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THE IMPACT OF OPENNESS ON THE MARKET POTENTIAL OF MULTI-SIDED PLATFORMS: A CASE STUDY OF MOBILE PAYMENT PLATFORMS Jan Ondrus1, Avinash Gannamaneni2, Kalle Lyytinen3 1ESSEC 2Sloan

Business School, Paris, France;

School of Management, Massachusetts Institute of Technology, Cambridge, USA;

3Weatherhead

School of Management, Case Western Reserve University, Cleveland, USA

Correspondence: J Ondrus, ESSEC Business School, Av. Bernard Hirsch, Cergy Pontoise 95021, France. Tel: +33134433673; E-mail: [email protected]

" Abstract" A multi-sided platform can only succeed if a critical mass of users can join. This is a necessary, but not sufficient, condition for a platform’s success. However, there is a limited understanding of the factors that contribute to reaching such critical mass. In this study we identify ways to determine the market potential of a platform and to reach critical mass. We particularly enrich past studies by exploring how the openness of a platform influences market potential. We examine openness at three levels – provider, technology, and user level – and ask the question: to what extent can opening (or closing) each level increase or decrease a platform’s market potential? The provider level recognizes the strategic involvement of key stakeholders that provide a platform. The technology level is concerned with the interoperability of a platform across different technologies. The user level relates to what extent a platform discriminates different segments of the customer base. Based on analytical modeling and theoretical analysis, we formulate four propositions concerning the effects of openness on platforms’ market potential. We illustrate the strength of propositions through a confirmatory case study, which is informed by five theoretically sampled cases. The cases illustrate cogently the effects of opening different levels of a multi-sided platform. In conclusion, we propose a decision model that can assist decision-making concerning the opening of a platform to catalyze its growth."

" Keywords: mobile platforms; multi-sided; openness; market potential; critical mass; ignition; mobile payments

" This"paper"is"published"in"the!Journal!of!Information!Technology!! Please&find&citation&there:! http://www.palgrave:journals.com/jit/journal/vaop/ncurrent/full/jit20157a.html! http://dx.doi.org/10.1057/jit.2015.7!"

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INTRODUCTION" Today, a majority of high-technology products and services are built around or on top of platforms (Gawer and Henderson, 2007). A platform is defined as “a set of stable components that supports variety and evolvability in a system by constraining the linkages among the other components” (Baldwin and Woodard, 2009, p.19). The Apple App Store, with more than a million applications, is a good illustration of such a platform. Platforms now affect most industries and they have an important role in expanding and fostering innovation (Gawer, 2009). Yet, our understanding of factors that contribute to platform growth and success remains poor and fragmented across multiple research disciplines such as marketing, information systems, economics, technology management and strategy (Tiwana et al., 2010). This issue is especially problematic when studying complex platforms such as mobile payment platforms and their ecosystems, which have systematically failed over more than a decade of trials (Ondrus et al., 2009; Ozcan and Santos, 2014)." A necessary, but not sufficient, condition for platform success is to reach a critical mass of users (Evans and Schmalensee, 2010). Reaching critical mass can be more or less complex depending on the number of distinct groups participating in a platform. The most complex situation we face is with multi-sided platforms which coordinate simultaneous interactions between multiple heterogeneous groups of users (Armstrong, 2006; Caillaud and Jullien, 2003; Evans, 2003; Rochet and Tirole, 2003). Recently, the advances of information and communication technologies (ICT) have multiplied the emergence of multisided platforms (Gary, 2004). They are common in the ICT industry and related services (Hagiu and Wright, 2014) including video gaming (gathering players and developers), operating systems (gathering users and developers), internet portals (gathering users and advertisers), and payment systems (gathering consumers and merchants). The growth of multi-sided platforms depends simultaneously on the positive sameside and cross-side network effects (Parker and Van Alstyne, 2005; Rysman, 2009). Crossside network effects are generated when the value of a platform for any user on one side depends on the number of users on the other side (Eisenmann et al., 2006). For example, the larger the number of merchants accepting payments with Visa cards, the more valuable it is for consumers to possess a Visa card. Similarly, the merchants would value Visa cards more if a large number of consumers held this card. The challenge for platform providers is to create conditions that generate favorable network effects, leading to critical mass. If, by design, a platform permits only restrictive participation of small user groups, the platform’s market potential is likely to be too small to

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generate sufficient network effects. Therefore, sufficient market potential representing the maximum number of users who can potentially join a platform on any side (Bass, 1969) is necessary for platform growth. Other factors, such as trust or ease of use are often viewed necessary conditions to reach critical mass within this market potential (Davis, 1989; Rogers, 2003; Venkatesh et al., 2003). The latter factors are relevant, however, only after a platform has been launched, while architectural decisions concerning, for example, the configuration of access, interoperability, and ownerships rights would determine the market potential before the launch. In this paper, we focus on those strategic architectural decisions made by platform providers which are likely to influence a platform’s market potential. In particular, we focus on decisions concerning the openness of platforms." We distinguish openness at three platform levels in line with Eisenmann et al. (2009). The provider level relates to the strategic involvement of key stakeholders who control the platform and provide the platform services to different user groups. Here, openness can be determined by deciding who can join the provisioning side with specific rights, privileges, and duties. The technology level is concerned with how various technologies can be integrated into the platform (i.e., how interoperable the platform is with rival platforms and other components of the existing infrastructure). Openness is here determined by the compatibility with other platforms using available technology. Finally, the openness at the user level is defined by the level of discrimination that the platform exercises against different segments of the potential customer base. Although previous research has recognized the importance of setting up an appropriate degree of openness for a platform, most studies have mainly examined the technology level (e.g., Boudreau, 2010; Economides and Katsamakas, 2006; Eisenmann, 2008; Hagiu, 2006b; Parker and Van Alstyne, 2010; West, 2003); the only exception is Eisenmann et al. (2009), who examined the three levels, but did not specifically investigate the relationship between platform openness and its market potential. Our research question is: How does openness at the different levels affect the market potential of platforms? By addressing this question we can contribute to a better understanding of how different degrees of openness are likely to affect market potential and thereby determine the fate of a multi-sided platform. In our research, we posit that higher market potential increases the chance of reaching the critical mass required to ignite platform growth." To address the research question, we explore analytically the relationships between openness and market potential. We build a theoretical argument on how openness at the three levels of a platform can either positively or negatively affect its market potential. Based

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on the analysis, we formulate four propositions on how decisions concerning platform openness will influence market potential. We next validate the propositions through confirmatory case studies where we examine decisions concerning platform openness in the mobile payment industry. We chose these cases as they help illustrate richly how different levels of openness in a multi-sided platform influence its market potential. We also operationalize these findings by presenting a decision model that can assist platform providers in making more informed decisions concerning platform openness." The remainder of this paper proceeds as follows. In the next section, we discuss the concept of multi-sided platforms, network effects, diffusion, ignition conditions, and critical mass. Then we discuss the different levels of openness that can influence ignition of multisided platforms and present four propositions. The subsequent empirical section reviews openness decisions in current and past mobile payment platforms and demonstrates that decisions concerning openness can either decrease or increase platforms’ market potential. Next, we discuss the practical and theoretical implications, as well as the limitations of the research. Finally, we conclude and propose further research."

