Nokia lost the competition for smartphones because it couldn’t lead in platform-based production

According to a doctoral thesis being examined at Lappeenranta University of Technology (LUT), maintaining economic performance and competitiveness in the platform-based market is challenging because success depends on the platform holder's ability to coordinate third party actors, such as software developers.

In the platform-based market, decisions made by various actors in terms of, for example, the pricing and quality of the platform and third party products, have complex interdependencies. The dynamics of such systems should not be modelled analytically as it would require making strong assumptions about the behaviour of the various actors. One of the most relevant assumptions mentioned in the literature is, for example, that the market parties would have the ability to anticipate the strategic effects of decisions made by other parties. As such assumptions are overruled, the inevitable conclusion is that modelling the operations of the platform-based market would require using simulation methods, as was done in this dissertation.

"Atari is a good example of the complex relationship between platforms and third party development. Atari gave game developers free hands, hoping that they would develop more games for the Atari platform. This did happen, but, at the same time, competition between game developers exploded and the quality of games suffered to such a degree that consumers abandoned the platform. As a result, the sales of Atari and also the entire video game console market in the United States crashed in the middle of the 80s," explains Pontus Huotari, the author of the study.

Current game console producers, such as Sony (PlayStation) and Microsoft (Xbox), or other platform companies, such as Apple (iOS), therefore use different methods to coordinate their production, such as producing their own content in addition to third party content and by regulating the production.

According to Huotari, the results of the study help explain why internationally successful platforms are not created in Finland. Nokia is a good example of this, Huotari says. 

Nokia is a platform company that tried to increase its third party application offering aggressively in cooperation with Microsoft. This strategy, however, led to the company not focusing on application quality management. A platform that already has a dominant market position in terms of user and application volumes (Android) therefore keeps its competitive edge. At the same time, Apple, however, makes more profit with its iOS devices and platform than all the other Android smartphone manufacturers combined, even though Android has more users and applications than iOS.

"The success of Apple's iOS is a result of effective quality assurance of third party applications because quality-oriented consumers are loyal to Apple. Nokia and Microsoft were too much focused on increasing the number of applications, which happened at the cost of the quality of apps," Huotari explains.

Pontus Huotari, M. Sc. (Eng.), will defend his dissertation in the field of Industrial Engineering and Management, "Strategic interaction in platform-based markets: An agent-based simulation approach" when it is examined in the auditorium of LUT on 14 August 2017 at 12 noon. The opponent is Assistant Professor Carmelo Cennamo, University of Bocconi, Italy. Professor Paavo Ritala from Lappeenranta University of Technology will act as custos.

The dissertation has been published in the Acta Universitatis Lappeenrantaensis series, number 754. ISBN 978-952-335-103-5 and ISSN 1456-4491. The dissertation is available from the LUTPub database at the address http://urn.fi/URN:ISBN:978-952-335-104-2. A printed version of the dissertation can be purchased from the Aalef bookshop, tel. +358 44 744 5511 or kirjakauppa(at)aalef.fi, and the online LUT Shop at https://lutshop.lut.fi.

Doctoral candidate:

Name: Pontus Huotari

Date and place of birth: 1989, Lappeenranta

Domicile: Lappeenranta

Education: Master of Science, Industrial Engineering and Management, LUT, 2009–2013

Employment: Junior Researcher, Lappeenranta University of Technology, 2013–

Further information:

Pontus Huotari, pontus.huotari@lut.fi, +358 50 3868622