26th,9:00A.M(27min)
In-person
StefanBuchHenriksen(Spec5)
TraineeatVisma TraineeApril28th,10:00A.M(33min)
In-person
Anonymous(Spec6)
ManagerofAccountingDepartmentatBDO Auditorrole
April28th,1:00P.M(27min)
In-person
NataschaSkriver(Spec7) PartneratTasterietApS Auditorrole
April29th,2:00P.M(29min)
In-person
JonasMartinsen(Spec8)
OwnerofJMRegnskabsservice Auditorrole
Mai3rd,8:00A.M(32min)
Phone-interview
KatrineRasmussen(Bil1)
HeadofmarketingatBilly x
April27th,9:00A.M(38min)
In-person
JonasMidtgaard(Bil2) CEOatBilly x
April27th,10:00A.M(33min)
In-person
HenrikTudborg(Bil3)
SoftwareEngineeratBilly x
Mail6th,9:30A.M(42min)
In-person
Figure3-Overviewoverinterviewees
15
Primarydata–(“Observer”observation)
Personally,IhaveworkedasaprojectconsultantinDeloitteforthreeyearsandserved
clientsintheSMEmarket.Iworkedcloselyincollaborationwiththeaccountingdepartment
ofDeloitte,wherealargepartofmyjobwasconvertingcompanyaccountsfromonesystem
toanother.Becauseofthis,Ihavegainedinsightintothemarketmechanismswhichhas
affectedmyviewofhowpartsoftheindustryfunctions.Iwillcategoriseordefinethisdata
informationasan“observer”observation.Atthetime,Iwasnotawarethatmyinsights
couldbeusedasdataformythesis,whichmeantIhadnounderstandingofwhattypeof
datawasneeded.Nonetheless,mybackgroundhasultimatelyaffectedandhelpedshape
thisthesis,whichiswhyitshouldbetakenintoaccount.Theconcretedefinitionsofthis
dataarearguablydifficult,andIdonotseethecollectionofthisdataasparticipant
observation.However,itcanbearguedthattheyhavesomesimilaritiesincommon.By
workingintheindustryIultimatelylearnedthe“intuitiveunderstandingofwhat’sgoingon
inacultureandallows(ed)you(me)tospeakwithconfidenceaboutthemeaningofdata”
(Bernard2006,page355),whichcanalsobereferredtoasunderstandingtheinternal
jargonoftheindustry(Saundersetal.2009).Thisservedmetodeveloprelevantquestions
towardsthedeepeningofinvestigationandessentiallyhelpedshapethisthesisthewayit
hasbeenshaped.
Secondary-articles,literatureandinternetsources
Tostrengthenmyunderstandingofthethesisresearchsubjectandtosupportmyprimary
data,Iincludedsecondarysourcesofresearch.Thisservedto‘triangulate’(Saundersetal.
2009page146)myfindings.Thesecondarydataconsistedofarticles,literatureandinternet
sources.Ontheoverallstructureofthisthesis,thebookoncatalystsbyEvansand
Schmalensee(2007)servedtoshapethetheoreticalframework.Inaddition,Afuahand
Utterback(1997)threestepprocessalsohelpedinformingthetheoreticalframework.For
wherethedeepeningofissuesathand,additionaltheorieswouldbeadaptedwhere
appropriate.
16
3.5Datacollection:Reliability,Validity&Limitations
Asinanyresearchpaperwherequalitativeresearchisused,theresearchbasiswill
ultimatelycontainseveralsourcesforbiasesand/orerrors.Toavoidormitigatethis,
differentmeasureshavebeentakenintoaccount.
Reliability
Ensuringreliabilityisadifficultissuewhenusingsemi-structuredinterviews.Thisisbecause
socialsettingscanchangeovertimeandresponsesfromintervieweesoftenreflectwhat
theyfindtrueatthespecificmoment,aswellastheinterpretationofanswerscanbe
understoodinmultipleways(Saunderset.al.2009page156).Theseareoftenreferredtoas
participanterror/biasandobservererror/bias.Inordertoreduceparticipanterrorandbias,
Iheldnineoutofeleveninterviewsinquiet,controlledsurroundingsattheirownoffices.In
choosingtheinterviewees,IsteeredaroundtheDeloitteemployeesinordertomitigatethe
somewhatsmallpossibilityofDeloittebeingdifferentthananyoneelse.However,Iwanted
toresearchinareasthathadnotalreadyprejudicedmyownview,whichinarguably,my
timeinDeloittehas.
Furthermore,Imadesurethatparticipantsknewthattheyhadfulldiscretiontoaskfor
anything,aswellastohavetheoptionoffullanonymity.Oneintervieweewantedthat.The
interviewsweresomewhatofteninfluencedbyintervieweespersonalmeaningon
retrospectiveandprospectivetopics,whichleadtodifficultiesinfullymitigatingparticipant
bias.Anexampleofthisishowspecialistsmighthavebeenprejudicedtowardsspecific
accountingsystemsbecauseoftheireverydayuseorhabits.Thistherebydoesnotreflect
themarketofaccountingsystemsinitsentirety.Whentalkingaboutchallengesto
overcomeintermsofBilly,intervieweesmighthavebeenaffectedbytheirownidealism
andpositiveassociationstowardsBillysucceeding.
Itshouldalsobementioned,howobservererror/biasoftenisreflectedinthemanywaysof
interpretingreplies(Saunderset.al.2009,page156).Thisdoesnotonlyeffectmy
interviews,butalso,becauseofmypersonalbackgroundwithintheindustry,my
preconceptionofthephenomenoncouldhaveaffectedhowIaskedquestionsand
interpretedtheoutcomes.Tominimizethis,Istrivedtokeepahighstructuretowardsmy
17
interviews,stillmaintainingmysemi-structuredapproach.Moreover,theapproachtoboth
theorizinganddatagatheringwithgoingbackandforthforcedmetochangemy
understandingofdifferenttopicswithsmallmodificationonquestionsthroughoutmy
interviews.
Validity
Thevalidityofsemi-structuredinterviewsisoftenconsideredhighlyachievable(Saunders
et.al.2009page327).
Externalvalidityreferstothegeneralisabilityofaresearch(Saunderset.al.2009page158).
Withasinglecasestudy,generalisabilitywasobviouslynotmymaingoal.Contrary,ithas
beenarguedhowhighergeneralisabilitycanbeachievedwithabroadertheoretical
significance,ifyoucanrelatetheresearchprojecttoexistingtheory(Saunderset.al.2009
page335).Therefore,Iattemptedtohaveastrongrelationwithusedtheorywithmy
processofdatacollectionandanalysis.Tofurtherelaborate,becauseofthisthesis’scase
studyofacatalyst,themarketindustryaffectedbythiscatalyst,anddataderivedfrom
here,couldpotentiallybevaluabletoothercatalysts(casestudies)operatinginthesame
industry.Morespecifically,theobtainedunderstandingofspecialistsintheaccounting
industrycouldpotentiallyserveotheraccountingsystemssimilartoBilly.Withoutthe
potentialtogeneralise,mytheoreticalsuggestionsanddevelopedframeworkcouldstill
furtheropentheopportunityoffurthertestingindifferentcontexts.
Limitations
Theoveralldatasampleofthestudyisrelativelysmall,morespecificallyforthespecialists
ofwhichIhadeightinterviews,whichisarguablyinsufficienttocapturetheheterogeneity
oftheaccountingindustry.Butassaidearlier,mymaingoalwasnevertogeneraliseabout
thepopulation,butrathergeneralisetotheorybyusing“ampleselectiontechniqueandthe
purposeandfocusofyour(my)research”(Saunderset.al.2009page233).Thiswas
reflected,asIstillachievedarespectabletheoreticalsaturation(Bernard2006page501),
whichmightbeexplainedthoughmysamplingmethodasmyrespondentssharedsimilar
traits.HadIinterviewedspecialistsemployedbyacompanyonlyservingthesamecompany
oroperatinginthesegmentoflargeenterprisesImighthadfoundwiderrangeofopinions.
18
Additionally,thepreconceptionofmystudyconcerningtheretrospectiveelementsandits
influenceonthecurrentmarketsituationmeantthatmydataandtheorisingabouthow
firmsneededtoovercomethosechallengescarriessomedegreesofsupposition.
Furthermore,Ihadpreconceivednotionstowardstheaccountingindustrybeinglockedby
rulesandlaws.Therefore,Iwashighlysensitivetobeinfluencedbynewinnovation,which
meanttheresearchcouldnotbefreefrombias.Still,thethesisdoesencompass,throughits
practicalcapability,asteppingstonetowardsfurtherresearch,eventhoughmyfindings
maynotcoverthefullpicture.
EventhoughIdescribedmybackgroundroleasan“observer”asprimarydata,I
fundamentallyonlyusedonequalitativemethodwhengatheringandanalysingdata.This
hamperedmyabilitytotriangulate(Saunderset.al.2009)withotherprimarydata.
Gatheringthedata,thefocuswasonthemesatagenerallevelwherethepurposewasto
obtainausefulnesstowardsBilly,insteadofdeterminingquantitativefactsofdifferences
andsimilarities.Quantitativequestionnairesareoftenusedwithgreatpurposeforcase
studies(Saunderset.al.2009),butIdidnotfindthemuseful,asmanyofmytopicswere
contextembedded,whichmeantthemeaningofmyquestionswouldbedifficulttoobtain
throughquestionnaires.
19
PART ONE
20
PART ONE
Thefirstpart(one)ofthisthesiswillpresentthetheoreticalbackground,whichwillbeused
inthefollowinganalysis.Atheoreticalframeworkwillbecreatedthroughoutpartone,
whichwillprovideconclusionstothefirsttwosub-questions,whichareasfollows:
1. What are the challenges to growing a platform business? 2. What additional challenges does the industry phase create for growing a
platform business?
CHAPTER 4: KEY CONCEPTS & THEORETICAL
BACKGROUND
Thischapterwillintroducekeyconceptsinformofplatformtheoryandindustryphasein
ordertopresentthechallengesemerginginbuildingaplatformbusiness.Literatureand
theoriesonbothconceptswillbepresentedwhichwillprovidethefoundationfora
frameworktobecreatedinthenextchapter(5).
Insection4.1platformtheoryanditsmainareasofinterestwillbedescribed–Thetrendof
platformbusinesses,networkeffect,switchingcost&multi-homingandenvelopment.And
section4.2willgiveadescriptionontheindustryphase–s-curves&dominantdesignand
adaptingtheindustryphase.
4.1Platformbusinesstheory
Gawer&Henderson(2007)definesaplatform“owner”asafirmthatownsacoreelement
ofthetechnologicalsystemthatdefinesitsforwardevolution.Platformbusinesseshasbeen
aroundfordecadesandmoderntechnologyhasmadeitpossibleforplatformbusinessesto
21
experienceanalmostinfinitegrowthexpansion.Itisalsoarguedhowplatformscanchange
orcreatenewecosystems,wherethemoreobviousexamplesareMicrosoftandintel
(Cusumano2010;Gawer&Cusumano2002).Thislaysthefoundationforhowonline
platformbusinesseshaveexperiencedgrowthandchangedcurrentindustriestothepoint
wherein2015“theworld’slargesttaxicompany,ownsnovehicles.Facebook,theworld’s
mostpopularmediaowner,createsnocontent.Alibaba,themostvaluableretailer,hasno
inventory.AndAirbnb,theworld’slargestaccommodationprovider,ownsnorealestate...”
(Goodwin2015).Anothercharacteristicpartaboutonlineplatformbusinessesishowthey
areoftentwo-sidedwithapotentialtobecomemulti-sided.Forsomebusinessesthiseven
opensupfortheopportunitytohaveadditionalrevenuestreams(Eisenmannetal.2006;
Hagiu&Halaburda2014).BecauseofthefocusonBillyascasecompanyinthisthesis,the
examplesgivenonplatformbusinesses,willprimarilybecloud-basedandatleastbetwo
sided.
4.1.1Thetrendofplatformbusinesses
Theriseandsuccessofplatformbusinessesthroughoutthelastdecadescanbeattributed
manydifferentreasons.Someofthebiggestreasonsarecostreductionsoncomputer
processing,storageandcommunicationaswellastherapiddistributionofbroadband.
Theseaspectshavemadeitfundamentallyeasierforplatformbusinessestoariseandhas
loweredthebarriersforscalability(Evans&Schmalensee,2007).Scholarshaveevenargued
howplatform-basedmarketshavebecomehighlyimportantintheeconomy(Cenamoretal.
2013),asplatform-basedcanperformonaecosystemlevel(Sampere,2016)andfurther
fosteractivitiesforfirmstorevolvearoundtheseplatform(Cenamoretal.2013;Eisenmann
etal.2011).
4.1.2Networkeffect
Referringtoplatformbusinesses,networkexternalitiesoftenshowsasanexampleof
increasingthevaluetotheplatform.Takingthetelephoneasexample,themorepeople
thathasatelephone,themorevaluableitbecomestoeachuser.(Park&Chung2011;Katz
&Shapiro1985)
Inonlineplatformbusinesses,itismoreoftennetworkeffectthatisbeingreferredtoasthe
wayofcreatingvalue.Onlineplatformbusinessesoftenprovideinfrastructureandrules
22
thatfacilitatetwoormoregroups’transactionsandcantakemanyguises(Eisenmannetal.
2006).Thegroupinteractingwitheachotherarefundamentallyattractedtooneanother,
whichisreferredtoasthenetworkeffect(Boudreau&Hagiu2010).Orinotherwords,the
valueoftheplatformincreasestothespecificuserasthesizeofusersgrowontheother
side.Andsuccessfulplatformoftenthrivesbecauseofnetworkeffects,andfurthermore
oftenexperienceincreasingreturnsonscale.Ithasbeenshownhowuserswillpaymorein
ordertogetaccesstoabiggernetwork,whichmeansmarginsincreasesastheuserbase
grows(Eisenmannetal.2006).Iwillinchapter5elaboratedeeperonnetworkeffects,asit
canbeagreattoolforenhancingplatformadoptionandagreatwayoncompetingwith
competitors.
4.1.3Switchingcosts&multi-homing
Thedefinitionofswitchingcostsisexplainedasacustomers’perceptionofthemagnitude
ofadditionalcostsrequiredtoendthecurrentrelationship,andsecureanalternative
supplier(Blutetal.2014).Followingtheprevioussection,wecantaketheactivityofgetting
anewphoneasswitchingcostexample.Therearenumerousfrustratingelementsingetting
anewphone-frominformingfriendsaboutanewnumbertolearningthefunctionalityof
theunexploredplatformonthephone,ortheexitfeeschargedbyyouroldoperator.
Variationofswitchingcostsaremany,whichhasledBurnhametal.(2003)todevelopa
managerialtypologyforcompaniestoidentifyandcategorizeswitchingcoststowards
consumerperception.Theseconsistsof;(1)proceduralswitchingcosts,(2)financial
switchingcostsand(3)relationalswitchingcosts(Burnhametal.2003;Park&Chung2011).
Burnhametal.(2003)furtherargues,thatthisshouldbeusedwithcare,asthesatisfaction
andswitchingcostscannegativelyinteractwitheachother.Meaning,asswitchingcosts
rise,thedegreeofsatisfactiononintentionstostaywithaprovidermaydecrease(andvice
versa)(Burnhametal.2003).Fundamentally,switchingcostscanbeusedasatoolfor
strengtheningtheproductorservice,butshouldneverovershadowthefundamentalfocus
ofsatisfactionasadriver.
Anothercentralconceptonplatformtheoryismulti-homing,whichiswhenusersononeor
bothsidesusenumerousplatformsinordertocompletetheirfullneeds(Evans&
Schmalensee,2007).Examplesofmulti-homingcouldbebothbuyersandsellersusing
23
Trendsales,DBAorTradonoasplatformsfordoingso.Heretheywillbeusingoneormore
outofconvenienceandpastexperiences.Oppositeofmulti-homingissingle-homing,which
impliesusersonlyusingoneplatform.Thesituationofsingle-ormulti-homingvariesamong
platforms,includingpossibilitiesoftwo-sidedplatformswithsingle-homingononesideand
multi-homingontheotherside.Armstrong(2006)callsthis“competitivebottlenecks”,
wherethemulti-homingsidedoesthisoutofextendedvaluethroughthenetworkbenefits,
ultimatelygivingthemaccesstothewidestpopulationontheotherside.Ontheopposite,
thesingle-homingsidedoesthistoavoidthecostofdealingwithmorethanoneplatform.
Switchingcostisespeciallyinterestingforplatformbusinesses,sincetheycanincentivize
consumersbyofferingsoftheirplatform,andthenbyusinghighswitchingcost,theycan
retaintheirconsumers(Cusumano2010).