THEORETICAL BACKGROUND" Multi-sided platforms bring together different groups of users who might otherwise never have the opportunity to interact with each other. The platforms facilitate these interactions by providing an infrastructure and setting regulations (Hagiu and Wright, 2014). An important feature of most multi-sided platforms is the presence of “cross-side network effects” in addition to same-side network effects. However, Hagiu and Wright (2014) suggest that the presence of cross-side network effects is neither a necessary nor a sufficient condition for a technological system to become a multi-sided platform. Essentially, a multisided platform is an “organization that creates value primarily by enabling direct interactions between two (or more) distinct types of affiliated customers” (Hagiu and Wright, 2014, p.7). They insist that different user groups should be affiliated to the platform in order to make it possible to interact together. The challenge in these arrangements is that multi-sided platforms must get both sides on board to succeed. This gives rise to the commonly called “chicken and egg” problem. In order to attract users on one side, the other side has to have a significant number of users, but those users would only be interested in joining if there were enough users on the first side (Caillaud and Jullien, 2003)." Ever since the seminal work by Rochet and Tirole (2003), there has been a significant influx of research in economics and strategy on multi-sided platforms covering platform competition and pricing strategies (Armstrong, 2006; Chakravorti and Roson, 2006; Economides and Katsamakas, 2006; Hagiu, 2006a; Jullien, 2008; Parker and Van Alstyne,

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2005; Rochet and Tirole, 2003; Weyl, 2010), ignition strategies (Evans, 2009; Evans and Schmalensee, 2010), platform leadership and innovation (Cusumano and Gawer, 2002), antitrust issues, policies and regulations (Boudreau and Hagiu, 2009; Economides and Tåg, 2012; Evans, 2003; Evans, 2012; Evans and Schmalensee, 2007), platform envelopment (Eisenmann et al., 2011; Parker and Van Alstyne, 2005), multi-homing (Armstrong, 2006; Gabszewicz and Wauthy, 2004; Rochet and Tirole, 2004), and open/proprietary standards (Economides and Katsamakas, 2006; Hagiu, 2006b). Although research on multi-sided platforms has tackled a number of important issues concerning mature platforms and their pricing structures, less attention has been given to the initial conditions that are necessary and/or sufficient to launch (i.e., ignite) and sustain a platform (Evans, 2009)." Ignition, critical mass, and market potential" Evans (2009) was first to suggest a catalyst framework that would identify positive cross-side network effects that are likely to drive initial growth. He draws upon an analogy from chemical catalysis. Similar to chemical catalysis, it is necessary to get the catalytic agent (platform provider) and the chemical agents (both sides) in the right proportions for the reaction to ignite. Most importantly, not only should users be present on both sides but also there should be “a range of minimal numbers of customers in each group that, if achieved, provides a thick enough market or a sufficiently liquid market to permit sustainable growth” (Evans, 2009, p.101). If this state is not achieved, then the platform ‘fizzles’ like in chemical catalysis – the reaction never takes place. The minimal number required on each side of the platform is referred to by Evans as the critical mass. Beyond that number the reaction takes place and the miracle of growth is fast and often exponential (i.e., viral). Therefore, achieving critical mass is a necessary condition for platform ignition. Evans (2009) analyzes B2B exchanges (i.e., an online marketplace for businesses to buy and sell goods and services from other businesses) to support his argument. A number of B2B exchanges sprang up in the late 90s and investors and entrepreneurs flocked enthusiastically to develop them. However, they were unable to attract enough businesses (buyers and sellers) and hence never reached a critical mass; they disappeared during the 2001 dot-com bust. Another aspect of multi-sided platforms is the expected deadline to reach critical mass. The early adopters of one side of the platform can leave the platform if they have to wait too long for others to join (Evans, 2009; Markus, 1987). Providers of a platform need to accordingly devise an ignition strategy to achieve critical mass on all sides of the platform and to achieve it quickly, or otherwise the platform is likely to fizzle."

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We can illustrate both the cross-side network effects and timing by a simple analytical exercise. We can examine the effects on the cumulative S-curve (Bass, 1969) as it demonstrates the level of diffusion of platform use among different user groups. According to the Bass model, the probability of adoption of a new product at time t is given by"

n(t) = pN + (q – p) N(t) – (q/N) [N(t)]2" where n(t) is a linear function of the market potential (N), the coefficient of innovation (p: the external influence or advertising effect) and the coefficient of imitation (q: internal influence or word of mouth effect). N(t) is the cumulative adoption of the new product until time t. The model results in the cumulative adoption S-curve as shown in Figure 1 (Mahajan et al., 1990)." N(t) N

cumulative adoption

n(t)

adoption

t

"

Figure 1. Bass model: diffusion of a new product adapted from Mahajan et al. (1990)." In Figure 2, we show the cumulative adoption curves for the user side of a platform with varying market potentials. Evans (2009) shows that the presence of network effects shifts the S-curve towards the left (i.e., quicker diffusion due to network effects). Yet, some platforms never achieve critical mass C and fizzle (platform δ). There are also platforms which achieve critical mass, but only after deadline TC (platform γ). They also fizzle, because early adopters lose patience and leave the platform. Finally, platforms reaching critical mass before deadline TC ignite and succeed (platforms α, β)."

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" Figure 2. Different platform diffusion paths based on potential adopters" If factors p and q are kept constant, a minimum market potential (Nmin) is required to achieve critical mass C at time TC. Platforms with lower market potential will fizzle. In short, all successful platforms must have an adoption curve falling entirely in the shaded region before the deadline TC, and consequently their market potential should be equal or larger than Nmin. Yet, the challenge is to determine Nmin beforehand."

Openness and Platforms" Platform providers must decide early on whether to open the platform or to pursue proprietary control of all key architectural control points (Boudreau, 2010; Eisenmann et al., 2006). Opening can increase potential total market size and sometimes reduce rivalry (Eisenmann et. al., 2006). West (2003) also notes other factors which motivate firms to shift from proprietary to open standards at the technology level, including lack of market share to efficiently support the proprietary R&D or the demand from buyers for open standards to avoid technological lock-in. Boudreau (2010) consequently proposes two ways to open the platform: i) granting other firms access to the platform, and ii) giving up some control over the platform. Microsoft grants access to Windows to technology complementors, while a number of Linux distributions go even further by giving up almost total control to other stakeholders (e.g., GNU Debian). These two strategies mainly concern the opening of technology. Eisenmann et al. (2009) explain that openness can also be achieved in other levels of the platform. They identify four platform roles that can be opened or closed: (i) demand-side users, considered to be the end users; (ii) supply-side users, who provide complementary products or services to the demand-side users; iii) platform providers, who are the primary point of contact for the users; and iv) platform sponsors, who own the

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property rights and control the development of the platform. They insist that designating a platform as open or closed without referring to the status of each role is likely to cause confusion. Building upon Eisenmann et al. (2009) roles, we propose four different levels for a platform (Figure 3). We add the technology level to clearly separate actors and technology components, as both groups can be open or closed. For our study, we focus on the provider, technology, and user levels. At the provider level, openness is defined by whether additional providers are allowed to join. At the technology level, openness depends on how interoperable or incompatible the platform is with other platforms and related technologies. Eisenmann et al. (2009) associate openness at this level with the licensing of the platform to other platform providers, but we go further and consider licensing to be part of a broader issue of interoperability. Licensed platforms are normally interoperable with the original platform. At the user level, openness is concerned with making the platform accessible in indiscriminant ways to new users.

sponsor 1

sponsor 2

provider 3

provider 1

... sponsor M

sponsor(s) provider 4 ...

provider 2

... provider N

users A

cross-side network effects

provider level

technology level

platform technology (hardware/software components)

same-side network effects

sponsor level

users B

same-side network effects

user level

" Figure 3. Levels of multi-sided platforms, adapted from Eisenmann et al. (2009)" In Eisenmann et al.’s (2009) definition, sponsors do not have direct contact with the users. Therefore, they cannot influence the market potential and fall outside the scope of our focus. However, sponsors that are also providers are of interest to us. For example, Android is sponsored by the Open Handset Alliance, which is composed of numerous firms, including mobile network operators (MNOs), software companies, semiconductor companies, commercialization companies, and device manufacturers. The majority of the sponsoring firms involved in the alliance do not have direct contact with Android users (e.g., Qualcomm,

