Managing coopetition in a multi-sided platform: An ambidexterity perspective

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Managing coopetition in a multi-sided platform: An ambidexterity

perspective

Master Thesis

MSc Supply Chain Management University of Groningen Faculty of Economic & Business

Martijn Timmerman

Supervisor

dr. H. Broekhuis

Second assessor

dr. ir. T. Bortolotti

January 29, 2018

Words: 12.111

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Abstract

Multi-sided platforms (MSPs) are continuously looking for opportunities to expand their businesses. Recently various MSPs have adopted a hybrid business model where they both act as reseller and offer a platform for partners. This hybrid model can cause conflicts in the relationship MSPs have with partners active on their platform when they both sell the same product and therefore compete with each other. Literature describes that organizations who are able to find the right balance between focusing on exploring new opportunities and

markets and exploiting their current resources and knowledge will be sustainable in the future. This thesis will analyze how exploitation and exploration of an MSP influences the

relationship they have with their partners. In order to do so semi-structured interviews were performed with both MSPs and partners. The main findings are that exploitation leads more intensive collaboration and more involvement of partners and can lead to competition when performance is important. Exploration can cause partners to feel treated unfairly and leads to increased competition between an MSP and their partners.

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TABLE OF CONTENTS

Inhoud

2.3 Balancing exploitation and exploration ... 11

2.4 Achieving organizational ambidexterity in a platform context ... 12

2.5 Coopetition ... 14

2.6 Relationship between organizational ambidexterity and coopetition ... 15

3.0 Methodology ... 17

3.1 Research context and interview selection ... 17

3.2 Content of the interviews and interview procedure ... 19

3.3 Data analysis ... 20

4.0 Findings ... 21

4.1 The influence of exploitation on collaboration ... 21

4.2 The influence of exploitation on competition ... 25

4.3 The influence of exploration on collaboration ... 27

4.4 The influence of exploration on competition ... 30

5.0 Discussion ... 34

6.0 Conclusion ... 38

7.0 Practical implications ... 39

References ... 40

Appendix ... 42

Appendix A: Interview protocol ... 42

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List of Tables and figures

Table 1 Different types of platforms adopted from Langely & Leyshon (2016) ___________________________ 8 Table 2 Platform strategies and their implementation adopted from Wan et al. (2017) ____________________ 10 Table 3 Platform strategies and managing organizational ambidexterity, table adopted from Wan et al. (2017) 13 Table 4 Overview interviewees ________________________________________________________________ 18 Table 5 General information about platforms ____________________________________________________ 18 Table 6 Organizational ambidexterity on each platform ____________________________________________ 22 Table 7 Influence of exploitation on collaboration ________________________________________________ 23 Table 8 Influence of exploitation on competition __________________________________________________ 26 Table 9 Influence of exploration on collaboration _________________________________________________ 29 Table 10 Influence of exploration on competition _________________________________________________ 31

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Introduction

A digital multi-sided platform (MSP) has become very attractive for different businesses in today’s economy as it allows interaction between different groups of users to mutually create and exchange value between multiple users (Evans, 2003). A multi-sided platform can only exist when there is interaction between at least two sides of the platform, such as suppliers and customers, and each side is closely connected to the platform (Hagiu & Wright, 2015). In a network of organizations, MSP owners make strategic decisions and choices that sometimes result in entering the markets of their suppliers causing them to compete against them (Zhu & Liu, 2016). This results in a relationship called coopetition between the platform owner and their suppliers, meaning they cooperate and compete at the same time (Bengtsson & Kock, 2014). An example of this is Amazon.com who uses a hybrid business model in which they act both as reseller and platform on which partners can sell their products.

In an MSP coopetition between platform owner and supplier can exist because platforms benefit from a large base of different third-party suppliers, along with the innovations these partners bring to the platform (Wan et al., 2017). Since those partners add extra value to the MSP they are also called complementors (Nalebuff & Brandenburger (2007). Hence those partners benefit from the platform’s resources and capabilities and the possibility to expand their business (Wan et al., 2017). However, when an MSP starts to explore new products or markets it is possible that the competition between them and their complementors increases (Wan et al., 2017). Zhu & Liu (2016) argue that many successful complementors have been pushed out of their market because platforms owners started to imitate their best selling products by selling similar or the same products. An example of this is Dropbox, which is still quite popular and has a lot of users, but Apple is actively competing against it since the launch of their iCloud service, which is automatically installed on Apple devices. Besides, iCloud automatically integrates files into the cloud, which makes Dropbox less appealing for Apple users causing Dropbox to lose a lot of their market (Smith, 2012).

6 deal with this dilemma of choosing between exploitation (focusing on existent knowledge) and exploration (focusing on new opportunities) literature suggests that an organization such as an MSP owner needs to find the right balance between seeking new opportunities and consolidating their existent knowledge and resources (March, 1991). This balancing is called organizational ambidexterity, which is defined as being able to both exploit existing products and markets in order to achieve incremental innovations and on the other hand explore new opportunities in order to achieve radical innovations (March, 1991; Andriopoulos & Lewis, 2009; Wan et al., 2017).

Wan, Cenamor, Parker & Van Alstyne (2017) argue that more research is needed about how platform owners should manage coopetition in order to sustain their relationship with their partners. Further, Bengtsson & Kock (2014) state that the driving mechanisms behind the coopetitive relationships are still undiscovered. Wan et al. (2017) suggest organizational ambidexterity as such mechanism, in which organizations need to find the right balance between the focus on exploitation and exploration of markets and products. Therefore, this research uses this approach to explore the impact on coopetition in order to help platform owners successfully manage coopetition with their partners.

How can an MSP owner manage organizational ambidexterity in order to sustain coopetition with their partners?

