ectronic Commerce Research an Applications 142015) 319-330, Contents lists available at ScienceDirect Electronic Commerce Research and Applications te “ey journal homepage: www.elsevier.com/locat The race to dominate the mobile payments platform: Entry and expansion strategies ews Kalina S. Staykova, Jan Damsgaard* Department off Managemen, Copentagen Busines Schoo, Howie 60, 2000 Federer, Denmark ARTICLE INFO ABSTRACT ‘Arce isto Becelved 7 Match 2015 Rscelved n reise form 7 March 2015, ‘Aeceped 7 March 2015, ‘eaable online 13 March 2015 ‘The payment market has been stable for a number of decades with well-defined roles (acquirers and issuers, profitable business models (the card schemes) and a dominant design in which the merchants absorb the costs associated with payments. However. numerous digital payment solutions, which rely new disruptive technologies. are emerging on the payment market transforming the payment area from being established intoa state of flux. tn his artic, we investigate te various factors that determine the success ofa given Solution To this end, we build a framework o analyze the entry and expansion strategies of the digital payment solutions. We claim thatthe timing of entry of the st-mover speeds lp the timing of entry ofthe early follower, thus determining the order of entry. We also argue that Keyword: Digital pment ators Enty steps lacein elects Mobile payments Network tects “Technolgy statesy 1. Introduction Disruptive innovation has been relative rare inthe area of finan- cial services with very few innovations remaining unique for long. time (Gardner 2009). Only a small portion of financial services innovations have generated competitive advantage and been sus- tainable, as most of them were easily replicated by other banks, To illustrate the rapid imitation, consider the following, exam- ples. When the first credit card,’ Charg-tT, was introduced in 1946, it revolutionized the payment industry. twas soon reph cated by Diners Club though, which offered its own Diners Club Credit Card in 1949, When Barclays Bank in the U.K. successfully introduced automated teller machines (ATMs) in 1967, the ATM ‘was considered to be a potential source of competitive advantage for individual banks (Batiz-laz0 2007), Soon, however, other banks also introduced ATM machines, annulling any competitive advan- {age for Barclays. History repeated itself when Security First [Network Bank introduced forthe first time Internet-based banking, services (Cronin 1998), Although this was a breakthrough that sig- nificantly transformed the banking sector, the bank failed to obtain * Goresponing author. mal odes ytmexbstk , Damsgaardh nap dog 0.1016 eter 2015.03.004 1567-4223 205 Esser BA ight reseed ‘of expansion is of equal importance as the timing of entry. It the exp ‘within the optimal time, the previously gained competitive advantage can be annulled sion i not executed © 2015 Elsevier BY. All rights reserved sustainable competitive advantage, as other banks entered the same market just a few months after. “The next fevolution in the financial services was heralded by the rapid spread and adoption of smartphones, which absorbed music players, navigation devices, and cameras, and now are set to incorporate payments. Mobile payments function as a digital platform (Kazan and Damsgaard 2013) and thus possess character- istics quite different from previous innovations in the finance area The digitalization of services lowers significantly the barriers of entry, a8 digital solutions have significant economies of scale and are very easy {0 replicate and less costly. The digital platform's ‘scalability intensifies the competition between the different pay- ‘ment providers and makes the task of obtaining and maintaining, competitive advantage in the digital payment area challenging, innovative solutions can be replicated easily by competitors, the key determinant of success will be managing innovation with regard to the competitive dynamic environment and the ability to find additional sources of competitive advantage. Thus, in order to gain maximum value from the innovation, a platform owner should take into account some strategic implications with regards to entry and expansion strategies. The decision to enter the market either as a first-mover, or a late-follower isa strategic one and it influences the future ability to attract customers. Thus, we formu- late the following research question: How do market entry andm0 1S. Suyova, | Dansjard/ Electronic Consmerce Reseach and Applications 14 (2015) 319-220 growth strategies determine the success of digital muli-sided payment playforms? ‘To this end, we investigate the entry and growth strategies of three alternative digital payment platforms that were launched in the Danish market in a time span of just eight months. (See the Appendix for a general overview of the Danish payment mar- ket.) The three similar solutions have managed to achieve an adop- tion rate of approximately 40% of the adult population with one solution much bigger than the other two combined, Since the three players offer almost identical functionality and compete for the same customers (both consumers and merchants}, ther initial sue- ‘cess of failure was determined by how and when they entered the market and how fast they managed to achieve a critical mass of adopters. Next, we outline the theoretical foundations of this research, ‘Then we present briefly the three investigated solutions and apply to them our theoretical framework. In the final sections, we discuss ‘our findings, offer some conclusions, and suggest promising areas for further research, 2. Theoretical foundations 2.1. Digital payments as mult-sded platforms ‘A mobile payment involves the transfer of money from one party to another using some digital means via a mobile phone. Mobile payment apps typically are downloaded to a smartphone, and once they are set up with a bank account or attached toa creditcard or a ‘debit card, the solutions work seamlessly using a phone number as identifier and a PIN code to authorize the payment. For the pur- poses of this research, we make a distinction between a person {o-person payment (P2P) and a retail payment (C28). Digital payment solutions function as digital platforms ¢hta facilitate the direct interaction between multiple customer types affiiated with them (Hagiu and Wright 2011, Kazan and Damsgaard 2013, Staykova and Damsgaard 2014), Multi-sided platforms (MSPs) reduce search costs, create audiences, and save ‘on shared costs by providing an infrastructure that can be used for many transactions between the different sides of the platform (Hagiu 2006). An important feature of platforms is that they exhi- bit network effects. With network effects, the value that users gain from a platform depends on the number of other users ofthe same type who join the same platform. This is known as same-side net- work effecs. In addition, the number of users of a different type that join the platform create eross-side network effects (Hagi and Halaburda 2013, Shapiro and Varian 1999), Platforms are also characterized by homing costs related to the adoption, operation, and other costs incurred due to platform affiliation (Armstrong 2006). Low homing costs presuppose that the offered systems are easy to use and adopt. Law homing costs imply that users will often multi-home. A good example of ths is the payment card. Most people hold several credit and debit cards. Using the card (swiping, entering the PIN) isthe same for the di ferent card products, but each one of them brings with them differ- ‘ent value in terms of charges, loyalty points, etc. High homing costs imply that users are more likely to stick to only one or a limited ‘number of platforms. Thus, homing costs are tightly related to the concept of switching costs, which is anchored around lock-in effects. When users face high costs of switching from one technol ‘ogy {0 another, users are locked in (Shapiro and Varian 1999), Payment markets are usually characterized as matkets with low switching costs, As lock-in is a dynamic concept, the switching costs can grow and shrink with time: they are not static. ‘Although platforms have been around for hundreds of years, such as farmers markets (Evans 2008), the rapid spread of digital technologies and their integration in the everyday life has led to the development of digital platforms. Digital playforms are diferent from non-digital analog platforms, as they have unique characteris- tics (Tilson et al. 2013), such as platform generaivity (Zittrain 2008) and evolvabilty (Sandberg et al, 2013). Digital payment platforms {are scalable with high development costs and low marginal costs. Costs are almost fixed and operating margins increase with the platform adoption (Eisenmann 2002). This means that once the payment platform is developed, it casts very litte to add and ser- vvice additional users. Thus, payment platforms exhibit lower acquisition costs and economies of scale, as the fixed development ‘costs can be spread over a growing revenue user base. Once a pay ‘ment service has entered the market, the challenge is to attract as many users as possible and as fast as possible. The achievement of critical mass is important to ignite the growth ofthe platform as it provides a “thick enough” market (Evans 2009). 