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Intel, ARM). However, other firms play the roles of sponsor and provider of Android (e.g., Google, Samsung, LG). These firms have the ability to influence the market potential of Android, as they have a direct relationship with end users. Third party service providers constitute a group called complementors. The complementors of a platform do not have a significant impact on the market potential (i.e., the maximum theoretical number of end users that a platform can reach). For example, a loyalty scheme could be linked to a payment platform. This loyalty scheme is an additional service which increases the attractiveness of the payment platform. However, as an optional service, the loyalty scheme will not increase or diminish the market potential. The additional service offered by third party providers would only affect the market potential if it becomes mandatory for the users to join. As a result, the complementor becomes a provider in our model. In another scenario, complementors can take part in the platform as one of the groups of end users. An example would be the developers of mobile apps for Apple iOS. They complement the platform by providing additional services to the other user groups. The effect on the market potential will only depend on the restrictions imposed by providers for joining the platform as a developer (i.e., openness at the user level). Therefore, we do not elaborate on the internal and external tensions between platform providers and complementors as discussed by Baldwin and Woodward (2009). In this paper, we aim at complementing Eisenmann et al.’s (2009) work on mature platforms by investigating how openness decisions at the early ignition stage can influence the platform’s market potential. We next review in detail the role of each type of openness.

OPENNESS AT THREE LEVELS OF MULTI-SIDED PLATFORMS " In this section, we examine openness strategies at the provider, technology, and user levels. We develop analytical models to demonstrate how changes in openness at each level can either increase or decrease the platform’s market potential.

Openness at the provider level" A platform can be provided either by a single firm, which vertically integrates all the different resources and capabilities required, or by an array of horizontally collaborating firms with specific roles and responsibilities. The incumbent platform providers have to decide initially the degree of openness at the provider level (i.e., whether they will let additional firms join). They can open the platform to their competitors within the same industry or to other firms in other industries with complementary assets, such as existing

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user bases, technologies, or distribution channels. We identify three strategies in this regard: i) competition (single firm), ii) co-opetition (firms from the same industry decide to collaborate), and iii) collaboration (firms from different industries collaborate) for openness. Each strategy at the provider level results in a different market potential." When a firm chooses the competition strategy, the set of potential users of this firm (F1) is the sole contributor of the market potential. We can write the market potential N = the cardinality of F1 = n(F1). In order for the competition platform to ignite the following holds: n(F1) >= Nmin. In the co-opetition strategy, firms from the same industry with different sets of users F1, F2, … , Fn provide a market potential which is the union of these users, F1 ∪ F2 ∪ … ∪ Fn. Here users can belong to several competitors’ user base (i.e., multi-homing). In order for the co-opetition platform to ignite the following holds: n(F1 ∪ F2 ∪ … ∪ Fn ) >= Nmin. In the collaboration strategy, one or multiple firms from the same industry collaborate with firms from different industries. Suppose Fij denote the set of potential users of firm j belonging to industry i. The set of potential users of the collaboration platform is now ∩i(∪j Fij) and in order for the platform to ignite the following holds: n(∩i(∪j Fij)) >= Nmin. If two firms from different industries collaborate to create a collaboration platform, only the intersection of their user sets can join the platform. Table 1 summarizes the three different strategies with a visual representation of their architecture and market potential." Table 1. Openness at the provider level" Strategy"

Definition"

Competition"

One firm provides a platform and competes against the other platforms in the ecosystem. The platform is vertically integrated."

Architecture"

Market Potential"

"

" Co-opetition"

Collaboration"

Competing firms within the same industry decide to collaborate and provide a single intra-industry platform within the ecosystem. The platform is horizontally integrated"

(Set of all users of firm 1 which creates the platform and restricts it to only its users)" F1 ∪ F2 ∪ …. ∪ Fn "

"

"

(Union of users of all firms co-opeting to create the platform)" ∩i (∪j Fij)"

Multiple firms from different industries collaborate to provide an inter-industry platform. The platform is horizontally integrated."

"

(F is the set of users of jth firm belonging to ith industry.)" ij

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F1 "

If any of the three strategies does not meet the necessary condition for platform ignition (i.e., if P denotes the set of potential users for the platform, we can write n(P) < Nmin), the provider(s) may choose to either change strategy from competition to co-opetition or change the degree of openness by adding one or more collaborators. For example, in competition a single firm owns a platform with a potential user set F11 (i.e., users of firm 1 from industry 1). If n(F11) < Nmin, the market potential needs to be increased. The firm with F11 users can collaborate with an additional firm from the same industry (e.g., F12). Consequently, the new market potential becomes n(F11∪F12) >= n(F11)." Proposition 1a: Opening the platform at the provider level to additional firms from the same industry results in a greater (or at least equal) market potential."

If a collaboration happens between firm F11 and firm F21 from a different industry (i.e., i=2), the new market potential would be lower (or equal at best) than the initial market potential, as n(F11) >=n(F11∩F21). An equal market potential only happens when all the users of one firm are also completely and simultaneously owned by the other firm joining the alliance." Proposition 1b: Opening the platform at the provider level to additional firms from different industries results in a lower (or at best equal) market potential."

" Illustration: Octopus card in Hong Kong Chau and Poon (2003) explain that a key success factor of the Octopus payment solution was its capacity to reach a market potential higher than its competitor Visa Cash and Mastercard Mondex. In Hong Kong, residents have to commute using multiple modes of public transportation. As a result, they often have to use different means of payments (i.e., tickets and coins) for one journey. In June 1994, the Mass Transit Railway Corporation (MTRC), the operator of the underground railway system, convinced four local public transportation operators of buses, ferries, and mini-vans to form a joint venture to provide one automated fare collection system. Together, they gathered approximately 11 million daily commuters. By combining their market share (i.e., co-opetition) the public transportation companies formed a market potential large enough to ignite. Although Visa, with 5.8 million Cash cards, and Mastercard, with 3.3 million Mondex cards, both reached respectable market shares with a competition strategy, they did not experience the same success as Octopus (Chau and Poon, 2003).

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Openness at the technology level" In order to achieve higher market potential when n(P) < Nmin, providers can also open the technology level by choosing to be interoperable with rival or complementary platforms (see Figure 4). This is typically achieved by creating gateways and related technical standards that make technologies compatible across different platforms (Hanseth and Lyytinen, 2010). If the platform P1 is interoperable with platforms P2, P3, … , Pn, then a new set of potential users becomes P1 ∪ P2 ∪ … Pn and the combined market potential is n(P1∪P2∪" …"Pn). This is greater than or at least equal to n(P1). Proposition 2: Opening the platform at the technology level by making it interoperable with other platforms results in a greater (or at least equal) market potential."

platform P1

users A

Interoperability

users B

platform P2

users A

P1

users B P2

P1 U P 2

"

Figure 4. Openness at the technology level" Although ignition conditions are now facilitated for each interoperable platform, individual platforms can still fail if they do not have enough of their own users. The overall ignition across all platforms is also necessary for each individual platform to succeed. Consequently, interoperable platforms become dependent on each other’s success. Illustration: Short Messaging Service (SMS) in the U.S. telecommunication market Initially, MNOs in the U.S. market offered SMS platforms that were incompatible with each other (i.e., subscribers of a particular MNO could only send SMSs to other subscribers of the same MNO). This was considered to be the main reason why SMS was not taking off in the USA (Méndez-Wilson, 2002). In 2001, merely 3 billion text messages were sent in the USA compared to over 70 billion in the EU (Kuittienen, 2012), where major operators had already introduced SMS interoperability. In the UK, the introduction of SMS interoperability in 1999 increased messaging traffic by 700% (Méndez-Wilson, 2002). U.S. carriers recognized this issue and AT&T took the lead by announcing SMS interoperability in November 20o1. By August 2002, all the top 5 U.S. carriers offered SMS interoperability.

