Platform business Eco-model evolution: case study on KakaoTalk in Korea
© Han and Cho. 2015
Received: 1 June 2015
Accepted: 31 July 2015
Published: 8 September 2015
Platform business is often regarded as notable examples of successful businesses model in the mobile industry. The purpose of this study is to find the determinants of successful platform business, through the case study of KakaoTalk, a representative fast growing social platform in Korea. This study also discusses how to create a value proposition and how organizations using the platform can cooperate.
The case analysis indicates that a preparation, spread, evolution (PSE) curve is a successful platform business evolution. The PSE curve is composed of three phases: a preparation phase that establishes the platform and sets the target group, a spread phase where the firm provides killer content, such as KakaoGame, a low pricing strategy, and reinforcement of the platform rules in the early stages of the platform; and an evolution phase where the platform continues to evolve. This study proposes a platform evolution pattern that involves the PSE curve in order to form successful platform. This study contributes to the innovation for social platform businesses.
KeywordsKakaoTalk Business model Business model innovation Platform Korea
Over the last ten years, unprecedented growth in social network services (e.g., Facebook) has greatly increased the use of platform business models. In addition, the increase in smartphone penetration has led to a battle among platforms. The mobile revolution was triggered by the introduction of Apple’s iPhone, and since then, the business environment around such platforms has brought about increased competition. The emergence of new information and communication technologies (ICT) and of the Internet have opened new opportunities to design open market business models by enabling companies to fundamentally change how they organize and engage in economic exchanges both within and across companies as well as through industry boundaries (Zott and Amit, 2007). In Korea, the mobile Internet environment has flourished in the last ten years, and as a result, social platform enterprises and app stores are growing rapidly. KakaoTalk is the provider of a mobile messaging application and mobile social platform in Korea. Since KakaoTalk, launched in 2010 as Mobile Instant messenger (MIM), it has strongest position in the mobile industry, expanding its service beyond messaging to a social platform encompassing games, digital contents, marketing e-commerce and more. It has become key stone for the mobile industry growth in Korea by providing mobile platform ecosystem. KakaoTalk was chosen the No 1 free Short Messaging Service (SMS) App by CNET, an American media website that publishes reviews, news, articles, blogs, podcasts and videos on technology and consumer electronics globally in 2011. KakaoTalk, leading in the mobile industry, and became an inseparable part of the lives of Korean users. Most smartphones users, regardless of gender and age, use KakaoTalk.
We pose research questions on how KakaoTalk could achieve huge success in Korea unlike other social platform enterprises. Based on research back ground, the purpose of this paper is to find determinants of KaKaoTalk’s huge success, and describe the platform business model. By analyzing KaKaoTalk’s business model, we find that PSE (Preparation, Spread, Evolution) curve, composed of three phases: the preparation phase that establishes the platform to set the target group; the spread phases where killer content is provided in the early stages of the platform, such as KakaoGame, a low pricing strategy, and reinforcement of the platform rules; and the evolution phase where the platform continues to evolve. KakaoTalk has vitalized the mobile game industry by collaborating with game developers to provide Kakao Game, while launching Plus Friend, a powerful mobile marketing channel for enterprises and content providers. In addition, KakaoTalk’s Gift Shop, which allows users to send gifts like Starbucks coffee or fine jewelry to their KakaoTalk friends, has created a new window of opportunity in the mobile commerce market.
This paper is organized as follows. Section 2 presents the research methodology as well as reviews of the literature on business model. Section 3 describes the specific case involving KakaoTalk’s platform business, and the findings are used suggest the determinants for success in order to derive the platform business as an ecosystem model. In the final section, we shed light on the evolution of platform business model in mobile industry.
Literature review and research methodology
KakaoTalk providers a free software application for mobile devices that allows customers to send and receive messages and voice calls for free. Users can not only send texts, photos, videos, and contact information, but can also enjoy voice calls, all on a one-to-one basis or in groups. Before the finding of what KaKaoTalk’s business model is, we review the business model.