22. Entry strategy The existing literature on platform entry strategies is rather scarce. Kim et al (2013) investigate the platform entry strategies between an incumbent and a new entrant. Zhu and lansiti (2012) ‘examine the relative importance of platform quality, indirect net~ ‘workeffects, and consumer expectations on the success of entrants in platform-based markets, whereas Seamans and Zinu (2013) ana- Ize the responses to entry in multi-sided markets by studying the impact of Craigslist on local newspapers. Our study complements these studies by investigating the competitive entry of several digi- tal payment platforms which are engaged in race to launch and ‘win ina single market. Thus, we seek to explain the factors which determine the timing of entry of the first-mover as well as the impact ofthe first-mover’ entry on the timings of entry ofits riv- als. We also analyze how the timing of entry influences the mode ‘of entry of a digital payment solution, 22.1. Timing of entry ‘Timing is considered to be the key for successful market entry (Thomas 1985). Estimating the most opportune time to enter a market is of vital importance, as it can bring significant competi- tive advantage. A firm's ability to launch a product faster, before its competitors, is regarded as a source of competitive advantage 8 companies can use entry timing as an additional dimension t0 differentiate themselves from their rivals (Bhaskaran and Ramachandran 2006). A firm's decision to enter a market can be attributed to different factors such as changes in the general econ- ‘omy, changes in customer preferences and evolution of the indus tay’ life cycle (Lilien and Yoon 1990). Entry decisions also depend on beliefs about how many rivals, ‘will enter the market (Linder 2013), For the purposes ofthis article, ‘we ty to define the strategic factors that drive entry-timing deci- sions under competition. We assume there are several solutions which are being developed simultaneously and are competing to center the market. As timing decisions tend to be highly situation specific (Thiomas 1985), the timing of entry in a market with sev- ‘eral rivals will reflect the competitive dynamics of the market. Competitive dynamics are conceptualized as the exchange of actions ‘and responses between defencler and attacker and are related to the likelihood and speed of a response (Chen et al. 2009, Young et al. 1996). ‘The competitive market dynamics is shaped by the market sig- nals sent by the various competitors. A new product preannounce- ‘ment, an announcement that precedes an actual new product introduction, can be used as a tool to signal different intentions to the market (Robertson etal. 1995, Su and Rao 2010). Anew pro- ‘duct preannouneement provides information about a new product {0 competitors, who will then know the strategic direction of future competition (Rao and Su 2010). A study conducted by HeileS Stayhova, J Danson Eerie Commerce Research and Appin 14 (2015) 319-220 am and Robertson (1991) finds that competitive behavior is indeed influenced by signals sent by competitors. ‘A new product preannouncement can be seen as an attempt 0 ‘thwart competitive actions Rabino and Moore 1995), butitcan also encourage competitive reactions (Kohli 1992), Bhaskaran. and ‘Ramachandran (2006) argue that by committing to launch early. a firm can force a rival with similar technological expectations to reconsider its launch (accelerate or postpone). In this aticle, we investigate what signals the potential competitors in a market send totheirrivals. and how thesesignals impact the behavior ofthe mar- ket actors, and in particular the timing of entry decisions. ‘A new product preannouncement may have particular impor- tance in markets characterized by network effects and switching costs (Eliashberg and Robertson 1988), When introducing 2 net- work effects product, preannouncing can lead to higher perfor- ‘mance than not preannouncing as it can build an early lead to stimulate the positive feedback of network effects (Lee and (O'Connor 2003). NPPs can also be used for cooperative purposes (seeking alliances, encouraging competitors to follow a specific product standard or encouraging complementary product design) (Lee and O'Connor 2003, Robertson etal. 1995). Thus, new product preannouncement actions may encourage indirect network effect in particular in connection to the development of complimentary products. new product preannouncements can also have the effect of gaining a faster takeoff by managing consumers’ expectations and thus, leading to rapid growth of an installed user base "New product preannouncements may alsorelate positively tothe level of customer switching costs incurred in adoption (Eliashberg, and Robertson 1988) Ifa consumer wants to switch from an old to 4 new product, the mew product preannouncement may reduce ‘the switching costs as customers will be aware of the new product launch and deerease their engagement with the old product. Ina uation where several solutions compete to launch simultaneously, if 2 consumer has information about a possible release of rival's solu- tion he or she may not be locked-in inthe first-mover solution, thus ‘keeping the consumer switching casts relatively low. “The competitive dynamies can sti the market towards a race to Jaunch with several digital payment platforms competing to enter the market. Thus, we tty to explain whether the competitive «dynamics may influence the timing of entry of the first-mover by reading the different signals which competitors send and analyzing their impact. We also argue that the timing of entry of the first- _mover can send a signal to the other competitors, having an impact fon the actual order of entry. Thus, we outline the impact of the first-mover's entry into a digital payment market on the timing, ‘of entry ofits rival. In order to do that, we analyze the response times of entry of the early follower and late follower to the first- ‘mover’ timing of entry. We assume that the timing of the early follower differs from the timing of the late followers. As late fol- lowers can rely on targeting only a limited market segment, they will be more likely to maximize consumer preferences (Vakratsas et al. 2003), ‘The entry of the first-mover often triggers a response from its competitors who face a strategic choice when to enter into a mar- ket. Followers respond either by trying to reduce lead times of the first-mover by entering the market soon after the pioneer (Bowman and Gatignon 1995, Vakratsas et al. 2003), or by delaying. ‘their market entry in order to optimize performance (Levesque and Shepherd 2004), The greater the perceived threat posed by the first mover, the faster the follower’ response (Kuester et al. 1999), 222. Order of entry ‘We investigate the order of entry in terms of whether the first- 'mover can gain substantial competitive advantage and whether it can sustain them over time or they can be nullified by later AA follower’s response depends on whether a firt-mover can enjoy significant competitive advantage upon entry. Thus, we assume that ifa follower estimates that the pioneer accumulates ‘competitive advantage, it is more likely enter the market sooner, Scholars tend to disagree whether pioneers enjoy frst-mover advantage when they enter a new market as some studies have ound that late entrants have significant competitive advantage ‘over pioneers. This includes fine-tuning the product as customers’ needs become more certain, learning from the mistakes ofthe fist- ‘mover and not spending too much resources on educating the cus- tomer about the new product (Christensen 1997, Evans 2003, Freeman 1997), In network industries, due to the presence of network effects, it _makes sense for a company (0 invest heavily to gain first-mover advantage in order to get a significant lead (Eisenmann 2002, Mcintyre and Subramaniam 2009). As Schilling (2002) points out, industries which exhibit network effects demonstrate strong path dependency effects, thus if a first-mover manages (0 get a large installed base which exhibits strong network effects, it will have significant first-mover advantage over its rivals. In-a network market, late entrants face a large installed user base of the first-mover, which often turns to be too difficult to compete with. As the digital platform markets are characterized by essential economies of scale, the large installed base of the pio- reer will prevent its rivals from achieving the scale economies necessary to compete with the first-mover (Shapiro and Varian 1999). We argue that as the presence of strong network effects constitutes a bartier to entry for the followers and increased installed base can lead to less market entry (Notback et al. 2010), the timing of entry of the first-mover should send a signal to the ‘competitors that they have to enter as soon as possible in order to prevent the first-mover from gathering a large installed base faster. Chatterjee and Wemerfelt (1991) argue that delayed entry is, likely to reduce early-mover advantage in markets where switch- ing costs or brand loyalty locks in customers. Delayed entry of the followers gives the first-mover a greater opportunity to lock in customers. Fist-mover advantage has a direct impact on the ‘switching costs (Capone et al 2013), High switching costs put late entrants at a disadvantage, because they must invest-more resources into attract customers away from earlier entrants (Lieberman and Montgomery 1988), At the same time, low switch ing costs exhibiting by the solution offered by the frst-mover may reduce the Fist-mover advantage of a pioneer. (On the other hand, Evans (2003) argues that_many early entrants in platform-based markets ultimately do not retain their leadership