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The market potential for SMS offered by each MNO now became the sum of market shares of all top 5 MNOs and SMS finally took off in the USA.

Openness at the user level" When a platform is closed at the user level, its market potential remains limited to the market share of the provider(s). Making a platform open at the user level allows additional users previously associated with other platforms (e.g., P2 in Figure 5) to multihome and/or users not associated with any platform to join (i.e., S). If a platform initially has a market potential n(P1) insufficient for ignition (n(P1) < Nmin), then it can allow users from other platforms (with sets of users P2, P3, … , Pn) as well as users not associated with any platform (belonging to set S) to join the platform P1 ∪ P2 ∪ ... Pn ∪ S, with a market potential n(P1 P2 ∪ .. Pn ∪ S) >= n(P1) (see Figure 5).

" Proposition 3 Opening the platform at the user level to additional users results in a greater (or at least equal) market potential."

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platform P1

new affiliation

users A

users B S

users A

multi-homing

users B

platform P2

users A

P1 P1 U P 2 U S

users B P2

"

Figure 5. Openness at the user level"

" Illustration: Mobile IM and BlackBerry BBM Some mobile IM platforms such as WhatsApp, Line, and WeChat are open at the user level. Users affiliated with any major mobile operating systems such as Android, iOS, and Windows Phone can join those IM platforms, which results in a higher market potential for each of them. BlackBerry messenger (BBM) was initially closed at the user level. Only users who had BlackBerry phones could use it. In the wake of the dwindling market share of BlackBerry devices, BlackBerry decided to open BBM at the user level and released its iOS

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and Android versions in late 2013. This move will allow Blackberry to reach more market potential,1 as users affiliated with iOS and Android will also be able join BBM.

Empirical study: cases from the mobile payment industry" In this section, we conduct a multi-site case study that examines to what extent the predictions of the four propositions are followed in the context of mobile proximity payment platforms and to what extent not following them may have resulted in a failure. Our ambition is not to empirically provide a definite validation of how well these propositions predict the overall success of mobile payment systems, but rather to initially validate the power of the propositions to predict the likely success or failure of mobile payment platforms based on their architectural configuration. In this sense, we adopt a confirmatory real-world case study approach (Yin, 2013). We follow a multiple case design as it enables better generalizability and robustness of the resulting theory and this approach was required to validate each proposition separately (Eisenhardt, 1989; Yin, 2013). Each sampled case is here treated as an experiment that lends support or falsifies the propositions. We only look at those dimensions within the sampled cases that illustrate the level of openness and its impacts on market potential, and whether the mobile payment platform was sustainable or not."

Setting" " Payment systems have been frequently mentioned as examples of multi-sided platforms (e.g., Chakravorti and Roson, 2006; Evans, 2003; Rochet and Tirole, 2003; Roson, 2005; Rysman, 2009; Wright, 2004). The reason is simple: payment systems need to attract both consumers and merchants simultaneously to be successful. In addition, they need a platform provider that creates a coordination mechanism and a brand that connects all the payment events together (Evans et al., 2006). An interesting characteristic of mobile payment platforms is that they often must involve an array of interdependent firms from the telecommunication and financial industry to render a full service. The mobile payment ecosystem is “not only characterized by a high interdependency but also by a particular interplay of actors and their roles which need to be carefully distinguished” (Pousttchi, 2008, p.184). This space offers multiple configurations to orchestrate a mobile payment platform. Thus it offers rich and unique examples of varying types of multi-sided platforms, especially for the provider (i.e., competition, co-opetition, and collaboration) and technological level (i.e., interoperability). In this paper, we are particularly interested in

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1"http://www.usatoday.com/story/tech/2013/05/17/blackberryEbbmEiosEandroid/2194311/"

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examining platforms that enable payments at physical point-of-sale (POS) terminals of merchant sites. These platforms can be launched either by a single firm (e.g., LevelUp), by firms from the same industry (e.g., Softcard, formerly Isis Mobile Wallet), or by a consortium of firms (e.g., Google Wallet). As most merchant locations already belong to an electronic proximity payment network (e.g., Visa, Mastercard), any new proximity payment platform needs to consider using the existing payment infrastructure. The interoperability issue concerns service compatibility across different payment terminals on the merchant side and across different mobile devices on the consumer side. At the user level, mobile proximity payments can be offered selectively to specific groups of consumers and merchants. Providers do not have to make the platform available for all possible users. Market segmentation is often decided according to the strategy the provider is pursuing." Other specific considerations justify a study of mobile proximity payment platforms. During the early 2000s a large number of mobile payment solutions - mostly using Infrared technology - sprung up in several countries and fizzled (e.g., South Korea, Japan, Denmark, and Sweden). Although there are different reasons for their failures, one major inhibitor for mobile proximity payments has been the lack of appropriate technology equipment on the consumer and merchant sides. Moreover, platform providers have faced the “chicken-andegg” problem and have had to first secure enough merchants by installing appropriate payment terminals to attract the first consumers. Most customers would not join if there were not enough merchants offering the platform services. While this problem has been solved by providing incentives to early adopters (on one or both sides), the lack of standardization at the technology level resulted in a growing number of platforms which offered their services based on proprietary technology (e.g., Moneta and K-Merce in South Korea, PostFinance in Switzerland, Dunkin Donuts in the USA). Each provider installed their proprietary terminals on the merchant side and tried to attract enough users from their potential user base to join. " To solve this technological ‘reverse salient’, a new standard was specified that defines a common technical interface between the terminal and the mobile phone suitable for payment solutions. This standard, called Near Field Communication2 (NFC) has recently become a fundamental driver for a new generation of payment systems in the last 5 years (Ondrus and Pigneur, 2009). This technology is compatible with the existing contactless payment card infrastructures being deployed by banks and payment service providers. Recently, ABI Research estimated that the number of NFC-enabled devices would reach 285 million in 2013. Moreover, this number will grow to over 500 million by 2014. As the number of compatible contactless payment terminals is also constantly growing (i.e., Visa Paywave and Mastercard Paypass compatible terminals), there is now more hope that

"""""""""""""""""""""""""""""""""""""""""""""""""""""""" 2"http://nfcEforum.org/"

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ubiquitous mobile proximity payment services will become common. Yet, the openness strategies chosen could still determine whether mobile proximity payment services will ignite. Consequently, examining mobile proximity payment platforms offers a rich case of the effects of openness at different levels of the platform."

Sample Selection, Data Sources, and Method" " To establish an initial set of potential cases, we searched extensively for cases that would fit any of the 8 possible combinations of openness at the three levels. The main sources in searching the cases were specialized payment websites (i.e., NFC times, NFC world). As a result of our search, we could shortlist 13 representative cases (Table 2). We chose these cases according to the following criteria: the launch year, the country, the type, the strategy, and the openness at different levels and demonstrated information of offering real service (not technology trial). The objective was to maximize the variance between the cases and ensure the presence of alternative architectures in the cases. We also included cases which had failed, some which had indications of reaching the level of ignition, and some cases where the verdict of reaching ignition was not clear yet. Table 2. List of studied mobile proximity payment platforms Name%

