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2023 ZIBS Forum, on the theme of "Innovating for the Future: The Frontier in Business Excellence", was successfully held on January 13. The forum focused on topics such as data intelligence, environmental science, financial technology, digital innovation, and corporate restructuring. It shared the latest research findings, innovative discoveries, and practical experiences related to cutting-edge business developments, providing insightful perspectives and strategies for the sustainable development of the global business, technology, and education sectors.
Focusing on the question of "How can digital platform companies gain 'legitimacy' in new markets," Dr. Godofredo Ramizo Jr., a postdoctoral researcher at the Nanyang Business School of Nanyang Technological University in Singapore, used Southeast Asian digital platform cases to illustrate how the characteristics of digital platforms enhance legitimacy strategies. His work expands platform strategic theory and provides clear management and policy insights for technology companies to survive in hostile environments. The following is a summary of his speech.
Digital platforms in new markets need to establish their legitimacy, which can be defined as the regulatory and social acceptability of their business operations. Local competitors and other actors will question the right of the new technology firm to exist. Battles over legitimacy happen when several actors try to discredit the new entrant.
Without sufficient legitimacy, technology firms will face isolation, unfavourable regulation, or outright expulsion. Some well-known examples include the troubles faced by TikTok, TikTok Shop, Huawei, Uber, and Airbnb around the world.
To fight for survival, tech companies need strategies to gain and maintain legitimacy. There are digital platform firms that have overcome severe legitimacy challenges when entering new markets. My research looks at how these digital platforms have survived legitimacy battles. I also investigate whether the special characteristics of digital platforms can boost their ability to win legitimacy in new markets.
But what are digital platform firms in the first place? These are firms that own digital technologies that facilitate interactions between groups that need each other. For example, Didi is a digital platform that connects drivers and people who need to travel. HarmonyOS is a digital platform that connects app users, app developers, and advertisers, among others.
Digital platform companies are not like most companies. They have some special characteristics, such as:
Presence of participants – Platform firms cannot exist alone. By definition, buyers and sellers become participants of the platforms, thus forming an ecosystem around the digital platform.
Intermediation – Platforms primarily intermediate between the interdependent groups. They provide the system and space to facilitate interaction between groups that need each other, such as the supply side and the demand side.
Having the potential to trigger positive network effects – This advantage refers to how digital platform participants rapidly multiply as one side (i.e., consumers) increases when they see that the other side (i.e., suppliers) also increases. For example, sellers flock to a market where they can serve more buyers, and in turn, buyers prefer a market with an increasing number of sellers. Positive network effects precisely refer to this mutually reinforcing dynamic that leads to fast growth.
Being asset light – To a large extent, the services being offered on digital platforms are made possible by investments and assets provided by platform participants. For example, the car used in Uber is not owned by Uber but typically by the driver. Thus, digital platforms have relatively few assets.
Legitimation strategies are strategies that organisations employ to obtain legitimacy. Some examples of legitimation strategies include compliance, lobbying, social advocacy, and litigation, among others.
Due to the aforementioned special characteristics that digital platforms have, they are quite different from typical firms. There is not much work yet on the aspects of digital platforms that impact legitimacy strategies.
The only well-known explanation regarding the legitimacy impacts of platform features centers on network effects. According to this argument, network effects boost legitimacy by creating popularity and social ubiquity. But are network effects the only explanation? My research critically challenges this. I examine the rise of ride-hailing platforms in Southeast Asia to surface other sources of advantages available to platform firms that seek legitimacy.
Relevant findings can be summarized as follows:
Ride-hailing platforms in Manila and Jakarta faced opposition from some government units and local competitors, who either wanted ride apps to be banned or placed under rules that would, in effect, erode the market advantage of ride apps.
Many drivers who joined ride-hailing platforms in Manila and Jakarta took the initiative to defend the ride-hailing apps. They staged protests, signed petitions, and lobbied the government to let ride apps continue to operate. These drivers have a stake in the platform’s survival because they made investments (i.e., car loans, opportunity costs, etc.) to serve the platform.
Some big taxi companies lost market share to ride-hailing platforms. These taxi companies saw ride apps as an existential threat and opposed ride apps. But in a surprising twist, the biggest taxi company in Indonesia partnered with ride-hailing platforms and began offering their taxis as cars in the ride apps.
I argue that some characteristics of digital platforms can boost the ability of digital platforms to achieve legitimacy. These are the following:
The digital platform model delegated the obligation of acquiring assets unto the complementors. When the digital platform is under threat, complementors advocate for the platform’s interests, because otherwise they will not gain returns on their investment if the platform collapses. Thus, the complementors fight to support the platform’s legitimacy, like proxy fighters for the platform. With more social voices corroborating and supporting the digital platform’s stance, the digital platform gains more legitimacy.
The digital platform has the privileged position of being the coordinator of a multi-sided market and having the capability to perform this role through technology. Platforms can entice even powerful rivals by dangling access to a consumer base and can use technology to speedily integrate the rival. Co-opting rivals means reducing opposition and gaining reflected legitimacy. Thus, technological intermediation boosts strategies that aim to co-opt opponents.
Technology firms whose technology products exhibit investment delegation or technological intermediation have an enhanced ability to execute legitimation strategies. Beyond the well-known digital platforms of today, future forms of digital currencies, AI solutions, and tech products that exhibit platform-like characteristics such as investment delegation and technological intermediation can take advantage of these when their legitimacy is under siege.
Management literature has so far ignored how the characteristics of digital platforms affect their legitimacy strategies. I contribute to this critical gap by explaining how two platform characteristics, investment delegation and technological intermediation boost the ability of digital platforms to achieve legitimacy. Practitioners and policymakers also benefit from knowing how these strategic advantages can be utilised. I hope this work will be useful to researchers, policymakers, and practitioners trying to understand how legitimacy battles are waged and won.
*This article is based on the speech made by Godofredo Ramizo Jr. at ZIBS 2023 Forum. The views and opinions expressed in this article are those of the speaker and do not necessarily reflect the views or positions of ZIBS.
Godofredo Ramizo Jr.
Presidential Postdoctoral Fellow
Dr. Godo Ramizo Jr. has a PhD on digital technologies from the University of Oxford. He is a scholar of the digital economy, AI and algorithmic systems, and a practitioner in the tech industry. He is currently a Nanyang Presidential Fellow, the most prestigious research fellowship in Nanyang Technological University (NTU). He is the Principal Investigator of a grant worth SGD 200,000 (RMB 1.1 million), which he uses to lead international research projects on AI transformation in organisations, and user behaviour on AI systems. He has published in international journals and has presented at top conferences on digital technologies. He has been a resource speaker on the implications of digital technologies and AI for businesses at top universities and influential industry events for business executives. He has worked in Oxford research groups on the platform economy, AI, and smart cities. He also has rich industry experience. He has worked at Meta (formerly Facebook), one of the most influential technology companies in the world. At Meta’s European headquarters in London, he helped develop several innovative technology products, including machine-learning products, for Fortune500 companies. He also has experience in investment banking and as a university lecturer.