Aswithmulti-homing,thesecosts(switchingcost)areoftenhighforoneuserside.Thisis
because“homing”costscomprisetheexpensesnetworkusersincurinordertoestablish
andmaintainplatformaffiliation.Thesecostscanbereflectedinadoptionoftheplatform,
functionality,costoftimeetc.Changingfromawindowssoftwareplatformtoanothercan
serveasanexample(Gawer&Cusumano2002).(Eisenmannetal.2006)
4.2Theindustryphase
Theimportanceofthephaseoftheindustryhasthroughthepastdecadesshownhow
adaptingaccordinglycanchangethefutureofagivencompany.Themostknownand
referredtermmightbedisruption,asthistermissynonymouswithwhathashappenedto
endlessindustries.
Thephaseofanindustryifoftenperceivedfromatechnologicalevolutionperspective.
Competence-destroyingandcompetenceenhancingistermsusedfordescribingtheimpact
technologicalshiftcanhaveonexistingfirmsinindustries(Anderson&Tushman1986).
Examplesofcompetencedestroyingcanbethemovementfromsteam-todiesel
locomotiveswhereknowhowetc.fromthesteamtechnologysuddenlynolongerhadany
advantage(Anderson&Tushman1990).Examplesofcompetenceenhancingishowthe
internethasevolvedfromnothingtoaffectingmostpeopleintheireverydaylife’sin
multipleways–constantbetteringthetechnologythroughservicesetc.
24
Theevolvingtechnologythenhasthepossibilityofchangingindustriesorbetteringcurrent
ones.Inotherwords,thetechnologyevolvesasthefirmsexploitingitinteractwiththeir
environments.Andasthetechnologyevolves,sodoestheindustrystructure,attractiveness
andcriticalsuccessfactors.Andconsideringthestageoftheevolvedtechnology,the
importanceofadaptingaccordinglyisunderpinned.(Abernathy&Clark1985;Utterback&
Abernathy1975)
Thetechnologyevolutionphaseisdescribedfromtheuprising,thenbeginningof
standardizationtothedominantdesignandtheemergenceofanewone.Afuah&
Utterback(1997)describesthesephasesas;fluid-,transitional-,specific-anddiscontinuity
phase.Iwillelaborateonthesephasesin4.2.2and5.3.
4.2.1S-curves&dominantdesigns
S-curve
Consideringtheworksofanindustry,thes-curveservesasagreatexampleofhowan
industryofatechnologyevolutionoftenoperates.Thebasicworkofans-curveisillustrating
howtherateofatechnology’simprovementanditsrateofdiffusiontothemarkettypically
followsans-shapedcurve.Whenstartingoutthetechnologyoftenimprovesslowlyuntila
certainpointwhereitgetswidelyadoptedandthenacceleratesasunderstandingincreases.
Thetechnologyhasthepotentialaftermuchexperimentationtobecomethedominant
design,butstillwithoutreachingitslimitorfullpotential.Thisisoftenbecausethereisnot
muchtogainorsimplybecausethetechnologyisbeing
replacedbyanewbetterone.(Anderson&Tushman
1990;Henderson&Clark1990)
Followingthepreviousexamplesofphones,theycan
againserveasanexample.Figure4showsbyans-curve
theillustrationofphonesbeingreplacedbythenew
technologyofsmartphones.
Dominantdesign
UtterbackandAbernathy(1975)introducedthetechnologymanagementtermdominant
design,whichisthetechnologythatwinstheallegianceinanindustry.Ormorespecifically,
Figure4-S-curve
25
itisthesinglearchitecturethatestablishesdominanceinaproductclass(Afuah&Utterback
1997;Abernathy1978;Sahal1981).Thedominantdesignforcescompetitorsandinnovators
tofollowiftheyhopetocommandasignificantmarketshare(Suárez&Utterback1995;
Uusitalo2014).ThetheoryisfurtherelaboratedbyAnderson&Tushman(1990)whoargues
dominantdesigntobeinfluencedbytechnologycyclesoferas,suchasfermentand
incrementalchanges.Thetechnologycyclemaybedividedintotwophases–thefluidand
specific.Themarkingoftransitionfromfluidtospecificphasecanbedescribedasthe
fundamentalemergenceofadominantdesignandisthekeyeventintheevolutionofan
industry(Anderson&Tushman1990).
Thereasonofselectingdominantdesignaremany,butlearningeffect,network
externalities,thesizeoftheinstalledbaseandtheavailabilityofcomplementarygoodsare
allfactorsthathasahighimpactontheadoptionrate.Andcombinedtheyfunctionasa
self-reinforcingcycle.(Anderson&Tushman1990)
4.2.2IntroductiontoAfuahandUtterback
AfuahandUtterback(1997)arguesforanincompletelinkbetweentheproduct-marketand
resource-basedviewswithouttheexplorationoftheevolutionoftechnologythatunderlies.
Productmarketview
Afirms’profitabilitydependsontheattractivenessoftheindustryinwhichthefirm
competesanditspositioningintheindustryaswellasitslocalenvironment(Porter,1991).
Teeceetal.(1997)furtherobservedthatthesuccessfulactorsinamarkethavebeen
thosewhowereabletoreconfiguretheirexistingcompetencesandadaptingtochange.
Thesuccessthusdependsonthestructureoftheindustryinwhichitoperatesandthisis
illustratedbyPortersfamousFiveForceswhichcanerodethelong-termprofitabilityofany
givenindustry.Theforcesconsistofthreatsofnewentrants,threatofsubstituteproducts
orservices,thebargainingpowerofsuppliers,thebargainingpowerofbuyersandthe
rivalryamongexistingcompetitors.
Resourcebasedview
Theresourcebasedviewassumesheterogeneityamongfirmresources.Thefocuslieson
specificresourcesasthesourceofasustainablecompetitiveadvantage,insteadofafirm’s
26
positioningwithintheindustry.Thesearetangibleandintangibleassetswhicharedifficult
tocopyinanyway.(Teeceetal.1997;Barney1991;Afuah&Utterback1997;Barneyetal.
2001).Iwillfurtherelaborateontheresourcebasedviewinsection5.2.2.
TechnologicalEvolutionandIndustrystructures
Afuahetal.(1997)arguethattheattractivenessofanindustryandthecompetences
neededvaryfromonestageofthetechnologicalevolutiontotheother.Describedstages
arethefluid-,transitional-,specific-andthediscontinuityphase,whichallhavedifferent
strategieslinkedindividually.(Utterback&Abernathy1975)
Afuahetal.(1997)thenproposeathree-stepprocessforcompetitiveanalysis.First,ateach
ofthefourphasesoftheindustrialinnovationcycle,thefirmanalyzesthepressuresbeing
exertedbyPorter's(1980)fiveforcestodeterminetheindustry'sattractiveness.Second,the
firmevaluatestheextenttowhichitscompetencesandfirm-specificassetsmeetthelevels
andqualityneededtosuccessfulofferproductsateachphase.Thirdandfinally,ateach
phase,thefirmaretomakestrategicstepsthatalsoanticipatethenatureofthenext
phase(s).
CHAPTER 5: THEORETICAL FRAMEWORK
Ihavenowpresentedthisthesis’keyconceptsandtheoreticalbackground,whichwasdone
inordertooutlinethedevelopmentofthetheoreticalframework.Thepurposeofthis
chapteristherebytoillustrateandconstructaframeworkofmergedtheoryandliterature.
Thekeyconceptsshowninchapterfourwillbeelaboratedthroughputchapterfivewhere
otherscholarsandtheoristwillcomplementwhereappropriate.Theframeworkwillthen
serveasafoundationforthefollowinganalysis.Additionally,partoneofthisthesiswillbe
1.Step
AnalysepressureexertedbyPFF
2.Step
Analysefirmcompetencies
3.Step
Strategicallystepstowardstechnological
phase(s)
27
concludedbytheendofthischapter,andtherebyprovideanswerstothefirsttwosub-
questions.
Inconstructingtheframework,partsoftheEvans&Schmalensee(2007)catalystframework
willbeusedasanoverallstructure.Itwillnotbeusedasastep-by-stepprocess,butwillset
theoverallframeforwheremorerenowntheoristscanbeapplied,whereappropriate.In
settingtheframework,Afuah&Utterback’s(1997)three-stepprocesswillmoreoverserve
asafundamentalpartindevelopingtheframework.Thethree-stepprocesswillbedivided
andappliedintotheframeworkwhereappropriate,whichwillfurtherbeelaboratedon
throughoutthischapter.
5.1Structuringthetheoreticalframework
EvansandSchmalensee’s(2007)bookon‘thestrategiesbehindtheworld’smostdynamic
companies’haspresentedagoodfundamentalviewinunderstandingthethoughtsandway
ofnavigatingthatgoesintoservinganddevelopingplatformbusinesses,alsoreferredtoas
catalysts.Thebookdefinesaneconomiccatalystas:“Anentitythathas(a)twoormore
groupsofcustomers;(b)whoneedeachotherinsomeway;butc)whocannotcapturethe
valuefromtheirmutualattractionontheirown;and(d)relyonthecatalysttofacilitate
value-creatingreactionsbetweenthem.”(EvansandSchmalensee,2007page3).Referred
toasthecatalyticreaction,istheprocessintheeconomywhere“valueiscreatedby
facilitatingtheinteractionbetweentwoormoreinterdependentgroupsofcustomers”
(EvansandSchmalensee,2007,page3).EvansandSchmalensee’s(2007)goesontocreatea
catalystframeworkthatpresentssixfundamentalelements.Theseelementsaretasksand
challengestoovercomeorsuggestedstrategiestofurtherprogress.Theseelementsareall
essentialforsuccession.
28
ThecatalystframeworkbyEvans&Schmalensee
Identifytheplatformcommunity
Establishapricingstructure
Designthecatalystforsuccess
Focusonprofitability
Competestrategicallywithothercatalysts
ExperimentandEvolve
·Identifydistinctgroupsthatneedeachother
·Determinewhyandhowmuchtheyneedeachother
·Evaluatewhoelseisservingthecommunity.
·Compareamultisidedbusinesswithasingle-sidedone
·Setseparatepricesforaccessandusage
·Setpricesforbalancedemandfromtwosides
·Pricetogrownslowly–atfirst
·Paycustomerstobelong–sometimes
·Priceforlong-termprofits
·Attractmultiplecustomergroupsthatneedeachother
·Promoteinteractions
·Minimizetransactioncosts
·Designforevolution
·Studyindustryhistory
·Useforecaststoenhanceprofitability
·Anticipatecompetitoractions
·Aligninterestsinternallyandexternally
·Understandthedynamicsofcatalystcompetition
·Lookforcompetitionfromdifferentbusinessmodel
·Leveragetoattack
·Considercooperation
·Knowwhentobefirst–andwhentofollow
·Controlgrowth
·Protectyourback
·Planforwhat’snext
·Lookoutforthecops
·Findoutwhoneedswhom–andwhy
·Shapeparticipationandmaximizeprofits
·DrawCustomersandfacilitateinteractions
·Visualizepathtowardlong-termprofit
·Challengeexistingcatalystsandreacttonewcatalystthreats
·Pursueevolutionarystrategyforgrowth
Figure5-Catalystframework(Evans&Schmalensee,2007,page40)
Thesesixelementsprogressfromstartingaplatformtocontinuouslyexperiencinggrowth.
ThisthesiswilladaptthemostrelevantpartsoftheEvans&Schmalenseecatalyst
frameworkandredefineittofitthecontextandcasecompany.Therelevantpartswill
moreoverserveasstructureforthisthesis.Theselectedpartsarethethreelatterstagesof
theframework,whichare4.focusonprofitability,5.competingstrategicallywithother
catalystsand6.experimentingandevolving.Additionally,Afuah&Utterback's(2007)three
29
stepprocesswillbeincludedinordertounderstandthetechnologicalevolutionandits
phases.
Duringtheresearchforthisthesis,Ihaverealizedaneedforaddingastepbetweenthe
originalfourthandfifthstepofthecatalystframework.Theaddedstepconcernsthe
unravellingoftheindustryphase,asthisreflectscompaniestoadaptitsbusinessaccording
totheindustryphase.Iwillthereforedividethethreestepprocessandmergeitwiththe
threelatterstagesofEvans&Schmalenseecatalystframework.Thisindustryphasepartwill
haveAfuah&Utterback(1997)asthemainperspective.Moreover,eachstageofthe
adaptedframeworkseenbelow,willbecomplementedbysupplementarytheories,where
appropriate.Tosumup,theoverallformationofthedevelopedtheoreticalframeworkhas
thencometogetherbycombiningEvans&SchmalenseewithAfuah&Utterback,sothat4.
Focusonprofitability+1st&2ndstepofAfuahandUtterback’sthreestepprocessàMarket
landscape;Afuah&UtterbackàIndustryphase;5.Competingstrategicallywithother
catalystsàCompetingstrategically;and6.ExperimentandevolveàInnovation
development.
Intheendofthischapter,afinaltheoreticalframeworkforgrowingaplatformwhile
adaptingtheindustryphase,willbepresented.Essentially,theelementspresentedinthis
chapterwillgiveanswerstothefirsttwosub-questions.
Market
landscape
Industry
phase
Competing
strategically
Innovation
development
Figure6-Structureoftheoreticalframework(Authorsown)
30
5.2Understandingthemarketlandscape
Thefourthstageofthecatalystframeworkinvolvesunderstandinghowcatalystscanlearn
tosecurealong-termreturnfromtheirinvestmentsinbringingcommunitiestogether.The
maintaskatthisstepittohelpcatalystsrealizetheirpotentialforprofitsorwhentomodify
theirpricingmodels(Evans&Schmalensee,2007).Reachingthisunderstandinginvolves
studyingtheindustryhistorysuccessandfailures,planningyourbestcountermovestowards
youranticipationofmultisidedstrategiesfromincumbentcatalystornewentrants,and
aligninterestbothinternallyandexternally(page142).
Thefundamentallyviewonthevalueofunderstandingthespecificindustryhistoryholds,
thathistoryisabletotellwhathasworkedornot,failedandwhyitfailed.Further
emphasizedbytheviewpoint,thatgreatbreakthroughoftencomesthroughfurther
developmentorrefiningandtweakingofcurrentstandard.Purenoveltyofbusinessmodels
etc.rarelyemergeswherehistoryhasnotbeenusefulinsomeway(Evans&Schmalensee,
2007)
5.2.1Ratingtheindustryattractiveness
Understandingthespecificindustryandhowtonavigatewithinit,canhelpafirm
positioningitselfsoitbecomeslessvulnerable.Porters(1980)fiveforceshasamore
externalview,wheretheessenceofcompetitivestrategyformulationas‘relatinga
companytoitsenvironment’(Teeceetal.1997,page511),andhaslongbeenkeyin
obtainingandstructuringthisknowledge.Alloftheforcescanvaryfromindustrytoindustry
aswellastheopportunitiesforsustainedprofitability(Porter1979).Throughoutmy
analysis,Iwilllargelyfocusontherivalryasitismyassessment,thatthisinthestrongest
forceconcerningBilly’sindustry.Evans&Schmalensee(2007)furtherarguesthatwhen
maneuveringwithinanindustry,thefirmshouldanticipatecompetitoractions,andmore
specificallyforfollowersinanindustrywithmultisidedbusinesses,theyshouldpreparefor
overcomingexclusivedealsbyestablishedcatalysts.Combinedwithporterfiveforces,the
companyshouldtrytopositionitselfintheindustrywheretheyhavetheirbestchancesof
defendingagainstorinfluencingthesedifferentforces.
31
5.2.2Valuingthefirmassets
Justlikefocusingonpositioningthecompanywithinanindustryinordertoenhanceits
chancesforsuccess,focusingontheinternalassetsofafirmisjustasimportant.
Boththeexternalandinternalviewsupportstheopportunityindifferentiationexistsin
creatingasustainedcompetitiveadvantage.ArguedbyBarney(1991),asustained
competitiveadvantageiswhenacompanyimplementsauniquevaluecreatingstrategy
whichothercompaniesareunabletocopy.However,catalystsshouldalwaysexpect
imitationofcompetitors(Evans&Schamalensee,2007,page136).
Inthecontextofaresourcebasedview,bothBarney(1991)andHamel&Prahalad(1990)
hascontributedtothefieldofresearch.Althoughtheybothcontributetothesamefieldof
research,theyaredifferentinanumberofways;Barney(1991)seescapabilitiesaspartof
firm’sresources,andHamel&Prahalad(1990)seesafirm’smostvaluableresourcesas
corecompetencies.Marino(1996)explainsthedistinctiononwhethertheresourceis
knowledge-ortechnology-based.Meaning,competenciesareoftendiscussedasaresource
foundation,whereascapabilitiesaremoreoftenbuildonprocessesandbusinessroutines
(Marino1996).Barney(1991)arguesforcompetitiveadvantageinstaticenvironments,
whereasTeeceetal.(1997)emphasizesontheimportanceofbuildingcapabilitiesthatcan
beusefulinenvironmentswithrapidchange.Discussingthedistinctions,thedynamic
capabilitieshasoftenmorecommonalitiesacrossfirmsthananticipated,whereasthe
characteristicsismorebasedonthefirmsprocessesaswellasthepaceofchangeinthe
environment(Eisenhardt&Martin2000).Foracompany,thismeans,thatdynamic
capabilitiescanbeconsideredthecapacityofwhichopportunitiesandthreatsareseizedor
sensed,andatbest,actingontheopportunitieswhilemanagingthethreats(Teece2007).I
willinsection6.4.2elaborateonthemanagementofthreatsandopportunities.