Year%

Country%

Type%

Strategy%

P%

T%

U%

Status%

V.me%

2012%

Global%

Bank1centric%

Co1opetition%

O%

O%

O%

In%progress%

Softcard%(ex1Isis)%

2010%

USA%

MNO1centric%

Co1opetition%

O%

O%

C%

In%progress%

Rogers%+%CIBC%

2012%

Canada%

MNO%+%Bank%

Collaboration%

O%

O%

C%

In%progress%

Google%wallet%

2011%

USA%

Independent%

Collaboration%

O%

O%

C%

In%progress%

Mobipay%

2001%

Spain%

MNOs%+%Banks%

Collaboration%

O%

O%

C%

Failed%

MCX%

2013%

USA%

Independent%

Co1opetition%

O%

C%

O%

In%progress%

Mobile%Octopus%SIM%

2013%

Hong%Kong%

Independent%

Collaboration%

O%

C%

C%

In%progress%

Moneto%

2012%

USA/UK%

Independent%

Competition%

C%

O%

O%

In%progress%

Osaifu1keitai%

2004%

Japan%

MNO1centric%

Competition%

C%

O%

C%

Ignited%

Kix%

2010%

France%

Bank1centric%

Competition%

C%

O%

C%

In%progress%

LevelUp%

2011%

USA%

Independent%

Competition%

C%

C%

O%

In%progress%

PostFinance%

2005%

Switzerland%

Bank1centric%

Competition%

C%

C%

C%

Failed%

Moneta%

2000%

South%Korea%

MNO1centric%

Competition%

C%

C%

C%

Failed%

P"="Provider"level;"T"="Technology"level;"U"="User"level"/"O"="open;"C"="closed"

To match our propositions, we selected cases that experienced a change in their openness strategy or degree of openness during their operation. As a result, five longitudinal cases were chosen as the final sample, as these cases met most of the conditions required for validating the propositions (see Table 3).

16" "

Table 3. Cases selected to validate our propositions %

Initial%Strategy%

Final%Strategy%

Name%

Strategy%

P%

T%

U%

Strategy%

P%

T%

U%

Change%at% level%

Proposition% matching%

Softcard%%

Co1opetition%

O%

O%

C%

Co1opetition%

O*%

O%

C%

Provider%

P1a%

Rogers%+%CIBC% Collaboration%

O%

O%

C%

Competition%

C%

O%

C%

Provider%

P1b%

Oseifu1Keitai%

Competition%

C%

C%

C%

Competition%

C%

O%

C%

Technology%

P2%

Moneta%

Competition%

C%

C%

C%

Competition%

C%

O%

C%

Technology%

P2%

Google%wallet%

Collaboration%

O%

O%

C%

Collaboration%

O%

O%

O%

User%

P3%

*%change%of%degree%of%openness%

Due to the constant evolution of the mobile payment ecosystem, it is challenging to get reliable data on current and past cases and their change over time. While some statistics are available in consulting reports and press releases on service and user growth, these highlevel figures are difficult to exploit for a detailed investigation of determining the conditions of ignition. Often, organizations are reluctant to share their internal data on adoption and usage. The reasons offered are confidentiality, strategy, and privacy. In addition, past initiatives were often limited in scope and the experience accumulated is hardly generalizable. As a result, we mainly gathered information from archival sources (i.e., consulting reports, press article and releases, professional websites, and academic publications) to build up a database for each selected case for analysis and coding. To analyze the selected cases we specifically collected the data required to validate our propositions and therefore searched online archival data for evidence about their openness, changes in market potential and the service, and user base growth. To maintain the chain of evidence, we followed Yin’s (2013) recommendations. First we developed a detailed narrative of each case in terms of how the platform was initiated, how it was orchestrated over time and how its user base grew. Per Sarker and Lee (2002, p.26), a detailed narrative provides a sense of the sequence of events that led to a particular outcome and allows “the reader to make an independent judgment regarding the validity and reliability of measures of constructs used in the case study.”"

Proposition 1a: Opening at the provider level to intra-industry firms" " To illustrate the effects of openness at the provider level and how intra-industry firm co-opetition increases market potential, we examined a platform that has been available throughout the USA since November 2013.3 Softcard is a joint venture operated by three major American mobile operators: AT&T, Verizon Wireless and T-Mobile. The platform is a representative case of the co-opetitive strategy within an industry. The three MNOs have

""""""""""""""""""""""""""""""""""""""""""""""""""""""""

3"http://www.theverge.com/2013/11/14/5103592/isisEmobileEwalletErollsEoutEnationwide"

17" "

agreed to invest more than 100 million in Softcard to enable their customers to pay with their mobile phones at physical POSs.4"Their initial idea was to charge purchases directly on the mobile phone bill5 and compete against the financial institutions to capture market share in the payment industry. Since, MNOs have changed their strategy and partnered with credit card companies.6,7 Today, users do not need to affiliate themselves with any particular bank. If they have an American Express or Chase credit card, they can directly register it in their Softcard mobile wallet. Otherwise, they can funnel money from any credit card, debit card, or US bank account into a prepaid American Express Serve account.8 An alliance for mobile payments between U.S. MNOs has existed for some time, even before Softcard was officially launched. Sprint, another large U.S. MNO with 55 million subscribers,9 was one of the founding and active members of the earlier JVL Venture, which later developed into Softcard. 10 "The press has relayed that Sprint has been left out of Softcard.11 However, Sprint explained that they left the alliance in 2010 due to divergent opinions concerning the openness of Softcard.12 Instead, Sprint has preferred to join Google Wallet in 2011, which had a more open approach when partnering with other firms at the provider level.13 Yet, by opening the provider level to nearly all intra-industry firms (MNOs), Softcard is in a position to reach a high market potential. Based on our propositions, the market potential of Softcard can attain 80% of the US market, as it combines market shares of AT&T, Verizon, and T-Mobile (calculated with statistics of November 2013). 14 "Any additional partnership with an MNO would further increase the market potential of Softcard. If Sprint joined the consortium again, Softcard’s market potential would be over 95%. Despite its impressive reach of the U.S. population, the actual market potential of Softcard cannot be reached yet. To this day, not all subscribers of AT&T, Verizon, and TMobile are eligible to join the platform. The reason is that the number of available handsets

"""""""""""""""""""""""""""""""""""""""""""""""""""""""" 4"http://www.businessweek.com/news/2011E08E29/atEtEverizonEtEmobileEsetsE100EmillionEforEgoogleE

fightEtech.html" 5"http://online.wsj.com/news/articles/SB10001424052748704740604576301482470575092" 6"http://www.nfcworld.com/2011/07/19/38662/isisEsignsEupEvisaEmastercardEdiscoverEandEamexEforE nfcEmobileEpayments/" 7"http://www.pymnts.com/briefingroom/mobileEcommerce/mobileEbriefingEroom/ExclusiveEInterviewE withEISISEWhereEsEItEGoingEandEWhatEsEtheEVision/" 8"http://www.nfcworld.com/2013/11/14/326846/isisEnfcEmobileEwalletEgoesEliveEacrossEus/" 9"http://nfctimes.com/news/sprintEtakeEisisEopenEnfcEplatformEshunsEownEwallet" 10"http://nfctimes.com/news/earlyEisisEplannerEbierbaumEdepartsEsprintEorangeEnfcEveteranEbarnaudE leavesEcEsam" 11"http://www.zdnet.com/blog/btl/isisEmobileEpaymentEsystemEchangesEdirection/48203" 12"http://www.lightreading.com/mobile/servicesEappsEmobile/whyEsprintEdoesntEputEmoneyEonE isis/d/dEid/706478" 13"http://www.pcmag.com/article2/0,2817,2385986,00.asp" 14"http://www.fiercewireless.com/specialEreports/gradingEtopEusEcarriersEthirdEquarterE2013"

18" "

is limited to a certain range of Android smartphones with NFC15 cards which are compatible with the Softcard standard. As of July 2013, there were about 20 million NFC-capable smartphones in the U.S. market.16 Another challenge is that subscribers of the service have to order a specific NFC-enabled SIM card to be able to activate the mobile wallet. These technical requirements currently limit the market potential of Softcard. The replacements of mobile handsets and SIM cards may be taken up in the coming years. At the technology level, the service is in principle open to interoperate with existing payment infrastructure In order to reach its full market potential on the consumer side, Softcard also has to add iOS devices.17 Later, Softcard will still have to convince consumers to pay with their mobile phone – a major shift in thinking about payment transactions.18 Softcard officially reported that active users have been paying on average more than 10 times per month with the mobile wallet.19 On the merchant side, the World Bank reported in 2009 that there are 2156.5 POSs per 100,000 adults in the United States20 (U.S. population over 18 years old in 2009: 234,458,335).21 This means that there are approximately 5 million POSs in the USA. Aite Group has projected that by the end of 2013, there will be 1.3 million contactless payment terminals deployed in the USA22 (i.e., 26% of the installed base). Increasing the NFC-compatible readers at the POS is thus another challenge to ignite the service.