This paper will contribute to the existing platform, organizational ambidexterity and

coopetition literature. It will contribute to the two gaps in the literature described by Wan et al. (2017). First of all, a deeper understanding is needed about how platforms can balance competition and cooperation with their suppliers. Hence, it needs to be investigated how organizational ambidexterity has an influence on the relationship between a platform and their partners. Furthermore, this research gives a valuable contribution to a gap described by

7 leaving the platform. This will help platform owners in developing actions which improve their competitive position and ultimately enables them a sustainable future (Bengtsson & Kock, 2014; Wan et al., 2017).

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2.0 Theoretical background

2.1 Multi-sided platforms

A multi-sided platform business can be described as a system which enables suppliers and buyers to transact with each other using the platform’s system resources (Hagiu and Wright, 2014). MSPs are also called two-sided or multi-sided markets because different network sides can interact with each other (Eisenmann, Parker & Van Alstyne, 2010). The most important difference between traditional markets and multi-sided markets is that it is vital for platforms to get and keep both customers and partners on board in order to stay sustainable (Zhu & Iansiti, 2012).

Langeley & Leyshon (2016) differentiate between five different types of platforms which can be found in Table 1 along with their function and some examples. As can be seen from Table 1 the only platform type which has involvement of retailers are the online exchange markets. That is why in this research the focus will be on these types of platforms since literature argues that in multi sided platforms where third party suppliers are active, coopetition between platform owner and complementors exists (Wan et al. 2017).

Table 1 Different types of platforms adopted from Langely & Leyshon (2016)

Type of platform Function Example

Online exchange markets Selling products and services Amazon, Apple, eBay, Alibaba, Spotify Social media User created content Facebook, YouTube,

Instagram, Pinterest Sharing economy Hiring assets and services Uber, Airbnb

Crowdsourcing Market for transactional and contractual work

Indeed, Nationale vacature bank (National vacancy bank)

Crowdfunding Financial marketplace for donating, lending or investing money

Plus500, Bux

9 exploration. Hence, in practice, most platforms often use a combination of these

strategies.(Wan et al., 2017) An overview of the strategies can be found in Table 2. The first strategy is the pricing strategy, which is a very important tool in creating a large installed base (Eisenmann, Parker & Van Alstyne, 2010). Platforms can choose to sell products below the normal price in order to attract more customers. Hence, after the customer base has become larger and customers become less price-sensitive, platforms can increase their prices in order to become more profitable. The second strategy Wan et al. (2017) describe is openness. This strategy is referred to as to what extent an outside party needs permission to join the platform (Tiwana, 2013). A platform can choose to have a very open policy where almost all third parties can join or a closed platform where all third parties need to meet certain requirements in order to access the platform (Wan et al. 2017). The next strategy described is integration, which is referred to as entering markets of complementary products or services (Lee, 2007). Platforms can benefit with this strategy by either imitating successful complementary products or by selling higher quality products compared to underperforming existing complementary products (Zhu & Liu, 2016). As fourth Wan et al.(2017) describe the

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Table 2 Platform strategies and their implementation adopted from Wan et al. (2017)

Strategy Description of strategy Implementation of strategy by platforms Pricing Price set for products  Sell products below normal price in

order to attract more customers  Sell products above normal price in

order to increase profits after a customer base is created

Openness Degree to which outside parties can join the platform

 Open policy where almost every party can join

 Closed policy where third parties need to meet certain requirements to join

Integration Entering of complementary products or services

 Imitating successful complementary products

 Moving into poor performing complementary products and sell higher quality

Differentiation Creating a unique

ecosystem for the customer

 Improving main features on the platform and selling high-quality products

 Implementing differentiation in supplier or customer side with exclusive contracts

Envelopment Multiple platform strategy  Built a new platform based on the existent platform

11 2.2 Organizational ambidexterity

Organizational ambidexterity is a need to simultaneously achieve exploitation and exploration (Kristal, Huang & Roth, 2010). Past research argues that a firm should try to achieve both exploitation and exploration to achieve competitive advantage and sustained performance by simultaneously striving for short-term efficiency as well as long-term innovation (Smith & Tushman, 2005). Platforms can exploit by leveraging, refining and extending existing resources, capabilities, knowledge and markets while on the other hand explore by creating new resources, capabilities, knowledge, and markets (March, 1991; Wan et al. 2017). To successfully make a balance between exploitation and exploration firms should both focus on existing products and services by making incremental innovations in order to achieve higher efficiency (Smith and Tushman, 2005; Wan et al., 2017) and on the other hand focus on innovation in order to avoid that their products become obsolete or a competitor takes over the market (Smith and Tushman, 2005).

Firms succeeding in making the right balance between exploitation and exploration have the ability to survive in the short and in the long term (Wan et al. 2017). Different opinions are expressed in the literature on how a firm could achieve a proper balance between exploitation and exploration. Levinthal & March (1993) suggest that either exploitation could be at a minimal but sufficient level, so all other remaining resources can be used for exploration. Or the other way around where most of the resources are invested in exploitation. However other studies suggest that it is better to create an equal distribution between exploitation and

exploration (He & Wong, 2004). Finally, Lavie, Stettner & Tushman (2010) suggest that exploitation and exploration should not be viewed as two distinct choices and instead should be viewed as a continuum. The discussion section of this thesis will conclude which view platforms used in order to balance exploitation and exploration. The ways to achieve a balance between exploitation and exploration will be described in the next paragraph. 2.3 Balancing exploitation and exploration

12 Through organizational separation, exploitation and exploration can be achieved by creating separate units which either focus on exploitation or exploration and manage these units at a corporate level. Hence, with temporal separation, the balance between exploitation and exploration is managed by applying one of the two in different points in time. Lastly, in domain separation organizational ambidexterity is achieved by using an exploitation strategy in one domain of the organization and using an exploration strategy in another (Lavie et al., 2010; Wan et al. 2017). In the paper of Wan et al. (2017), it becomes clear that platforms apply organizational, temporal and domain separation. Therefore, these three approaches will be used in this research to analyze how a platform manages the need for organizational ambidexterity and how each of these ways influences how platform owners and

complementors cooperate and/or compete with each other. The next paragraph will elaborate further on how these approaches can be applied in a platform context.