Withplatformbusinessesinmind,theyoftenpossesstheopportunityofbeingmultisided,
whichoftenleadstomultirevenuestreams,whereEvans&Schmalensee(2007)underpins
therisksofcreatinginternalsiloesofprofitability(page140).Theriskiswrongfullymanaging
multisidedbusinesseswithastandardprofitandlossstatementforeveryside–insteadthe
multi-sidedstrategyshoulddriveorganizationandincentivesconcurrent,andprofitsshould
besecuredfortheplatformoverall.Hereitisfurtherunderlined,thatfocusshouldnotbe
32
onoptimizingtheproduct,butthattheinternalteamshouldhaveincentivesthataligning
activitiesthatwilldrivetheprofitabilityofthemultisidedfirm(Ibid.).Amultisidedbusiness
hasseveralgroupswithdifferentinterests,whichmeansthataligningthoseinterests
becomesanecessityfordrivingthebusinesstowardachievingprofitability.Ultimately,
thesecriteriathusbecomearesourceproblemforthecompany.
5.2.3Summationofstepone
Boxonereflectsthesummationpoints,whichhasbeen
elaboratedonthroughcurrentsection,andmoreover,
reflectstheelementsofimportanceforunderstandingthe
marketlandscape.Astheabovesectionsshow,
understandingthemarketlandscapeisultimatelyreinforcing
theopportunityforbusinessprofits.Anygivenplatform
businessshouldstudyitsindustryhistory,asthisgivesan
understandingofwhatwentwrongorwhatworked
previously,whichwillgivethecompanyfreelearningaspects.Aswellasunderstandingthe
historyoftheindustry,understandingthecurrentindustryservesahighpurpose.Analyzing
thecurrentindustrymapsoutopportunitiestodifferentiateitselfandhelpsthecompany
navigatein,orunderstandhowtoinfluencetheindustrytoownadvantage.The
understandingoffirmresourceswaspresented,whichshowedhowacompanycan
potentiallyadaptitsresourcesintovaluecreatingstrategieswithinthedynamicmarkets.
Lastly,aligningtheincentivesoftheactivitieswithinthemultisidedcompaniestowardsits
groupsofinterestshouldbeconsidered.Thiswillhelpthecompanytoabetter
understandingofitsservedgroups/sides,andmoreover,minimizingtheriskofcreating
internalsiloprofitability.
5.3Adaptingtheindustryphase
Theoristsandexpertshaveunderlinedtheimportanceofunderstandingthetechnological
evolutionagivenindustrypossess.Thisisbecausedifferentstrategiesarerequiredinorder
toadaptbestpossibletowardstherespectivephase(Afuah&Utterback1997;Teeceetal.
1997;Anderson&Tushman1986).Throughouttheanalysisinthisthesis,IwilluseAfuah&
1. Understand the market landscape
• Industryhistory• Analyseindustryanditsdrivers(portersfiveforces)
• Specifyfirmresources• Aligningactivitiesincompany
33
Utterback(1997)asthefoundationforunderstandingthephasesofagivenindustry.This
willbesupportedbyrelevanttheoristsandliterature.Afuah&Utterback(1997)arguesa
technologicalevolutionundergothefollowingphases;fluid-,transitional-,specific-and
discontinuityphase.Thesephasesareelaboratedbelow,astheyservethedeepeningof
understandingthetechnologicalevolutionanditsimpactonanindustry.
Fluidphase
Throughoutthisphase,thereisalotofproductandmarketuncertainty.Mainlybecauseof
thecompetitionwithnewandoldtechnology.Oftenthisaffectsbothcustomersand
manufacturesaseitherhavecertaintyinhowtheproductshouldbeformed(Afuah&
Utterback1997).ThephasehassimilardescriptionsasearlyadoptersbyRodgers(2003)or
theverybeginningofthes-curvebycurvebyAnderson&Tushman(1990).Thesebeginning
allhavesimilarcharacteristics,suchaspeopleoperatingandthrivinginthemoftenpossess
adventurousandriskwillingcharacteristics.
Despitethetechnologyitself,aplatformownershouldcarefullyunderstandthisphase
becauseofthepossibleevolvingofaplatformtobemultisidedandbythat,thepossibilityof
migratingtocomplementarymarkets(Gawer&Henderson2007).Bythisstatement,the
possibilityofaplatformoperatinginmultiplemarketswithdifferentphasesshouldbe
consideredandtakenintoaccount,asthisultimatelycanhamperaplatformwayof
navigating.
Transitionalphase
Dominantdesignstartstoemerge,whichmeanssomestandardizationofcomponents,
marketneedsandproductdesignfeaturesaretakingplace.Thiscausesreductionin
uncertainty,experimentationandmajordesignchanges,whicharecharacteristicsofthe
transitionalphase.Oftentherivalrybetweenexistingcompetitorsstartstoincreaseaswell,
withlessdifferentiatedproductstocompetewith.Thecharacteristicsofadominantdesign
areobviouslyahighpercentageofmarketshare,butcanalsobedescribedasonewhose
majorcomponentsandunderlyingcoreconceptdonotdiffersignificantlyfromproduct
models(Afuah&Utterback1997).
34
Specificphase
Thedominantdesignisnowfound,andthisphaseofteninvolvealargeremphasison
processinnovationwithproductinnovationslargelybeingincremental,alsoknownasthe
eraofincrementalchanges(Anderson&Tushman1990).Productsarenowwelldefined,
anddifferencesbetweencompetitorsareareoftenfewerthantheirsimilarities.And
becauseofthecommoditynatureoftheproduct,therivalryamongcompetitorsincreases
tohigh(Afuah&Utterback1997).Thisisthephasewheretheoveralltechnological
potentialwillbereached,alsosimulatedbytheendofthes-curve(Anderson&Tushman
1990).
Throughouttheemergenceofadominantdesign,atechnologywithalargeinstalledbase
willattractdevelopersofcomplementarygoods.Andatechnologywithawiderangeof
complementarygoodswillattractusers,whichinturn,willincreasetheinstalledbase;a
self-reinforcingcycleensues.Andasearlierdescribed,platformbusinesseswithmultisided
potentialcanpotentiallyinvolveintomanycomplementarymarkets,respectivelywherethe
underlyingtechnologyisdifferent.Andinthecasewheretheinterfacebetween
complementarymarketsareevolving,theincentivestoinnovateappearambiguous.Fora
wellestablishedplatform,CarltonandWaldman(2002)suggestthatstrategictie-insto
evolvingcomplementarymarketsmaybeawaytoextendmonopolypowerintoanewly
emergingmarket,whichinthiscase,theinnovationisarguedtolikelybesuppressed.
Contradictory,Microsoftservesasanexamplewiththeirentryintocomplementary
markets,followedbyproductintegration,whichthenfacilitatedthedevelopmentofnew
applications.Itshouldbementioned,thatcomplementaryproductscanbedistinguished
betweenin-house&thirdpartydevelopments(Cenamoretal.2013).Gawer&Henderson
(2007)arguesthatthetreatmentofintellectualpropertyandtheavailabilityof
developmenttoolsultimatelyaffectsaplatformowners’abilitytocontroltheevolutionof
theplatformarchitectureandtherebytheinnovationincomplementarymarkets(page6).
Whenenteringcomplementarymarketsanunderstandingofthephaseoftheentered
marketthenbecomesincreasinglyimportant,asdifferentstrategiesforimplementation
mightberequired.
35
Thephaseofdiscontinuities
Theformerdescribedphasesnowrepeatitselfwhenanewtechnologywiththepotentialto
rendertheoldonenon-competitive,isintroduced.Oftenbyatrulyradicalinnovation,
whichfurtheroftenareintroducedbyacompetitorfromoutsidetheestablishedindustry.If
trulyradical,thetechnologicaldiscontinuitywillmostlikelyrendertheoldtechnologynon-
competitive,whereasthebarriersthatfirmshaveerectedaroundtheminthespecific
phasemaybecomeuseless.Thisresultsinadiscontinuity,plungingtheinnovationcycle
backtothefluidphase(orbeginningofanews-curve)withanotherwaveofenteringfirms
(Afuah&Utterback1997;Anderson&Tushman1990).Thisoftenincreasestherivalry
amongincumbentssincethenewtechnologyinvadestheold,whichmeansincumbents
whoarenotshiftingtowardsthenewtechnologywillexperienceanincreasedpressure.This
canleadtoleadersinformertechnologyforcedtocannibalizetheirownproducts.Andifthe
incumbentshavehighexistcostontheirformertechnology,thepressureonlyextentsby
thethreatofincreasingnewentrantsenteringtheindustrywiththenewtechnology.
Asallofthesephasesdifferinwaysofnavigatingwithinandproposedifferentchallengesto
overcome,whichiswhytheimportanceofunderstandingthegivenphaseisenhanced.
Additionally,thisproposeanunderstandingforhowfarin,theindustryisinthegiven
phase,andthereforetheanticipatingofthenextphaseinordertoadaptproperly.
Focusingontherightdominantdesignisessential,andeventhoughthetechnological
evolutionfigurativelyoftenisreferredtoastheunderlyingtechnologyitself,thepresence
ofproductasthedominantdesignisalsoapplicable.Oneofthebestexamplesmightbethe
softwareplatformforpersonalcomputing.In1998MicrosoftWindowshadapproximately
86%marketsharewiththeirclosestcompetitor(Apple)on5%(CNET,2002),whichshows
thatbuildingsoftwareapplicationsneededtofitwindows.AndasarguedpossiblebyAfuah
&Utterback,thiswastherealitygettingintothemarketformanycomplementaryproducts,
eventhoughotheroperatingsystemswherebetterandeasiertodevelopon.
36
5.3.1Summationofsteptwo
Theabovementionedsectionsshowhowimportantitisfor
companiestoanalyzeagivenindustryphase,asdifferent
strategiesareneededtonavigatewithinthespecific
industry.Marketdriversaffectthecompany’swayof
navigatingwithinanindustryphase,thuscompaniesneed
tobeawareandunderstandtheframeinwhichthe
companyissituated.Theimplicationswheni.e.dominant
designexistsinagivenindustry,iscrucialforthe
sustainabilityofacompany.Furthermore,itunderpins,thatifenteringsurrounding
complementarymarkets,thephaseofordominantdesigninthegivenindustrycandiffer
andshouldthereforealsobetakenintoaccount.Lastly,thecapabilityofdistinguishing
betweendominantdesignasatechnologyormerelyaverywellmarket-positioned
companythatcontrolsagivenplatformwaslaidoutforcompaniestobetterunderstandthe
industrydynamicsthatwillaffectit.
5.4Competingstrategically
Asdefinedin4.2.1andfurtherelaboratedonthroughout5.3,theaspectsofdominant
designcanbeamatterforstandardwarstoarise.Thepresentrealityofacatalysthasbeen
normalizedtostrategicthinkingcentredon‘howtotakeonanexistingcatalyst’or‘howto
overcomeacatalystthatwanttoreplaceyou’(Evans&Schmalensee2007),whichinbroad
aspectscanbereferredtoasstandardwars(Shapiro&Varian1999).Obviouslyfora
multisidedbusiness,thestrategicthinkingextentbeyondthis,whichIwillelaborateon
throughthissection(5.4),butunderstandingthefundamentalviewpointoncompeting
strategicallywithothercatalystsareimportant.
Inmarketswithstrongnetworkexternalities,standardwarsoftenintensify,asstrong
networkexternalitieswillcauseconsumerstohavevalueoncompatibilities.Theoutcomeof
thesestandardwarsvary,withfighttothedeathoutcome,whichwasseenwithBlu-rayvs.
HDDVD(HDDVDvanished).AnoppositeexampleshowedhowtheCDtechnologywith
SonyandPhilipspooledtogetherandopenlylicensedtheirpatents.Orasseeninmany
2. Industry phase
• Analyseindustryphase• Understandthedominantdesign
• Dostrategicanalysefornextphase
• Knowsurroundingcomplementarymarketsphases
37
markets,duopolyormorehasarisenwithmultiplestandardsbattlingeachother(Shapiro&
Varian1999).Nintendo,PlayStationandXboxservesasanexamplehere.Evans&
Schmalensee(2007)arguesonnavigatinginsuchmarkets,thattheunderstandingof
whetherleveragetoattackorcooperatetosurviveareessential.Andbecauseofmodern
technology,overlapping-orintersectingcatalystshasincreasedasanadditionalthreat,
whichtherebycausescatalyststowatchoutfornewtechnologiesintrudingtheirindustries
asanadditionalaspect.
5.4.1Complementaryproducts
Fewhightechnologyplatformcompaniesthriveinisolation.Instead,itislargelyunderstood
thatexperiencingsuccessfulcommercializationoftendependsontheavailabilityof
complementaryproductsthatworktogetherseamlesslywithyourproduct(Nambisan2002;
Cenamoretal.2013).Acomplementaryproductisdefinedbyitsvalueenhancementofa
primaryproductwhenbothareseamlesslyusedtogetherbyend-users(Sengupta1998;
Park&Chung2011).Additionally,arguedbyKimandMauborgne(2005),onthebasisof
blueoceanstrategy,thesignificanceofprovidingcomplementaryproductsandservicesthat
affectsthevalueofmainproductstoreconstructamarketborderline.Meaning,the
fundamentalvalueofamainproductcanbeincreasedthroughthedevelopmentofdiverse
andcompatiblecomplementaryproducts,whichultimately,leadstothestrategicdecision
onhowinvestingincomplementaryproductscansupportthevalueenhancementofthe
mainproduct(Park&Chung2011).
Nambisan(2002)identifiesthedistinctionofthreetypesofcomplementaryproduct
integration;value-addedinternal,add-onmodule,anddatainterface.Value-addedinternal
integrationinvolvesintegratingthemainproductwithacomplementaryproductinternally
whilemergingthedataandthefunctionsofthetwoproductsseamlessly.Bycouplingthese
productsadditionalfeaturesareoftenofferedwheretherealvalueoccurs.Theadd-on
moduleintegrationissimilar,thoughtheintegrationisthroughanexternalmoduleor
component(i.e.,separatefromthecoreproductitself).Lastly,thedatainterfaceintegration
involvesaexternalintegration,butisdefinedbythetechnicalinterfaceneededtoeffectthe
transferofdataacrossthetwoproducts(Sengupta1998).Themainpointhereendsin,how
theplatformcompanybestpositionsitselfthroughcomplementarypartnershipswhichwill
38
bevalueexpandingtowardsadoptersoftheplatform.Aplatformowners’wayofnavigating
intheindustrywiththisunderstandingcanbecriticalinordertosetitselfupforabetter
platformadoption.
5.4.2Platformadoption
Theunderstandingofplatformadoptionfromacustomerperspectiveservesmanyfacets.
Oftenitisaatechnologicalsystemconsistingofasetofcoreelements(theplatform)witha
groupofsurroundingelements(thecomplementaryproducts),thatfundamentallyserves
thearchitecturebehindmostplatform-basedmarkets(Baldwin&Woodard2008;Cenamor
etal.2013).Andoftenadditionallyagents(platforms&complementaryproducts)willbe
offeringtheseelementcausingpotentialadopterstofacecomplexdecision-making
(Cenamoretal.2013).Moreover,thesedecisioncanbeinterrelated,asadoptersand
providerschoiceswillaffectorbeaffectedbyotheradoptersandproviders(Parker&Van
Alstyne2005).Thisultimatelymeans,togetafullcomprehensionoftheplatformadoption,
ananalysisoftheimpactofotheragentsintheecosystemareneeded.(Cenamoretal.
2013)
Additionally,thisalsoleadsbacktomulti-homingandswitchingcosts.Complementary
productsultimatelyincreasesswitchingcostsandvaluetothemainproduct,whichthereby,
becomesawaytofurtherincreasesalesandcustomerretention(Park&Chung2011).On
thecontrary,theneedforaspecificcomplementaryproductcanbesoinherent,that
Burnhametal.(2003)arguesforfinancialswitchingcostifnotestablished.Meaning,
financiallosscanoccurtotheendcustomer,ifincompatiblecomplementaryproductsdo
notfunctionwiththemainproduct.
Forplatformadoption,theunderstandingofwhethermulti-homingispresentornotis
important,asthisservestheunderstandingoftheuseofplatform.Whetherbothsidesof
themarketaremulti-homingoutofconvenienceorifsomesidesarecontentedwithsingle-
homing.Andifcomprehended,applyingtraditionalnetworkeffecttheory,usedwith
caution,canhelptippingmarketswheremulti-homingisprevalent(Choi2010).
