Platform Envelopment

Competition Policy and Antitrust and Networks, the Internet, and Cloud Computing

Article Snapshot


Thomas R. Eisenmann, Geoffrey Parker and Marshall Van Alstyne


HBS Technology & Operations Mgt. Unit Research Paper No. 07-104; MIT Sloan Research Paper No. 4681-08


This paper looks at competition between technology platforms like the iPhone or Microsoft’s Windows.

Policy Relevance

Competition between leading technology firms can come unexpectedly when leaders in other markets add features to a basic product.

Main Points

  • Software “platforms” like Microsoft’s Windows offer tools for many different users. “Network effects” describes when a product is worth more to consumers when there are more other users. Because of network effects, some platforms are supplied mainly by one leading firm, such as is the case with Microsoft's Windows operating system. 

  • Economists assume a leading platform will lose out only after revolutionary innovation creates a new leader (Schumpeterian competition). But two platforms can combine to displace the leader, which may be called “platform envelopment.” A platform can absorb:
    • An unrelated platform with common users (conglomeration attack): Microsoft added a media player to Windows to compete with dominant Real-Player.
    • A weakly related platform (intermodal attack): Apple created iPhone, adding an ipod to a phone to displace leader Nokia. 
    • Or a platform nested inside another (foreclosure attack): eBay absorbed PayPal. 
  • Gains of platform envelopment include higher profits, better customer retention, lower costs of marketing and operations, improved quality, and a stronger position in the market.

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