Bottlenecks on the Internet and Platform Competition
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Transcript of Bottlenecks on the Internet and Platform Competition
Bottlenecks on the Internet and Platform Competition
Susan Athey, Stanford University and Microsoft ResearchDisclosure: The author consults for Microsoft.
Questions How do data and information affect platform
competition and create competitive “bottlenecks”? What is the role of economies of scale and network
effects?
Does platform competition among firms, each of which has a substantial market share in some products, eliminate the importance of bottlenecks?
What are the motivations for vertical integration in platform competition?
How do the big internet device, search and online advertising platforms affect internet publishing, innovation, and the markets for online services?
Device Platforms Multi-sided markets
Referrals and bottlenecks
Vertical integration
Platform Competition and Innovation
Online Services & Content
Device
OS
Apps
SearchBrowser
Search
Antitrust and the Browser Wars, Revisted
Mobile Platforms
Online Services & Content
Device
OS
AppsBrowser
Search
Search
Google Services, Cloud, App Store
Apps
Device
OS
Browser
Search
Search
iTunes; iCloud; App Store
Apps
Device
OS
Browser
Search
Search
Retail/Content/App Stores;
Cloud storage
Case Study: Internet Search Multi-sided markets Economies of scale and data Referrals on the internet and bottlenecks
Search: Multi-sided markets, economies of scale and competition
More innovation,better user experience
More innovation,
more investment, more users
More traffic and revenue for ecosystem partners
More advertisers
More relevant
ads, higher
revenue per search
More relevant algorithmic results
More data
More syndication
partnersMore data,
better publisher-
side algorithms
10
Advertisers
Publishers
Partners and
Websites
Search users
Worldwide
+
90.5%
8%
Other1.5%
Search is Concentrated
*March 2011 comScore figures (includes search partners) 11
United States
70.4%
29.6%
+
* March 2011 Statcounter global statistics (includes search partners)
Query Volume Share
Paid Search is Concentrated (U.S.)
12
U.S. Paid Search Share
Google Yahoo!
Microsoft
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US
Paid
Sea
rch
Reve
nue
Sha
re
Google Yahoo! Microsoft Other (Overture) Other (Overture)
Device UI: PC,
Mobile, Tablet,
Gaming, TVBrowserOnline
Content
Cloud Services
Users Advertisers
Travel
Bottlenecks, Referrals, and Vertical Integration
Manipulation and Innovation Defensive Strategies
for Dominant Firm Vertical integration Make your own service
the winner through prominence
Strategies for Competing Firm Partner with others Always choose the
best partner to improve your user experience
Innovate in verticals Impact on Industry
Incentives for entrepreneurship and innovation