Understandingtheuseofnetworktheorywillbeelaboratedoninnextsection(5.4.3).
39
Pricing
Anotherelementforoptimizingplatformadoptionwithtwosidedmarketsisfindingthe
optimalpricingstructure(Choi2010;Eisenmannetal.2006).Dependingonwhichsidehas
thehighestattractionrateforadoption,subsidizingcanbeusedinordertoattractaspecific
side.Choosingwhichsidetosubsidescandependontheresponsivenesscustomershas
towarddifferentfactors,suchasquality,sensitivityortheabilityofcapturingcross-side
networkeffects(Eisenmannetal.2006).Hagiu(2009)furtherelaboratesonpricecutting
towardsdegreesofsingle-andmulti-homing,thatpricecuttingwillbelesseffectivein
adoptionwhenthestrongercustomerfeelstowardsmulti-homingand/orthemoremarket
powerproducershaveovercustomers.
Thoughitcanbeacostlyaffair,theuseofmarqueestrategy(Eisenmannetal.2006:Evans
&Schmalensee2007)canhelpincreasetheadoptionoftheplatform.Thestrategyoutlines
howtheplatformcanincreaseitsoverallvalue(attractiveness)tooneofitsusers’sideby
recruiting“marqueeusers”,whichareuserswhowillbehighlyvaluablebytheothersideof
thenetwork.The“recruiting”processoftenreferstosubsidizingorevenpayingforthe
marquesforadoptingtheplatformorcommittingnottouserivalplatforms(Eisenmannet
al.2006).
5.4.3Networkeffects
Earlierinsection4.1.2,Iexplainedthevalueenhancementnetworkeffectcanhaveon
platforms,asthevalueofacatalystincreasestothespecificuserasthesizeofusersgrow
ontheotherside.Andconsideringnetworkeffects,therearemanywaysofusingittowards
creatingvalue.Therefore,afundamentalunderstandingonthisconceptisimportant,asit
opensupfordifferentwaysofusingitasastrategy.
Consideringnetworkeffects,termslikenetworkgoodshaschangedthefundamentalview
onproductmanagement,whichhavecausedfirmstorethinkstandardprinciples(Bhargava
2014).Thisisbecausenetworkgoodsrefertohowproductqualityisshapedbytheactions
ofotherusers,meaningyoutubeprovidesaplatformandwouldneverhavesucceeded
withouttheirusers(producers)providinggreatcontent(Bhargava2014).Networkgoods
canbothbeintrinsic(standalonebenefit)orextrinsic(networkbenefit).
40
Moreover,Katz&Shapiro(1985)arguedthroughnetworkexternalitiestodistinguish
betweendirectandin-directnetworkeffects(Park&Chung2011;Suarez2005),also
referredtoassame-sideandcross-sideeffects(Bhargava2014;Eisenmannetal.2006).
Direct(same-side)networkeffectsoftenappliestocommunicationproductsorservices,as
theproductitselfenhancesasmorepeopleareusingthesameproduct.In-direct(cross-
side)networkeffectis,onthecontrary,theincreaseofusageofaproductornetworkwhich
furtherincreasesthevalueofacomplementaryproductornetwork,thatinturn,provides
valuebacktothemainproduct.Mostusedexamplemightbethecomplementaryadoption
ofsoftwareandhardwarecombined.
Aninterestingpartofthispoint,ishownetworkeffectscanreflectsmallerpartsinmarkets
andpredominatethemirrespectiveofwhetherthatsystemhasthelargestoverallnetwork
(Suarez2005).Meaning,Appleasapersonalcomputerchoicemightbethepredominant
choiceinthepublishingandmediaindustry,despitethefactthatMicrosofthasamuch
largerinstalledbasewithlargerdiversificationoncomplementaryproducts.Thiscarvesout
forcompaniestopursuenichestrategiestowardspredominationinspecificpartsofthe
marketandexpandfromthere.Thistypeofnetworkeffectwouldbeadirect(same-side)
networkeffect(Eisenmannetal.2006;Bhargava2014),buttargetsspecificgroupsoutlined
byspecificelements.Thekeytake-awayhereis,thatplatformswhofundamentallythrives
onIn-direct(cross-side)networkeffectcanalsohaveorobtaincharacteristicsofdirect
(same-side)networktofurtherincreasetheirvaluetowardstheirusers.
5.4.4Summationofstepthree
Onlineplatformrarelythrivesinisolation,andrarelyhave
zerocompetitors.Thissetsthestageforunderstanding
otherplatformswayofoperating,aswellasunderstanding
surroundingmarkets.Bothintermsofpotential
cooperation,butalsointermsofknowingwhenoverlapping
catalystsimposes.Furthermore,athoroughunderstanding
oftheadoptionprocessisneededaswellastheuseof
single-vs.multi-homingforbothsides.Moreover,the
importanceofunderstandingtheuseofnetworkeffectwas
3. Competing strategically
• Understandcatalystsoperatinginorsurroundingmarkets(overlapping)
• Identifycomplementaryproducts
• Understandadoptionprocessinthemarket
• Single-vsmulti-homing• Identifyoptimalpricestructure
• Usenetworkeffects
41
emphasizedasthiscancreatesynergiestowardsincreasingtheadoptionratewithinthe
platform.Andatlast,identifyingtheoptimalpricingstructuresservesforsettingthebest
foundationforanoptimaladoptionratetowardsbothsidesoftheplatform.
5.5Innovationdevelopment
ThelaststepofEvans&Schmalensee's(2007)frameworkisnamedExperimentandevolve,
hencefocusinonsuccessfulgrowth.Keytasksconcernamongothertheabilitytoknow
whentobefirstorsecond,controlgrowthand/orplanforwhatisnext.Evans&
Schmalensee(2007)furtherelaboratesonthecontextofplatformsabilitytocontrolgrowth.
Howharnessingthepowerofthecatalystreactionshouldbealignedwithaspectssuchas
pricing,designandotherkeystrategies.Thekeytake-awayishowwellthecatalystmanages
itsopportunitiesandthreats.Itcanthenbeargued,thatmanagingopportunitiesand
threatsonatechnologybasedfoundationwouldbeapplicablethroughinnovationasthe
context.
Innovationstreams(Exploitation&exploration)
Companieswithaninnovativeapproachareoftenfacedwithtwoconflictingprocessesof
organizationallearning;theexploitationofoldcertaintiesandexplorationofnew
possibilities.Theexploitationisoftendefinedbyrefinement,choice,execution,certainty
andincrementalinnovationsetc.Herearereturnsoftenpositive,proximate,orpredictable.
Explorationismorecontrarydefinedbysearch,experimenting,risksandradicalinnovations
etc.Andherearethereturnsoftenmoreuncertain,distant,oroftennegative.Thediversity
ismoreoveroftenexplainedinhowexploitationcharacterisesbyashorterdistanceintime
andspacetowardsachievingprofitablereturnscomparedtoexploration.(March1991)
Otherscientistsexplainsexploitationaslocalsearch(Fleming&Sorenson2004;Raisch&
Birkinshaw2008),whichreferstothehowdevelopmentsarebasedonpreviousexperiences
inresearchanddevelopment(Fleming&Sorenson2004).Thebenefitinlocalsearchare
linkedwithagreaterliabilityintheinnovationprocess,aspastexperiencesprovidesthe
inventorbetterinsightinto“whattodoorwhatnottodo”.Contrary,thispotentialbenefit
alsofunctionsasapotentialdownside,aspastexperiencecanpreludetheinventorfor
42
investigatingmoredistantandpotentiallymorevaluablepossibilities(Fleming&Sorenson
2004).
Andbecauseofthepotentialup-anddownsidestheseinnovationstreamsposses,various
scientistsemphasisestheimportanceofpursuingexploitationandexploration
simultaneously(Guptaetal.2006;March1991;Raisch&Birkinshaw2008),alsoreferredto
asorganizationalambidexterity.
5.5.1Ambidextrousorganization(ambidexterity)
Referencingtheresourcebasedview,Eisenhardt&Martin(2000)explainstheenhancement
of“blendingits(RBV)usualpath-dependentstrategiclogicofleveragewithapath-breaking
strategiclogicofchange”(page1118),referencingthelogicbehindambidexterity.
Raisch&Birkinshaw(2008)hasdefinedorganizationalambidexterityas“anorganization’s
abilitytobealignedandefficientinitsmanagementoftoday’sbusinessdemandswhile
simultaneouslybeingadaptivetochangesintheenvironment”(page375).AndO’Reilly&
Tushman(2013)furtherelaboratedonorganizationalambidexterityinthesenseofa
organizationsabilitytobothexploitandexplore;“tocompeteinmaturetechnologiesand
marketswhereefficiency,control,andincrementalimprovementareprizedandtoalso
competeinnewtechnologiesandmarketswhereflexibility,autonomy,andexperimentation
areneeded”(page3).
Pointbeing,thatwhatmightbecharacterizedasvaluableinlong-termmightnotbe
valuableinshort-termandviceversa(March1991;Raisch&Birkinshaw2008),hence
adoptinganambidextrousapproachtoovercomethischallenge.Thisbeingsaid,adopting
thisparadoxicalchallengecanbeverydifficult.Thisisbaggedbymultiplestudieson
adoptingexplorationandexploitationsimultaneouslyrequiressubstantiallydifferent
structures,processes,strategiesetc.topursueandmayhavedifferentimpactsonthe
adaptionandperformanceofafirm(Holmqvist2004;He&Wong2004).
Itisbelievedthatthebestcompaniesarethosewhocansimultaneouslybalanceexplorative
innovationwithexploitativeinnovationinanambidextrousapproach(Raisch&Birkinshaw
2008;Raischetal.2009;He&Wong2004),moreover,theorizingaboutadaptingan
ambidextrousapproachisarguedmostapplicablebylargeenterprises(Teece2007;Chang
43
&Hughes2012).Adoptinganambidextrousorganizationifoftenalignedwithhaving
organizationalsub-unitsanddividingunitsinexplorationandexploitation(Raisch&
Birkinshaw2008),whichcanbedifficultforSME’sduetotheirrelativelyresource-constrain
nature.However,Chang&Hughes(2012)hasarguedSME’sbeingabletoobtainan
ambidextrousapproachbybeingabletoshapetherightinternalenvironmentandadopting
bothrisk-takingandadaptabilityleadershipmethodologiestosupportbothinnovation
types.Meaning,risk-tolerancedefinedbymanagershasaneffectoftherisk-toleranceof
thefirm.Thesamegoesformanagers’adaptabilitytonewandemergingconditions.
Utilisingbothwillsignaltoemployeestheneedtoambidextrouslymanageinnovation
opportunities.Theseapproachescanthenfunctionasaprecursorforabalanceof
explorativeandexploitativeinnovation,whichinturn,mayovercomeresourcelimitations
andgeneratesuperiorperformance(Chang&Hughes2012).
5.5.2Userdrivencommunity
Oneaspect,ishowtoorganizeinnovationthroughanambidextrousorganization,whichwas
presentedin5.5.1.Anotheraspect,isthefosteringofideasfortheinnovationdevelopment.
Inthemodernworld,ideascanoriginateanddevelopfromanywhere(Pisano&Verganti
2008;Baldwinetal.2006).Ideagenerationtowardsproductinnovationusedtobean
exclusivedomainformarketers,engineers,and/ordesigners(Poetz&Schreier2012).Point
being,thatfirm’sprofessionals,unlikeusers,possessedtheexperienceandexpertise
requiredtocreatenovelideasthatadditionallywouldbeappealingtoabroaderpartofa
market.Theseideaswouldreflecttheproductdevelopmentmadebyprofessionalstooften
becharacterizedbymaintaininginnovationrentsandreliabilitybecauseoftheirexpertize.
Whichwould,again,referencelocalsearchasabasisforcreatingideasthatpossesstherisk
ofinternalexpertiseblockingthepotentialoffindingmorealternativeandpotentiallymore
successfulsolutions(March1991;Poetz&Schreier2012).Fundamentally,userswouldnot
possessthiskindofbias.Andcontrary,ideacontributorsthathavedirectandeffectiveuser
experiencemakebettercontributionsthandoequallyqualifiedindividualswithoutsuch
experience(Hienerthetal.2007).Theunderlyingaspectistherefore,thatItshouldnever
beexpectedforuserstocompetewithprofessionals,however,thenotionofuserspossibly
feedingideasforinnovationisinevitable(Poetz&Schreier2012).Additionally,forobtaining
44
usefuluserideaswouldmosthighlybedependedontheunderlyingindustry,product
categoryorthenatureofthespecificproblem.
5.5.4Summationofstepfour
Throughoutstepfourithasbeenpresentedhowsolely
performingincrementalorradicalinnovationcanpotentially
makefirmsvulnerable.Thereby,adoptingexploitationand
explorationcoherentcanhelpmitigatethesevulnerabilities.
Theoretically,thebenefitsaremanyonadoptingan
ambidextrousorganizationwithinthefirm,whichincentivises
thestudyofhow/ifthecompanycanincreasethisapproach.
Additionally,atechnologybasedcompanythatfocuseshighondevelopmentofthe
platformshouldfurtherfocushighontheideagenerationsintermsofbetterunderstanding
“whattodonext”.
5.6Aframeworkforgrowingaplatformwhileadaptingthe
industryphase
Chapterfour&fivehasnowpresentedthebiggestchallengestowardsgrowingaplatform
businesswhileadaptingtheindustryphase.Andanswerstothefirsttwosub-questionshas
beenprovided.Beneathwillshowasummationoftheanswersandanoverviewonthe
frameworkwillbeprovided.
1. What are the challenges to growing a platform business? 2. What additional challenges does the industry phase create for growing
a platform business?
ThefirstquestionsarelargelyansweredbyusingEvans&Schmalensee’s(2007)catalyst
frameworkasastructurewiththeassistanceandcombiningofrelevanttheorists.The
challengesarebyfarconsistingwithunderstandingthemarketlandscapeandits
competitors.Combinedwiththeunderstandingofhowtonavigatewithintheindustryboth
intermsofcollaboration,innovationdevelopmentsaswellastheunderstandingoffirm
4. Innovation Development
• Controlgrowth• Exploitationvs.exploration
• Ambidexterity• Ideageneration• Planforwhatisnext
45
resources.Inparticular,toplatformbusiness,elementsinformofadoptionprocess,single-
vs.multihomingandnetworkeffectserves,inaddition,ofhighrelevance.
ThesecondquestionsarelargelyansweredbyusingAfuah&Utterback(1997)research
theoriesontechnologicalevolution.Inaddition,theansweringhasbeenassistedbys-curve
theoryanddominantdesign.Thechallengeshere,areunderstandingthetechnological
evolutiontheplatformissituatedwithin,asdifferentstrategiesarerequiredfordifferent
phases,whichbythat,caneffectthefirmstrategyinmostdoings.Theimportanceis
amplifiedbytheplatformfundamentalexistenceontechnology,whichservesthereasoning
forunderstandingthecontext.
Thesefindingshaveresultedinatheoreticalframeworkforgrowingaplatformbusiness
whileadaptingtheindustry.Itshouldbeunderpinnedthatthestrategicelementsarelargely
adaptedonsomewhatestablishedplatforms.
Frameworkforplatformbusinessadaptingtheindustryphase.(Authorsown)
1. Understand the market landscape • Industryhistory
• Analyseindustryanditsdrivers(portersfiveforces)
• Specifyfirmresources
• Aligningactivitiesincompany
4. Innovation development
• Controlgrowth• Exploitationvs.exploration
• Ambidexterity• Ideageneration• Planforwhatisnext
3. Competing strategically
• Understandcatalystsoperatinginorsurroundingmarkets(overlapping)
• Identifycomplementaryproducts
• Understandadoptionprocessinthemarket
• Single-vsmulti-homing
• Identifyoptimalpricestructure
• Usenetworkeffects
2. Industry phase
• Analyseindustryphase
• Understandthedominantdesign
• Dostrategicanalysefornextphase
• Knowsurroundingcomplementarymarketsphases
Figure7-Detailedtheoreticalframework(Authorsown)
46
PART TWO
47
PART TWO
Partoneofthisthesishascoveredthetheoreticalbackgroundformyresearch,andresulted
inamergingaframeworkforexpandingplatformbusinesseswithafocusonindustryphase,
whichessentiallyprovidedanswerstothefirsttosub-questions.Parttwoofthisthesis,will
investigatethemainobjectiveoftheresearchbyultimatelyprovideanswerstotheoverall
researchquestionofthethesis:
• HowcanBillyexperiencegrowth?