2.4 Achieving organizational ambidexterity in a platform context

13 using domain separation and temporal separation can lead to organizational ambidexterity. A platform needs to have an established market from which they can move into a related platform market. To get this position they first need to focus on exploring the current market in order to get a large customer base and later exploit the market by creating a new standalone platform which is built upon the existing platform and can use those resources to achieve exploitation.

Table 3 Platform strategies and managing organizational ambidexterity, table adopted from Wan et al. (2017)

The next paragraph will describe the next concept coopetition. This section will explain how MSP’s cooperate and compete with their partners and what drives this coopetitive

relationship. Platform strategy Achieving organizational ambidexterity Exploitation Exploration

Pricing Domain separation Exploitation in market A

Exploration in market B Temporal separation Exploit after installed

base is created and increase prices

Low price for exploring the size of the installed base

Openness Organizational and domain separation

A closed platform focusses more on own resources thus

exploitation

An open platform leads to a higher rate of innovation thus exploration

Integration Organizational separation

One main unit for serving the whole market

One unit which independently explores the market

Differentiation Domain separation Different platform for different customers

Different platform for different customers

Envelopment Domain separation Exploitation on a newly created platform

Explore the current market to get an established position in the market

Temporal separation After the installed base is created a platform can use exploitation by creating a new

platform

14 2.5 Coopetition

Coopetition is becoming increasingly important in many firm’s daily agenda because firms try to collaborate with competitors in order to gain advantages which they cannot achieve alone (Bengtsson & Kock, 2000; Bengtsson & Kock, 2014; Ritala, Golnam, Wegmann, 2014). Brandenburger & Nalebuff (1996) argue that firms participate in a coopetitive relationship in order to maximize individual profits. Hence, Ritala et al. (2014) have described that

coopetition between firms can increase the size of their market, allows for opportunities to create new markets, stimulate efficiency and improves the competitive position. According to Bengtsson & Kock (2014) coopetition consists of the two continua, i.e. cooperation and competition. This view makes it possible to analyze the degree of cooperation or competition between firms, which can be both low, balanced, both high or one of the two high and the other low (Luo, 2007). However, this contradicts with the opinion of other research like Tjosvold (1997) who argues that coopetition ranges between cooperation and competition and if competition increases the collaboration decreases and the other way around. Bengtsson & Kock (2014) disagree with Tjosvold (1997) about this and argue that seeing coopetition as a trade-off between cooperation and competition doesn’t account for the paradoxical

relationship between the two.

Also in multi-sided platforms coopetition exists. MSP owners allow third-party suppliers to enter the platform to sell their own products. In this way, platforms collaborate with those partners because they allow those suppliers to join the platform in exchange for their network value. Hence, another reason to collaborate is a large number of different products and innovations the partners bring to the platform. On the other hand, MSP owners compete with their partners because they sell similar or the same products, which causes competition between them (Zhu & Liu, 2016; Wan et al., 2017). It is important for the survival of this coopetitive relationship that platforms find a way in cooperating and competing with their partners. However, no literature is available yet on the driving mechanisms that regulate this coopetitive relationship (Bengtsson & Kock, 2014). In this research, the organizational ambidexterity perspective will be used as the driving mechanism for the coopetitive

15 2.6 Relationship between organizational ambidexterity and coopetition

Organizations need to achieve both exploitation and exploration in order to be sustainable in the future. As mentioned in paragraph 2.3, Lavie et al. (2017) have described different ways of balancing exploitation and exploration. These are domain, temporal separation, and organizational separation. Hence, Wan et al. (2017) argue that the way platform owners achieve organizational ambidexterity influences the relationship they have with their partners. With a too high focus on exploration, there is a possibility competition between the MSP owner and a partner increases because the platform owner could start selling similar or the same products as a partner. On the other hand, focusing on exploitation of the current market and products could lead to increased collaboration with complementors (Wan et al., 2017). However, in current literature, the gap how organizational ambidexterity needs to be balanced in order to successfully manage the coopetition with complementors is still not described. The limited evidence about the relationship between organizational ambidexterity and

coopetition can be found in work of Gawer & Henderson (2007) and Zhu & Liu (2016). These two papers investigated the impact of exploration of a new market on the coopetitive

relationship with complementors. Zhu & Liu (2016) found that Amazon tried to imitate successful products sold by partners in order to profit from their innovations. This led to an increase in competition between Amazon and its partners and discouraged partners to continue selling the affected products (Zhu & Liu, 2016). The complementors in platform based-markets are very vulnerable to those risks since they depend on the platform in order to reach their customers. Especially small suppliers suffer huge risks of getting outcompeted because they don’t have the ability to protect their innovations. Hence, by entering the same market as their suppliers, MSPs discourage these suppliers to offer products on the platform (Zhu & Liu, 2016).

An example of a platform owner which managed to find the right balance in competing and collaborating with partners is Intel (Gawer & Henderson, 2007). Intel enters the market of their partners with the intention to increase the demand for their processors and to stimulate innovation. However they don’t want to outcompete their partners, so they strive for

minimum profits. They manage organizational ambidexterity by having a separate

16 Looking at the case study of Zhu & Liu (2016) where Amazon also starts selling the same or similar products as their partners, the relationship with their partners is much more focused on competition. Amazon follows a pricing strategy highly focused on exploration and tries to enter and imitate different product categories of the most successful products sold by partners on their platform. Different from Intel, Amazon is actively competing with their partners leading to a more competitive relationship between them and their partners (Zhu & Liu, 2016). As a result of this, partners may eventually decide to leave Amazon’s platform in order to switch to a different platform which treats their suppliers better (Wen & Zhu, 2016). In order to analyze the relationship between ambidexterity and coopetition described above this thesiswill focus on how exploitation and exploration has an influence on collaboration and competition with complementors. In order to answer the research question how platforms balance exploitation and exploration in order to sustain their coopetitive relationship with partners, four sub-questions will be asked.

