Factors driving platform's vertical integration – merging firm, industry and platform design perspectives
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School of Business | Master's thesis
Information and Service Management (ISM)
AbstractVertical integration is a fundamental strategic option for firm growth. Modern platforms have utilized this strategy to gain competitive advantage over their non-integrated rivals, however, key theories of vertical integration, dating back over three decades, have remained untested in this new digital context. For today’s businesses, understanding what factors need to be considered in platform’s vertical integration decision can reveal new avenues for growth and more robust defensive strategies against vertically expanding rivals. In order to solve this problem, this thesis approached vertical integration from three analytical perspectives: firm, platform design and industry. A longitudinal multiple case study was conducted within the U.S. agtech industry, tracing vertical expansion of two startup and two incumbent platform sponsors over a six years' time period between 2014 – 2019. This novel research setting was favorable due to rich occurrence of vertical integration, heterogeneity of actors and availability of online documentation. This thesis gathers new evidence, suggesting that all three aforementioned perspectives are interdependent, and therefore, vital for explaining platform’s vertical integration. The findings indicate that platform's vertical integration is (1) directly related to firm's capabilities and market power, (2) indirectly influenced by platform design, which co-evolves between firm-specific and industry factors, (3) guided by initial differences in platform's capabilities and market power, and resulting choice of platform type and (4) altered by B2B industry context, moderating the relationship between industry structure and platform design choices. These findings contribute to both platform and strategic management literature. The most important factors recognized in strategic management literature are shown to be applicable in platform context, and vice versa, factors recognized in platform design literature are shown to affect firm’s vertical integration decision.
Thesis advisorTuunainen, Virpi
platform, vertical integration, value chain, capabilities, market power, bundling, modularity, network effects, USA