Recently, some scholars have devoted a growing amount of attention to business model innovation (Teece, 2010; Najmaei, 2013). A business model articulates the logic and provides data and other evidence that demonstrates how a business creates and delivers value to customers (Teece, 2010). In short, a business model could be defined as the manner in which an enterprise creates and delivers value to customers, and then converts the payments that are received into profit (Björkdahl, 2009; Chesbrough, 2007; Zott and Amit 2010; Zott et al., 2011). No consensus exists yet regarding the definition, structure, and evolution of a business model. The manner in which firms create and capture value is a popular research topic. Each firm has its own business model, but no generally-accepted definition of the term ‘business model’ has yet emerged. Prior studies regarding business models fail to reach a consensus to define their components. The interest in business models is relatively recent, and Boudreau (2010) noted that early work to identify business models focused on capturing the revenue stream of web-based firms. No matter the sector, there are criteria that enable one to determine whether or not one has designed a good business model. Business models yield value propositions that are compelling to customers, achieve advantages in terms of the cost risk structures, and enable significant value to be captured by the business.
At the most rudimentary level, business models are defined in terms of a firm’s economic model (Morris et al., 2005). The business model concerns the logic of how profit is generated by the firm. Steward and Zhao (2000) assert that the business model is a statement of how a firm will both make money and sustain its profit stream over time. Furthermore, the business model can be defined as an architectural configuration of the firm’s survival. Slywotsky (1996) noted that a business model consists of the totality of how a company selects its customers, defines and differentiates its offerings, defines the task it will perform itself and those it will outsource, configures its resources, goes to market, creates utility for customers, and captures profits. A business model is related to a number of other managerial concepts, and it captures the key components of a business plan. The business model components consist of price, product, distribution, organizational characteristics, and market strategy (Horowitz, 1996; Timmers, 1998; Dubosson-Torbay et al., 2001; Hamel, 2001). What do we know about a business model? Prior studies are referenced in this study to define the business model of a company as a simplified representation of its business logic. Namely, a novel business model is crucial to maximize profits. It is called multi side platform business model like KaKaoTalk. Multi-side platform is widely known for customers, and plays a role to link or broke between the interdependent groups, based on web and smartphones. AirBnB is the firm, operating to link between groups that want to find houses and groups that want to lend a house. Thus, the both supply side and demand side is the key composing the market. Amazon, Facebook, E-bay, twitter, Google and apple is the successful firms by using the multi-side Platform business model.
Conceptualization of platform
The role of a platform is to mediate between various stakeholder constituencies by coordinating interactions between two or more members from distinct groups of stakeholders (Evans, 2003; Rochet and Tirole, 2003; Jullien, 2005; Cortade, 2006).
Jacobides et al. (2006) emphasized that a platform creates value and is an important structure of the industry architecture in the ICT sector. Also, a platform in the ICT sector can be referred to as a hardware configuration, an operating system, a software framework or any other common entity shared by users (Ballon et al., 2008; Bresnahan, 1999). Gawer and Henderson (2007) state that we can conceptualize a platform as a technological system where a product or service is one component that is functionally interdependent with other components. Thus, a platform provides a number of benefits to its users. As a result, user demand is for the overall system, and hence, there is no demand for individual components when they are isolated from the overall system (Gawer and Henderson, 2007).
A platform-mediated network is a composite set of users whose transactions are subject to direct and/or indirect network effects, along with one or more intermediaries that facilitate users’ transactions (Rochet and Tirole, 2003; Evans and Schmalensee, 2007). From the literature, we can induce that a platform is the set of components and rules that are commonly employed when users conduct transactions. Such components include hardware, software, and service modules, along with an architecture that specifies how they fit together.
In such a market, the value obtained by one customer group increases as the number of users from the other customer group increases (Evans, 2003). This phenomenon is described as a network externality, for which consumption by one side of the market does not depend on the same group, but on the opposite side of the market (Roson, 2005). A buyer takes into account the number of potential sellers on the platform when making a purchase. Evans (2003) pointed out that an intermediary is necessary to internalize the externalities created by one group for the other group. In economics, this kind of behavior between two markets is regarded as an indirect network effect of two-sided markets.