1. How does an exploitation focus influence the collaboration between platform owner and complementor?

2. How does an exploitation focus influences the competition between platform owner and complementor?

3. How does an exploration focus influences the collaboration between platform owner and complementor?

4. How does an exploration focus influences the competition between platform owner and complementor?

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3.0 Methodology

In order to answer the research questions, an explanatory research was executed. The main research method was conducting semi-structured interviews. Semi-structured interviews were used as the sole data source of a qualitative research project, which is not uncommon and might provide valid data (DiCicco-Bloom & Crabtree, 2006). The advantage of interviews is that it allows to narrow down the topics asked to respondents and mitigates the risk of moving away from the research question (Rabionet, 2011). Hence, it allows to gather good

descriptions about the issue being investigated and therefore makes it possible for the researcher to make an interpretation of the data in order to get an answer to the research questions (DiCicco-Bloom & Crabtree, 2006). As coopetition in a multi-sided platform is a phenomenon that involves both platform owner and their partners, interviewees of both parties were included. This allowed to explore and investigate in-depth the understanding of both parties about the same phenomenon.

3.1 Research context and interview selection

This research was conducted in the online retail industry. The main reason for this is that online retailers are often one of the first adopters of a multi-sided platform business model. Hence, they function as a reseller and combine forces with various partners in order to act as a multi-sided platform. Therefore, both MSP’s and partners do have experiences that make them relevant informants about the issue being investigated.

The unit of analysis consists of the MSP’s and their partners. The selection criteria for the interviews with an MSP were that they should have a multi-sided market where they (1) sell their own retail and (2) allow partners to sell their own retail products. This business model is also referred to as the hybrid business model (Haigu & Wright, 2015). The reason for this is that only in such a hybrid business model coopetition might exist because both MSP and partners are engaged in selling the same or similar products. Hence, the selection criteria for partners were that they needed to be selling products on an MSP who uses a hybrid business model.

18 in order to set an appointment for an interview. The goal was to interview five managers of a platform and five partners active on one of the five platforms. In total 30 platforms and 25 partners were contacted and asked if they wanted to participate. However, due to most online businesses being very busy before Christmas time, the response rate was very low and

companies didn’t have the time to participate. In the end, four platforms were interviewed. Besides, three interviews were conducted with partners from whom one was active on two interviewed platforms. An overview of the interviewees can be found in table 4. Hence an overview of the general information about the platforms can be found in table 5.

Table 4 Overview interviewees

Category Business Function interviewee Type of interview

Time Multi-sided

platform A

e-Fulfillment Manager logistics operations

Face-To-Face 40 min Multi-sided

platform B

e-Fulfillment Marketplace manager Telephone 39 min Multi-sided

platform C

e-Fulfillment Owner/ Manager Telephone 30 min Multi-sided

platform D

e-Fulfillment Sales manager Telephone 25 min Partner A1 Supplier platform A Owner/ Manager Telephone 45 min Partner A2 & B Supplier platform A

and B

Owner/ Manager Face-To-Face 45 min Partner E Supplier platform E Owner/ Manager Telephone 27 min

Table 5 General information about platforms

Platform Open/closed Type of products Size of

platform/partner Multi-sided

platform A

Open platform Electronics, Toys, Clothing, Beauty & Health, Household, Sports & Outdoor, Office,

Garden, Books -Over 300.000 different products -High amount of partners Multi-sided platform B

Closed platform Household -High amount of different products -High amount of partners

Multi-sided platform C

19 Multi-sided

platform D

Open platform Clothing -High amount of different clothing -High amount of partners

Multi-sided platform E

Open platform Training, E-learning -Over 53.000 educations

-Over 5.300 partners

3.2 Content of the interviews and interview procedure

During a period of three months data have been collected. This period lasted from the end of October until the beginning of January. The data collection method was done by means of face-to-face and Skype/telephone interviews. All interviews were performed in a semi-structured way. This made exploration of opinions and perceptions of the interviewees easier and enabled to get more information about the complex and often sensitive issues like

relationships between platform and partners (Barriball & While, 1994). Hence when questions were unclear it allowed the interviewee to ask for further clarification (Barriball & While, 1994).

Before starting with the interviews ethical guidelines were established. (Appendix 1) These were necessary in order to facilitate a moral interaction with the interviewees (Rabionet, 2011). Hence, these guidelines described the purpose, consequences, and confidentiality of the research (Rabionet, 2011). Next, an interview protocol was created in order to ensure the reliability of the answers. This protocol was used as a guide for performing the interviews (Appendix 1). In this protocol, I first introduced myself as researcher and gave the

interviewee some broad details about the aim of my research. Hence, the protocol continued with the questions being asked in the interview. The first three general questions introduced the interviewee into the researched topic. The next questions were based on the concepts of the literature. For each concept two or three main questions were asked and each question had follow-up questions in order to improve the quality of the answers (Rabionet, 2011). In the end there was room for the interviewee to give further suggestions, recommendations or other remarks.

20 recorded and also transcribed after. However, for two telephone interviews recording was not possible, so during those interviews notes were taken in order to get the data on paper. 3.3 Data analysis

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4.0 Findings

4.1 The influence of exploitation on collaboration

Exploitation activities

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Table 6 Organizational ambidexterity on each platform

Platform Organizational ambidexterity method Exploitation and exploration focus Main strategy A Domain separation

Exploitation High At the same time exploration and exploitation: expanding the platform and improving processes

Exploration High

B Domain

separation

Exploitation High At the same time exploration and exploitation: expanding the platform and improving processes

Exploration High

C Temporal

separation

Exploitation Low First extension of the network of products and sellers, then

optimizing processes Exploration High

D Temporal

separation

Exploitation Low First extension of the network of products and sellers, then

optimizing processes Exploration High

E Temporal

separation

Exploitation Low Main focus on extending the platform, temporal focus on improving processes

Exploration Low

Influence on collaboration

This section describes how the exploitation activities influence the collaboration between the platform and its partners. An overview of these findings is provided in Table 7.

