Building the Value of Next-generation Platforms: The Paradox of Diminishing Returns

Carmelo Cennamo*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


Next-generation technology provides users with new, advanced functionality that often renders the past technology obsolete, opening a window of opportunity for challengers. Major benefits can accrue to technology leaders, but for platform technologies that require complementary innovation from external complementors to create value for users, those benefits are limited by the difficulty of securing complements. The focus of this article is on the value users derive from the variety and quality of platform complements and its impact on leaders’ performance over time relative to followers. The article shows that next-generation platform leaders that build in-house complements and encourage broader participation by external complementors can enhance platform value to users at early market stages. Yet, later on, when the market has taken off, continuing to leverage these strategies will negatively affect the variety and quality of their complements, constraining their growth capacity and performance relative to followers. Leaders may thus lock themselves into suboptimal performance patterns and eventually fall behind their followers. The analysis provided herein offers new insights about what drives platform competition by highlighting the challenges platform leaders face, particularly in the growth stage of a platform’s market evolution, and the critical role played by complement quality in shaping platform competition over time.
Original languageEnglish
JournalJournal of Management
Issue number8
Pages (from-to)3038-3069
Number of pages32
Publication statusPublished - 1 Nov 2018
Externally publishedYes


  • Next-generation technology
  • Platform
  • Platform competition
  • Platform value
  • Complement variety
  • Complement quality
  • Complementors

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