eThesis - School of Business electronic theses

This study adds to the criticism of conventional 'get-big-fast' strategies in two-sided markets: While assessing the strength of winner-take-all dynamics is a conventional way of analyzing market opportunities and potential outcomes in multi-sided markets, special attention should be paid to the scope in which these effects apply. Definition of this scope has implications on choosing applicable strategy in a given market, which might not always be the one where growth is pursued aggressively through user acquisition.

The thesis is conducted as an explorative single-case study, and it scrutinizes an online platform operated by a Finnish startup. The platform sells standby slots for hairdressers, compiling an online market for offline services where the demand side constitutes of consumers and the supply side the hairdressing entrepreneurs. In order to increase its valuation, the operator company has to choose between vertical integration in the hairdressing market and horizontal expansion to other beauty industries or other service markets; research on competitive strategies suggests that any combination of these two is a less attractive option. The primary objective is to find out if the case company should pursue vertical integration or horizontal expansions in order to gain most competitive advantage. The secondary objective is to find out if a combination of network economics and Resource-Based View is a meaningful way of assessing competitive advantage in two-sided markets to support strategic decision-making.

The theoretical framework is built by combining platform theory with Resource-Based View. Whereas platform economics literature deriving from economics, information systems, marketing, and network theory has been widely scrutinized of late resulting conventional wisdom on competitive strategy, RBV is applied as a novel approach to the topic. The exploratory model calls re-evaluation of resources in traditional RBV literature. The research model includes seven drivers of competitive advantage: multi-homing tendency, interest in special features, network effects, loyalty and lock-in, user in-imitability, user rarity, and user non-substitutability. The first four drivers constitute a user value driver that complements the VRIN definition of resource value according to RBV. User rarity and user non-substitutability are left out of scope due to the characteristics of the case environment; 15 interviews with hairdressers and platform operator representatives are analyzed to assess the respective effects of the other five drivers.

In terms of theoretical contributions, the study discusses the applicability of the developed research model in the case context. From the practical perspective, the findings indicate that the analysis of user resource value drivers suggests prioritization of horizontal expansion over pursuing vertical integration. Secondly, the results raise a concern over the scalability of the business model due to lack of cross-market network effects in the beauty industry, which undermines the attractiveness of horizontal expansion.

The most important limitation of the study is its limited scope, as the consumer side was left unexplored. Further research should be conducted with the defined research model in order to validate its universal applicability.