Inordertoprovideanin-depthanswertothisquestionitwillrequiretheanswersforthe
twolattersub-questions,whichwillbeinvestigatedinthefollowingchapter.Here,Iwill
adapttheframeworkconstructedinchapterfive,andtherebyanalyzeBilly’scurrentmarket
situation.Theempiricalfindingsextractedfromthedatacollectionprocess,willthusserve
asfoundationtoprovideanswerstothethirdsub-question:
3. Howdothechallengeseffectthecasecompany?
Theanswerstothethirdsub-questionofthisthesiswillleadmetoadiscussionofcurrent
challenges,whichessentiallywillprovideanswersforthefourthsub-question
4. WhatmeasuresareneededforBillytoovercomeimposedchallenges?
Withprovidedanswersforallfoursub-questionsaconclusionforthethesiscanbe
generated,whichwillhelpanswerthemainresearchquestion.
CHAPTER 6: ANALYSIS
AsillustratedthroughoutPartOne(Chapterfourandfive),amergedframeworkon
platform-andindustryphasetheorywasneededinordertosufficientlycovertheresearch
focusinthisthesis.Theframeworkhascombinedimportantandrelevantaspectsfromthe
twofieldsofknowledge,inordertoanalyzethegrowingofaplatformbusinesswhile
48
adaptingtheindustryphase.Theframeworkwillinthefollowing,beappliedtothe
empiricalfindings,whichwillthroughtheanalysisgiveanswerstothethirdsub-question:
3. Howdo the challenges effect the case company?
Thischapterwillfollowthestructureoftheframeworkdevelopedinchapter5.Eachpartof
theframeworkwillbeanalysedwithBillyascase.Thestrategicdecisionsandlogicsbehind
themwillservetounderstandthereasoningbehindBillyandtheframeworkwillserveas
theanalyticalstructure.
Thischapterwillstartwithanalysingthemarketlandscapeandmarketcompetitionofthe
accountingindustryinDenmark.Next,thephaseoftheindustrywillbestudiedtobetter
understandthecontextforwhichBillyoperateswithin,andbythat,howtoadapt
accordingly.Third,anunderstandingofthedifferentaspectsandparametersofcompeting
strategicallywithaplatformintheaccountingindustrywillbeanalysed.ThiscanhelpBilly
tobetterpositionthemselveswithintheindustryandtowardstheirowncustomers.And
finally,ananalysingofBilly’sinnovationprocesswithfocusonunitingtheunderstanding
betweenend-usersandspecialistswillbeoutlaid.
6.1Marketlandscapeoftheaccountingindustry
WhenBillyapproachedtheaccountingindustry,theyentered
acompetitivelandscape,thatmoreover,possessedvery
establishedplayers,henceE-conomic(Sørensen,(b)2011).
StartingoutBillydevelopedtheirsystemasaCloud-based
SaaSprogramanddifferentiatedthemselveswithanintuitive
interfacetailoredtowardstheend-usersoftheprogram-a
similarapproachtheirmostdirectcompetitor(Bil1,2016;Bil
2,2016;Bil3,2016)Dineroused(Finans2014;Wittorff,
2011;Jensen,2013).Iwillfurtherelaborateonthe
competitivelandscapein6.1.2,butpriortothat,andaspresentedinsection5.2,Iwill
outlaythefoundationofthebasicunderstandingofhistoricaltechnicalevolutionthe
accountingindustryhasundergonethelastfifteentotwentyyears,asthisgivesvaluable
1. Market landscape
• Industryhistory• Analyseindustryanditsdrivers(portersfiveforces)
• Specifyfirmresources• Aligningactivitiesincompany
49
insightintotheindustry.Inaddition,itgivesinsightsintotheformertechnologicalevolution
andindustryphases,whichwillbeelaboratedin6.2.
6.1.1Industryhistoryonaccountingsystems
Theaccountingindustryhasthelasttwentyyearsbeenimpactedbytechnologicalshiftsin
thedevelopmentofaccountingsystems.Withinthesedifferenttechnologicalfoundation,it
canbearguedthatdifferentcompanieshavebeenpioneeringtheerasrespectively.Iwill
elaborateonthecurrentdominantdesignin6.2.
Eraofstationaryaccountingsystems
Throughoutthe90’sandbeginningofthe00’sC5wastheaccountingsystemintheDanish
industrywiththemostsuccess(Jensen,D.(a)2008).Itwasacustomizablestationary
system,andMicrosoftwaspioneeringthistechnology.However,itwasbuildonacomplex
system,whichmeantbuyingcostlycoursesinordertolearnhowtousethesystem
(Mediawatch(a)2003;Mediawatch(b)2003;).Additionalcostwasreflectedinthecostof
consultancyfirms,installingcosts,costlyupdatesandtheconstantfurthereducationfor
everytimeanewupdatepatchwaspushedout(Mediawatch2004;Andersen,2004).
InsteadofsellingSaaS,Microsoft’swholebusinessmodelwasbuildonsellingsoftware+
service,meaningMircosoft’sestablishedpartnernetworkwouldmakemoneyonsales,
serviceandoninstallations(service),whileMicrosoftwouldservethemaintenanceonthe
softwarepart(software)(Jensen,(b)2008).
Eraofcloud-basedaccountingsystems
Theinternetmadethenexttechnologicalshiftpossible.E-conomicpioneeredthis
technology,andchangedtheaccountingsystemandbusinessmodeltoafullcloud-based
systemwithalowcostsubscriptionbasedrevenuemodel(Bertelsen,2006;Børsen2008).
Thecloud-basedapproachmadethesystemmuchmoreflexible(Svarre,(a)2001).
Additionally,thelearningcurveonthefunctionalityofE-conomicwasfarlesscostly,asE-
conomicuploadedfreeexplainervideosoneveryfunctionalityetc.onYoutube.From
hereon,E-conomicexperiencedrapidlygrowth(Svarre,(a)2009)andsoon,every
accountingsystemwouldmakesuretofollow,makingsuretobecloud-based(Sørensen,(a)
2011;Christensen,2013;Mygind,(a)2008;Mygind,(b)2008).
50
Shiftinfocustowardsend-usersinsteadofspecialists
Thecombinationofaccountingsystemsmigratingtocloud-basedsolutions,andtherapidly
developmentthesystemshasundergone,hasopenedupfornewdifferentiated
perspectives(Christensen,2013).NewcomerslikeDineroandBillyhasdifferentiated
themselveswithanintuitiveinterfacetailoredtowardstheend-usersoftheprogram
(Finans2014;Wittorff,2011;Jensen,2013;Rasmussen,2013).Asmentioned,endusers
wouldpreviouslyhavehadtopayforcostlycoursesjusttounderstandthesystem.The
approachnow,however,isthatwhatwasoncesolelyunderstandableforspecialistsshould
nowbesointuitivelydeveloped,thatanormalpersonwithnounderstandingofaccounting
canhandleit.MartinThorborg(founder&CEOofDinero)statedthat“iftheyhadtomakea
video,explainingthefunctionalityofafeature(anE-conomicapproach),hewouldseeit,as
theyfailedbigtime”(3business,2016).Bycombiningmoderntechnologyandanintuitive
approach,thepresentgoalisthereforetomakethespecialistsredundant(Moses,(b)2013;
Simonsen,2016).
51
Figure8-Historicoverviewindominantdesignofaccountingsystems
6.1.2Theindustryofaccountingsystemsanditsdrivers(porterfiveforces)
Aspreviouslyindicated,theaccountingindustryof
cloud-basedsystemsinDenmarkhasexperiencedhigh
completionintermsofthemanyplayersonthe
market,bothveryestablishedonesaswellas
relativelynewcomers.Ascenariolikethisoften
possessamarketwheredifferentiationthatarehighly
basedonincrementalapproaches,meaning
differencesbetweencompetitorsareoftenfewer
Shiftinfocus:Billy/DineroPioneer:Economic
Lessfocus Highfocus Highfocus
Dominantdesign:StationaryMicrosoftC5Pro’s
• Madeitpossible• Fullycustomizable• Buildonfoundationof
specialists(specialists/certifiedpartnership)
Con’s• Expensivefirstbuy• Expensiveupdates• Expensivelearning
coursesorconsultantadvisory
Pioneer:MicrosoftC5
End-users
HighfocusLessfocus
End-users End-users Specialists
Lessfocus
Dominantdesign:Cloud-basedEconomicPro’s
• Subscriptionbasedwithfreeupdates
• Easyaccessible(Cloudbased)
• Possibletoself-learnforfree(Youtube)
• Buildonfoundationofspecialists
• Optimizingworkprocessesforspecialist
Con’s• Onlyunderstandablefor
specialists• Manypriceadd-ons
makingthepricingstrategyintransparent
Dominantdesign:CloudbasedNewshiftinfocus:Billy/DineroPro’s
• Firstaccountingcompanieswithfullattentiontoend-users
• Freemiummodel• Intuitiveinterface• Nofinancialterms• Buildwithoutneedfor
specialistsCon’s
• Devaluatingthevalueofspecialists
• Lowfunctionality–meaningonlycompanieswithlowneedcanuseit
Specialists Specialists
Stationary Cloudbased Cloudbased
90’sdominantdesign 00’sdominantdesign 10’sdominantdesign
Figure9-Portersfiveforces
52
thantheirsimilarities,alsoreferredtoaseraofincrementalchanges(Anderson&Tushman
1990).Understandingthemarketlandscapeisimportantasitultimatelyservesthe'relating
acompanytoitsenvironment’(Teeceetal.1997,page511).Iwilltherebyanalysethe
currentmarketlandscape,andtogetafullcomprehensionIwilluseportersfiveforcesto
structureit.Thefollowinganalysisisextractedfromtheempiricaldatacollectionconducted
inthisthesis.
Threatofnewentrants
Technologyhasmadeitaloteasiertostartacompanyandgetgoing.Thethreatisbest
described,asmanyentriesarelowinthesenseofenteringthemarket,butconcerningthe
complexityofaccountitismuchmoredifficulttogetasustainedfootholdandbeareal
threattowardsthemoreestablishedcompaniesinthemarket.(Spec1,2016;Spec2,2016;
Spec5,2016;Bil1,2016;Bil2,2016).
Inadditiontothecomplexityofaccountingtheend-userneedstomaintainmanyrulesand
laws,wherehighfeeswillbeattributedtheend-customeriftheyfailtodothat
(Skatteministeriet2004;Smvportalen2012;Skat2011;Fsr2014;Skat(b)2016).Thismeans,
thateveryaccountingsystemfaceshavingahighcredibilityandassuranceinfacingthose
obstacles.Andbecauseofthecommonlyusedsubscriptionbasedmodel,oftenbasedona
freemiummodel(Spec1,2016;Spec2,2016),economiesofscalewillevidentlybeafactor
forexperiencingsuccess,whichfurthercontributestowhythethreatofnewentrantsare
low.
Threatofsubstitutes
Fromtheend-usersideithas,becauseofthehighrivalryandmoderntechnology,becomea
loteasiertoreplaceyouroldaccountingsystem(Regnskabsguiden2014;
Forretningsøkonomi2014).Accountingsystemshasevenofferedtomakethetransferfor
free(Bengtson,C.2016;Billyyoutube2015).However,thesefreetransfersdonotaccount
forthehistoryofpostingsinyourformeraccountingsystem,astheyonlytransferprimo
postings.Somakingaproperswitchofaccountingsystemisstillverycostly(Spec1,2016;
Spec6,2016),aswellastheunknowingofwhetherthesamefunctionalitiesoftheold
systemscanbeupholdinthenewone(Spec3,2016;Spec5,2016;Spec7,2016).For
53
specificsituations,switchingcostmightbelow,whichtherebyraisesthethreatof
substitutes,butthatisonlysubstantiatedbyend-usershavingnointerestsintheir
accountingsituationandarehavingitoutsourcedcompletelytoaspecialist(Spec1,2016;
Spec2,2016;Spec3,2016;Spec6,2016;Spec7,2016;Spec8,2016).Andasthisisonlya
smallpart,thethreatofsubstitutescanthereforbedescribedaslow.Thisviewpointis
furtherbaggedbythefactthatBillydoesnotexperiencealotofend-usersswitchingto
othersystems,nordoesBillystealalotofcompetitors’end-users(Bil1,2016;Bil2,2016)
Forthespecialists’sidesubstitutesplaysawholeotherrole.Bigaccountingfirmslike
Deloitte,Pwcetc.mightuseaspecificaccountingsystemwithintheirorganisationstoserve
theirclients.Buteventhem,andtherestofthemarketofspecialisthasbeengettingused
tomulti-home(Spec1,2016;Spec2,2016;Spec3,2016;Spec4,2016;Spec5,2016;Spec6,
2016;Spec7,2016;Spec8,2016).Specialisthasbecomemoreusedtothefact,thatthe
end-customerhasamuchmorecertainopinioninusingaspecificaccountingsystem(Spec
2,2016;Spec3,2016;Spec5,2016;Spec6,2016;Spec7,2016).
Bargainingpowerofsuppliers
Thecloud-basedaccountingsystemsaretoalargedegreenotaffectedbythepowerof
suppliers,whichthereby,canbedescribedaslow.Thebusinessmodelofcloud-based
accountingsystemsisfarmorebuildondevelopingthesystem,andbythat,theirsuppliers
canbearguedtobetheirgreatemployers(coders)oftheirdevelopmentdepartment.
Cloud-basedaccountingsystemssuppliersarebestdescribedasthesystemstheyusefor
developing.
Bargainingpowerofbuyers
Thepowerofbuyersisalsolow,asswitchingcostsarehigh,thebuyer(end-user)isoften
uneducatedabouttheproduct(accountingsystem)(Spec2,2016;Spec3,2016;Spec5,
2016;Spec6,2016)andeverybuyerpurchasecomprisesasmallportionofsellersales(Bil2,
2016).However,thisscenariocouldchangeovertimes.First,bythereducedlegalaudit
assessmentSME’snowhastothrough(Fsr(b)2013).Thismeansforstart-ups,theycan
becomepricesensitive,astheydonotneedasbigasolutionasprevious,andtherefore,are
morelikelytotryoutaccountingsystemswithfreemiummodelsorcontactaspecialistona
54
laterstage.Whichleadstosecond,contactingaspecialistatalaterstageservestominimize
theimpactaspecialistopinioncouldposeinchoosingaspecificaccountingsystem.Instead,
itcanservebuyerstobecomemuchmoreeducatedwhenchoosinganaccountingsystem–
ultimatelyincreasingtheirbuyerpower.Thisscenarioisalreadyhappeningtosomeextent,
inthesense,thateventhoughend-usersmightbeuneducated,theyhaveobtainedabigger
opinioninthechoosingofanaccountingsystem(Spec2,2016;Spec3,2016;Spec6,2016;
Spec7,2016).
Rivalryamongexistingcompetitors
Incontrarytoalloftheotherfactorsofportersfiveforces,therivalryamongcompetitorsis
consideredhigh.Mainlybecauseofnumerouscompetitors,productsareundifferentiated,
brandloyaltyisinsignificant,thebigplayersinthemarkethaverelativeequalsizeand
marketshare,andtheindustrygrowthisslow.
Figure10-Marketsharebymostsignificantaccountingsystems(DineroVideo(2016);BillyPresentation,2016;E-conmicandMicrosoft:Rasch,H.(c)(2014);Visma:Jensen,D.2015)
ThepollofcompetitorsshownbyFigure10canbearguedtosomewhatbiased.Thisis
becauseMicrosoftandE-conomic’systemscanserveaccountingswithmuchhigher
complexity,andthussupportamuchwiderrangeofcompanies.However,anddespite
MicrosoftandE-conomicshighercomplexity(Spec1,2016;Spec2,2016;Spec3,2016;Spec
6,2016;Bil2,2016),accountingsystemslikeBillyandDinerohavetakenmarketsharefrom
them(Rasch,(b)2014).Itismyassessment,thatpublicityhasmadesuretocoverthe
intenserivalrywherenooneisneglected.Relativelysmallcompetitorstakeonlargerones
55
andvisaversa,andtheyareallfightingforthebestpositionintheSMEmarket(Riis,2014;
Rasch,(a)2014;Rasch,(c)2014;Moses,(a)2013;Sørensen,(b)2011).
Referencingthenewentrants,themarketdoesposesmanynewaccountingsystemswith
freemiummodels.Theseaccountingsystemshaslittleaccountinginsight,andareoften
buildonasomewhatextendedMicrosoftExcelmodel.Theydonotgetmuchtractioninthe
market,butdoescreatealotofmuddlingfortheend-usersperspective.(Spec1,2016;Spec
2,2016).Furthermore,Billydoesnotseetheseasathreat(Bil1,2016;Bil2,2016).
Eventhoughtheaccountingsystemsalldifferincomplexityandtheunderlyingaspectof
verydiversecustomerperspectives(end-usersandspecialists),therivalryisstillintensified
bythechaseforthepositionofbeing“besttoolfortheend-users”(tryingtoposition
themselvesinthe“toolforend-users”&“lowcomplexity”area).
Elaboratingonfigure11,itcanbeassumed,thatastheaccountingsystemswithlow
complexityexperiencegrowth,thenthecomplexitywillfollow–thatitwillbealinearcurve.