23 for instance expressed in the feedback platform A provides to partners on a very regular basis: ‘Every week a third party seller gets a report about their performance, if it’s not sufficient they will get a warning or we will ask if we can help them’ (Platform A). The main challenge in collaborating with partners is to ensure that they maintain their promises towards their customers. They consider close collaboration with the partners is necessary to keep up and control their performance. Also, the partners recognize platform A’s focus on high

performance. ‘Platform A has a really high focus on improving their processes, they are implementing a program which will help partners with warehousing and logistics’ (Partner A1). ‘We are now testing products in their new logistics program’ (Partner A2). So, the focus on optimization of platform A intensifies their collaboration with their partners and leads to higher involvement of the partners in the platform. Hence, it also causes platform A to create an environment in which partners would like to collaborate.‘They hear our wishes and try to work on them, so we are being heard in that.’ (Partner A2).

Table 7 Influence of exploitation on collaboration

Platform Exploitation activities Influence on collaboration A -Optimizing processes and

performance of partners -Focus on current process

-Providing performance feedback to partners on a regular basis

-Joint improvement activities

-Asking for suggestions from partners to improve the platform

B -Working on optimization of processes and sales

-Provide performance feedback to partners

-Joint improvement activities -Frequently asking feedback from partners to be able to improve the platform

C -Fail to implement optimization of processes

-Problems occurring in collaboration D -Not focusing on optimization of

processes

-No close relationship with partners E -Work internally on optimization of

ordering and payment processes

24 For platform B the effect of exploitation on collaboration is comparable to platform A.

Platform B is focusing on continuous improvement and collects a lot of feedback from their partners in order to make sure processes keep running fluently. ‘We talk about how we can improve our content and give our partners insight into the results of what products are sold and what products are not being sold’(Platform B). This has a positive effect on the

collaboration with their partners because it causes that partners are able to sell more products while putting less effort into it. ‘Process improvements have a positive influence because we listen to our partners and the points they address. They are happy after when we have

improved something because it will enhance their sales and causes them to have less effort in selling their products’ (Platform B). So on platform B exploitation causes a closer

relationship between the platform and their partners and results in partners getting more involved in the platform. Concluding, one can see that the exploitation activities from platform A and B cause more intensive collaboration with their partners they provide feedback to each other and they have joint improvement activities.

Both platforms C and D have good a good relationship with their partners. However, there is no active collaboration were they meet each other very often and for example monitor performance. For platform C, collaboration is hard because of the different visions each partner has. On this platform all partners own a part of the platform which makes it hard to come to a common agreement. ‘Eventually we have to make a vision and make decisions, so we set meetings for that in order to come to an agreement about problems with each other. However, it is very difficult to have always one and the same vision which makes decision making complicated’ (Platform C). Hence, partners don’t see a reason for focusing on exploitation because the platform is still very young and doesn’t earn them enough turnover yet. Therefore the priority lies in creating an installed base before the platform can start to exploit. ‘The better the turnover, the more efficient the processes will become since then our partners will see the value of it’ (Platform C). Further, for platform C focusing on process improvement is very hard: ‘It is very hard to accomplish process improvement with 8 different companies, who have 8 different systems, 8 different visions and 8 different opinions

25 ‘We give a few months of support to our partners by guiding them when they just started selling on our platform. However, after that, we don’t talk that much to them anymore’ (Platform D). Concluding, platforms with a low focus on exploitation don’t have a close collaborative relationship and can have troubles in their collaborative relationship with partners.

Platform E focuses on exploitation by improving their website and systems in order to make the ordering and payment processes easier for customers. ‘Platform E is busy with improving their processes and marketing and we benefit from that because we see our revenue grow’ (Partner E). Even though partner E benefits from this, it doesn’t influence the collaboration between them and platform E. ‘Improving processes on platform E does not change the way we collaborate, even though I’m very satisfied with it because I might make more revenue (Partner E). The main reason for this is because the relationship between Platform E and their partners is based on efficiency and there isn’t much personal contact between the platform and their partners. ‘Our relationship is very efficient, everything is being handled online, so we don’t have much personal contact’ (Partner E). So for platform E, a low optimization focus doesn’t influence the way they collaborate with their partners. ‘In our collaboration, we both do our own thing’ (Partner E).

4.2 The influence of exploitation on competition

This paragraph will describe how exploitation influences competition between the platform and its partners, see Table 8 for an overview of the main findings. Platform A’s exploitation strategy is mainly focused on optimizing delivery reliability, capacity and ordering process. This sometimes can lead to an increase in competition with their partners when these partners are not able to fulfill the demand for a certain product. In order to prevent the delivery

reliability of this product to go down and to ensure enough stock of this product the platform sometimes decides to start selling this product themselves. This will, of course, result in competition between the platform and the partner. ‘We mostly see that there is not enough supply from partners in such a category, so we start doing it ourselves also. We want to have a maximum availability for customers against a fair price. On basis of this two points we asses our strategy whether or not to enter the product category. However, it is very organic, if a partner comes and can sell the product much cheaper than us, we leave it to them’

26 popular products sold by partners because they want to boost their own sales’ (Partner A1) and ‘The platform is especially moving into brand products for which you need to go very low in price in order to compete with platform A’ (Partner A2). In contrary to that price is not the only important aspect on platform A because the competition is also performance driven and the best offer for a customer is regulated by different measures as Platform A stated in the interview: ‘There are algorithms built into the website which regulate the best offer for the customer. This is based on delivery speed, price, and trustworthiness of the seller’ (Platform A). This results in partners being stimulated to contribute to the exploitation strategy of the platform in order to have a higher chance of being the first seller of a product. ‘So at our platform having high efficiency and well optimized processes will lead to more competition’ (Platform A).

