Feng Zhu

In the digital economy, scale is no guarantee of continued success. After all, the same factors that help an online platform expand quickly—such as the low cost of adding new customers—work for challengers too. What, then, allows platforms to fight off rivals and grow profits? Their ability to manage five aspects of the networks they’re embedded in: 

• strength of network effects 
• clustering, or fragmentation into many local markets 
• the risk of disintermediation, wherein users bypass a hub and connect directly 
• vulnerability to multi-homing, which happens when users form ties with two or more competing platforms
• network bridging, which allows platforms to leverage users and data from one network in another network 

We investigate the effect of patent wars on firm strategy using data from the global smartphone market. In particular, we analyze how smartphone vendors not involved in patent litigation strategically respond to increased litigation risks in this industry. We find that, as patent wars intensify, smartphone vendors not involved in patent litigation shift their business foci to markets with weak intellectual property (IP) protection. This shift is more pronounced for vendors with smaller stocks of patents and whose home markets have weak IP systems. Interestingly, we find that the patent wars intended to hamper the growth of the Android platform may have merely shifted Android’s sales to weak IP countries. This study provides empirical evidence on how heterogeneity in national patent systems is related to firm strategy and platform competition. Our findings suggest that rivals in global markets may not be deterred by patent enforcement because of institutional arbitrage opportunities.

1. How the design of a platform’s business model is shaped by its network properties. Although all platforms exhibit multi-sidedness because they connect multiple customer groups, their network properties often vary. For example, Uber’s network consists of many local clusters, with riders mostly matched to drivers in the same local market, while Airbnb’s network is more globally connected, with travelers from one market typically matched to hosts in other markets. Some platform networks, such as Homejoy, a marketplace for home services, are more vulnerable to disintermediation—participants transacting off-platform after being matched on a platform—while others, such as Amazon Marketplace, are less so. Professor Zhu investigates how five such network properties (e.g., the degree of network clustering and vulnerability to disintermediation) drive platform performance and provides recommendations on designing a business model to influence these properties to a platform’s advantage.


2. The impact of platform business model design on network participants. A platform’s success hinges on participants’ willingness to participate. Professor Zhu’s research shows that platform policies to incentivize participation by complementors (such as app developers, content contributors, and service providers) often involve tradeoffs and thus require careful consideration. For example, he finds that the exit of contributors with extreme viewpoints on Wikipedia helps it achieve a neutral point of view. It may thus be optimal for a platform firm to design processes to filter participation rather than maximizing it. His research also examines the impact of platform-owner entry into spaces occupied by complementors (e.g., Amazon sells products already sold by third-party sellers and Apple offers iPhone features already provided by third-party app developers). While platform-owner entry often threatens complementors, his research shows that it may create some benefits to consumers or society and that the impact of such entry varies across empirical settings. Overall, this stream of Professor Zhu’s research illustrates how a platform firm can design its business model to influence network participants based on its performance objectives.


3. How business model designs shape platform competition and performance. As an example, a platform, being multisided, can choose whether to generate the most profits from consumers or from complementors. In the e-reader market, Apple generates most of its profits from hardware sales, while Amazon generates most of its profits from e-book sales. Professor Zhu’s research finds that this difference creates incentives for Apple and Amazon to collaborate by making Amazon’s Kindle Reader available on Apple’s iPad, increasing both Apple’s hardware sales and Amazon’s e-book sales. His research in this stream illustrates how platform firms can design business models when interacting with firms with different business models to take advantage of such opportunities and how to address challenges.

Digital Innovation and Transformation is designed to equip students to confidently help conceive, lead and execute digital innovation initiatives and develop new business models for existing and insurgent organizations. The basic premise of the course is that the digital revolution is rapidly transforming the fundamental nature of many companies in a wide range of industries and executives, entrepreneurs and general managers need to understand the economics, technology paradigms and management practices of innovating in digital-centric businesses to ensure corporate and personal success. The course is intended for students pursuing business careers in which digital technologies will be critical to the development of new products and services, e.g., entrepreneurial start-ups, consulting and venture capital, and senior positions in marketing, R&D, and strategy. Visits by case protagonists and industry experts will enable students to understand the career options in this rapidly evolving space.

This course enables students to develop the skills and concepts needed to ensure the ongoing contribution of a firm's operations to its competitive position. It helps them to understand the complex processes underlying the development and manufacture of products as well as the creation and delivery of services.