positions, thus giving evidence against frst-mover advantage in network markets. He claims that, despite network effects, many platform industries have several overlapping com- peting platforms and most have multi-homing on at least one side Zhu and lansiti (2012) also found that an entrant with any quality advantage can gain market share over time, even when competing, ‘with an incumbent with a very large instalied-base advantage. A pioneers subject to advantage and disadvantage by being the first in the market (Porter 1985). The key is whether the advantage gained by the first-mover is sustainable overtime (Lieberman and ‘Montgomery 1988), By mapping out the different response times to the pioneer's market entry, we will seek to provide evidence for the presence of first-mover advantage in a digital payments market, whether it can be annulled, and whether and how such advantage can be sustained over time. 2.23, Design of entry Rodriguez-Pinto et al. (2008) argue that, apart from deciding on the timing of the entry, a company has as to decide on the pro- ‘duct’s positioning (what to launch) and the seope of the marketBt 1S. Suyova, | Dansjard/ Electronic Consmerce Reseach and Applications 14 (2015) 319-220 that it aims to cover (where to launch it). In this article, we Focus primarily on product positioning, by trying to analyze what the ‘design of the platform upon entry is and how this influences its ‘evolution. Hagiu (2014) defines the design of a platform in connection to, the number of functionalities and features it offers as well as the ability to maintain the right trade-off between the features, in ‘order not to be at odds with the different sides of the platform, Kazan and Damsgaardl (2013) identified three digital payment plat- form designs: platform design (closed versus open), technology design (evolutionary versus revolutionary) and business design envelopment versus Schumpetetian innovation). The design of the digital payment platforms also evolves with the development and maturity of the platforms. Staykova and Damsgaard (2014) suggest that digital payment platforms transform from one-sided to two-sided and multi-sided throughout the course of their evolution, For the purposes of this article, we adopt the distinction made in the DPIE model (Staykova and Damsgaard 2014) between one- sided, two-sided and multi-sided platforms. We argue that new digital payment solutions should enter as one-sided, and then transform into two-sided and eventually into multi-sided plat- forms. If a company enters a completely different market from its current business, it may start by selling a product on a one- sided platform. As liagiu (2006) points out, it is not unusual to “observe a one-sided business being transformed into a multi-sided platform. Thus, a platform owner may enter the market by offering ‘solution as a completely new one-sided platform or extend the already existing solution by turning it from 2 one-sided business (service, product) into a one-sided platform. ‘A one-sided platform consists of the platform provider and just ‘one distinctive group of users who are subject to strong same-side network effects. Thus, the value for one user who participates in the platform increases when move users join the platform. One- sided platforms also allow the incumbents to mobilize their already existing user base and engage them. As Evans (2009) points out on platforms with same-side effects, users can easily ‘change roles, User A can today send a fax to user B. The next day user A can be the receiver and user B the sender. Even though it seems there are two groups, namely the user and! the sender, they ‘can switch their roles easily. Thus, itis not possible to conclude that they form two distinct groups. As one-sided platforms cater toa specific closed group, they do not offer a large number of func- tionalities. However, unlike two-sided platforms, which have to bring together the two sides on the board (eg. consumers and merchants simultaneously), the one-sided platforms are easier to ‘manage. Thus, they are considered a good entry strategy especially in an uncertain market. Due to their limited functionality and low switching costs, they are also easier to attack, making it vital for them to continue evolving with a regular speed. In the above sections, we hypothesized that the competitive ‘dynamics can have an impact on the timing of entry of the first mover, as well as that the entry of the fist-mover can impact the timing of entry of the other competitors. (See Fig. 1.) ‘We also investigate whether there is a connection between the timing of entry and the design of entry. Ifa ftst-maver is pressured to enter as soon as possible, the pioneer may enter with a simplis- tic solution. At the same time, ifa follower decides to enter shortly after the pioneer's entry with a short response time, it may not have the time to develop a complex solution. The follower's ny Sti Tiamg of ay Daignof Ey Fig 1 ary strategy feamework lemma is whether to imitate all or a portion of the fist-mover's innovation (Semadeni and Anderson 2009), 23. Expansion strategy Many platforms that have entered multi-sided markets have pursued get-big-fast strategy (Eisenmann 2002). The main logic bbohind the strategy is to target empty territories, which are cur- rently not serviced by anyone, rather than try to capture it later ‘when others will have already settled there. Thus, the strategy is associated with aggressive customer acquisition where the plat- form owners have tried to acquire customers that are not yet tar- -geted by existing solutions. ‘A critical threshold for the survival of a digital payment plat- form after its launch is its ability to achieve a critical mass of users {Staykova and Damsgaard 2014), Ifa critical mass of installed users is not reached, the specific payment solution will not be deemed Viable and probably will be phased out. Evans (2009) also recog- nized this problem. He states that critical mass is necessary for ‘achieving a substantial growth of a platform. In order to reach criti- ‘cal mass, a platform fist has to solve the so-called chicken-and-eag, problem ~ to bring both sides ofthe platform on board. Many plat- forms try to solve this problem simultaneously by directly launch- ing two-sided platforms. This, however, creates problems, as the price-side with the merchants usually has to invest inthe proposed ‘decision without knowing whether the consumers will adopt the solution, thus driving high homing costs. Get-big-fast strategy is successful when the network effects are strong, scale economies are significant and retention rates are high (Eisenmann 2002), Networkeffecs alone do not guarantee high bar- riers toentry though high switching costs are also necessary on one ‘or all sides of the MSPs (Hagiu and Halaburda 2013).The suecessful ‘growth ofa platformisalso attributed to the presence of high lock-in effects (Shapito and Varian 1998). In this article, we argue that the survival of digital payment platforms also depends on the timing ‘of expansion and growth ofthe platform itself. 2.3.1. Timing of expansion ‘Staykova and Damsgaard (2014) argue that the growth of digi- tal payment platforms should be incremental, as it is recom- ‘mended for a platform to enter as one-sided and then to evolve into two-sided and mult-sided form. Due to its one-sided nature, initially the digital payment platform offers limited number of fea- tures, which implies the presence of low switching costs and low lock-in effects during the inital entry stage. In this case, the timing ‘of expansion is critical for ensuring the success ofthe platform as the platform has to gain strong lock-in effects by introducing new features and new sides. ‘The expansion strategy has to be executed withthe right speed in order for a company not to lose its competitive advantage. Entering a market as a one-sided platform helps to gain momen- tum, bur staying as such for too long is not only costly, but also has the potential to stagnate the growth ofthe platform. Ifthe plat- form owners miss the optimal time during which they have to ‘expand the platform, they will miss an opportunity to reinforce their marker supremacy, and that may neutralize their frst-mover advantage. 23.2 Order of expansion ‘The expansion, by adding new sides and features, by the fist- mover sends a signal to its competitors, who will most likely respond to the pioneer's move. By measuring the response time ‘of the followers to the expansion of the pioneer, we will be able to analyze whether the first-mover can sustain its first-mover ‘advantage. At the same time, we will also be able to outline the strategy that the followers choose to adhere to - either imitationeS Stayhova, J Danson Eerie Commerce Research and Appin 14 (2015) 319-220 Ey fr innovation ~ when expanding. We then compare the response times of the follower to both entry and expansion of the first- ‘mover to detect any potential difference. This may signal a change in the followers strategy. Ifthe timing of entry of the frst-mover can lead to the presence ‘of competitive advantage, itis worthwhile observing whether the ‘timing of expansion can be a source of competitive advantage as ‘well. Ifthe timing of entry and expansion ean bring competitive advantage, this creates a much more dynamic evolutionary path ‘with the opening of several strategic windows of opportunities. IF digital platform can attract a second side, say the merchants first, it can gain competitive advantage over the other competing plat- orms. The pioneer may miss the right timing for expansion and thus lose its first-mover competitive advantage to late entrants ‘who spot the window of opportunity first. At the same time, even ifthe irst-mover expands within the optimal time, the late entrant may be able to leverage its large user base or add an innovative fea~ ture, which will give the follower a considerable advantage. Thus, previously gained first-mover advantage upon entry in a new mar- ket can be neutralized during the time of expansion, if contenders plan and execute their strategy well. This assumption indicates about the vital importance of the design of expansion. 