Table 8 Influence of exploitation on competition

Platform Focus on exploitation Influence on competition A -Optimizing processes and

performance of partners -Focus on current process

-Increased competition because of importance of performance

B -Working on optimization of processes and sales

-Increased competition because of importance of performance C -Fail to implement optimization of

processes

No influence D -Not focusing on optimization of

processes

No influence E -Work internally on optimization of

ordering and payment processes

No influence

For platform B this effect is also present because they also work with an algorithms which regulate the best offer for the customer. ‘If you improve processes partners are able to offer and sell products faster which can lead to more competition because their rating on the website will improve’ (Platform B). However, platform B is a closed platform and tries to limit competition by having a maximum of five partners for a product, which causes less competition compared to platform A who has an open policy. So the exploitation activities of platform A and B and their goal to strive for high performance leads to an increase in

27 On the other platforms C, D, and E there was no effect between the exploitation activities of a platform and competition. There was no evidence that platform C and D’s low orientation on exploitation resulted in a significant change in the way they competed with partners. Hence, for platform E who sometimes focused on exploitation, there is also no effect on the

competition. ‘Improving processes doesn’t change anything, of course I’m happy when they, for example, implement something which makes me get more turnover, but this doesn’t have a further influence’ (Partner E). So on platform C and D not working on optimization and failing to implement optimization doesn’t influence competition and on platform E who sometimes works on process optimization there is also no influence on competition. 4.3 The influence of exploration on collaboration

Exploration activities

In this section, the explorative activities of the platforms will be analyzed in order to draw results about how collaboration influences competition between the platforms and their partners. Platforms A and B both slightly focused more on exploitation but almost had an equal amount of exploration. According to the managers from these platforms, exploitation and exploration activities were balanced almost 50/50, with a slightly higher focus on exploitation (See Paragraph 4.1). They use domain separation in order to achieve

organizational ambidexterity, meaning they have separate teams in order to achieve both exploitation and exploration. ’We have people working on making new innovations and approximately the same amount on creating small improvements to processes’(Platform A). Platform A puts exploration in practice by continuously looking for opportunities to expand the number of products and product categories they offer. ‘We want to be a platform with as main goal to have the broadest assortment possible for the customer’ (Platform A). Platform B also expands their assortment, but their aim is not to create a very broad assortment. The main goal of their explorative activities is to look for new and innovative products in order keep a relevant assortment for the customer. ‘We have to go with the new innovations and trends in order to keep a good assortment for our customer’ (Platform B).

28 platform D has a high focus on expanding both the amount of products and partners they have. Hence, getting more users on the platform is also important in order to create an installed base which creates more activity on the platform. ‘We are continuously looking for new partners and new products. Besides that is the expansion of the amount of users also very important because that ensures the platform becomes more active’ (Platform D). These platforms have a high focus on exploration because their platforms are relatively young, meaning they are still in the stage of creating an installed base using exploration before they can start to use exploitation.

Platform E had a low focus on both exploitation and exploration. Exploration is apparent because they keep expending the amount of products they offer. ‘There are no limitations and everybody is free to join the platform. Therefore the amount of products offered on the

platform is growing every day’ (Partner E). Influence on collaboration

What all interviewed platforms have in common is that they are all continuously looking to expand their assortment. For some platforms, this focus is higher compared to others. Partners react differently to the exploration activities from the platforms, an overview of the results can be found in Table 9. Platforms recognize that expanding their market might not always lead to better collaboration with their partners. ‘There might be issues when a partner loses a big part of its sales’ (Platform A). However, partners are still willing to collaborate as long as the competition is fair. ‘In 9 out of 10 cases there is a good collaboration with the platform. Only in some cases we can’t compete with them so we just have to deal with it’ (Partner A1). According to this partner, the collaboration is almost always perfect with the platform but there are some situations when they perceive the competition to be unfair when the platform prioritizes their own products above their partners’s products. ‘The competition in this is not fair, they sell a product at a higher price and I’m not the prioritized seller of this product anymore’ (Partner A1). Hence, partner A2 is afraid that the platform eventually will take over their role because of the platform expending their own assortment too much. ‘I haven’t seen it yet, but I think they are moving towards selling a lot of products themselves. They are already looking for connections with different manufacturers, so I think they will eventually take over our position as wholesaler’ (Partner A2). Further, an increase in competition doesn’t

29 stock which we suddenly all have to sell via our other channels. Further, we also have to think if we want to keep selling this product’ (Partner A2). So on platform A, expansion into

popular products which they can sell cheaper than partners leads to the partners feeling treated unfairly. Hence, partners recognize that the platform is expanding into products which have high sales and therefore think the platform deliberately takes sales away from them.

Table 9 Influence of exploration on collaboration

Platform Focus on exploration Influence on collaboration A -Expansion into new products when price

can be lower than partners -Expansion to popular products

-Preferring partners when they are cheaper

-Preferring own products to get a higher margin causes partner to feel treated unfairly

B -Expansion into innovative products No influence because of transparency

C -Expansion into new products No influence

D -Expansion into new products No influence

E -Continuously expanding into new products

No influence

30 because the assortments from each partner and the platform differ a lot. ‘Each partner

approximately sells 10.000 unique barcodes and approximately 3000 are sold by 2 partners. So there is very little overlap between the assortment of each partner’ (Platform C). If a product is sold which has more than one partner who is offering it, the sale goes to the partner who is geographically seen closest to the customer. The partners of platform D are also not worried about the platform growing bigger. ‘Expanding doesn’t have a big influence on the relationship with our partners. Eventually, the most important thing is that the platform becomes bigger. Our partners don’t worry about us growing and they don’t mind if there is potentially more competition on the platform because growing bigger will also attract more users’ (Platform D). Finally, on platform E, there is according to the manager of Partner E also no significant change in their collaborative relationship. ‘The focus stays on

collaborating, even if more partners join the platform and start selling their products and services. This is because of the concept platform, who makes a living of putting together different products and offer those to their customers’ (Partner E). So on platform B, who expands into innovative and trending products, there is no influence on the collaboration with their partners. The reason for this is that they are very clear towards their partners what their policy is and their reason for expanding to new and different products. Therefore partners understand the decisions platform B makes resulting in no influence on the way they

collaborate. Hence, for platform C, D and E expanding and creating a bigger assortment also doesn’t affect the way they collaborate. On platform C there is a lot of difference between the assortment they offer and the assortment of their partners. Hence, platform D’s partners don’t mind it because it also attracts more users and on platform E partners accept it because it is the way a platform works.

