Optimal distinctiveness in platform markets: Leveraging complementors as legitimacy buffers

• Author: Hannes Rothe,Karl Taeuscher
• Date: 01 February 2021
• Published date: 01 February 2021
• DOI: http://doi.org/10.1002/smj.3229

RESEARCH ARTICLE

Optimal distinctiveness in platform markets:

Leveraging complementors as legitimacy

buffers

Karl Taeuscher

1

| Hannes Rothe

2

1

Alliance Manchester Business School, University of Manchester, Manchester, UK

2

Department of Information Systems, Freie Universität Berlin, Berlin, Germany

Correspondence

Karl Taeuscher, Alliance Manchester

Business School, University of

Manchester, Booth Street West,

Manchester M15 6PB, UK.

Email: karl.taeuscher@manchester.ac.uk

Abstract

Research summary: Optimal distinctiveness theory

highlights that firms need to balance opposing pres-

sures for differentiation (to gain competitive benefits)

and conformity (to gain legitimacy). Yet, extant optimal

distinctiveness research rarely considers that the pres-

sure for conformity can substantially vary between

competing firms. Studying the positioning and growth

performance of competing platforms in the market for

Massive Open Online Courses (MOOCs), we find that

platforms' access to high-status complementors—a

common source of legitimacy in platform markets—

substantially shapes the relationship between plat-

forms' distinctiveness and user growth. Our longitudi-

nal models show that platforms only benefit from a

(moderately) distinctive positioning once they have

buffered a certain amount of legitimacy. Our findings

strongly suggest that firms can alleviate conformity

pressures by accessing alternative sources of legitimacy.

Managerial summary: When does differentiation pay

off? We study this question in the increasingly impor-

tant context of platform markets to explain differences

in platforms' user growth. Our longitudinal study of

Received: 5 July 2018 Revised: 11 July 2020 Accepted: 7 August 2020 Published on: 3 September 2020

DOI: 10.1002/smj.3229

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and

reproduction in any medium, provided the original work is properly cited.

© 2020 The Authors. Strategic Management Journal published by John Wiley & Sons Ltd.

Strat Mgmt J. 2021;42:435–461. wileyonlinelibrary.com/journal/smj 435

competition in the market for Massive Open Online

Courses (MOOCs)—in which platforms like Coursera

and Udacity compete for online learners as users—

shows that the performance implications of a distinc-

tive positioning substantially depend on the legitimacy

that a platform has gained from attracting high-status

organizations as complementors. Platforms only benefit

from differentiation once they surpass a certain legiti-

macy threshold, and the legitimacy they gain beyond

this threshold accelerates the benefits of a (moderately)

distinctive positioning.

KEYWORDS

differentiation, institutional theory, legitimacy, platforms, positioning

1|INTRODUCTION

When and to which degree should firms differentiate their strategic positions? Differentiated

positions can create both benefits and liabilities because they reduce competitive pressure

(Porter, 1980, 1985) but can also indicate a lack of conformity and may therefore threaten the

firm's legitimacy (Deephouse, 1999). Optimal distinctiveness theory highlights this tension and

proposes that there exists an “optimal”level of distinctiveness at which firms can balance the

opposing pressures for differentiation and conformity—a proposition that has gained much cur-

rency in strategic management and organization theory (for a review, see Zhao, Fisher,

Lounsbury, & Miller, 2017).

Recent optimal distinctiveness research started to challenge the assumption that there exists

a stable level of optimal distinctiveness (Barlow, Verhaal, & Angus, 2019; Haans, 2019; Zhao,

Ishihara, Jennings, & Lounsbury, 2018). This line of research suggests that the relative benefits

(reduced competition) and liabilities (reduced legitimacy due to insufficient conformity) of dis-

tinctiveness can systematically differ between market categories (Haans, 2019) and may change

over time as a market category becomes more institutionalized and crowded (Zhao et al., 2018).

What is typically less accounted for is that the liabilities of distinctiveness can substantially vary

within a market because conformity only represents only one potential source of legitimacy

(Aldrich & Fiol, 1994). The degree to which a firm can tap into other sources of legitimacy

(i.e., apart from conformity) will therefore determine the firm's pressure for conformity and

should consequently determine the extent to which distinctiveness will reduce legitimacy. This

oversight matters because what constitutes an optimally distinctive position for one firm may

result in poor performance outcomes for other firms in the same market.

We develop our arguments by theorizing about the optimal distinctiveness of positions in

platform markets, that is, product markets in which the focal firms (platform providers) enable

and facilitate transactions of goods and services between external producers (complementors)

and demand-side customers (users) via a technological product. Platform providers can gain

legitimacy by attracting complementors with high organizational status (high-status

436 TAEUSCHER AND ROTHE