23.3 Design of expansion Digital platforms are characterized by their evolvability, the ability to evolve over time by adding new features and sides 10 their initial value proposition. Thus, digital platforms rely on a dynamic growth, If executed right, it can lead to significant lock- in effects for both consumers and merchants. ‘Tobe successful, a digital payment platform should enter a mar~ ket as one-sided and then be transformed into two-sided and ‘ulti-sided (Staykova and Damsgaard 2014). By first trying 10 establish a platform with a strong user base consisting of only ‘one distinct group which can switch roles easly, the platform pro- viders do not have to bring two distinctive groups of users on board simultaneously ~ the consumers and merchants. One-siced platforms, however, are characterized by low lock-in effects and tuse low switching costs. After successfully establishing same-side network effects, the platform can expand by attracting the revenue side and adding more functionality to its initial value proposition. ‘Thus, the size of the installed base and the presence of strong same-side network effects are used to attract a second distinctive ‘group, the merchants, The success of a new platform is dependent ‘on the indirect network effects that occur between the groups of consumers and merchants (Zhu and ansiti 2012). Thus, we argue that the strength of the indirect network effets is positively corre- lated with the strength of the same-side network effects that a ligital payment platform initially exhibits. By identifying not only the timing ofthe follower’ response to, the expansion of the fist-mover, but also the follower’s design of expansion, we seek to analyze whether there are any visible ‘changes in the strategy of the follower. A follower can either it {ate the design of expansion undertaken by the first-mover, or respond by adopting a completely new design of expansion. We believe that the design of the response of the follower will help us measure the ability of the follower to compete with the first- ‘mover. Imitative design of expansion will signal for weak ability to compete. On the other hand, innovative design of expansion will help the follower achieve strategic differentiation from the first- ‘mover and increase its competitive power. (See Fig. 2.) 3. Methodology Three alternative mobile payment solutions were launched in, Denmark over a period of eight months. Less than a year later Expansion Sticay Timing of pansion | One of Expansion | Design of Expansion Fig. 2. Exgunsion strategy. 40% of the adult population was using mobile payments. One ‘was launched by one bank, one by a coalition of banks, and one solution was launched by the four national mobile network opera- {ors (MNOs) in Denmark. The authors of this article were in a unique research situation because we were able to follow the entire process closely from new product preannouncements and market entry to the initial ‘expansion strategies. This was done via strong ties with all chee payment alternatives, as well as via discussions with representa- tives from various financial institutions. We used a qualitative method involving multiple case study analyses to conduct our research. Although we provide an over- view of the main players and digital payments solutions in the Danish market, we focus on three main contenclers. To get better insight into the dynamics of the digital payments evolution, we crafted two frameworks, They allow us to study in-depth the entry strategies of the three main digital payment actors and outline the impact of these strategies on their early growth and expansion Primary data were collected by conducting interviews based on ‘questionnaires. Interviews with senior managers from the major players in the Danish mobile payment market, including Danske Bank, Swipp and Pali-AT, were conducted in'the period April~ ‘May 2014. A significant amount of secondary data were also col- lected. Different media sources were consulted as well as various statistical and annual reports published by public institutions in Denmark, Data were collected also during several round tables, payment conferences and seminars. Different representatives of ‘major Danish banks and other digital payment solutions were con- tacted on regular basis in order to collect their comments about ‘changes in the Danish digital payment markets. 4. Mobilepay Danske Bank’s MobilePay app is a bank-operated card-based ‘mobile payment solution which allows users to transfer money from a card to a bank account via a mobile phone number and a PIN code. The app was launched in May 2013 and proved to be ‘extremely popullar among the Danes, as more than 40% of the adult population has downloaded it since its launch. Initially the app supported only the P2P payment funetion, but, in February 2014 (five months after its launch) MobilePay enabled 2B payments. In June 2014, a coffee shop in Denmark incorpo- rated MobilePay as a payment method in its own app (Andersen 2014). In July 2014, MobilePay entered the e-commerce sphere by partnering with five online stores that now use MobilePay as 4 payment method. (See Fig. 3.) 4.1, MobilePay’s entry strategy 4.1.1. Timing of entry Danske Bank aimed at being the first entrant in the Danish ‘mobile payment market. A trigger for entry was the MINOs and ‘other players’ growing engagement in the mobile payment market. For example, the major telecom operators in Denmark had announced that they were going to work together in order t0 develop an online payment solution. (See the Section 5.3) The new product preannouncement from the telecoms clearly indi- cated their intention to enter the market and prompted Danske Bank to react.Entry and Expansion Stateuy 1S. Suyova, | Dansjard/ Electronic Consmerce Reseach and Applications 14 (2015) 319-220 Order of Katey | Design of Eatey “A snow prod prcannouncement, evolu tion of he censysem, slaw progres nthe asking stor slation Timing of Expansion Fincimover Ono sided platorm ‘Order of Expansion | Design of Expansion After heey of Swi and Pal eso pao Fig 3. MotlePays entry and expansion strategy. Initially, Danske Bank was part of the common banking sector solution, Swipp. The process of development of a joint solution ‘was progressing slowly. After the new product preannouncement from the telecoms and after PayPal and iettle had entered the ‘domestic Danish market (iZettle launched its service in Denmark in February 2012), Danske Bank decided it needed to speed up its ‘own market entry to ensure their presence and position inthe pay- ‘ment market, so after two years of negotiations Danske Bank left the coalition and started working on its own mobile payment solution, 4.1.2, Order of entry Danske Bank’s MobilePay was launched in May 2013, a few. months before the other solutions were released to the market, so we define it as a first-mover. Soon after the launch of MobilePay. its customer base grew significantly and just. six ‘months after the launch, MobilePay has attracted approximately ‘2 quarter of the adult population in Denmark. Ths is a user base that is magnitudes higher than the user base of the international solutions available in the Danish market. Ths clearly indicates that MobilePay enjoyed significant fist-mover advantage. Danske Bank put considerable effort toward attracting new con- sumers and growing its user base. The app could be used not only by Danske Bank customers, but also by account holders in any ‘other bank in Denmark, In fact, around 60% of the MobilePay's Users were customers of other banks. The popular app was devel- ‘oped for iPhone, Android and Windows phones. MobilePay also incorporated features to make the solution go viral So, for exam- ple, users were able to send money to somebody who had not ‘downloaded the app but to claim the money the receiver had t0 sign up. Getting a critical mass upon launch and reaching as many users as possible were critical for the suecess of the solution. Thus, ‘during the first few months after the launch of the solution, the ‘efforts were focused on gaining significant user base with strong same-sided network effects. 