4.4 The influence of exploration on competition

31

Table 10 Influence of exploration on competition

Platform Focus on exploration Influence on competition A -Expansion into new products

when price can be lower than partners

-Expansion to popular products

-Increased in competition causes partner to join the logistics program in order to stay competitive

-Partner differentiate from platform by looking for new products

B -Expansion into innovative products

-Increased competition causes partners to quit selling

C -Expansion into new products -No influence because regulations which counter competition

D -Expansion into new products -No influence because regulations which counter competition

E -Continuously expanding into new products

-Increased competition causes partners to adapt and do things smarter and better.

On platforms A, B and E exploration did have an influence on competition. Platform A, for example, admits that it sometimes starts selling a product which is currently sold by a partner because they want to give the customer a better price. ‘There are also cases when we start selling the same product as a partner because they charge too high prices and we want to offer the customer a better price’ (Platform A). Partners have a different view on this: ‘There is a chance they also start selling popular products currently sold by partners’ (Partner A2). However, the price is not the only important aspect in which one can compete on the

32 and tries to have a maximum of five partners for each product. Hence, around 90% of the assortment on platform B is unique and in only 10% there is overlap between the platform and the partners. The competition is mainly present in popular brand products which are very common to sell for an online store in domestic goods. ‘For example, LEGO and Philips vacuum cleaners are products sold by our self but also offered by partners’ (Platform B). As described before, platform B explores mainly to new and innovative products. This results in an increase in competition because these are most of the times popular new products which were also acquired by partners. ‘Sometimes partners are a little bit faster with acquiring a new product and we start selling the same product a month later also’ (Partner B). Platform C and D both have a different approach compared to the other platforms in regulating which partner will get the sale. Platform C has a rule that in an area of 800.000 people only one partner can join the platform, so they have a closed platform. Further, when a customer buys something in the online store, the sale will go to the partner which is located closest to the customer. If this partner does not have this particular product, the sale will go to the next closest located partner etc. ‘Products are being sold on basis of a Zip code, so if all partners sell the same product, the sale goes to the partners which are in the region from which the customer bought’ (Platform C). Platform D is a platform where the users decide which products come on top of the page. If a product gets a lot of likes and shares it will have a higher chance of being sold because it will appear on top of the page for a certain product category. ’On our website, there is no competition in price; products with a lot of likes, reactions and shares have a higher chance of being sold’ (Platform D). These variants of managing how sales are distributed among partners caused that there was no influence from these platforms expanding on the competition on their platform because the competition is fairly regulated.

On platform E there is also an increase competition when the platform is growing bigger and starts selling more products. However, according to partner E it is not a big deal to them because they will find solutions in order to overcome the competition. ‘I rarely notice

competition and I’m not focusing on it’ and ‘If the competition increases, we have to look how we can adapt to that and if we can start doing things smarter and better’ (Partner E).

As described above it is hard for some partners to compete with the platform when the

33 faster. ‘If you join the program you also have a higher chance of selling your products

34

5.0 Discussion

In this research the question how organizational ambidexterity influences coopetition was tried to be answered. The main results on this research question were that exploitation

activities like optimization of processes can lead to closer collaboration with partners because they share feedback with each other and partners are involved in improving processes.

However, platforms which didn’t focus on exploitation had problems in collaborating with partners and didn’t have close relationships with them. Further, on platforms on which performance was very important, improvement of processes caused an increase in

competition. When a platform was exploring by expanding their assortment and by moving into new products the collaboration could get influenced when a partner deliberately started to sell products from partners for a cheaper price. Since this caused partners to feel treated unfairly. However, when a platform was transparent about their exploration activities towards their partners this problem didn’t occur. Finally, expanding on a platform causes an increase in competition. Because of that partners start to look for opportunities in order to adapt to this competition or there is a change they will quit selling on the platform. The following section will present a discussion about the results and how it reflects the theory.

35 performance was based on price, delivery speed, and trustworthiness and put into an

algorithm which regulated who the preferred seller was for a specific product. Therefore, focusing on process optimization influences competition on these platforms. Hence, for platforms with a low focus on exploitation and on which performance was not important, exploitation didn’t have an influence on competition. This is also a new contribution to the existing coopetition literature.

The third sub-question (3) focused on how exploration influenced collaboration. Exploration of a platform (platform A) can have a negative influence on the collaboration between platform and partner, because partners have a feeling they are being pushed aside by the platform, Yet, in the end, partners keep collaborating with the platform because they don’t have the power or resources to compete against the platform.

The last sub-question (4), how exploration influences competition, gave evidence for the suggestion of Wan et al. (2017) who argued that exploration could lead to more competition between an MSP and their partners. All platforms were expanding into new, popular or innovative products, causing increased competition between them and their partners. However, this was not the case for platforms who regulated competition by dividing sales between partners based on their location and platforms on which users decided which products were trending. This made competition on these platform impossible and therefore exploration did obviously not influence competition on those platforms. When partners were not able to compete against the platform in certain products they tried to adapt by looking for new and different opportunities. Therefore there is also a relation between competition and the exploration of partners. So when a platform is focusing on exploration which leads to more competition, partners try to adapt by focusing on exploration themselves in order to differentiate from the platform.