ThisassumptionisbasedonthehistoricalperspectiveofhowE-conomichasgrown,aswell
astheassumptionofwhentheend-usersofthesimpleaccountingsystemsgrowtheywill
VismaeAccounting
Toolforend-users
Toolforspecialists
HighComplexity(functionality)
LowComplexity(functionality)
VismaSummaSummarum
“othersmallaccountingsystems”
Figure11-Mappingofrivalryinthecloud-basedaccountingindustry
56
needmorecomplexsolutions.Sothisstrategyisfollowedinordertoavoidpotential
customersswitchingsysteminthefuturebecauseofout-growingthesystem,aswellas
increasingthecomplexitywillmeanaccommodatingalargercustomersegment(Bil2,
2016).Noaccountingsystemthusattemptstobetheliaisonofequallyservingtheend-user
andspecialist,inordertobeboththeirpreferredsystem,asseeninFigure11.This
opportunitywillbeelaborateoninsection7.1,andwillbediscussedbythealigningof
activitiesinBillyinordertoservebothsides.
Lastly,anadditionalopportunityexistsinthemarketasitisarguedthat30-40%ofsmall
enterpriseshastheiraccountingsysteminaMicrosoftExcelsheet(Bil1,2016;Bil2,2016).
Billyseesthisasadecreasingoftherivalry,asthecompetitionisnotsomuchaboutstealing
customersfromeachother,butmoreaboutconvincingahighmarketshareofshiftingtoa
realaccountingsystem.Itshouldbementionedhere,thataconvincingeffortappliesto
boththeend-userandthespecialists,astheseactorscanhavetheirneedfulfilledbyan
Excelsolution(Spec1,2016;Spec8,2016).
6.1.3FirmresourcesofBilly
Intermsofinnovationwithintheaccountingindustry,alotishappening,anditishappening
fast(Spec1,2016;Spec4,2016;Spec5,2016;Spec8).Billy’sapproachofbeinguser-centric
(Bil1,2016;Bil2,2016;Bil3,2016)serveswellforadaptingthemarketneeds.Combiningit
withsimultaneouslybeingonpointtowardsindustrytrendsaswellascompetitorsandtheir
innovations,canfurtherhelpBillyinpositioningthemselvesbetterinthemarket.Billy’s
capabilitiesarewhatstrengthentheminnavigatingthemarket.Theuser-centricapproach
hashelpedBillyinavoidinggutbaseddecisions,andeventhoughtheirprocessesarevery
simplified(Bil1,2016;Bil2,2016;Bil3,2016),thesecapabilitiesofshortandsimplefirm
processeshasgivenBillytheabilitytoadaptandactfastonmarketneeds/trends.
Billy’scompetenciesaretoalargeextenttiedtoBilly’sCEO,ashiswayofnavigatingand
understandingthemarkettrendsarewhatdrivesBilly’s’wayofdifferentiatingand
innovatingwithintheindustry(Bil1,2016;Bil2,2016).Asidefromauser-centricapproach,
Billydoesinnovatemore“original”ideas,asBillyunderstands,thatend-usersmightnot
understandwhatmoderntechnologyiscapableof(Bil1,2016;Bil2,2016).Iwillinsection
6.4elaborateonthedistinctionbetweentheinnovationsmade;user-centricvs.“original”
57
innovations.Thepointbeingmadehereis,innovationnotgeneratedfromtheuser-centic
approachismoreorlesssolelybasedontheCEOofBilly,whichultimately,makesBilly
vulnerable.
6.2Thephaseoftheaccountingindustry
ForatechnologicalplatformbusinesslikeBilly,
understandingthephaseoftheindustryanditstechnological
evolutionisimportant,asitshouldreflecttheirstrategic
decisionstowardsdifferentiatingthemwiththeir
competitors.Understandingtheparticularphaseshould
furtherhelptheanticipationofadaptingorstrategizing
towardsachievingthebestpossibleoutcomeforthenext
phase(s)tocome.
6.2.1Identifyingthephase
Thepresenceofcloud-basedtechnologyusedforaccountingsystemsasadominantdesign
wasclear(Mygind,(b)2008;Spec2,2016;Spec3,2016;Spec4,2016;Spec5,2016;Spec6,
2016).IthasforcedanestablishedsystemlikeMicrosoftC5tofollowacloud-based
structure(Rasch,(b)2014)andultimately,evolvedabetterfoundationfornetwork
externalities,availabilityofcomplementarygoodsandlearningeffectstoarise(Spec2,
2016;Spec3,2016;Spec6,2016).Theeraofincrementalchanges(Anderson&Tushman
1990;Uusitalo2014)arepresentasmostinnovationsaresimplifyingormakingdifferent
processesautomated(Spec3,2016;Spec4,2016;Spec5,2016),withcloud-based
accountingsystemscopyingfromeachother(Spec5,2016).Theindustryforaccounting
systemscanthereforebearguedtohaveitspresenceinthespecificphase.Andreferencing
thespecificphaseintensifiestheunderstandingofpreparingforthephaseofdiscontinuity
thatistocome,asthisphasehasshowedtopotentiallydisruptthecurrentdominant
design.
Becauseofthehighswitchingcostsandtheoutsourcingofcompaniesaccounting,itisnot
rareforcompaniestostillhaveanoldnon-cloud-basedaccountingsystem(Spec2,2016;
Spec3,2016;Spec7,2016;Spec8,2016).Theshiftinusingmoreintuitivebasedaccounting
2. Industry phase
• Analyseindustryphase• Understandthedominantdesign
• Dostrategicanalysefornextphase
• Knowsurroundingcomplementarymarketsphases
58
systemismostsignificantintheyoungersegment(Bil1,2016;Bil2,2016)oronnewstart-
upswithsocalledMac-brains(Spec2,2016),referringthefactthatApplefanslovesthe
intuitiveapproach.
Thisfact,servestheunderstandingofhowdevelopedthespecificphaseseemstobe.
Fundamentally,thecloud-basedtechnologyisverydeveloped,andhasundergoneerasof
incrementalchangesforalongperiod,butbecauseofthelongtransitionforcompaniesto
switchaccountingsystems,theshiftinphaseseemstopossiblybedeferred.Thisisfurther
supportedbythecomplexityanaccountingsystemhas/canhave,asmostinnovative
developmentsseenintheindustryoriginatesfromnewandsimpleaccountingsystems
(Spec4,2016;Spec5,2016).Meaningthedevelopmentofthesesimpleaccountingsystems
canbecomemuchmorecomplex,whichseemstogivetheunderstandingofthephase
longevity.
Specialistsasasurroundingmarket
Thedividingofcloud-basedaccountingsystemsandspecialistisbasedon;newaccounting
systemsapproachofseparatingthemselvestowardsspecialists(Moses,(b)2013;Simonsen,
2016),andthefactthat,innovationsmadeincloud-basedaccountingsystemsare
significantlyoptimizingandtherebychangingtheworkprocessesofspecialist(Spec3,2016;
Spec4,2016;Spec6,2016).Theworkprocesschangeisseenintheautomationand
simplificationofaccountingforcingspecialiststofocusmoreoncounsellingthanroutine-
based-accountancy-typing.Thereby,itcanbeargued,withthesetwoconcurrentindustries,
thatinnovationmadeinthecloud-basedaccountingsystemshasahigherimpactonthe
marketofspecialistscomparedtothemarketofcloud-basedaccountingsystemsitself.And
bythat,theradicalchangeorshiftinphaseseemsmorenearthespecialiststhancloud-
basedaccountingsystems.
Eventhoughsomespecialistswelcomethisshift(Spec1,2016;Spec2,2016;Spec6,2016;
Spec8,2016),acontradicting,butlogicalcouplingseemstoarise,whenanentireindustry
ofspecialistthathasbeenusedtospendtheirtimeonroutine-based-accountancy-typing.
Thecouplingisseenwhenanentireindustryhastomakethetransitiontowardsspending
theirtimecounsellingithastoeffectthemacroeconomicconditions.Thisriskwasalsoseen
59
throughmyinterviewsasmanydidnotchargeforcounsellingorathighest,onlycharged
twentypercentoftheirtimeforit(Spec3,2016;Spec4,2016;Spec5,2016;Spec7,2016).
Billyasacatalyst
Apotentialdownsideoftheoversimplificationofsystemsisleadingpeople,who
fundamentallydonotunderstandaccounting,tonotunderstandwhentheymakemistakes.
Thesemistakescanevolveintocostlyaffairs,wherespecialistsareneededinordertosolve
problemsproperly,whichwillendupcostingmorethanifspecialistswerecontacted
beforehand.(Spec2,2016;Spec5,2016;Spec6,2016;Spec8,2016).
Billy’schallengeliesinwhethertheybelieveintheirtechnologyandsystemcandowithout
specialists.Ifnot,thefoundationislaidfor,Billyasacatalyst,tohelpspecialiststransition
fromroutine-based-accountancy-typingtoahigherdegreeofcounselling,whichinturn,will
furthermaximizethetransaction-valueBillycancreatebyconnectingspecialistwithend-
users.IwillelaborateonthischallengeforBillyinthediscussionchapter(7.2).
6.2.2Planningfornextphase&surroundingmarkets
Asformerimpliedin6.2.1,theargumentforashiftinindustryphaseinBilly’sindustryis
arguablypresent.Therivalryintheindustryismorefocusedontheconstantdevelopingof
therespectiveaccountingsystem(Spec1,2016;Spec6,2016;Bil1,2016;Bil2,2016).Billy,
moreover,seemtoputmostoftheireffortincombiningexistingtechnologytowards
betteringtheirservicetotheirendcustomers,andhasincreasedtheirfocusoninnovating
forthespecialistsaswell(Bil1,2016;Bil2,2016).Billyarenotafraidofchangingcourseor
adopttechnologywithinthecloud-basedsegment,butletstheirfocusbedefinedbythe
marketcompetition,bothwithpricingandinnovation.Thisfocusonhead-oncompetition
onpioneeringinnovationsinthemarketatasimilarprice-structuretowardstheir
competitors(Spec2,2016),ultimatelyincreasestherivalry.Thisdescriptionishighly
characterizedbyeraofincrementalchanges,whichtheoretically,leadsBillytobevulnerable
towardsoutsidersapproachingtheirindustrywithradicaltechnology.Adiscontinuityphase
isoftencharacterizedbytrulyradicalinnovation,whichoftenareintroducedbya
competitorfromoutsidetheestablishedindustry(Afuah&Utterback1997).Moreover,
impactsofadiscontinuityphasewillfurtherbedefinedbythedestroyingoffirmspecific
60
assets(Afuah&Utterback1997;Teeceetal.1997).Theoreticallyspeaking,thecloud-based
accountingindustryisinavulnerablesituationoffacingapotentialdiscontinuity.Andthe
factthatthecloud-basedaccountingsystemindustryhasundergoneeraofincremental
changesforalongtimestrengthenstheargumentforaphaseshift,whichshouldintensify
thecloudbasedaccountingsystemsprecaution.
However,anexactoriginofadiscontinuityphasecanbesomewhatdifficulttoforesee.
Additionally,itshouldalsobeconsidered,thatbehistoricallyspeakingwithinaccounting
systems,highswitchingcostmighthelpBillythroughsuchimpact,oratminimalgivethem
extratimetoadaptorchangecourse.IwillelaborateonBillyinnovationprocessin(6.4).
Inaddition,anindicationofaplatformshiftseemsmoreurgent(Spec2,2016),referringthe
developmentofthetechnologytoshiftfromaninternetbrowsertoanapplicationonyour
phone.Theshiftisfromtheend-users’perspective,andhasalreadybegunasmost
accountingsystemsalreadyhaveone,butcombiningtheapplicationwithnewOCR
technologycouldpotentiallyfulfilcustomersneedintermsofnotneedingacomputer(Bil2,
2016;Bil3,2016;Dineroyoutube2016).IwillfurtherelaborateontheOCRinnovationin
section6.4.1
6.3Strategicdecisions
Asalreadyestablished,Billyoperatesinamarketwithhigh
rivalryandhassurroundingmarketsthatpotentiallyfacesa
shiftinindustryphase,whichtheoretically,canbecritical.
Thereby,understandinghowtocompetestrategicallyand
positionthemselvesinthemarketisessential,asthis
strengthensBillytowardsdifferentiatingthemagainsttheir
competitors.
6.3.1Platformadoption
Competingstrategicallyinplatformbasedmarketsserves
manyfacets.Onthetopicofcompetingagainstcompetitors
forBilly,withasubscriptionbasedbusinessmodel,
3. Competing strategically
• Understandcatalystsoperatinginorsurroundingmarkets(overlapping)
• Identifycomplementaryproducts
• Understandadoptionprocessinthemarket
• Single-vsmulti-homing• Identifyoptimalpricestructure
• Usenetworkeffects
61
understandingandenhancingtheiradoptionprocessisessential.
Pricingdecisions
Findingtheoptimalpricingstructurecanelevatetheplatformadoptionandcanbeusedas
atoolforeachsidetogrowtheadoptionrate,respectively.Subsidizingcanbeusedinorder
toattractaspecificside,whichBillyaredoingtoattractspecialists(Bil2,2016).However,
thisisdonebasedon,whatthe“industrialstandard”is(Bil2,2016),again,referencingthe
rivalryamongtheaccountingsystems.TherivalryfurtherforcesBillytofollowthemarkets
pricingstructure,bothwithafreemiummodel,butalsowhencompetitorsareraisingtheir
prices(Bil2,2016).Therivalryamongsimpleaccountingsystemscombinedwiththeir
storytellingof“end-userbeingabletodosomething,theythoughttheycouldnot”atalow
pricecreatesanintransparentmarketwithdifficultiesinraisingtheprice(Spec1,2016;
Spec2,2016).
Multi-homing
Concerningend-users,single-homingisreallytheonlyviableoption,asusingmultiple
systemsfordoingyouraccountingwouldequaldoubleamountofwork.
Forspecialists,however,multi-homingisverycommonandissomethingtheyoughttodoin
ordertoservetheirclientsbestpossible(Spec2,2016;Spec3,2016;Spec4,2016;Spec5,
2016;Spec6,2016;Spec7,2016;Spec8,2016).Notonly,istheaccountingsystems
positioneddifferentinthemarketintermsofcomplexity,butthecustomershavealso
gainedahigherknowledge/opiniononwhatsystemtheywanttouse(Spec3,2016;Spec5,
2016;Spec6,2016).Thishasbasicallybeeninflicteduponend-usersaspartsofthe
accounting,whichwaspreviouslyoutsourced,isnowbeinggivenbacktotheend-user,
ultimatelylettingtheend-usercommitthemselvesdeepertoaparticularsystem.And
referencingthissimpleeraofaccountingsystems,thisthenleadstosimplefactorssuchas
lookandfeelofthesystemhasnowmorethaneverbeenfactorstoconsiderinorderfor
adoption(Bil1,2016;Spec2,2016).Soinsteadofmasteringonesystems,specialisthas
turnedtobeinggood,oratbest,masteringmultiplesystemsinordertoservetheirmarket
bestpossible(Spec2,2016;Spec3,2016;Spec4,2016;Spec8,2016).Andbecauseofthis,
thechallengeforBillyisontherivalryamongspecialistschoosingBilly’ssystemovertheir
62
competitors.Themostsignificantdifferencetowardstherivalryinwinningoverend-users,
isspecialistshasmuchhigherdemandsinfunctionalitycombinedwithmuchlower
switchingcostsanddifferentpricingstructures.Iwillfurtherelaborateonthischallengein
Chapter7.3.
Complementaryproducts
ForBilly,usingcomplementaryproducts“makesitsowe(Billy)canexpandourfunctionality
withouthavingtobuilditourselves...andifwedidn’tdoit(usecomplementaryproducts),
wewouldbereallydisadvantaged(towardscompetitors),sofirstly,itisanecessity...”(Bil3,
2016,Q22).Henrikisnotonlyreferringthepresenceoffinancialswitchingcost,butisalso
emphasizingtheuseofcomplementaryproductsasashortcuttoaddedvalueforBilly.This
valueisfurtherextended,asoneofBilly’sbiggestchallengerightnow,isfindingdevelopers
(Bil1,2016;Bil2,2016)inordertokeepupwiththespeedoftheirdevelopment.Billy’suse
ofcomplementaryproductaremostlybasedonadd-onmoduleordatainterface,whichare
theeasiesttoimplement(Nambisan2002)andhasbecomeatrendwithinthecloud-based
accountingindustry(Bil1,2016;Bil3,2016;Spec3,2016;Spec4,2016;Spec5,2016;Spec
6,2016;Spec7,2016).
Billytriestodifferentiatethemselvesamongthemanyintegrationsbydevelopingamore
thoroughexternalpartnership(Bil1,2016;Bil2,2016).Anexampleishowtheintegration
withBluegarden(asalarysystem)extendsbeyonddataexchangingwithcollaborationin
differentaspects(Bil1,2016),ultimatelycreatinglargerexposuretowardsend-customers
(Bil3,2016).