4.1.3 Design of entry ‘The timing, or the desire to launch as fast as possible, may have had a direct impact on the design of the payment platform. MobilePay was developed in just six months. The tight deadline for development of such a product signaled that the time-to-mar- ket was crucial for Danske Bank. The short time for developing the app concept was reflected in the design of the app itself. Danske Bank decided to focus on a simple P2P transactions feature, although it initially had worked on developing a more complex ‘and fully flexible solution, The bank decided to go with P2P solu- tion, as it was relatively easy to build in comparison to other solu- tions that required the use of NFC technology. This observation ‘demonstrates that timing of entry can influence the decisions about the technical design and sophistication of the platform, MobilePay operates as a separate app and it is not integrated, Into the mobile banking app of Danske Bank. The starting point was that MobilePay should be a part of the mobile banking app. bur the idea was abandoned. The main reason for this was the fact that integrating a mobile payment feature in the mobile banking app will be a higher barrier for non-Danske bank customers to ‘download Danske Bank mobile banking app in order to use MobilePay. As the goal was ¢o attract many customers the bank decided to adopt more customer-centric approach. ‘Thus, MobilePay was launched as one-sided platform which allows a one distinctive group of users with interchangeable roles: ‘A-can send money to the receiver B; then, the next day, B can become the sender by sending money to A. Danske Bank never con- sidered launching as a two-sided platform. Its initial plan was to start with the P2P feature, get critical mass, and expand by moving (0 C2B and then further on. The most important thing fr this strat- ‘egy to work was achieving a certain reach among their customers. MobilePay is card-based mobile payment solution. As bank accounts are important assets for banks, itis logical to expect that they will utilize them. Banks' accounts constitute key competitive ‘advantage (Gaur and Ondrus 2012), MobilePay, however, isa card based solution that does not take into consideration the accounts ‘of Danske Bank's customers. As Danske Bank wanted to attract rnon-Danske bank customers, they designed their solution to be based on existing card schemes. 42. MobilePay’s expansion strategy 42.1. Timing of expansion ‘The timing of expansion is crucial fora platform owner. A plat- form should not slow down its development after the initial launch, but look for the right moment to add functionality or another side to its platform in order to stay competitive on the ‘market. In the case of Danske Bank, ensuring the continuing devel- ‘opment of the platform was crucial, especially after the launch of the competitive service, Swipp. Having secured the one-side, after five months Danske Bank launched a pilot to allow consumers to use MobilePay at selected food stalls, coffee shops, and taxis. The shop owners were equipped ‘witha smartphone with a MobilePay app. As most of the MobilePay users use the service to transfer small amount of ‘money, it was considered logical first to test C2B low-value pay- ‘ments, Based on the results of the trial, Danske Bank prepared a business solution that targeted larger retailers. After the successful pilot, the MobilePay solution for business was launched eight ‘months after the initial launch. Approximately 1975 small business places, such as coffee shops, clothing companies, hairdressers, bike repair shops, doctors and so on had adopted the solution as of September 2014. 422. Onder of expansion Danske Bank transformed MobilePay from a one-sided platform, into a two-sided platform two months before its rival. Thereby, MobilePay increased its value proposition for the consumer, as IC offered a feature that no other solution supported, Furthermore, by bringing the merchants on board, the platform gained a frst” mover advantage in the C2B mobile payments market in Denmark. Thus, the first-maver advantage gained during the first phase was sustained through the subsequent evolution of the platform,eS Stayhova, J Danson Eerie Commerce Research and Appin 14 (2015) 319-220 ns 423. Design of expansion. ‘With the addition of retailers the MobilePay platform trans- formed from being one-sided to two-sided. As the user base of the platform grew, it gradually became attractive to another dis- tinctive group: the merchants. This indicates the strong cross-side network effects ofthe platform. At this stage, MobilePay had su cessfully managed the chicken-and-egg problem by bringing first consumers and later merchants on board the platform. Danske Bank continued to bring more merchants into the solution by enabling Internet shops to use MobilePay as a payment method after thirteen months. 5. SWIPP: The banking sector’s solution ‘A banking sector sotution called Swipp was launched in 2013. after almost two years of negotiations. Swipp, which allows P2P payments, could be used by the customers of some of the largest Danks in'Denmark ~ Nordea, Nykredit, Jyske Bank, Sydbank, Atbejdermes landsbank, Spar Nord and some local banks ~ but ‘ot the largest Danske Bank, as we noted earlier. In total, 81 banks in Denmark participate in the Swipp network. The solution was integrated with the mobile banking app ofeach of the participating banks. Also a user could send money to anyone who also had ‘Swipp regardless of which mobile banking app they were using Just like MobilePay, Swipp was used for transferring money via a ‘mobile phone number, but unlike Danske Bank's solution, Swipp is an account-based payment app. In May 2013, Swipp for Business, which allows consumers to pay in selected merchants’ shops, was introduced. (See Fig. 4.) Bul. Entry strategy Sil. Timing of entry The Swipp app is a common bank sector mobile payment solu- tion that was launched in the Danish market in 2013. The data gathered from the interviews indicate that the banks decision to Bush for the launch of Swipp can be attributed to the fact that Danske Bank had left the coalition. After the Danske Bank's announcement the banks supporting Swipp realized that they hhad to speed up their product development process to provide an alternative to MobilePay as soon as possible. This sense of urgency led to separate launches within the Swipp network, as every participating bank launched as fast as possible ‘without coordination with coalition partners or a common market- ing campaign. For example, one of the larger partners launched Swipp in August 2013, a smaller bank launched Swipp in June 2013, and the largest partner did not launch before December 2013. The lack of common launch within the Swipp network also indi cates how important it was to launch as soon as possible in order to limit the competitive advantage and network effects that the first-mover can gain. Actually just afew weeks prior to the launch of Danske Bank's MobilePay, in May 2013 Swipp was announced through a new product preannouncement. The main effect sought ‘with this action was to thwart MobilePay’s efforts to attract a sig- nificant user base in the times prior to Swipfs release. 5.12. Order of entry ‘As Swipp solution was launched approximately two months after the launch of the first-mover - Danske Bank's MabilePay, ‘we define Swipp as early follower. An analysis of the entry timing, decision indicates that banks were more interested in launching fast instead of trying to optimize the solution, ‘Successful entry timing in network industries is associated with, the ability to gain network effects. Swipp relies on the combined user base strength of al its members, which amounted to 81 banks present. But as these banks launched their Swipp solutions at dif- ferent times, they lost their main competitive advantage ~ the large user base. When Nykredit announced its Swipp in August 2013, only few banks had Swipp installed, which limited the size ‘of the Swipp network. Thus. intially a Swipp user can send money only to Nykredit and Jyske Banks customers as they launched soon after Nykredit. As more and more banks joined the Swipp network, its customer base stated to grow, but the delay of the launch had a negative impact on Swipp, as non-Danske Bank customers started to use MobilePay and did not wait for their own bank to launch a P2P mobile payment service. ‘At the same time, the banks did not invest much in promoting ‘Swipp to their customers, as there were stil features ofthe solu- tion that were not communicated to the users. For example, 10 "use Swipp, a user has to be a customer of one ofthe banks part pating in the development of Swipp. Thus, customers of Danske Bank, which does not participate in the sector solution, cannot use Swipp. However, as indicated at swippadk, customers of Danske Bank can use'Swipp if they register on the website. This feature, however, has not been communicated to the customers ‘who remain largely unaware of it. 5.13. Design of entry Swipp is an account-based P2P solution incorporated in the various mobile banking apps as a separate feature. Thus, the pro- uct, in this case the mobile banking app, is transformed into a ‘one-sided platform as the interaction, with the use of the feature, hhappens through it. This means that a user has to have a mobile banking app of a particular bank in order to use Swipp. Furthermore, the user has to log in with her NemID user code and password (Nordeadk). Just as with Danske Bank's MobilePay, the banks behind Swipp ‘wanted to launch first 2 one-sided platform, which later would evolve to encompass C2B payments. It seems logical to conclude that the fast response time to the first-mover's entry will ead to the launch of simple solution as there would not be sufficient time to develop a new innovative service. However, we abserve that the decision about the design ofthe platform was taken before the pio- neers’ entry. Thus, the frst-mover entry did not have an impact on the design of the platform, but rather on the cooperation between the banks in the Swipp network. 