Platform envelopment refers to one platform provider moving into another one's market, combining its own functionality with the target's, to form a multi-platform bundle. The markets which evolve rapidly are rich in enveloping opportunities and the companies in these markets are under the continuous threat of becoming obsolete.
Eisenmann and his colleagues describe a variety of envelopment attacks based on the relationship between the attacker's platform and its target's, and then discuss the economic and strategic motivations for each attack type. Key concepts include: Envelopment is a powerful force shaping platform evolution.
Envelopment is the military tactic of seizing objectives in the enemy's rear with the goal of destroying specific enemy forces and denying them the ability to withdraw.
A stand-alone business when threatened with an envelopment attack has few options but to change the business model or sell off the business to the attacker. RealPlayer was a dominant player in the streaming video business and had created a two sided market out of which the consumers were the subsidized side.
Envelopment is a management strategy where a dominant firm acquires all the layers in its value chain to increase profitability.
Many firms attempt to enhance their network effects by creating a platform for the development of third-party products and services that enhance the primary offering.
game developers favoring PS2 for its larger user base obtained because the PS2 was launched months before the Xbox.
leveraging a firm's customers to promote a product or service.
Almost all networks derive most of their value from a single class of users.
Firms that constantly innovate do so to develop open standards for competitors to become compatible.
Envelopment is a management strategy where a dominant firm acquires all the layers in its value chain to increase profitability.
The natural state of a market where network effects are present is for there to be intense competition between several rivals that come to an equalibrium where their respective market shares are roughly identical.
Almost all networks derive most of their value from a single class of users.
market dominance in the global marketplace translates to an equivalent position in national markets.
Envelopment is the military tactic of seizing objectives in the enemy's rear with the goal of destroying specific enemy forces and denying them the ability to withdraw. Rather than attacking an enemy head-on as in a frontal assault an envelopment seeks to exploit the enemy's flanks, attacking them from multiple directions and avoiding where their defenses are strongest. A successful envelopment lessens the number of casualties suffered by the attacker while inducing a psychological shock on the defender and improving the chances to destroy them. An envelopment will consist of one or more enveloping forces, which attacks the enemy's flank (s), and a fixing force, which attacks the enemy's front and "fixes" them in place so that they cannot withdraw or shift their focus on the enveloping forces. While a successful tactic, there are risks involved with performing an envelopment. The enveloping force can become overextended and cut off from friendly forces by an enemy counterattack, or the enemy can counterattack against the fixing force.
A vertical envelopment is "a tactical maneuver in which troops, either air-dropped or air-landed, attack the rear and flanks of a force, in effect cutting off or encircling the force". The goal of cabbage tactics to create a layered envelopment of the target.
Envelopment. Envelopment is the military tactic of seizing objectives in the enemy's rear with the goal of destroying specific enemy forces and denying them the ability to withdraw.
A flanking maneuver or single envelopment consists of one enveloping force on a flank. attacking one of the enemy's flanks. This is extremely effective if the holding forces are in a well defensible spot (e.g. Alexander the Great's hammer and anvil at the Battle of Issus) or if there is a strong, hidden line behind a weak flank (e.g. Battle of Breitenfeld (1631) and Battle of Rocroi ).
Platform envelopment refers to one platform provider moving into another one's market, combining its own functionality with the target's, to form a multi-platform bundle. The markets which evolve rapidly are rich in enveloping opportunities and the companies in these markets are under the continuous threat of becoming obsolete. Mobile phones used to be a separate market but the boundaries between them and music players are beginning to blur. A stand-alone business when threatened with an envelopment attack has few options but to change the business model or sell off the business to the attacker. RealPlayer was a dominant player in the streaming video business and had created a two sided market out of which the consumers were the subsidized side. The content providers were the money side which paid Real for their streaming software. Microsoft launched an envelopment attack on Real by providing the streaming server software clubbed with their Windows NT operating system. The content providers saw no point in continuing using Real and moved to windows platform threatening the existence of Real. Windows could afford to do so since the provision of such a service boosted their sales of the OS and the mass adoption of the Windows Media Player on the consumer side which was the only compatible player with the windows streaming platform.
The relationship between the two networks is the basis on how the attack is launched.
Price a person is willing to pay for a bundle consisting of two perfect substitutes will be the one which he uses either of them and hence there would be no value for a firm to envelope a platform which acts as a perfect substitute for its own offering. However, there is a value to be created when we have in question a set of weak substitutes.
The platforms previously meant for a different usage begin to converge as the common set of users begin to rise. Such is the case with mobile phones and video game devices which were used for distinct purposes but the digital platforms available today have converged all such usages into one.
This paper explores a path to platform leadership change that does not rely on breakthrough innovation or Schumpeterian creative destruction: a phenomenon the authors call "platform envelopment." In practical terms, envelopment entails one platform provider adding another platform's functionality to its own, and then offering a multiplatform bundle. Eisenmann and his colleagues describe a variety of envelopment attacks based on the relationship between the attacker's platform and its target's, and then discuss the economic and strategic motivations for each attack type. Key concepts include:
Well-established incumbents that otherwise are sheltered from entry by standalone rivals, due to strong network effects and high switching costs, may be vulnerable to envelopment.
Having common userbase helps the attacker in multiple ways. The attacker can hit the ground running, as it can easily solve the challenge of platform ignition – onboarding the critical mass of users faster and easier. Recall that number of users drives value of a platform to its users due to network effects.
The attacker can integrate its offerings and operations across the two markets which will result in substantial advantage in the target market through superior value proposition to users and higher profitability through better efficiencies.
Tactical bundling is often resorted to by the attacker when there is limited overlap of userbase and low potential for integration in offerings or operations across the core and target markets. The attacker’s unit economics post-envelopment won’t show a significant advantage.
The attacker may enjoy high commonality of userbase but with limited ability to integrate offerings or operations. Here, the attacker is likely to press its better ability to access users to drive up adoption of its offering, resulting in the targeted MSP losing users.
This scenario is the flip side of earlier one. Here, the attacker is able to achieve considerably high levels of integration in offerings or operations resulting in superior value proposition and unit economics and lower price. But it has to work its way up the spiral of user adoption as user commonality would be low.
With full integration and high commonality, the attacker brings vastly superior offering at significantly better unit economics, posing a serious threat to the targeted MSP.