Proposition 1b: Opening at the provider level to inter-industry firms" Proposition 1b suggests that opening a platform at the provider level to inter-industry firms can negatively affect market potential. A good illustration is the collaboration between the Canadian MNO Rogers and CIBC Bank. They started to offer a mobile payment platform to their consumers in November 2012.23 Subscribers of Rogers holding a credit card issued by CIBC could use the payment platform with compatible handsets. The market share of Rogers is 34% of the mobile telecom market (9.4 million subscribers),24 while CIBC has approximately 18% market share (estimated 5.4 million clients).25,26 Only users belonging to the intersection of these two market shares (34% ∩ 18%) are eligible to join the platform. As we do not know how many CIBC account holders have a Rogers mobile subscription, it is

""""""""""""""""""""""""""""""""""""""""""""""""""""""""

15"http://www.nfcworld.com/2013/11/14/326846/isisEnfcEmobileEwalletEgoesEliveEacrossEus/" 16"http://news.paywithisis.com/2013/07/30/isisnationalrollout/" 17"http://news.paywithisis.com/2013/07/30/isisnationalrollout/" 18"http://bgr.com/2013/11/14/isisEmobileEwalletEreleaseEdate/" 19"http://news.paywithisis.com/2013/07/30/isisnationalrollout/" 20"http://data.worldbank.org/indicator/FB.POS.TOTL.P5"

21"http://www.census.gov/popest/data/national/asrh/2009/tables/NCEEST2009E02.xls" 22"http://news.paywithisis.com/2013/07/30/isisnationalrollout/

"

23"http://www.reuters.com/article/2012/05/15/canadaEmobilepaymentsEidUSL1E8GEI6220120515" 24"http://www.rogers.com/cms/investor_relations/pdfs/At_A_Glance_HighlightsERogers_Wireless.pdf" 25"We"estimated"5.4"million"retail"clients"as"CIBC"has"about"1100"on"6200"branches"(18%)"and"an"adult"

population"of"approximately"30"million." 26"https://www.cibc.com/ca/insideEcibc/quickEfacts.html"

19" "

rather difficult to estimate accurately the intersection (i.e., the market potential). One certainty is that the total market potential cannot exceed 18% of the Canadian population. Not surprisingly, the adoption rate of Rogers–CIBC platform was reported to be slow.27" In November 2013, Rogers obtained a banking license and has announced plans to issue its own credit cards.28 Analysts predict that this strategic move will discontinue its exclusive collaboration with CIBC.29 Rogers can now issue their own credit card to all its subscribers and therefore shift its strategy at the provider level from collaboration to competition. As a result, the market potential has been increased from (34%∩18%) to 34%. This case illustrates well that adding an inter-industry firm at the provider level leads to lower (or at best equal) market potential.

Proposition 2: Opening the technology level" Three main players compose the Korean mobile telecommunication industry: SK Telecom, KT, and LG U+. In 2002, SK Telecom in conjunction with Visa international launched a pilot program in Seoul for mobile payments based on a proprietary infrared (IR) technology called Moneta.30 31 At the same time, other firms including KT (K-merce)32 and several startups, such as Harex Infotech (Zoop), 33 also launched their own proprietary mobile payment platforms based on IR transmission. At the provider level, SK Telecom was in competition with KT and other startups. None of the competitors chose to partner with each other. At the technology level, all the competing platforms were based on proprietary technology, thus not interoperable. Merchants were equipped with multiple payment terminals: one terminal for each of the payment platforms. At the user level, Moneta was only available to SK Telecom customers (almost 50% market share). As a result, Moneta was closed at all three levels. By 2005, SK Telecom had sold 4.9 million Moneta compatible handsets. Moreover, they also rolled out 400,000 proprietary merchant POS terminals (out of a total of 2.5 million merchants). Despite these encouraging figures, Moneta failed to attain critical mass and fizzled. Shin and Lee (2005) claim that the lack of common technology standards was a major factor contributing towards the failure of Moneta, in addition to other factors such as regulations, lack of cooperation with financial institutions and privacy concerns by the consumers. Other solutions including K-merce and Zoop shared the same fate (Bradford and Hayashi, 2007)."

"""""""""""""""""""""""""""""""""""""""""""""""""""""""" 27"http://www.theglobeandmail.com/reportEonEbusiness/rogersEtoEtakeEonEbanksEinEwalletE

wars/article15303570/" 28"http://www.reuters.com/article/2013/09/06/usErogersEcardEidUSBRE98512V20130906" 29"http://www.mobilepaymentstoday.com/article/223345/WhenEaEtelcoEturnsEtoEbanking" 30"http://www.mobilepaymentsworld.com/visaEsktElaunchEkoreanEemvEandEinfraredEpaymentEsystem/""" 31"http://www.finextra.com/news/fullstory.aspx?newsitemid=5735" 32"https://kansascityfed.org/PUBLICAT/PSR/Briefings/PSREBriefingSept07.pdf" 33"http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=1575217"

20" "

After 2006, NFC emerged as a global standard for proximity payments. The South Korean rival proprietary platforms became compatible with each other as soon as they implemented the NFC standard (Mas and Rotman, 2008). In parallels, Visa and MasterCard launched PayWave and PayPass proximity payment platforms respectively based on NFC. These technical and commercial developments created the opportunity to set a standard for the South Korean payment ecosystem. Merchants no longer needed to install an additional device at their POS. They simply had to upgrade their terminals to be NFC compatible. Due to the wide availability of NFC-compatible handsets, the three major MNOs (SK Telecom, KT and LG) launched again their own mobile proximity payment platform. As a result, the market potential of each MNO’s platform became the sum of the market share of all three MNOs (almost 100% of the total market). Opening at the technology level with competing platforms increased the market potential of SK Telecom’s own platform, as well as the platforms of the competitors. SK Telecom was able to register 2.6 million users in 2007. However, over time the usage dwindled and the platform fizzled again. The main reason this time was the distrust in financial institutions (Mas and Rotman, 2008). Another interesting case of openness at the technology level is the Osaifu-Keitai service in Japan (Mas and Rotman, 2008). During the early 2000s, Sony developed a technology called Felica (similar to NFC). It paved the way for MNOs to create mobile payment platforms. Sony and NTT DoCoMo launched a subsidiary company called Felica Networks in Japan. The company modified the standard and developed Mobile Felica, which could be used for mobile payments. NTT DoCoMo strongly pushed this technology by investing a considerable amount and subsidizing merchants to install compatible terminals. NTT DoCoMo took the lead and created a mobile wallet called “Osaifu-Keitai” and launched its platform for its consumers. The solution was initially closed at all three levels. Therefore, its market potential was equal to the market share of NTT DoCoMo which was 53 million users in 2008, representing over half of the market share of Japan (Mas and Rotman, 2008). In 2005, NTT DoCoMo opened Osaifu-Keitai at the technology level. Any firm could license the technology and create its own mobile payment platform. As a result, the other two major MNOs in Japan, KDDI and Softbank, created their own versions of Osaifu-Keitai in 2005. All three platforms were interoperable with each other at the technology level." The set of potential users of Osaifu-Keitai became the union of users of each of these three MNOs, which represents almost 133 million consumers in Japan (out of a total of 143 million mobile phone subscribers).34 Moreover, numerous other firms joined the platform, such as railway companies, bus operators, loyalty schemes by different groups, online stores

""""""""""""""""""""""""""""""""""""""""""""""""""""""""

34"http://www.tca.or.jp/english/database/2013/06/index.html"

21" "

and even McDonalds (which offered a loyalty scheme based on Mobile Felica). Consequently, by opening the platform at the technology level, the platform clearly exceeded the minimum market potential. By 2008, NTT DoCoMo’s mobile payment platform had almost 29 million users. Contactless payments were accepted at more than 640,000 stores (Mas and Rotman,

2008). By 2014, 37.5 million of DoCoMo users owned an Osaifu-Keitai mobile phone which can be used to pay purchases at 1.4 million POS in Japan.35 Osaifu-Keitai can be considered as a successful initial ignition compared to the failures observed in other countries."

