| Abstract: | Many emerging entrepreneurial applications and services connect two or more groups of users over Internet‐based information technologies. Commercial success of such technology products requires astute business practices related to product line design, price discrimination, and launch timing. We examine these issues for a platform firm that serves two markets—labeled as user and developer markets—such that the size of each market positively impacts participation in the other. In addition, our model allows for sequential unfolding of consumer and developer participation, and for uncertainty regarding developer participation. We demonstrate that product versioning is an especially attractive strategy for platform firms, that is, the trade‐off between market size and margins is tilted in the direction of more versions. However, when expanding the product line carries substantial fixed costs (e.g., marketing cost, cost of additional plant, increased distribution cost), then the uncertainty in developer participation adversely impacts the firm's ability to offer multiple versions. We show that for established firms with lower uncertainty about developer participation, the choice is essentially between an expanded or minimal product line. Startups and firms that are entering a new product category are more likely to benefit from a “wait and see” deferred expansion strategy. |
