When Should Incumbent Consumer Goods Producers Ally with Digital Platforms?

Abstract

Physical goods producers routinely collaborate with digital platforms to extend their distribution capabilities. They usually realize that digital platform firms differ from them in their strategies and capabilities, and that significant opportunities arise from innovating digital platforms being able to collect, analyze, and leverage behavioral customer data related to the consumption experience. However, collaborating with digital platforms is likely to put competitive pressure on the incumbent’s margins, and, in extremis, encourage entry by the platform into the incumbent’s business. These threats can be moderated by limiting access to the incumbent’s technology and supply chain, or by building an in-house digital platform.