Proposition 3: Opening the user level" When Google first presented its digital “Google Wallet’ in partnership with Citi, MasterCard, Sprint, and First Data in May 2011, 36 its market potential was severely diminished because of openness issues at the user level. Only consumers with a Nexus S 4G sold by Sprint could join the platform, as it required a specific type of NFC chip. 37 Theoretically, Sprint’s market share (55 million subscribers in 2011)38 should have helped to recruit many potential consumers. However, the dependence on one unique mobile device decreased significantly Google Wallet’s reach.39 Samsung only sold 512,000 Nexus S 4G in the U.S. market between 2011 and 2012,40 of which not all phones were Sprint registered. The refusal of other U.S. MNOs to join Google Wallet is another factor that explains its struggle to reach more consumers.41 Consequently, the number of potential Google Wallet users at launch was too low. Google Wallet was also designed to support Citi MasterCard and a Google Prepaid Card, which could be funded using any payment card.42 This restriction did not impact the market potential negatively as much as the requirement to possess a Nexus phone. Having to top up the prepaid account does not directly prevent users from joining the solution. It just makes Google Wallet inconvenient. Later, Google announced that it has received a Visa PayWave license to enable its users to add their credit, debit, and prepaid accounts to Google Wallet.43 In August 2012, Google Wallet started to support all the major credit and debit

""""""""""""""""""""""""""""""""""""""""""""""""""""""""

35"https://www.nttdocomo.co.jp/english/info/media_center/newsletter/pdf/mobility_doc_34.pdf"" 36"http://googleblog.blogspot.com/2011/05/comingEsoonEmakeEyourEphoneEyourEwallet.html" 37"http://www.techopedia.com/definition/27518/googleEwallet" 38"http://newsroom.sprint.com/newsEreleases/sprintEnextelEreportsEfourthEquarterEandEfullEyearE2011E

results.htm" 39"http://www.onlineeconomy.org/googleEwalletE–EsearchEgiant’sEattemptEtoEcaptureEtheElucrativeE mobileEpaymentEmarket" 40"http://www.droidElife.com/2012/08/10/samsungEandEappleEdeviceEsalesEfiguresEoutedEinEcourt/" 41"http://nfctimes.com/news/googleEintroducesEupdateEwalletEappEcontinuesEsupportEnfcEstoreE payments" 42"http://googleblog.blogspot.com/2011/05/comingEsoonEmakeEyourEphoneEyourEwallet.html" 43"http://www.engadget.com/2011/09/20/polyamorousEgoogleEwalletEaddsEvisaEtoEitsEarsenal/"

22" "

cards (Visa, MasterCard, American Express, and Discover). 44 On the merchant side, the partnership with MasterCard gave access to the PayPass payment terminal infrastructure. In 2011, payments with Google Wallet could be accepted at approximately 300,000 merchant locations.45 Over time, Google has opened its platform to additional mobile phones and thereby increased its market potential. In September 2013, Google removed the NFC requirement to use the new Google Wallet app. Any Android user running Gingerbread and above (version 2.3+) could install the app.46 It is expected that KitKat Android devices (Android vers.4.4) could support Google Wallet as the NFC implementation has changed to “host-card emulation” (HCE).47 Users of the Google Nexus 4 and 5 handsets can already join Google Wallet with any U.S.-based SIM card. Despite Google’s willingness to be open at every level, the current number of mobile phones compatible with the solution and the non-participation of the other major MNOs still jeopardize the market potential of Google Wallet. With the new technical developments of NFC Android devices with KitKat and infrastructure upgrades on the merchant sites, there is hope that the market potential of Google Wallet can increase in the future. "

" DISCUSSION The four propositions have been initially validated with real mobile proximity payment cases that happened in different countries at different times. Our early findings validate the positive or negative influences of openness at the three different levels on market potential (see Table 4). Table 4. Summary of the initial validation Proposition%

Validation%

Observations%

Supported(

In%the%case%of%Softcard,%the%“pure”%alliance%between%U.S.%MNOs%resulted%in%a%co1opetition%and% led%to%a%market%potential%equal%to%the%union%of%the%market%shares%of%the%participating%MNOs.%

P1b% provider(level%

Supported(

The% Rogers1CIBC% alliance% limited% the% market% potential.% Rogers% was% able% to% increase% its% market%potential%by%ending%the%alliance%with%CIBC%and%by%issuing%its%own%credit%cards.%%

P2% technology(level%

Supported(

With% the% introduction% of% NFC% standards% in% South% Korea% and% creation% of% a% standardized% platform% in% Japan% (Osaifu1Keitai),% mobile% payment% solutions% offered% by% MNOs% became% interoperable%and%the%respective%market%potential%for%each%solution%increased.%

P3% user(level%

Supported(

By%opening%its%Google%Wallet%to%all%Nexus%and%future%KitKat%users%(irrespective%of%their%MNO% contract),%Google%was%able%to%increase%its%market%potential.%

P1a% provider(level(

"""""""""""""""""""""""""""""""""""""""""""""""""""""""" 44"http://www.theverge.com/2012/8/1/3213181/googleEwalletEoverhauledEcreditEdebitEcardEsupport" 45"http://mashable.com/category/googleEwallet/" 46"http://mashable.com/2013/09/17/googleEwalletEnfcEupdate/" 47"http://nfctimes.com/news/specialEreportEgoogleEbacksEhostEcardEemulationEvisaEandEmastercardE

couldEholdEkeysEsuccessE0"

23" "

In order to operationalize our findings, we propose a strategic decision model (Figure 7). This decision model can be used for any platform during the pre-ignition stage. It helps in verifying whether a platform satisfies the necessary conditions of ignition. Initially, the providers have to define the degree of openness at the provider level. They need to decide whether to go alone or to form a partnership (based on the design of the platform). In case of the formation of a partnership, firms from the same industry or from different industries can join. The decision results in one of the three strategies: competition, co-opetition, or collaboration. When the market potential is high enough (>= Nmin), ignition becomes possible. While ignition remains not possible, the platform can be further opened at one or more of the three levels. If after several loops the market potential remains low and the platform cannot be opened further, ignition is unlikely to happen."