5.2 Swipp’s expansion strategy 5.21. Timing of expansion ‘After MobilePay transformed into being a two-sided platform, the same approach was undertaken by the Swipp network, which Eni and pansion Satay Tiniag of Bntey Order of Entry Design of Entry Danske Hank's ow prods | ry eto ‘Ones pao (padaet teamed aed tach aly follower turd ina plato) ‘Timing of Expansion ‘Order of Expansion Design of Expansion Aer MobilePay’s expansion | Ely flower Twossed platform ig 4 Sipps entry and expansion tater6 1S. Suyova, | Dansjard/ Electronic Consmerce Reseach and Applications 14 (2015) 319-220 launched Swipp for Business. The feature that allowed Swipp-users to make payments to small business and retailers was again not launched simultaneously by all of the partieipating banks. Swipp for Business was piloted in January 2014 by one of the larger banks, initially involving one coffee shop (Andersen 2014). In May 2014, the same bank announced that its customers could now use Swipp in stores and for online payments. Then, in June 2014, the largest partner announced the launch of Swipp for Business, 52.2. Order of expansion ‘Swipp's timing of expansion indicates that it kept its position as an early follower when the transition to C2B occurred. In order of ‘expansion, we investigate whether Swipp, as an early follower, could maintain its competitive advantage gained during the entry phase and whether it could acquire new advantage later. ‘As we observed, the sheer size of a user base attracted the mer- ‘chants, which became affiliated with the platform as they wanted to gain access to the customers. Thus, the size of the user base or the potential to attract more users in the future was the main deci- sive factor for joining a platform from the retailers’ perspective. As the recent figures show, the number of Swipp users increased 50% inthe first quarter of 2014 (nordea.dk). This was a result ofthe fact that more and more banks have been joining the Swipp network. For example, Nordea, one of the largest banks in Denmark, joined in December 2013. ‘Across the whole Swipp network of 81 banks, there are one mil- lion users who have the mobile banking app with the Swipp func- tion ready to be activated. Out of them, only 421,000 have activated Swipp so far though (nordea.dk). This clearly demon- strates the reach and the impact that the Swipp network can have ‘on the Danish mobile payment market. However, relatively 2 low number of users has chosen to activate Swipp. This shows that, although the initial competitive advantage was sustained and improved by connecting with the Swipp network, no additional ‘competitive advantage was gained. 5.2.3. Design of expansion ‘Swipp's design of expansion is identical to the one undertaken by MobilePay. After managing to attract around 400,000 active users, Swipp launched its Business Solution, and successfully trans- forming itself from a one-sided to a two-sided platform. Thus, ‘Swipp managed to leverage the same-side network effects of the Swipp network for establishing cross-side network effects. Merchants who want to use Swipp for Business just need to down- load the free app and activate it. Ths specific design ofthe solution indicates for low homing costs as merchants do not have to invest in POS terminals. As of September 2014, 1500 merchants joined Swipp for Business. which is comparable to the installed base of Mobile Pay. 53, 47S PAM (47) After more than two years of preparation, the online payment solution, Paii, was launched in mid-February 2014. The solution is operated by 47, a joint venture between all four major telecom ‘munication operators in the Danish market. They include Telia Denmark, TDC, Telenor and HI3G (3), and hence the name 4T. Although 4T is owned by MNOs, it functions as an independent Financial services company with EU E-money license. Paii enables users to make web and app purchases, transfer money to other Pail user's or pay via SMS without it showing up on their phone bill. Pali is an account-based solution but allows for users to link their payments cards to a Pali account. One of the main value pro- positions of the app is the simplified sign-in process: customers use only phone number and assigned PIN to initiate and confirm P2P and C2B payments. (See Fig. 5.) 5.4. Pai’ entry strategy 5.4.1. Timing of entry In summer 2011, the four major telecommunication operators, in Denmark announced their nev product preannouncement con- ‘cerning a common mobile payments solution. The MNOs were the first national players to spot the window of opportunity opening up. The reason for the MNOs' talks was the expectation that the ‘mobile payments market will be stitred soon. They also thought that the market was maturing quite rapidly. ‘Alter the new product preannouncement, the MNOs expected to attract the attention of the banks for Future cooperation. Talks ‘were initiated but soon stalled, as the two negotiating parties failed to reach a common agreement. When the bank's collab- ‘ration with the MNOs failed, the MNOs realized that they had to launch a service on their own and decided to form a separate ‘company, 4T, in November 2012. The MNOs ended up in the posi- tion of being the first to stir up the market to competing for launching first. At the beginning, the MINOs wanted to take the ini- tiative for shaping the market, but ended up in the position of a runner-up after the other players announced their new product preannouncements, The reason for the delay was due to some technical obstacles which were encountered during the product ‘development process and that the e-money license took longer t0 ‘acquire than expected. 54.2, Order of entry Despite its intention to launch as early as possible, Pali was launched in February 2014, more than half a year later after MobilePay and months after the first launch of Swipp. Pail was marketed as the fitst-mover in the market for account-based ‘online payments solutions in Denmark. Prior to the launch of Pali there had not been a successful Danish account-based online payment solution. Even though Paii was based on different technology, it aimed at ‘gaining the same user base as MobilePay and Swipp. Initially, the IMNOs defined big companies such as Google and PayPal as their ‘main competitors in the Danish market, but upon the launch of Pail the main rivals proved to be the solutions offered by the banks. ‘Thus, we categorize Pali as a late entrant in the Danish digital pay- ‘ment market ‘As the existing literature claims that the first-mover gains sig- nificant competitive advantage, we investigate whether the late entrant can overcome the advantage that the first-mover had ‘gained. Swipp, the early follower, relied om the vast user base of uy and pansion Sway Timing of Etry ‘nose aod nck: Swi lunch Order of Katey Late follower Design of Eat Tons plato Timing of Expansion ‘Order of Expansion Design of Expansion iS. Pits etry and expantion satgyeS Stayhova, J Danson Eerie Commerce Research and Appin 14 (2015) 319-220 a the Swipp network to gain significant network effects. As Pall Is ‘operated by an independent from the MNOs company (4T).it could ‘not inherit the user base of the MNOs, but had to start building it from scratch. Despite this, 4T is trying to utilize several contacting, points from the MNOs ro promote the new service. An example of a contact point was the situation in which advertisements about Pali ‘were pushed, while a customer has to wait on one of the telco’s customer lines. Bond and! Lean (1977) claim that late entrants who offer limited rgvelty can achieve substantial sales when the entry is backed by heavy promotional expenditures. Most of the playets we inter- viewed in the Danish market, however, stated that Pail offered {ew interesting services features to attract users. At the same time, 47 refrained from heavy promotional activities for attracting a sig- nificant user base. This makes it evident that Paii was unlikely to offset the competitive advantage gained by the two fist-movers. 5.43. Design of entry The design of the Pail was heavily influenced by the premium- ‘SMS business operated by the MNOs. The MNOs have had more than ten years of successfully enabling mobile payments through premium SMS for public transportation, parking, voting, digital goods, games. [As MNOs have had significant experience in facilitating the interaction between the consumers and merchants, they always ‘wanted to launch as a two-sided platform, by trying to simultane- ‘ously bring both consumers and merchants on board. An additional ‘motive for this decision was the 4T coalitions belie that monetiz- ing P2P transactions was not possible and the revenue streams should come from other features. 5.5. Pai’ expansion strategy Pali was launched as a two-sided platform and, due to its entry design, it cannot evolve as quickly as MobilePay and Swipp can. Thus, it was not possible to investigate the timing and mode of expansion, as Pail did not expand by adding new features or dis- tinctive group of users but instead the efforts were concentrated fon growing a user base. To solve the chicken-and-egg problem, Paii adopted a differ- entiated approach toward the two sides of the platform. Unlike MobilePay and Swipp the 4T solution was primarily marketed 10 the merchants with minimum promotions towards the consumers, ‘This was justified with the argument that users would not stick to the solution if they could not use it in many online shops. The assumption was that once there were a significant number of mer- chants affiliated with the solution, the value proposition and the attractiveness of Paii would increase for the consumers, Six months ater its launch, Paii had managed to sign up around 80 retailers ‘out of the 20,000 web shops operating in Denmark. They offered services in different categories, such as electronics, accessories for home, fashion shops, jewelry and watches, food and entertain- ‘ment, transport service providers, sport outlets, personal care and health (paiik). The timing of expansion that we observed with Swipp and MobilePay brought more changes in the trajectory of growth, and ‘was a source of competitive advantage if it was used wisely. Pali, however, could not easily take advantage of the timing of expan- sion because ofthe design of its platform. Even though Pai focuses primarily on attracting merchants, the solution functions only if there are sufficient numbers of consumers with Paii accounts We argue that Pai, as a result, had significantly fewer opportu ties for gaining competitive advantage throughout its platform development. 