A successful platform coordinates the interaction between individuals belonging to various stakeholder groups, and it is also able to internalize the externalities created by one group for the other group. A platform business model, thus, needs to get various stakeholder groups on board and needs to balance the interests of these groups by focusing on balancing the openness and lock-in of customers rather than on profit maximization in a single market (Cortade, 2006; Ballon et al., 2008). Technology platforms are two-sided or multi-sided markets that bring together various types of participants (Rochet and Tirole, 2003). Unless a business serves two or more distinct types of customers who depend on each other in some form, it is not platform. When various types of customers interact with each other, then it is called a platform. Prior to reviewing platforms in greater detail, we can conceptualize the function of a platform as follows: a platform is ‘open’ to the extent that no restrictions are placed on participation during its development and/or utilization.
The transactions between the demand-side users and the supply-side users, which are likely a result of the network effect, are facilitated by the intermediary’s role in providing the platform and recruiting platform sponsors.
The goal of this study is to find successful the social platforms by analyzing KakaoTalk as a representative example as well as to propose the evolution of the platform business model. KakaoTalk has created the dominant platform business market in Korea, and it has tremendous influence on entrepreneurs within the app ecosystem. Fieldwork and field interviews were carried out to obtain raw data. When the targets were selected for the intensive interviews, a purposive sampling question was adopted in order to identify interviewees, including their individual characteristics. This method is particularly effective and appropriate for this type of qualitative research (Punch 1998). Before contacting the individuals in person, it was necessary to scrutinize the details of data released by secondary sources, such as turnover, brief history, and CEO’s creed and former achievements. In particular, the information released by newspaper was thoroughly examined before having an interview and academic journals and periodicals were also analyzed.
Due to firm policy, which has a strong emphasis on internal security, it takes time to meet experts related to business model development, including the CIO of KakaoTalk, by proving that the purpose for such contact involves academic research aims. In order to effectively implement the case analysis, the data was collected from KakaoTalk’s intranet information, various data released in newspapers, in-person interviews with developers, and several in-depth discussions with relevant parties. To further improve the quality of the research quality, interviews with App developers and KakaoTalk users were also carried out over a period of 5 months. To gain further insight into the academic process for formulating and analyzing business models, the author used a standard interview format with the CIOs or founders of such companies. Most of the interviews were recorded with the consent of the interviewees, including those interviews conducted over the phone.
As social platform provider, KaKaoTalk offers a wide range of content and services including business marketing, commerce, games, digital content, fashion and music. KaKaoTalk has more than 150 million registered users including the across the world. Messages are delivered in 15 languages, on Android iOS, BlackBerry, Windows Phone, and NoKia Asha. Since 2010, KaKaoTalk, offering a mobile social platform has rapidly grown. When considering the increase ratio of users, KakaoTalk’ users reached 10 million users only over 1 year 2011, 42 million in 2012 years, and more than 150million users after 3 years. Kakao Inc., which provides the KakaoTalk service, launched several internet-based services. At the initial stage, Kakao’s CEO, Kim BumSoo launched ‘buro.com’ and ‘wisia.com’ with the goal of achieving user-oriented evolution, but both of these services failed to get the attention of users. After Kakao had captured customers using its free messenger service, the users were then absorbed into ‘Kakao Game.’ Next, the company created platform value by linking game operators and developers. This strategy was effective, and it greatly affected the domestic mobile game market, for which the market size increased from 20 billion to 800 billion won as a result of Kakao Game. Since then, Kakao has continued to expand its platform by providing a mobile shopping mall called Kakao Style and has also provided further social SNS features through Kakao Story. Most of Kakao’s profits are in the form of brokerage fees and ad sales in game-related businesses. Google and Apple receive a 30 % commission of the total game sales, and Kakao gets 30 % of the remaining 70 % commission. A considerable number of Kakao games offer in-app purchases, which means that they make profits by selling useful items in the process of playing the game, while the games are offered for free. Kakao matches a broker’s fees for game items and gifts to sales. This is the typical platform business strategy: the more games that become popular on the Kakao game platform, the more Kakao’s profits rise. Kakao’s revenue reached 46.2 billion in 2012, with total sales of 1 trillion won. KakaoTalk can take the lead the mobile game industry by collaborating with game developers to provide Kakao Game, while launching Plus Friend, a mobile marketing channel for firms and content providers. In addition, KakaoTalk’s Gift Shop, which allows users to send gifts like Starbucks coffee or fine jewelry to their KakaoTalk friends has a play role to create a new social commerce market. The Item Store market, which sells emoticons, is also important success ingredients, representative win-win business model that has contributed to the revival of the digital content market, as profits are shared fairly with the content creators. In additions, KakaoTalk brings about new paradigms to the mobile contents market via KakaoPage, a new form of mobile digital contents platform, while KakaoMusic has established a distinctive social music service where users can share their favorite music with friends. Kakao also already have a positioning as a global mobile platform, Kakao continues to secure its position as an important benchmark and industry pioneer in the global community. KakaoTalk has been recognized worldwide by influential organizations, winning the Red Herring Asia Top 100 Award in 2012, and nominated as finalist for Global Mobile Awards most Innovative App in 2014.
