Platform Businesses & Strategy

It is not at all inevitable that because platform businesses operate by different economic rules than normal businesses, they will migrate from differentiation strategies to low-cost strategies as they grow and develop.

However, while not inevitable, it is the easiest trap in which to fall. Because the network effects on costs of modern Internet-based platform businesses are so strong, the easiest thing to do is follow a low-cost strategy powered by network effects.

Transitioning from differentiation to low-cost is really, really tricky. Differentiators have legacy costs which are likely to limit them to being, at best, cost-competitive, not low-cost. That puts them in danger of native low-cost players.