The Initial Stage, Stable Stage And Competitive Strategy Of Platforms

In recent years, with continuously enriching of Internet applications, the new e-commerce transaction platforms, which have the most potential for growth in the field of Internet, naturally began competing with each other fiercely. In May2003, Alibaba Group invested100million yuan to set up Taobao. After it entered the market of C2C, it set off an upsurge of online shopping in the domestic market. It created a miracle after a miracle in the online shopping market, and gradually became Asia’s largest network district of retailing business. In October2011, Tmall of Taobao decided to raise fees for technical services, which triggered a series of events, so that Taobao had become the object of much controversy. I believe that the reason why Taobao was able to successfully enter into C2C market and outperformed its competitors is closely related to its competitive strategies in different periods.Based on bilateral market theory, competition process is divided into different stages according to the characteristics of different competition periods in this paper. Competitive environment platforms are facing each period and different competitive strategies are studied by constructing a theoretical model, and finally specific analysis of actual cases is included. This article firstly analyses the main competition goals of platforms in the bilateral market--the number of users and pricing, which are the key factors affecting platform competition. According to the different competitive environment and competing objectives in different periods, the competition process is divided into two periods—initial stage and stable stage. In the part of theoretical model, in addition to considering the cross-network externalities, which is specific nature of bilateral market, this paper also adds direct network externalities into the model analysis, which can be widely found in many cases and plays an important role in platform competition. This is also an innovation of this paper. In the part of competitive strategies analysis, competitive strategies are described from two aspects—strategies of initial stage and stable stage, and we can find significant differences of competition strategies. Finally the case of Taobao is expounded as a practical application of the previous theoretical analysis.The study finds that the number of users and the pricing is the main goals of platforms in the bilateral market competition. In different period of development, these goals are not equally important to platforms. In the initial phase, the platform vendors are mainly to obtain users’minimum size of network. Platform vendors have to overcome the limitations of the minimum size of network in order to exist in the future and attract more and more users to join to increase trading volume and thus enhance the level of profit. Cross network externalities and direct network externalities plays an important role in increasing the number of users. User strategies are the main strategies for the platform vendors in initial stage. Platform venders should take advantage of the characteristics of network externalities to find the most effective user strategies to attract users to the platform, which can lay user base for future development. When platform venders have developed into stable stage, they must already have a large number of users, and the minimum network size has been realized. Pricing and profitability become the main targets at this time The main objective of platform vendors is to make reasonable price level and price structure to both sides of the users in order to maximize profits on the basis of maintaining the number of users and the network size. Pricing strategies are the main strategies for platform venders in stable stage. We get the conclusion that platforms should make lower price to the side of users with stronger cross network externalities, direct network effects and higher elasticity of user demand. and increase their profits while maintaining user network size by making platforms much more different. The competitive environment in stable stage of platform vendors constantly changes, in addition to the pricing strategies, they need to consider other strategies to deal with new issues arising in the development. With the constant expansion of the users, platform vendors will face "crowding effect" and at the same time they have to compete with the new entrants without "crowding effect". Continued development of the crowding effect will lead to a decline of user number and profit of platform. Platform vendors can reduce the negative impact of the "crowding effect" through making appropriate restrictions on the user scale and making selection of user quality to improve the matching rate between the two sided users and can also reduce platform’s profit loss by continuous innovation to reduce the differences between platforms and the new entrant.