KaKao mobile platform
Partners of mutual growth
Mobile coupon companies and other partners
• Creates new opportunities for the mobile commerce market and generates new consumption trends that lead to m-commerce vitalization
Online fashion malls
• A new mobile shopping channel that connects Korea’s Soho fashion malls with KakaoTalk users (note: I have not been sure what ‘Korea’s Soho fashion malls’ has been describing – the unique style of Korean boutique fashion perhaps? Is it specifically connecting brick and mortar stores to mobile shoppers? Could be my cluelessness…)
Corporate/product brands, social welfare organizations, celebrities, media, etc.
• A new advertising model optimized for mobile
• A customer-targeted marketing platform that brings maximum efficiency to both customers and advertisers
Small- and mid-sized game developers
• World’s first mobile game platform based on social networking that strives for joint growth with small mobile game developers
• First Kakao service that has proved the power of Kakao’s platform
• World’s first mobile content distribution channel where anyone can create and market their original content
Record companies, Entertainment agencies, Copyright holders
• Social music service of a new concept of sharing and communicating with friends through music
When building the platform, the first consideration is to make a decision to provide some value in some industry. The most successful platforms have a common ground in that they appear when there are social changes or changes in lifestyle. When we want to create a successful platform, it is very important to have an understanding of large flows of social change since there is likely to be no existing platform or there will be few successful cases when a new lifestyle appears. Even today, many industries have entered a mature stage, so there are new changes happening somewhere else, and opportunities are created when there are changes (Hirano and Andrei, 2011).
Upon the iPhone was launched in Korea at the end of 2009, Kim Bumsoo, CEO of KakaoTalk predicted a mobile revolution and noted that communication was a key value of the mobile space. “What is a phone? A phone is for calling. What is a killer app on your phone? Either calling or sending a text message. Then we did not have to hesitate. A communication tool is the killer app, otherwise a search tool is the most important tool for a personal computer. The essence of a phone is communication. Finally, we launched KakaoSuda, KakaoAgit, and KakaoTalk.” That is, he understood the fundamental attribution of mobile as tool for communication, and he tailored it to meet the needs of customers suited to their lifestyle. In brief, he realized that the attribute of a mobile phone could be delivered through the KakaoTalk service. He replaced an existing tool within phones that was being offered as a paid service and replaced it with KakaoTalk, which was a free service delivered over the Internet. This also improved communications.
Despite having launched one year in advance, Google Hangouts (then called Google Talk) had a weakness in that user registration was incovenient. Google Talk users were required to directly register as members and other members also had to register for the service. So people felt uncomfortable with this demand, and so Google Talk failed to gain many users.
KakaoTalk took advantage of this weakness in the process required by Google Talk by implementing a convenient automatic registration rule for users. If you download the KakaoTalk application, you can easily use free mobile instant messaging service without registration procedures, such as those required by Google Talk. After that, it dominated the market by advancing in the market and developing more quickly that its rivals, Mypeople and Line. As a result, KakaoTalk created a new platform for mobile instant messaging that replace the paid messaging services provided by mobile carriers (Chang and Oh, 2013).
According to the interview data, Platform also become the ‘place’ essentially indicates where some activity takes place. Finally, a platform business produces a variety of exchanges where a seller and a buyer meet. In an early stage, KaKao try to find how to increase the satisfaction. Smartphone users desired to have a new style of communication when KakaoTalk came into the market. KakaoTalk is helpful for having conversations and to build a network, so it is possible to have one-to-many communication and to review past conversations. Furthermore, we can use emoticons to express various feelings. KakaoTalk is a fresh platform where users can check whether a message has been read, and in addition, photos and profile names can be used within KakaoTalk, and many users are attracted to the platform due to these features.