The insights from those four sub-questions give a better insight on how coopetition between an MSP and their partners is regulated. Hence, it became clear that exploitation and

exploration did influence the way how this coopetitive relationship worked. Therefore there is evidence that the perspective of organizational ambidexterity can be used as a driving

36

Figure 1 Influence of exploitation and exploration on collaboration and competition

Platforms used different ways of achieving organizational ambidexterity. As described by Wan et al. (2017) there were three ways of achieving organizational ambidexterity: Domain separation, temporal separation, and organizational separation. The results showed that the platforms used domain separation and temporal separation. The more advanced and bigger platforms were using domain separation because it was important for them to keep looking for new opportunities in the market while also keeping their processes run fluently. However, beginning and smaller platforms were using temporal separation. These platforms first needed to create an installed base and attract customers and therefore only focused on exploration. This is in accordance with the theory from Wan et al. (2017) who argued that platforms should use exploration to create an installed base and after that can focus their resources on exploitation. Finally, none of the platforms were using organizational separation in order to achieve organizational ambidexterity.

In literature there were also contradictions about whether organizational ambidexterity and coopetition should be viewed as a range between exploitation/exploration and

cooperation/competition (Tsjosvold, 1997) or as two continua where both concepts can be low, balanced, high, or one of the two high and the other low (Lavie et al., 2010; Luo, 2007), see chapter 2, p.11 of this thesis. In this research, it became visible that both organizational ambidexterity and coopetition form continua, because each concept could take a different form (See Table 6). MSP A and B had a high focus on both exploitation and exploration and

38

6.0 Conclusion

This thesis investigated how organizational ambidexterity influences coopetition between an MSP and their partners. Semi-structured interviews with four platforms and three partners in the online retail industry were conducted to answer this question. Consistent with literature (e.g. Wan et al., 2017) it has been found that high exploitation causes increased collaboration between an MSP and their partners because optimization of processes caused a platform to create a more intensive collaboration with partners and resulted in more involvement of the partners in the platform. Hence, a lack of process optimization caused platforms to have a less close relationship with partners and caused problems in the collaboration with partners. Further, when performance was important exploitation could cause an increase in competition. In exploration of the platforms, deliberate movement of the platform into products which partners were selling caused partners to feel treated unfairly. However, in most cases there was no influence from exploration on the collaboration between an MSP and their partners. Finally, exploration did influence competition when platforms expanded into products which partners were already selling and started to compete against those partners. This resulted in partners needing to adapt because they didn’t have the power or resources to compete against the platform.

This study has been carefully designed and implemented, but there are still several limitations. First of all, for platform C and D, there were no interviews conducted with their partners and for platform E there was only an interview with one of their partners. Therefore, the data of these platforms is less accurate compared to the data of the other platforms. Secondly, the data collection and data analysis were performed as reliable as possible. However, the processes including transcribing and coding of the data were performed by only one researcher, which might cause the results having an observer bias. Third, this research was performed in the online retail industry, so the results are not generalizable for other industries. Therefore, future research could enhance the external validity by performing this study in other

39

7.0 Practical implications

Managers of an MSP should consider the following when they want to sustain a good coopetitive relationship with their partners. This research has shown that focusing on exploitation, so optimizing different processes, can enhance the collaborative relationship between an MSP and the partners when the platform engages those partners in their

40

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Appendix

Appendix A: Interview protocol

Introduction

Short introduction about myself

For my master thesis Supply chain management at the University of Groningen I’m doing a research about third party supplier relationships in multi-sided platform markets. My goal is to investigate how expansion to new markets and product categories influences the

relationship with third-party suppliers who are active on your platform. The result of my research can be used by multi-sided platform to predict what impact their

exploration(expansion) strategies have on their third party suppliers. More interviews will be conducted at different multi-sided platforms and third-party suppliers over the coming two months. If you are interested in the results, these will be available in February 2018. All information from the interview will be handled confidentially and only I will have access to the notes or recordings taken from this. The interview will take approximately 30 to 45 minutes.

Ask for permission to record the interview

Before the interview starts I will first explain a few key definitions in order to avoid confusion.

Key definitions:

Multi-sided platform: A business model where third party suppliers and consumers are able to interact with each other through the platform.

Coopetition: Being both collaboration with third party suppliers(they are active on your platform) and competing with them(you might sell a similar product yourself)

Exploration: Development of new resources, capabilities, knowledge and markets(focus on expansion)

Exploitation: Focus on current knowledge and resources(focus on process optimization) (Start recording)

43 1. When I looked on your website I saw that you are a platform who collaborates with

third parties who are selling products on your platform. How would you describe the relationship with those third parties?

1b. What are the main reasons for (name platform) to allow these parties to sell their products on your website?

1c. What value do these parties add to your company?

2. What challenges do you face when collaborating with third-party suppliers?

2b. How do you overcome these challenges?

3. To what extent does your assortment differ from your partners?

4. To what extent is there competition between your platform and your partners?

4b. Does this differ between products?

5. How is your company involved in expanding into new markets or products?

5b. Can you give some examples?

5c. How does this influence the way you collaborate with your partners?

5d. How does this influence the way you compete with your partners?

5e. Does it often happen that these products are already being sold by third-party suppliers?

6. How is your company involved in improving processes?

6b. Can you give some examples?

44 6d. How does this influence the way you compete with your partners?

7. How is exploration/exploitation balanced in your company: Where are the most resources in your company allocated to: focus on innovation or focus on efficiency?

8. How does your company make a balance between expanding and improving processes?

9. How would you describe the relationship with your partners, is it more focused towards collaboration or more focused towards competition?

9b. How do you see those third-party suppliers, more as partners because they add value to your company or as competitors since they offer similar products?

Closing

Do you have any further suggestions, recommendations or remarks? Thanking the participant for the corporation

End recording

Interview Questions partners:

1. From your website it became clear that you are offering various products on Platform X. What is the most important reason for you to became a partner on this platform?

2. How many products do you sell each month on platform X?

3. To what extent do you see platform X improving their processes?