6, Discussion In this article, we tried to measure whether competitive dynam- ics trigger a race to launch new payments platforms, and have an impact on the timing of the first-mover. We did this by specifying the timing of entry and mapping out different market signals of the ‘competing players. As new product preannouncements can serve as a market signal tool, we tried to identify the relevant new pro- ‘uct preannouncements and analyze their effect on the competi: tive dynamics. In the summer of 2011, the MNOs decided to start informal talks about a possible future cooperation, They decided not to com- ppete against each other, but rather to utilize their common resources. The initial new product preannouncement made by the MNOs during the summer of 2011 aimed at serving as a basis {or future cooperation between banks and MNOs, as the MNOs ‘wanted to attract the banks to work on a common solution for ‘mobile payments. New product preannouncements can be used to send signals for potential future partners. Although some banks ‘were close to joining the cooperation, the banking sector decided ‘not to participate. ‘After the intentions of the MNOs to enter the digital payments, _market were revealed the banks decided that they should also plan ‘market entry. Thus, the bank’s cooperation, which later material- ized in Swipp, was triggered by the MNOs’ new product ppreannouncement. The banks recognized that, if the MNOs were to launci a solution first, they would capture a large share of the Danish mobile payments market. Thus, the talks for potential cooperation between the banks and the MNOS intensified the com- petition between them, leading to a race to launch. ‘The initial new product preannouncement by the MNOs indi ‘ated that the intentions ofthe telecom operators to enter the mar- ket would materialize sooner of later. After the talks for launching. common bank sector solution failed to progress with the neces- sary speed, Danske Bank left the cooperation and started working, (on its own solution. Thus, we conclude that the intensified com- petitive dynamics influenced Danske Bank’s decision to enter the ‘market first and to have a solution ready as soon as possible. In this article, we also have sought to outline the impact of the first-mover’s entry on the timing of entry of the other market players. Estimating the relative response time of the followers to the first-mover’s timing of market entry, in our view. would reveal ‘whether the pioneer’s entry triggered a cascade of competitive responses. Danske Bank's announcement about working on its own solu tion constitutes an indirect second new product preannouncement in the Danish digital payment market. Ths, together with the sub- sequent launch of Danske Bank's P2P app MobilePay six months after the new product preannouncement, sent a signal to the other Contenders who decided to speed up their product development process, ust a month before the launch of MobilePay, rival Swipp ‘made a new product preannouncement mainly aimed at informing consumers about the Swipp solution, and to prevent MobilePay {rom obtaining.a large user base. The early follower, Swipp, entered the market approximately two months after the fist-mover ‘MobilePay. The different banks participating in the Swipp network decided not to wait for a common solution to be made available, instead opting for a separate launch. The fragmented launch strat- egy of the Swipp banks was attributed to their desire to launch as soon as possible in order to prevent the pioneer from gaining too ‘much frst-mover advantage. This clearly indicates that the timing, of entry ofthe first-mover has an impact on the timing of entry of its rivals. ‘Two of the entrants, Swipp and MobilePay, entered the market as one-sided platforms that facilitate the interaction between onens 1S. Suyova, | Dansjard/ Electronic Consmerce Reseach and Applications 14 (2015) 319-220 distinctive group of users with interchangeable roles. One-sided platforms offer a limited number of features and functionality (P2P services, in our case) and exhibit low homing costs. Most of these digital payment solutions are offered for free. Due to the low homing costs, one-sided platforms are also characterized by low switching costs that allow for different users to mult-home. ‘One-sided platforms are attractive as a design of entry in the digi- tal payment market, as they can accumulate relatively easy a sig. nificant user base with the same-side network effects, but due to the simplicity oftheir design and lack of lock-in effects, they are also easier to attack and imitate by rivals. ‘As a huge installed base can act as a barrier to entry for fol- lowers, we argue that an early follower should enter the market 8 soon as possible after the entry of the first-mover in order to take advantage of the low switching costs and lack of lock-in ‘effects. possible way to fight against the strong network effects incurred as a result of the first-mover advantage is for followers to rely on a larger user base with stronger network effets (plat- form envelopment). The early follower Swipp, however, filed to use the accumulative network effects and user base of the Swipp network, as the participating banks entered the market separately ‘We also conclude that, upon entry, the follower will benefit from Imitating the design of entry of the pioneer. Ifthe first entrant offers a solution with fow switching and homing costs, then the follower should also offer a solution with low homing and switch- ing costs initially o guarantee that consumers can multi-home. fa follower’ platform exhibits high homing and switching costs, this ‘may prevent consumers from adopting it. ‘The defensive reaction ofthe first-mover is to expand as soon as possible, by adding a new side or new features to its initial value proposition to gain more competitive advantage. As the evolvabil- ity of the digital platform ~ by transforming from a one-sided to two-sided and multi-sided platform - is essential for its ability to gain more competitive advantage over time, timing of expansion ‘can be seen as a source of competitive advantage for both the fist-mover and followers. ‘We managed to establish that the timing of expansion of the first-mover triggered a responsive reaction from the early follower. Swipp was transformed into a two-sided platform just three months after MobilePay added a second distinctive group of users, the merchants. Thus, the order of entry was kept the same during the expansion stage with Danske Bank being the first-mover and Swipp the early follower. The order of expansion does not have to follow the order of entry. and thus Swipp could have added the merchant side before the first entrant MobilePay. If Swipp hhad done so, it could have gained a competitive advantage over MobilePay. The reason why it could not expand is the fragmented ‘entry and expansion strategy ofthe Swipp network, and because it had not been able to attract a critical mass of customers on its ini- tial side. Almost identical to the entry, the early follower replicates the ‘expansion move of the first entrant. Thus, the follower responds to the pioncer's expansion as soon as possible in order to pre- vent the first-mover fom achieving lock-in effects. During the ‘expansion the one-sided platform is transformed into being two-sided by adding a second distinctive group of users. The large installed base as well as the cross-side network effects prove to be attractive for the merchants, who join the platform in order to gain access to the affliated consumers. Contrary to ‘our inital assessment, attracting a second side to the platform ‘did not result in higher lock-in effects. & study performed by kim et al, (2013) finds out that the incumbent's lead in the mer- chant-side performance appears largely attributable to its greater network size on the consumer side. This puts an emphasis 00 the importance of the network effects that characterize the con- sumer side, Comparing Swipp’s user base and MobilePay’s user base offered ‘other insights. There is a huge discrepancy between the size and the same-side network effects exhibited by the two platforms. ‘There are more than 1,300,000 users for Danske Bank and approxi- ‘mately 450,000 for Swipp. Both of them attracted almost the same amount of merchants though: 1950 for MobilePay and 1500 for Swipp. This signals that cross-sided effects can be created even though the user base ofthe follower is smaller than that of the pio- reer. Tis is attributed to the fact that merchants as well as con- sumers also have low homing and switching costs. They only ‘download an app and do not invest in POS terminals, so they tend to multi-home. Thus, low switching costs can annul the frst-mover