Interactive system and killer contents
Service of Kakao
Social networking service that provides chat and voice services (voice talk, group call) between groups and 1:1
Social networking service to share photos and private events between users
Service to listen to music using the smartphone
Social networking service to share photos and private lives in a group chat with a number of group members
Service to help users decorate and add character to the home screen of their smartphone
Location-based social networking service to share the popular restaurants and attractions between KakaoTalk friends
Mobile photo share service to collect photos taken by friends in one place
Mobile marketplace to buy, sell, and share music, videos, e-books and other digital content
Social network service to see the hottest fashion in one place and to share it with friends
Service to get together and to share photos, videos, music, etc. between close friends
Mobile game platform to compete with Kakao friends
One account to explore all of Kakao’s apps and linked services through email
Service to send links from external apps or mobile webpages to KakaoTalk and KakaoStory
To be successful, a platform provides the right content to its users, and a platform can be more competitive by bundling services in order to further engage consumers with killer content.
As the mobile industry began to grow, Iwilab, the prior name of Kakao, simultaneously released KakaoSuda, KakaoAgit, and KakaoTalk as mobile services, but they all initially failed. The value that KakaoTalk provided to customers as a free messenger service then became clear, and it provided the momentum needed to secure customers. At the beginning, the free messenger service was the killer content provided by KakaoTalk. After 2010, Kakao also began to offer the Gifticon and Choco services. Since then, the company has bundled other services, such as an emoticon service and KakaoStyle, and has expanded its business activities to games, fashion, business marketing, digital content, etc. KakaoGame then became the killer service provided by KakaoTalk that provided further rapid growth. KakaoGame basically provides a social network for games, which is a new type of service for games to blend gaming and social network service (SNS) features to build online connections, such as that also provided by Facebook. Existing games use network technologies to enhance the enjoyment provided by the game itself. However, social network games use the game to provide a further sense of closeness between the users. Online games can possibly invite bad behavior, such as when players use swear words. However, users feel intimacy with each other in KakaoGame, and this closeness can minimize the negative behaviors in online games. KakaoTalk has remained the market leader by providing killer content that combines both game and SNS features.
The pricing strategy depends on the relationship of the dynamics between the platform provider and the participants, the attachment of the group to the platform, and the competitive environment. Therefore, a platform provide must adjust prices flexibly according to a variety of conditions and must also carefully observe market trends and the responses of participants.
Whats App is the world’s largest mobile messenger app, and it merged with Facebook for a price of 16 billion dollars. As of August 2013, the traffic handled by the company included 31 billion message transfers in a day. The company has focused on providing a simple and easy-to-understand service without advertisements by charging a $0.99 an annual fee instead. This service has kept to its original function as a messaging service (Han, 2013).
On the other hand, users do not pay to use the messenger service provided by KakaoTalk. The KakaoTalk users only pay when they buy items from the emoticon service, Gifticon, and KakaoGame. As we consider the revenue figure, kaKaoTalk has marked 348 billion Won ($311 million) in revenue during the first year of the launch of its mobile game services. That’s an impressive 194 percent from the final quarter of 2012, when the platform grossed 118 billion Won ($105 million). Total sale is 8,984 billion won in 2014. When it comes to the number of users, KaKaoTalk is 3094 million, 87.8 %, and over overwhelmingly dominant the mobile messenger market as of 2015.
Although KakaoTalk tried to make profits from the Gifticon and emoticon services, it did not achieve the expected results. However, KakaoGame, which launched in July 2012, has become a huge game platform and has changed the dynamics of the domestic gaming market. Starting with Anipang and Dragonfly, KakaoGame quickly attracted KakaoTalk users into KakaoGame. This means that KakaoTalk’s 60 million users have contributed to the growth of the service (Choi et al. 2014).
The revenue strategy for Kakao is to embody various forms of content as a distribution platform, not just for mobile advertising (Han, 2013). “Portals are used to rushing into a market or taking over the company when the market grows up, but Kakao will be faithful to our role of assisting other enterprises,” This shows that Kakao differs from portals that devastate the ecosystem and concentrate on turning a profit.
