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SMS Explorer #2

Strategy Research for Practitioners

The Platform Paradox: Why Your Best Partners Might Be the First to Join a Rival

By Johannes Loh (Vrije Universiteit Amsterdam) and Ambre Elsas-Nicolle (LMU Munich/Mines Paris)

Dominant platforms often assume their sheer size creates a “moat” that prevents partners from leaving. However, new research shows that platform growth is a double-edged sword: while it increases user reach, it also intensifies internal competition, driving certain partners straight into the arms of new rivals.

The Practitioner “So What”

Managers must realize that platform entry by a rival doesn’t just splinter the customer base—it reshapes partner psychology. To prevent defection, incumbents must balance the pursuit of collective platform goals with the individual survival needs of their most vulnerable partners.

The Strategic Trade-Off of Platform Dominance

Platform ecosystems rely on “complementors”—autonomous firms that create the products or services that give the platform its value. For decades, scholars have focused on how platform owners can attract these partners through pricing and governance. However, less is known about the strategic agency of the complementors themselves.

Dominance is a “double-edged sword.” A large, unified platform maximizes indirect network effects, giving partners access to the widest possible audience. But that same success attracts a flood of other partners, leading to hyper-competition. When a new rival enters the market, partners face a fundamental tension: do they stay with the incumbent to protect their network benefits, or join the newcomer to escape the crowd?

The Research Context: Steam vs. Epic Games

The study examined the 2018 entry of the Epic Games Store (EGS) into the PC distribution market, which had been dominated by Valve’s Steam. Steam was a behemoth with approximately 90 million monthly active users at the time. EGS entered with a disruptive 12% revenue-share model—significantly lower than the industry standard of 30%.

By analyzing a dataset of over 11,000 games, researchers used a “difference-in-difference” (DiD) framework to track two key strategic choices:

  • Multihoming: The decision to join the entrant while remaining on the incumbent.
  • Sales Participation: The willingness to join platform-wide sales promotions, which serves as a proxy for ecosystem cooperation.

Key Findings

Resource Endowments
Indie Developers seek “The Great Escape.” The study found that partners with weak strategic resources (Indie developers) were nearly 3 percentage points more likely to join the new rival. Because these firms struggle to be found in Steam’s crowded catalog, the “less crowded shelf” of EGS provided a vital opportunity for visibility.
Network Interdependency
Multiplayer Developers are trapped by value. Partners whose products rely on direct user interaction were significantly less likely to join the rival platform. Because network effects in gaming are often platform-specific (Steam users cannot play against EGS users), splintering the user base would directly harm the value of their product.
Ecosystem Orchestration
A Shift in Cooperation. The entry of a rival reshaped how partners responded to Steam’s orchestration attempts. Indie developers became less likely to participate in platform-wide sales, signaling a shift toward their individual interests. Conversely, multiplayer developers became more responsive to orchestration, doubling down on the incumbent to ensure the ecosystem remained unified.

Strategic Implications

For incumbents, the study suggests that network effects are not a perfect barrier to entry. If within-platform competition becomes too intense, partners with fewer resources will actively seek out rivals to gain attention. Managers must provide visibility tools specifically for these smaller partners to reduce their incentive to leave.

For entrants, the research highlights a “divide-and-conquer” opportunity. By targeting partners who feel “suffocated” by the incumbent’s size, a new player can build a viable catalog, even if it initially lacks the most popular, high-resource products.

Managerial Action Plan

  • For Incumbents: Recognize that internal competition is a driver for partner defection. Improve discovery algorithms and visibility tools specifically for resource-poor firms.
  • For Entrants: Target partners who feel marginalized or invisible on dominant platforms to build your initial catalog.
  • For Orchestrators: Adapt your governance style. One-size-fits-all rules fail when competition intensifies. Align incentives with specific partner needs.
Original Article: Loh, J., & Elsas-Nicolle, A. (2026). Platform competition and strategic trade-offs for complementors: Heterogeneous reactions to the entry of a new platform. Strategic Management Journal. Read the full academic paper here.

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