Number of firms involved? Provider

one

Nature of the alliance?

multiple

Strategy

interindustry

intraindustry

Competition

Co-opetition

Collaboration

Strategy

Strategy

Strategy

low < N min

Market potential? N

high >= Nmin

Allow additional firm(s) to join or leave? Openness - provider level

yes no

Ignition possible

Allow interoperability with additional platform(s)? Openness - technology level

yes no

Allow additional external users to join? Openness - user level

yes

no

No ignition

" Figure 7 A decision model for platform openness"

24" "

Different combinations of openness at the three levels can be employed to achieve the minimum market potential. Assuming that a platform is either closed or open completely (i.e., no different degrees of openness), we draw an outranking graph that indicates the paths that lead to greater market potential (Figure 8). We did not include the paths that might result in an equal or lower market potential. The best combinations are the ones with incoming arrows only. When there is no arrow between two combinations, it means that they are not comparable (i.e., we cannot say which is better). CCO OCO COO CCC

OCC

OOC

COC

OOO

Figure 8 An outranking graph of openness combinations48" Four combinations are not outranked: i) OOO, ii) OCO, iii) COO, and iv) CCO. Having the user level open is always a preferred alternative for maximizing the market potential of a platform. Opening the platform to any user would theoretically result in reaching a market potential of 100%. Reaching a maximum market potential with openness at the other levels is more difficult. At the technology level, the open platform has to interoperate with all the rival platforms available in the market. Moreover to reach the maximum market potential, the interoperable platforms should be able to combine 100% of the market shares. On the provider level, all the actors of a given market have to join their market shares (and represent together 100% of the market). However, such a grand alliance might not be feasible as these actors might compete with each other. The outranking graph can be used to guide the initial decisions to maximize the market potential of a platform. When multiple openness strategies can lead to the desired market potential, platform providers have to carefully make a trade-off between positive and negative consequences of openness for each level (Table 5). Therefore, the level of openness is not a trivial decision as the consequences go beyond the increase or decrease of market

"""""""""""""""""""""""""""""""""""""""""""""""""""""""" 48"The"first"letter"refers"to"openness"at"the"provider"level,"the"second"is"the"technology"level"and"the"third"

is"the"user"level."For"example,"COC"is"closed"at"provider"and"user"levels"and"open"at"the"technology"level."

25" "

potential. Depending on the context, platform providers could choose to lose some market potential to favor positive outcomes of closing or opening at different levels. Table 5. Some positive and negative consequences of openness for each level

Provider%

Technology%

User%

+%%Increase%access%to%resources%and%capabilities%(West,%2003)% +%%Share%cost%(Eisenmann%et.%al.,%2006)% % E%%Decrease%control%over%the%platform%(Boudreau,%2010)% E%%Increase%inter1firm%coordination%issues%(Gawer%and%Cusumano,%2002b%Greenstein,%1996)% E%%Reduce%ability%to%capture%rents%(Parker%&%Van%Alstyne,%2013)% E%%Increase%risk%of%antitrust%issues%(Evans,%2002)% +%%Leech%off%the%benefits%of%other%interoperable%platforms%(Eisenmann%et.%al.%2009)% +%%Share%deployment%of%new%technological%infrastructure%(Boudreau,%2010)% % E%%Give%away%the%platform%benefits%to%competitors%(Eisenmann%et.%al.,%2006)% E%%Reduce%profits%(Boudreau,%2010):%less%multi1homing,%lower%industry%unit%volumes%(Eisenmann%et%al.%2009)% E%%Reduce%incentives%for%investments%in%the%technology%(Shapiro%and%Varian,%1998)% E%%Increase%technical%efforts%(West,%2003)% E%%Decrease%ability%to%differentiate%standalone%properties%(Eisenmann%et%al.%2009)% +%%Increase%co1creation%opportunities%(Boudreau,%2010b%Ceccagnoli%et%al.,%2012)% +%%Foster%innovation%(Boudreau,%2010)% % E%%Reduce%switching%costs%(Parker%&%Van%Alstyne,%2013b%West,%2003)%

In order to secure a high market potential (>Nmin), timing is essential. Platform providers should make decisions and trade-offs about the openness of the platform before the deadline TC (illustrated in Figure 2). When the platform is launched, decision makers need to adopt an appropriate openness strategy which should help them to achieve the minimum market potential. As time passes and the deadline TC approaches, they have to compare the predicted adoption and the actual adoption. If they sense a possibility of missing the deadline, they need to alter their openness strategy to increase their market potential and therefore increase the likelihood of meeting the deadline (since the S-curve shifts left when market potential increases according to Figure 2). The sample of cases selected creates several limitations when validating our propositions. First, we cannot ensure that other cases would not have been more suitable. The data we collected to write the cases came from secondary sources and we were not able to verify the reliability of the data with triangulation. We expect that statements in secondary sources would be true as the companies could request corrections, if needed. We also lacked more detailed data, such as the level of competition, the pricing structure, and the number of substitute products for each case. Another issue was the lack of publicly available statistical data. For example, we could not confirm the market potential for each platform. Moreover, data for both sides of the users (i.e., consumer and merchants) did not allow us to establish the critical mass required to ignite. In order to simplify the theoretical developments, we studied only one user side at a time. As a result, we limit the practical implications, as all user sides are important in order

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to ignite a multi-sided platform. However, our propositions hold for all sides, it is just that we do not take into account the interactions between them simultaneously. Proposition 1(a) emphasizes how important it is to gather firms with large market shares. However, one major issue of this strategy can be related to regulation. For antitrust reasons, this type of alliance might not emerge. Regulatory bodies apprehend the risk that a market will become monopolistic with a cartel of giants ruling it. Yet, these alliances are necessary for payment systems in small countries. For example, mobile payment platforms are only attractive when the volume of transactions is high. Having one single payment system at the national scale could be a solution to avoid a fragmentation of market potential. Our study offers multiple theoretical and practical contributions. From a theoretical perspective, we clarify the relationship between openness and market potential in achieving critical mass. By looking at openness at all three levels of a platform during the pre-ignition stage, our study complements the existing body of literature on platform openness. Previous studies have studied openness at only one or two levels (Boudreau, 2010; Economides and Katsamakas, 2006; Eisenmann et. al., 2009; Hagiu, 2006b; West, 2003). However, as we showed in this paper, a platform can open each of the three levels to varying degrees. The study of the link between openness and market potential is unique to our research. We also provide an initial predictive validation of this link by using multiple cases of mobile payment platforms. From a practical perspective, our study is of paramount importance to practitioners involved in making openness decisions about multi-sided platforms. As claimed in this paper, it is necessary for platforms to have the minimum market potential necessary to ignite and succeed. Using our decision model (Figure 7), in combination with the outranking graph (Figure 8) and the positive and negative consequences of openness (Table 6), practitioners can decide the openness strategies of platforms to maximize the market potential and hence the likelihood of success.

CONCLUSION" Previous literature has shown us the importance of achieving critical mass for ignition in multi-sided markets (Evans, 2009). To enrich prior research on ignition, we build upon this theory to show that any multi-sided platform needs to have a minimum market potential to ignite (Figure 2). Our definition of minimum market potential is a necessary but not sufficient condition, since there are other factors influencing the diffusion of a new platform which are beyond the scope of this paper. As our focus remains at the prior-tolaunch phase, we do not study drivers for the continuous development of the platform (e.g., trust, ease of use). We invite additional research on multi-sided platforms to further investigate factors that influence adoption and usage.

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In our study, we specifically examined the different ways of achieving the required market potential by exploring various degrees of openness at three different levels: provider level, technology level, and user level. Using mobile payment platforms as case studies, we were able to initially validate our propositions and demonstrate their relevance. As a result, our research contributes by providing guidance and tools to tackle the decision-making process about openness when launching complex mobile multi-sided platforms. We also bring a better understanding of how to orchestrate the particular and intricate interactions between the actors and the technology embedded in mobile ecosystems. Overall, our contribution is to offer a more detailed explanation and initial validation of how openness at the different levels of a multi-sided platform can affect the market potential required to increase likelihood of ignition. In future, more attention should be given to the complex and dynamic diffusion mechanisms of multi-sided platforms during the pre-ignition stage. Our propositions can be extended and should be empirically validated with other complex multi-sided platforms in other industries. It is essential to better understand what factors could make technology platforms more likely to succeed as we observe numerous costly failures every year.

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