advantage associated with same-side network effects. Furthermore, as consumers are not locked into a particular solu- tion, the merchants do not have incentive to be affiliated to only ‘one platform. ‘While two-sided platforms still lack strong lock-in effects for both consumers and merchants, it will be very dificult to monetize ‘C2B transactions. Currently, both MobilePay and Swipp are offered for free for both consumers and merchants. The two players dis- sed different pricing strategies for the money-side of the plat- form, the merchants. As both platforms are characterized by low switching costs, pricing one higher than the other will trigger migration towards the platform with lower homing costs. This will spur pricing wars between the two solutions, Pricing might be suc- ‘cessful for the solution with larger installed user base, since the merchants would like to gain access to it, but the success of this strategy is dependent on the presence of relatively strong lock-in effects In order to retaliate, the follower should avoid pricing the access to its platform in particular if it has smaller user base ancl lack of lock-in effects. Pricing forthe follower is possible only if it achieve strong user base and strategie differentiation with high lock-in effects This observation implies that the platform needs to continue ‘expanding in order to gain more competitive advantage by adding, «third side and turning into a truly mult-sided platform. The first- ‘mover had already decided to increase its value proposition by ‘enabling MobilePay as a payment method for in-app purchases in merchant's solution. During the time this article was under ‘development, this move was not replicated by the early follower Swipp. The timing of Swipp expansion compared to the timing of entry indicates a slowdown in the response time. Swipp’s response tothe entry of MobilePay came in approximately one month, while the response to expansion was three months. This trend was ‘observed, and for the latest expansion of the first-mover, which vas introduced in June 2014. And by the time we completed this research article, a number of months after the launch, it still had not been replicated by Swipp. ‘Although we have strong reasons to believe that Swipp will also be incorporated as a payment method in merchants app. the fact that this has not happened sooner may indicate that MobilePay has gained strategic differentiation from its rival and thus a new source of competitive advantage. Shapiro and Varian (1999) argue that competitive advantage can be controlled by exploiting the lock-in eycle of customers alittle longer. Thus, the longer the mer- ‘chants can use MobilePay as a payment method in their apps with- ‘out trying to multi-home to another solution, potentially the more locked-in they can become, making the replication move from the follower more difficult, Due to the limited empirical data, we were rot able to test further this hypothesis, but we believe that the fol- lower should not allow the frst-mover to exploit lock-in cycles, and instead should replicate the pioneer’s move as soon as possi- ble. At the same time, itis important to achieve strategic differ- ‘entiation by introducing first new features or adding new sides. ‘Our analysis demonstrates thatthe late follower in the Danish digital market, Pali, entered as a two-sided platform, trying t0eS Stayhova, J Danson Eerie Commerce Research and Appin 14 (2015) 319-220 ne bring both consumers and merchants on board simultaneously. As establishing same-side and cross-side network effects atthe same time proved to be dificult, Pai decided to focus on attracting as ‘many merchants as possible. Merchants form one distinctive group of users but they do not exhibit same-side network effects. Thus, Pali have to create cross-side network effects by growing the mer” chant side in order to attract the consumer side. With alittle over 80 merchants joining the solution, the platform has not yet achieved a significant installed base. Pali can be successful if it has a unique value proposition, which will differentiate the platform from its competitors. The main Fea- {ures offered by Pail include online payment methods, in-app pur- chases and P2P transactions. But these are offered by other competitors as wel, including MobilePay and Swipp for P2P, and ‘MobilePay for online payment methods, and in-app purchases. ‘At the same time, this specific design of entry hindered the abil- ity of the platform to develop as frequently as the other contenders lid, Thus, Pait struggled to gain the necessary competitive advan- tage to compete successfully with the other solutions, which lim- ited the ability ofthe platform to retaliate. 7..Conclusion In this article, we provided answers to a number of strategic issues faced by competing digital payment platforms. In order to «do so, we conducted an in-depth case study analysis of three com- peting solutions in the Danish market. Our analysis demonstrated that, in the digital payment markets, ‘the competitive dynamics influence the timing of the frst-mover tries to launch as early as possible. On the other hand, the timing, of entry of the first-mover speeds up the timing of entry of the early follower, determining the order of entry. There are indica- tions for a first-mover advantage in the digital payment markets as indicated by the race to launch triggered by the NPP and the fast responses of the other rivals to first-mover's entry. We also found that the early follower tends to replicate the strategic moves of the pioneer during both the entry and expansion phase. In network markets, the follower will be better off if tit {ates the strategic choices made by the pioneer upon entry inorder to prevent the first-mover from gaining a huge installed base, ‘which constitutes a barrier to entry. Imitation strategy for an early follower can be successful ifthe pioneer’s solution has low switch- ing costs, butif the follower wants to gain a lead it has to adda fea- ture or a new platform side before the pioneer does that, thus achieving strategic differentiation. We also managed to outline the importance of the design of centry forthe success of the platform, Evolvability is an important characteristic ofthe digital platforms and an important source of competitive advantage. One-sided platforms evolve more fte- ‘quently than two-sided platforms; thus, they are more successful in gaining competitive advantage. One-sided platforms are very easy f0 attack due to their low switching and homing costs, but also easier to expand as they can add new sides and features in ‘order to achieve lock-in effects faster than two-sided platforms ‘an. Thus, timing of expansion is of equal importance asthe timing, of entry as if expansion is not executed within the optimal time, the previously gained competitive advantage can be annulled We found evidence that if two-sided platforms have low switching costs for both consumers and merchants, the frst-mover advantage associated with strong same-side network effects can be ‘neutralized as merchants and consumers will multi-home. This indicates that monetizing C2B transactions will be very difficult and that a platform has to continue to evolve by adding new fea- tures or new sides in order to achieve lock-in effects. One of the main limitations of the article is the specific one~ country approach investigating only the dynamics of the Danish ‘market. Thus, we encourage researchers to use the same frame- ‘work to investigate the entry and expansion strategies of digital payments solutions in different markets. Appendix A. Overview of the danish payment market Denmark and the other Nordic countries are among the coun- tries with the lowest number of cash payments per capita. In 1990, the share of cash in retail payments was estimated at 80%, bbut by 2012 it had fallen to 25% (Danish Payment Council 2013), Cheques are hardly ever used in retail trade any longer, and the use of cash has dropped to just one-quarter of the value of payments ‘Over the last two decades, the use of credit and debit cards in Denmark rose. Card payments dominate the Danish market due to the strong presence of Dankort, the national debit card, which is the principal payment instrument in Denmark. In 2012, there ‘were approximately 11 million payment cards in Denmark - or approximately two cards per Dane. OF these, 48 million were Dankort cards Online shopping has also grown considerably, with more than 15% annual growth of the online Dankort transaction in recent years. Denmark is among the European countries with the largest volumes of online transactions. At the same time the usage of smartphones is increasing with fast pace from 33% in 2011 10 663% in 2013 (Danmarks Statistik 2013) A recent study showed that {93% of Danes used a smartphone at least once in 2013, ‘The central role in the Danish payment infrastructure is played by Nets, a Nordic provider of payments, card and information ser- vices. Nets activities span a range of business areas. These include solutions for invoicing and collecting payments, processing of card payments for issuers and acquirers and acquiring of card payments for retailers. In addition, Nets provides solutions for electronic identification (NemD). and signing and point-of-sale payment terminals, among other things. Nets owns the rights (© Dankort and acquires Dankort payments. Nets also operates the banks" pri ‘mary system for settlement of retail payments in Denmark called SumClearing. 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