AchallengeforBillyisfindingafitforacomplementaryproductthatdoesstockcontrol(Bil
1,2016;Bil2,2016).ThisneedisbasedonBilly’suser-centricapproachinobtaining
knowledgeonwhattodevelopnext(Bil2,2016).Andcombinedwiththehighneedfora
featurelikethis,anddifficultiesinfindingasolutiononthemarket,Billywantstodevelopa
solutionthemselves(Bil1,2016;Bil2,2016).DevelopingthisfeaturerequiresBillytogo
againsttheirapproachof“doingwhattheydobest”(Boye,K.2014;Bil1,2016),and
increasethecomplexityoftheirsystem.Iwillfurtherelaborateontheuser-centricapproach
insection6.4,andfurtherelaborateonthechallengeinsection7.3.
63
6.3.2Networkeffects
Theoretically,ithasbeenexplainedhowavalueenhancementnetworkeffectcanhaveon
platforms.Asreferenced,whenBillylaunchedtheytriedtomakethespecialistredundant
(Moses,(b)2013;Spec2,2016),whereasDinerohasrecentlydonethesame(Simonsen,
2016),therebyopposingthepotentialvalueeffectthatliesinconnectingend-userswith
specialists.Ithasalmostbecomeatrendforthesesimpleaccountingsystemstobrand
themselveswiththemessagethatspecialisthasbecomedispensable(Spec22016;Spec5
2016;Spec62016;Spec82016).Contrarytothisviewpointisthatthemarkethasthe
potentialofnetworkgoods,ifanend-usercanimproveitscompanybybeingconnected
withaspecialistsutilizingtheirknowledge.Thisobviouslyalreadyhappens,howeverthe
greaterpartusesspecialistbecauseoflawsandtherequirementofaccounting(Spec2
2016;Spec52016;Spec62016;Spec82016;Bil1,2016).
Throughout2016Billyhaschangedcourse,whichisevidentintheirinnovation
developmentthatistailoredspecificallytowardsspecialists(Bil1,2016;Bil2,2016;Bil3,
2016;Spec2,2016).Billy’ssystemhaslargelybeendefinedbytheend-users’viewpoint,but
byaccedingtomorespecialist’sfocuseddemands,thefoundationforfosteringnetwork
effectshasbeenrefined.Thisstrategicviewpointisfurtherevidentinthedeeper
partnershipwithspecialistthatBillyhasrecentlyformed(Bil2,2016).Thesepartnerships
arebasedonthedemandofend-users,andbasedonexpectationoffuturegrowth.
Meaning,Billyfocusesonpartneringwithspecialistswhoarefocusingongrowingtheirown
businessaswell(Bil2,2016).In-direct(cross-side)networkeffectcanbeclarifiedbythefact
thatBillydoesnotneedalotofspecialiststoservethedemandofend-users,asspecialist
potentiallycanservenumerousactorssimultaneously,whileend-usersonlyneedone
specialist.ThechallengeforBillylaysinfindingspecialistswhomdeliverhighvalueworkand
whomdoesnothavealimitonobtainingextraworkfromextraend-users.Iwillelaborate
onthischallengein7.3.ThepotentialIn-direct(cross-side)networkeffectisfurther
strengthenedbymoderntechnology(cloud-basedaccounting),bycuttingoffwhatcould
havebeengeographicalissues.
Billy’smostdirectcompetitor,Dinero,(Bil1,2016;Bil2,2016;Bil3,2016)haswithMarin
Thorborg(founder&CEOofDinero)createdaverywellpositionedplatformforobtaining
64
end-usersintheSMEmarket(Krabbe,2014;Bil2,2016).MartinThorborgisnotonlya
public-faceandgreatspeakerforentrepreneurialminds,butalsofounderandownerofthe
Amino-platform,whichisanonlineportalforentrepreneurs.Thispositioninthemarket
createsagreatfoundationforleadgenerationforDineroandmoreover,servesincredibly
wellfordirect(same-side)networkeffect.Billyknowsthatgoinghead-to-headinthisarea
theywillmostlikelyendupassecondplace(Bil2,2016),whichiswhyBilly’sfocuson
deepeningtheirpartnershipswithcomplementaryproductisastrategicmoveinorderto
carveoutnichefocusstrategiesinthemarket.Touseanexample,Billy’sopportunityliesin
beingthebestaccountingsystemforcraftsmen.Andbypartneringupwithcomplementary
productthatservethisparticularlymarketBillythenpositionsthemselvesstrongerinthis
area,whichmoreover,haspotentialtodevelopdirect(same-side)networkeffects.
6.4DevelopingtheBillyplatform
Billyoperatesinamarketwherethespeedofdevelopmentis
incrediblyfast(Spec1,2016;Spec5,2016;Spec6,2016;Spec
8,2016),whichisconsistentwithBillychallengeindeveloping
theirsystemsfastenoughandkeepinginpacewiththeir
competitors(Bil1,2016;Bil2,2016;Bil3,2016).Abig
resourcechallengeforBillyisfindingdevelopers(Bil2,2016).
Thedevelopmentofthesystemisfurtherunderpressurebytheplatformtwo-sidedusers,
whofundamentally,hasverydiverseneedsandviewpointsonwhatisimportant(Bil1,
2016;Bil2,2016;BillyPresentation,Slide27&28).Theseneedscanbecharactarizedas
incrementalinnovation.Thecombinationofdiversityinneedsofdevelopementandthelack
ofressourcetocarryitoutthenservesasastructuralchallengeforBilly.
6.4.1User-centricvs.“original”basedinnovations
Before,Billyinnovatedbasedonthefoundersinherentandintuitiveneed.Nowthishas
shiftedtoahighlyuser-centricfocus(Bil1,2016;Bil2,2016).Theyusesocialmediaand
theirsupportfunctiontocaptureandorganizenewideasforinnovationdevelopment.On
socialmedia,theypreferablytrytodivideend-userstouseFacebookandspecialiststouse
LinkedInbecauseoftheirdifferentperspectivesandneeds(Bil2,2016).Moreover,thisway
4. Innovation development
• Controlgrowth• Exploitationvs.exploration
• Ambidexterity• Ideageneration• Planforwhatisnext
65
ofoperatingserveasacommunicationtool,meaningusersarebeingheardandhasasaying
inthefuturedevelopmentoftheBillyplatform(Bil2,2016).Theideasaremany,soBilly
differentiatesbyapollandbetweenend-usersandspecialists(BillyPresentation,Slide27&
28,2016;Bil2,2016).Thesedevelopmentsaremostcharacterizedbyexploitative
innovations,asBillysays;thattheirusersneitherhastheunderstandingofcapabilityof
technologynorthecapacitytocomeupwithmoreoriginalideas(Bil1,2016;Bil2,2016).
Inadditiontodividinginnovationsbetweenend-userandspecialists,Billymoreoverdivides
theirinnovationonagenerallevel;theuser-centricandthemorevisionary/original
innovation(Bil1,2016;Bil2,2016).TheOCRtechnologyserveasanexampleofmore
originalbasedideas,andwillsurelychangecurrentprocessestowardsusersoftheBilly
platform.Theprocesschangewillbebyeliminatingtypingofreceiptsinaccounting,whichis
verytimeconsuming.OCRfunctionsas;takingaphoto(preferablywithyourphone)ofyour
receipt,andafterwardsthetechnologyrecognizeseverynumberandtext,thencategorizes
itcorrectly,sotheuseronlyhastoverifybyaccepting,hence“one-clickaccountancy”(Bil1,
2016;Bil2,2016).Dependingonthetechnologiesstabilityandaccuracyitwillhavethe
possibilityofradicallychangingtheworkingprocessesofspecialists–referencingspecialists
shiftfromroutine-basedworktocounselling(Spec3,2016;Spec6,2016;Spec8,2016).This
technologyisalreadyseeninothermarkets,sotheideainperspectivesofBillyisnotvery
radical,asitismoreaknowntrendthatiscomingamongthemoreinnovativeaccounting
systems(Bil2,2016).Whichagain,locksBillyinthehighrivalrymarket,wherefactorsfor
succeedingwillbeonwhodeliversfastest,pricingand/orthebestsolution.But,the
distinctionoftheinnovationimpactbetweenBillyandspecialists,isimportant,wherean
exploitativeinnovationmadebyBillycanhavearadicaleffectonspecialists(Spec5,2016;
Bil3,2016).TheimportancelieswithinBillywantingahighercommitmentfromspecialists
whilesimultaneousincreasingspecialists’redundancythroughtechnologydevelopment.I
willelaborateonthisparadoxicalchallengeinsection7.4.
6.4.2Managingthreatsandopportunities
Theoretically,theadvantageofobtaininganambidextrousorganizationhasbeenpresented.
Although,theambidextrousapproachismostsuitableforlargeenterprises,obtaining
aspectsofitinSMEorganizationscanbedone(Chang&Hughes2012)andshouldtherefore
66
beconsidered.MostofBilly’sinnovationsareexploitative;bothpresentuser-needsand
non-userideasarebasedoncurrenttechnology,markettrendandhighcertaintyinmost
aspectsoftheinnovationdevelopment(Bil1,2016;Bil2,2016;Bil3,2016).WhenBillyis
neglectingexplorationtheyultimatelybecomemorevulnerablefromexternaltechnologies
potentiallyimpactingtheirindustry.However,andtheoretically,consideringthesizeofBilly
shouldhelpthemintheabilitytoadaptfasterifimpactedbyothertechnologies(Anderson
&Tushman1986).Moreover,thehighswitchingcostthatBilly’sindustrypossess,should
furtherhelpstrengthenthetimeaspectforadaptingaccordingly.
Theselectionprocessofthemoreoriginalbasedideasshouldalsobementioned,asthis
processislargelydonebyJonas,theCEO(Bil1,2016;Bil2,2016;Bil3,2016).Billy
understandthisvulnerabilityandareworkingonstructuringit(Bil1,2016;Bil2,2016;Bil3,
2016).However,presentlythissetsthefoundationforBilly’svulnerability,asitcanbe
argued,thatBillytosomeextentareboundbytheCEO’swilfulness.Thevulnerabilitywould
furtherincrease,ifBillyshouldobtainamoreexplorativeapproach.Pointbeingmade,that
eventhoughtheCEOwouldgetinputfromtheorganization,Billywoulddependonone
person’sinterpretationoftheindustryandBilly’scapabilities.Meaning,theirinnovation
approachwouldbeincreasedbyhigheramountofuncertainties.
Onthecontraryandwiththepresentedpossibility,in6.2.2,ofanindustryphaseshift
towardsadiscontinuityconsiderablystrengthenstheapproachorobtainingmore
exploration.Thiswillbeelaboratedin7.2.
6.5Summaryofanalysis
Thischapterwherestructuredbyadaptingthetheoreticalframework.Thechallengesfaced
with‘growingaplatformwhileadaptingtheindustryphase’hasthroughoutthischapter
beenpresented,withBillyasfocalpoint.Billy’scurrentstateandtheirstrategicdecisions
andthoughtsbehindhasthenbeenanalysed,whichalltogether,hasprovideda
comprehensiveanswertothethirdsub-question.
3. Howdo the challenges effect the case company?
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CHAPTER 7: DISCUSSION
Chaptersevenwill,aswasalsoseeninchaptersix,usethetheoreticalframeworkfor
structuringthecourseofaction.Giventhat,thediscoveredandpresentedchallengescanbe
interrelated.However,theframeworkwilladapttothepresentfactorsinordertobetter
shapeacoherence.Thisisalldoneinordertoreachananswertothefourthsub-question,
wherefocuswilllieonthecontinuationoftheunsolvedchallengesfoundinchaptersix.
4. WhatmeasuresareneededforBillytoovercomeimposedchallenges?
Inordertopresenttheadaptedframework,theidentifiedchallengesthroughoutchaptersix
willbesummarizedinthefollowing.
Summationofchallenges
Asillustratedintheanalysis,Billyoperatesinahighrivalrymarket,whichforplatform
adoptionandnewconsumerstolookat,seemsveryintransparent.Thishasforcedthe
rivalrytocompeteonpricepoints,whichaffectsthecompanies’abilitytodistributetheir
realvaluepropositions.
Otherfindingspointedaterasofincrementalchangehasbeenongoingforalongperiodin
thecloud-basedaccountingindustry.Combiningthesefindingswiththehighrivalrywith
difficultiesinexpressingdifferentiationaspectsseemedtounderpinthelongevityofcurrent
industryphase.Thechallengesarethenintensifiedbycategorizingthecurrentphaseasthe
specificphase,astheoretically,thephaseofadiscontinuitywilloccurafterwards.Moreover,
thetechnologicalevolutionwithintheindustryofcloud-basedaccountingsystemsseemsto
havealargerimpactonthesomewhatconcurrentindustryofspecialiststhanthemselves.
Partsofthecloud-basedindustryattempttomakethespecialistsredundant(Simonsen,
2016;Moses,(b)2013;Spec6,2016;Spec8,2016).Thetechnologicalevolutionaspects
havetobefathomedbyBillyinordertostrategizeandpositionthemselvesaccordingly.
Billyhasrecentlymadeinnovationstailoredspecificallytowardsspecialists(Bil2,2016;Billy
presentation,2016).Thechallengesherearetheadoptingprocessofspecialistsandtheir
definingstructuresoflowswitchingcosts,lowpricing,multi-homingandtheirdifferent
68
perspectiveonaccountingsystems.Successfullyadoptingspecialistswillbedefinedby
specialiststhatarecapableofdeliveringhigh-valuework,arealignedwithBilly’svisionand
arecapableofexpandingasBillygrows(Bil2,2016).Meaning,thedepthofpartnership
towardsspecialistswillbemoreinterestingthanquantityforBilly.
Billy’schangeininnovatingtowardsspecialistshashelpedthemshapebetterpartnerships
withspecialists.However,theparadoxicalchallengehasonlybeenintensified,asBillynow
wantsahighercommitmentfromspecialistsandarestillinnovatingwitheffectsof
increasingspecialists’redundancy.ThischallengeisimportantforBillytoovercome,asthis
contextonlyseemtoenhancewithfuturedevelopments(Spec5,2016;Spec6,2016;Spec
8,2016).
ThesespecificchallengesforBillywerediscoveredthroughcombiningempiricalfindings
withthetheoreticalframeworkfor‘growingaplatformbusinesswhileadaptingtheindustry
phase’.Billyhadalreadybeenactingonmostoftheprovidedguidancegivenbythe
framework.Thus,thechallengesforBilly,withreferencetothetheoreticalframework,are
highlightedinbeneathfigure12.Inaddition,thebeneaththeoreticalframeworkwill
functionasastructureforthefollowingsections,butwilladaptaccordinglyinorderto
bettershapeacoherence.
1. Understand the market landscape
• Industryhistory• Analyseindustryanditsdrivers(portersfiveforces)
• Specifyfirmresources
• Aligningactivitiesincompany
4. Innovation development
• Controlgrowth• Exploitationvs.exploration
• Ambidexterity• Ideageneration• Planforwhatisnext
3. Competing strategically
• Understandcatalystsoperatinginorsurroundingmarkets(overlapping)
• Identifycomplementaryproducts
• Understandadoptionprocessinthemarket
• Single-vsmulti-homing• Identifyoptimalpricestructure
• Usenetworkeffects
2. Industry phase
• Analyseindustryphase
• Understandthedominantdesign
• Dostrategicanalysefornextphase
• Knowsurroundingcomplementarymarketsphases
Figure12-AuthorstheoreticalframeworkwithBillychallengeshighlighted
69
7.1Competinginahighrivalrymarket
Bystudyingaccountingsystemsfroma
historicalindustryperspective,itwasshown
howtwo-sidedplatformsseemedtobe
definedbyone-sideandmoreorless
neglectingtheothersideinsome
perspectives(Spec2,2016;Spec3,2016;Spec
5,2016;Spec6,2016;Spec8,2016;Bil2,
2016).Thecontextforthisseemstolieinthe
complexityanaccountingsystempossesses
combinedwiththerealityofatwo-sideddiversityinknowledgeandunderstandingof
accountingitself.
Theoretically,Porter’sfivesforcesshowthepotentialdriversforBillytotakeadvantageof.