Strategy for ‘evolution and utilization of open innovation
The evolutionary process of KakaoTalk
The early stage of the SNS
The growth stage for the SNS company
Evolution toward social media and a platform
-Ensuring social services through user expansion
-Trying a variety of social service
-Providing media channels in KakaoPlus
-Photo based KakaoStory, game marketing platform KakaoGame, etc.
-Expanding influence as a media platform
-Trying to be a social platform with avatars, app stores, advertising and commerce
Those who are related to KakaoTalk, such as external developers, internal staff, and users, described Open Innovation as a common strategy for success. KakaoTalk itself does not create content, such as Facebook and Twitter. External participants create a variety of content, and KakaoTalk is only responsible to opearte the platform. Therefore, KakaoTalk can expend minimal manpower for development, and it has a competitive edge by concentrating on its core activities. In a mobile ecosystem, there are more disadvantages than advantages to monopolize content with internal staff, such as how Naver operates. On the other hand, it has a great advantage in that it provides both speed and quality for parties to supply content from outside the platform.
This study has determined the success factors that are relevant for a business platform by conducting research and interviews with many stakeholders. These success factors suggest a new business platform model. Figure 6 depicts the business model that corresponds to such an eco-system. When a new business platform starts, it is important to set up a domain and the target groups, and then a proper pricing strategy is essential. To operate efficiently, platform business enterprises should establish an interactive system that allows activity with different platform elements. Killer content are a precondition for platform growth.
Discussion and conclusions
KakaoTalk can be able to grow rapidly as a result of the quick use of unique platform strategies. This study performed a case analysis of KakaoTalk to find the determinants of successful social platforms as well as to determine how to create a value proposition and how organizations in the platform can cooperate. The goal of the research is to suggest a platform business model that is useful for building eco-systems. In order to fulfill these research aims, this study utilized direct data related to KakaoTalk as well as discussions and interviews with the CIO at KakaoTalk and other stakeholders.
These findings reveal that in the first stage, KakaoTalk created a mobile instant messenger within a new domain. In the second stage, existing mobile users who were searching for new means of communication were obtained. In the third stage, KakaoTalk grew rapidly by providing a free service and further expanded its business to the marketing and social domains. In the fourth stage, KakaoTalk decided to continue to offer free text transmissions as a killer service, and the company expanded its range of services to games, fashion, business marketing, digital contents, etc. by bundling services. In the fifth stage, KakaoTalk redefined its business not only as a simple mobile messaging service but also as a distribution platform and began to provide a wider variety of content. In the sixth stage, KakaoTalk underwent three evolutionary stages including an early stage as an SNS Service, growth stage as an SNS company, and evolutionary stage as a social media platform. In the seventh stage, KakaoTalk actively engaged in open innovation.
KakaoTalk is the mobile instant messenger that the vast majority of Korean smartphone users constantly use, and Kakao developed this app as its core platform and has provided a variety of follow-up platforms, such as mobile commerce, mobile advertisement, mobile games, etc. Continuous user interaction is necessary for the company to continue to be successful as a platform business. In other words, an open innovation strategy is also required to ensure business model evolution.
Finally, the findings of the case analysis suggest that the PSE curve is a unique pattern of the success of a social platform business model. The PSE curve is comprised of three faces: a preparation face that establishes a platform to set the target group; a spread face where killer contents are provided in the early stage of the platform, such as KakaoGame, a low pricing strategy, and reinforcement of the platform rules; and an evolution face where the platform continues to evolve. In addition, we have created a business model for a platform provider to build an eco-system by using the PSE curve to achieve success. In this paper, we find the successful path of platform business model, and suggest the eco-model evolution. What KaKao can evolve from simple mobile message to SNS platform in the first in the world is to find new value for customers using killer contents instead of seeking a business. Through this study, we find PSE (preparation, spread, evolution) curve.
The results of this study are subject to some limitations, but they also offer significant findings in that they provide the basics of an academic analysis of the factors that lead to the success of a platform. Further study is planned to address the merger of mobile messengers and this research can contribute to the mobile platform strategies in the future.
Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.
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