ThemaindriverthathampersBilly’spositioningwithintheindustryisthehighrivalry(Riis,
2014;Rasch,(a)2014;Rasch,(c)2014;Moses,(a)2013;Sørensen,(b)2011).Combiningthe
highrivalrywiththeindustry
history,italsoshowedthe
diversityinaccounting
systemspositioningtowardsa
specificuser-sideoftheir
platform.Anelaborationof
figure11isseeninfigure13
totheright.Theclarification
isshowingthepotentialfora
betterpositioningwithinthe
industry.The“whitespace”infigure13isthereflectionofthebetterpositioningandthe
potentialadvantagetogaintowardstheircompetitors.Giventhecomplexitycurveservesas
alinearcurvewithx-variablesasplatformdevelopmentandtimeandy-variablesas
complexity,the“whitespace”isdefinedbymergingend-userandspecialists’viewpointor
1. Understand the market landscape • Industryhistory
• Analyseindustryanditsdrivers(portersfiveforces)
• Specifyfirmresources
• Aligningactivitiesincompany
3. Competing strategically
• Understandcatalystsoperatinginorsurroundingmarkets(overlapping)
• Identifycomplementaryproducts
• Understandadoptionprocessinthemarket
• Single-vsmulti-homing• Identifyoptimalpricestructure
• Usenetworkeffects
“Whitespace”
VismaeAccounting
Toolforend-users
Toolforspecialist
HighComplexity(functionality)
LowComplexity(functionality)
VismaSummaSummarum
“othersmallaccountingsystems”
Figure13-Potentialinmarketrivalryofcloud-basedaccountingsystems
70
perspectivesequally,hencefigure13.Obviously,obtainingthispositionwhileequally
mergingsuchdifferentviewpoints,isverydifficult.Thisisseeninmostaspects,i.e.
specialists(Spec6,2016;Spec7,2016;Spec8,2016)ofBilly’scurrentseparationof
innovationamongend-usersandspecialists(Bil2,2016;Billypresentation,Slide27&28,
2016).Thebiggestimpactsonspecialists,ithasbeenconcluded,istheaccountingsystems
innovationsincreatingmoreautomationofprocesses.Hence,thetechnologicalevolutionis
changingtheworkofspecialistsfromaroutine-basedjobtomoreofacounselingrole(Spec
2,2016;Spec3,2016;Spec6,2016;Spec7,2016;Spec8,2016;Bil2,2016).Acounseling
aspect,thatcurrentlypossessestwentypercenttasktimeatthemost,ismorecommonly
givenasanadded-inservice(Spec4,2016;Spec5,2016;Spec7,2016).Onagenerallevel,
specialistschargebythehourwithpricedifferentiationdefinedbythevalue/complexity
given,whichisthendefinedbyroutine-basedworkorcounseling.ThecurrentvisionofBilly
is“weoptimizetheadministrativeprocess”(Billypresentation,Slide7,2016),whichis
perfectlyinlinewiththefocusonend-usersanddevaluingtheroutine-basedworkof
specialists.Forend-users,theroutine-basedworkisassociatedwith“easeofmind”where
counselingisassociatedwithwheretherealvaluecreationisdelivered(Spec1,2016;Spec
6,2016;spec8,2016).
Combiningfigure13&14,thedifferentiationopportunitiesforBillylieinassistingspecialists
withthecounsellingaspectoftheirjob.Thereasoningisseeninthegapofmergingend-
usersandspecialists’perspectives,andcombiningitwiththecounselingaspect,which
seemstobethemostvaluableforend-users.Moreover,thisisthefuturefocuspointfor
specialists.Theopportunityisfurtherbaggedbyspecialists’receptivenesstowardstheshift
End-user Billy Specialists
Effect:“easeofmind”
Routinebasedwork“Connecting”
Effect:Valuecreating Counselling“Notconnecting”
Figure14-Billydifferentiationopportunity
71
towardsamorecounsellingfocusedrole(Spec1,2016;Spec2,2016;Spec6,2016;Spec8,
2016).Inotherwords,andhencefigure14,Billy’saccountingsystemcurrentlyfunctionsas
atoolforroutine-basedwork,buthasthepotentialtocreatemuchhighervalueby
additionallyfunctioningasatoolforcounselling.
However,theautomationofaccountingstillhasplentyofspacetoinnovate(Bil1,2016,Bil
2,2016,Bil3,2016).GiventherealityofBilly’srelativelyuncomplicatedaccountingsystem
(Spec2,2016;Bil1,2016),Bil2,2016),theproposedfocusoncounselingcanendupbeinga
resourceproblem.Withtheresourceproblemaside,thecurrentvisionofoptimizingthe
administrativeprocessissomewhatshort-termedandlocksBillyintothehighrivalry
market.Along-termgoalcouldbeforBillytoactasacatalystforend-usersandspecialists
withcounsellingasanadditionalconnection.Billywouldthenserveontheoveralllevelasa
value-creatingfactoralongsidethespecialist.Inthisaspect,Billycouldpotentiallybemore
importanttotheend-userthanthespecificspecialist.Anexampleofactingonacounselling
level,couldbebenchmarkingend-users’businesseswithotherend-usersinthesame
industry,saying;“yourhairdressingbusinessisamongthebottom20%inyourindustry
basedonprofits”.Andbythat,Billycouldservetostrengthen,withhelpofspecialists,the
particularbusinesstoadvancethegivenparameters.ThisaspectwouldhelpBillystrengthen
theirpositioninginmanyaspectssuchasnetworkeffects,multi-homingbyspecialistsand
pricingdifferentiation.
Specialistpartners
TheabovefindingsfitwellwiththecontinuationofBilly’schallengeinfindingspecialists
thatarealignedwiththeBillyvision,candeliverhighqualityworkandaresuitableof
growingwithBilly.Currently,Billyismostlylinkedwithspecialistsoperatingasone-man
businesses(Bil1,2016)orwhatisoftenreferredtoasthe“bicycle-accountants”(Bil2,
2016).However,theydohavefocusonlinkingwithlargerspecialists’firms(Bil1,2016;Bil2,
2016).Combiningtheabove-mentionedgapoffocusingmoreoncounsellinginlarger
companiesofspecialists,couldpotentiallyserveasthefoundationforconnectingdeeper
withspecialists.Itis,therefore,myassessment,thatBillycouldthriveonconnecting
specialistswithend-usersonavalue-creatinglevel.Alevelthatwouldhelpspecialists
transitionfromroutine-basedtocounsellingthroughtechnology.Notonlywouldthe
72
specialistsfunctionasambassadors(Riis,2014;Spec5,2016;Spec7,2016;Spec8,2016)for
Billy,butthecounsellingfocuswouldultimatelybemorevaluabletotheend-userinthe
end.Thefoundationforincreasingnetworkeffectwouldthenalsobeintensified.
ReferencingspecialiststhatarealignedwiththeBillyvision,theviewpointshouldresultin
thepossibilitytofreeupmoretimetohandlemoreclientsand/orfocusmoreon
counselling.Defininghowtoinnovateonavalue-creatinglevelincreasesthecomplexity,
whichiswhytheunderstandingofhowaspecialistoperatesshouldbeintensifiedalongside
thedeepeningofpartnerships.Andbyinnovatingonthatlevel,itcouldbewithspecialists
concurrentlyhelpingtodefinethepathonahigherlevelthansolelyincremental–withBilly
translatingspecialists’challengesthroughtechnology.
7.2Theuncertaintiesininnovation
Billyiscurrentlysituatedinanindustrywhere
technologicalevolutionhasundergoneaneraof
incrementalchangesforarelativelylongperiodof
time,whichcanbeseeninthecloud-based
technology(Mygind,(b)2008;Rasmussen,2013).
Theoretically,thisputstheindustryinthe
vulnerablesituationoffacingapotential
discontinuity,whichcanbeexplainedbyapoint
whereatechnologyisreplacedbyanother(Uusitalo
2014).Theimpactofthediscontinuityphasewill
furtherbedefinedbythedestroyingoffirmspecificassets(Afuah&Utterback1997;Teece
etal.1997),whichobviouslycanbedifficulttoforecast.Thefactthatthetechnology
evolutionofcloud-basedaccountingsystemishavingalargerimpactontheconcurrent
industryofspecialiststhanthemselveshintsthepresenceofchange.Theoretically,these
findingsputBillyinasituationwheretheanticipationofapotentialriskofdiscontinuity
shouldbepresent.However,Billydoesnotseemtoexpectsuchchange(Bil1,2016;Bil2,
2016).Thisislargelybecauseoftheinherentneedfromtheiruserstofurtherdevelopthe
Billyplatform,andmoreover,Billy’sperceptionofindustryrivalryisnotbasedonstealing
4. Innovation development
2. Industry phase
• Controlgrowth• Exploitationvs.exploration
• Ambidexterity• Ideageneration• Planforwhatisnext
• Analyseindustryphase
• Understandthedominantdesign
• Dostrategicanalysefornextphase
• Knowsurroundingcomplementarymarketsphases
73
eachotherusers,referringtothemarketopportunityof30-40%usersstillhavingtheir
accountinginanExcelsheet.Billybelievesthatdespitethehighrivalrywithintheirindustry
andthefastpaceofdevelopment,thatthereisplentyofroomforthemtogrowand
develop(Bil1,2016;Bil2,2016).Thisviewpoint,isdisallowingBillytopotentiallyforesee
impactsofradicaltechnologies,asBillyareavoidingexplorationcombinedwiththecurrent
phaseoftechnology.EventhoughBillyarerelativelysmallandtherebysuitablefor
adaptationandmoreoverpossesshighswitchingcost,theimpactofadiscontinuityin
technologyaredifficulttoforecast.
Thepreparationforadiscontinuityisthensomewhatdifficult,however,theoretically
obtaininganambidextrousorganizationcanincentivizethedecreasingofthetransitionrisk
thatliesahead.Pointbeing,thatforecastingadiscontinuity’sexactoriginisdifficult.
However,itsrenunciationispotentiallyofhighrisk.ConcerningthecaseofBilly,who
previouslyhavebeenbasedonanintuitivebasedinnovationprocessandcurrentlyare
doingalltheycantodevelopahigherorganizationalstructure(Bil2,2016),itcanbedifficult
tosimultaneouslybalanceexploitationandexploration.ReasonedbythesizeofBillyandthe
characteristicsofexplorationswithsearch,experimentingandrisksoftenwithoutcomes
thatareuncertain,distant,oroftennegative.However,thefoundationofexplorationis
theoreticallybasedontheoutcomesofuncertainties.Meaning,itwouldbepossibleforBilly
toadoptahigherpercentageofexplorationwhilemaintainingtheorganizationalstructure.
Thissomewhatparadoxicalchallengecanbedifficult,butfoundedinthetheoreticaland
empiricalfindings,itshouldneverthelessatleastservethecomprehensionforBillyto
understandthecontextofwhichtheyaresituatedin.
7.3Summaryofdiscussion
ThechallengesfacingBillyhasbeendiscussedthroughouttheformertwosections.Thiswas
doneinordertoreachananswertothelastandfourthsub-question:
4. WhatmeasuresareneededforBillytoovercomeimposedchallenges?
Andasmentioned,theformertheoreticalframeworkneededmodificationinorderto
explainandbetterservethecaseofBilly.Referringtotheanalysisanddiscussionofthe
74
frameworkledtorepeatingcentraltopicsoncertaintyanduncertainty.MostofBilly’sdoing
issituatedwithinthehighrivalry,whichforBilly,doesnotfosteradesiretonavigateaway
from.Infact,Billybelievestheyknowhowtomanoeuvrewithinandthatthereisenough
spacetogrowastherivalryisnotbasedonstealingeachotherusers(Bil1,2016;Bil2,
2016).Thecompetingislargelydefinedbycalculateddecisionsandmoreoverbycertaintyin
succeedingoninnovations,partnershipsandexpandingtheirservices.Theuncertainties
werefoundinanalysingthemarketinatheoreticalcontext.Theriskforaforthcoming
industryphaseshifttowardsthediscontinuityphasewaspresented.AnelementBillydidnot
seemtobeawareof,norhadfocuson.ThemainfocusforBillyiscreatingstructured
decision-makingcentredoncertainty(Bil2,2016).Thesefindingsresultedinanadapted
theoreticalframework,whichisshownbeneathinfigure15.
Figure15-Adaptedtheoreticalframework(Authorsown)
Theaspectsinfigure15areobviouslyinterrelatedinsomeaspects.Examplesofthisare
seenintheplatformsfoundationontechnology.Herewillstrategicchoicesperformedby
Billy’splatformoftenbebasedoninnovation,whichcanhaveoutlinesofbothcertainties
anduncertainties.However,theanalysinganddiscussionkeptrevolvingtopicson
certaintiesanduncertainties,respectively,withfundamentalthreatsandopportunitiesfor
Billytonavigatethrough.Inreferencetofigure15,thechallengesforBillytoimposeoften
endedineachside,respectively.
Thesecertaintiesanduncertaintieswasthendiscussedthroughoutchapterseven,whichall
together,providedacomprehensiveanswertothefourthsub-question.
UncertaintiesCertainties
1.Marketlandscape+
3.Competingstrategically
2.Industryphase+
4.Innovationdevelopment
75
CHAPTER 8: MAIN CONCLUSION
Thepurposeofthisresearchwasdevelopingrelevancetowardsgrowingtheplatformof
Billy,acloud-basedaccountingsystem.TheparticularcaseofBillywasthenfurther
complicatedbytheplatform’stwo-sides,whoincomparisonhaveadiverseunderstanding
towardsthesubjectofaccounting.Additionally,aninnovationaspectfurtherraisedthe
complexitywiththeparadoxicalchallengesofBillyneedingthesideofspecialistandatthe
sametimeincreasingtheirredundancywithinnovationdevelopmentsmadebyBilly.Hence,
thethesisthendeployedthefollowingresearchquestioninordertoresearchandanalyse:
• HowcanBillyexperiencegrowth?
Thethesisthendevelopedatheoreticalframeworkwithmergingtheoriesofplatform
theoryandindustryphase.ThiswasdoneinordertohelpBillyinatheoreticallycontext,
whichadditionallysetthestructureforthefollowinganalysis.Combiningtheorywiththe
caseofBillythenrequiredthetheoreticalframeworktoevolveinordertobestserveBilly
andthecontexttheyoperatewithin.
Thereby,asillustratedinfigure14,itwasshownhowBilly’stwo-sidedplatformwiththeir
users’engagementcouldbecategorisedontwo-levels–alevelofroutine-basedworkanda
levelofcounselling.Atpresent,Billyarethroughinnovationincreasingspecialists’
redundancyonaroutine-basedworkand“easeofmind”level.Theyhaveopportunitiesto
facilitatetheuser-connectiononacounsellingand“value-creating”level.Obtainingthis
leapwouldobviouslyincreasethecomplexity,whichthenincentivisestheinvestigatingon
howtodothis.TheoutcomeswouldraiseBilly’svaluecreationtowardstheirusersonboth
sides,raiseswitchingcostsandincentivisespecialiststomulti-homeless.
Themostinterestingfindingsseemedtorevolvearoundcertaintiesanduncertainties.The
certaintiesinBillybeinglockedwithinthehighrivalryofthecloud-basedaccountingsystem
industry.AfactthatwasfurtherevidentinBilly’sfocusonshort-sightedgoalson
incrementalinnovations.Specificallyknownincrementalinnovationsthatwillbeofvalue
towardsBillyusers,andbythat,earnsthereasoningfordevelopingthem.Moreover,these
76
developmentsarealsoneededinthecontextofthedevelopmentswithintheindustryof
accounting,inordertosimplykeepupwiththepaceinindustryinnovations.
Otherfindingsseemedtoillustratethelongevityofincrementalinnovationwithinthecloud-
basedtechnologyandaccounting,whichplacedtheindustryinthespecificphase.
Theoretically,thisposestheimplicationofapotentiallyupcomingdiscontinuityphase.This
isfurtherintensifiedbythechangingofworkprocessesseenintheconcurrentindustryof
specialists.AdiscontinuityBillydoesnotseemtoexpectorhaveinmindto‘explore’.
ReasoningbehindthismightbefoundinBilly’salreadyknownresourceproblemandtheir
highfocusonkeepingpacewiththehighrivalry.Obviously,forecastingadiscontinuity’s
exactoriginisdifficult.However,itsrenunciationispotentiallyofhighrisk.Nevertheless,
therealitymightbethattheseuncertaintiesdemandamuchlargerreceptivenesstowards
exploration,whichinBilly’scurrentsituationcanbedifficulttoobtainoraccommodate.
Furtherinvestigation
Irecognizethatthisthesiscanopenadditionalareasofresearchinordertodevelopamore
nuancedunderstandingofgrowinganaccountingplatform.Reflectingonmyresearch
process,Ihaveinevitablymadechoicesthathasnarrowedtheresearchfieldandhas
focusedtheaimofthestudy.
Thisthesisisfoundedinmyprofessionalbackgroundintheaccountingindustry,which
inevitablyhasshapedthisresearchfordevelopingthisstudy.Aninterestingaspectfor
furtherresearchcouldbeanin-depthinvestigationofthetransactionbetweenend-users
andspecialistswithlessfocusonthetechnologicalevolutionandlargerfocusontheend-
user.
Additionally,acknowledgingthelimitationofasinglecasestudy,asdiscussedinthisthesis,
itwouldbeofinterestandrelevancetoconductmultiplein-depthcasestudies.
Lastly,aninvestigationofthepossiblediscontinuityphasewouldbeaninterestingareaof
research.Thisismainlyduetothefindingsbythisthesis.Afocuscouldbeonanin-depth
investigationonthefuturetechnology,andwhatcouldmakethistransition.