Digital platforms are taking part in a battle between diffusion and differentiation

“To compete, digital platforms face a dilemma. Should they prioritise rapid growth or build unique features that competitors can’t easily copy? Marvin Hanisch and Curtis Goldsby outline the strategies in the battle between diffusion and differentiation. We break down the strategic decisions that determine whether a platform thrives or falters and explain how platforms balance supply-side content strategies with demand-side user strategies. We also explore how competitors exploit vulnerabilities and why some platforms coexist while others dominate or disappear. The core trade-off of diffusion v differentiation Platforms operate in multi-sided markets where value comes from connecting different groups – think of Uber linking drivers with riders or Airbnb connecting hosts with travellers. The more users and providers a platform attracts, the more valuable it becomes. This is the power of network effects . But platforms must choose between two fundamental strategies. The first, diffusion, focuses on rapid expansion. Platforms like eBay and Facebook grew quickly by attracting as many users and providers as possible. The goal is to become the default choice in a market. The second, differentiation, focuses on uniqueness. Platforms like Apple’s App Store or Nintendo’s gaming ecosystem invest in exclusive content and loyal communities. The goal is to create features that competitors can’t easily replicate. Each has risks. Diffusion can lead to fast growth but makes platforms vulnerable to imitation. Differentiation builds resilience but often slows expansion. In our research , we explore the strategies associated with each side of the platform. Supply side: how platforms manage content The supply side of a platform refers to the content or services it offers. This could be films on Netflix or products on Amazon . Platforms use three main strategies to manage their supply side. The first is the aggregator approach, which we call “Collection.” Platforms like Booking.com and eBay act as brokers. They gather content from third parties without creating it themselves. This allows for rapid scaling and low costs, but it also makes the platform easy to imitate. If a competitor offers better terms, providers and users can quickly switch. Trivago aggregates hotel listings from various sources. It doesn’t own hotels, but provides a convenient way to compare prices. However, competitors can easily replicate this model. The second is the exclusivity play, which we call “Curation.” Platforms can offer exclusive content. Apple TV+ doesn’t produce its own shows, but it partners with studios to offer content that’s only available on its platform. This reduces the risk of users switching to competitors, but it requires investment. Spotify, a streaming service, struck deals with podcasters like Joe Rogan to offer exclusive content. This helped the firm to differentiate itself from competitors like Apple Music and Amazon Music, which rely more on broad catalogs. The third is the control strategy, also called “Creation.” Some platforms take full control by creating their own content. Netflix invests billions of dollars in original series and films. Sony develops exclusive games for its PlayStation console. This offers the highest level of differentiation but comes with high costs and risks. Amazon Prime Video produces award-winning original series like The Boys and The Marvelous Mrs. Maisel . By owning the content, Amazon ensures that users stay loyal to its platform. And the more a platform invests in proprietary content, the harder it is for competitors to replicate. But this comes at the cost of slower growth and higher expenses. Demand side: how platforms engage users The demand side refers to how platforms attract and retain users. Just as with content, platforms face a trade-off between quantity and quality. The first is to play the numbers game, which we call “Accumulation.” Platforms like Facebook and X focus on maximizing user numbers. The logic is simple: more users attract more providers, which in turn attracts even more users. However, this approach risks low user loyalty. If a competitor offers a better deal, users can switch. TikTok accumulated users rapidly by offering a simple, engaging format for short videos. Its algorithm-driven feed attracted a massive global audience. But Instagram Reels and YouTube Shorts quickly replicated this model, forcing TikTok to differentiate itself again. The second is an engagement strategy, which we call the “Activation.” Instead of just growing user numbers, platforms can focus on increasing user activity. Food delivery apps like Deliveroo benefit when users order frequently. Higher engagement leads to stronger network effects and greater loyalty. Duolingo , a language-learning app, uses gamification to keep users engaged. This deepens user investment in the platform and makes switching to a competitor less appealing. The third is a community approach, also called the “Association.” Gaming platforms like Xbox Live and Discord foster communities through forums, events and shared experiences. This creates high switching costs and protects the platform from competitors. Peloton doesn’t just sell exercise bikes; it builds a community. Users join live classes, compete on leaderboards, and connect through social features. This sense of belonging makes users less likely to switch to a cheaper alternative. Platforms that focus on user engagement and community build stronger defenses against competition. But these strategies require significant investment and time. Figure 1 : The Core Platform Trade-off: Diffusion vs. Differentiation How platforms attack and defend When platforms compete, their strategic choices determine the outcome. A platform’s vulnerability depends on how much it relies on diffusion versus differentiation. Supply-side attacks, or cutting off content. A competitor can target a platform’s supply side by offering exclusive content that lures providers away. When Disney launched Disney+, it pulled its content from Netflix . This forced Netflix to invest in original programming. Disney+ gained over 100 million subscribers in just two years. Demand-side attacks, or winning over users. A competitor can also target a platform’s user base by offering better incentives or exclusive features. Epic Games challenged Steam by offering free games and exclusive titles on its store. This attracted millions of users, who then brought game developers to the platform. More recently, Anthropic , an AI firm, has made it easy for new users to make the switch to its Claude from other competing platforms like OpenAI’s ChatGPT through its memory feature. Four competitive outcomes When platforms compete, four scenarios can emerge. Competitive substitution, where the “winner takes all”. When both platforms focus on diffusion, the result is often a fierce battle for dominance. The stronger platform absorbs the weaker one’s network. Facebook outcompeted Myspace by offering a more engaging user experience. Myspace’s decline was rapid once users and advertisers migrated to Facebook. Competitive separation, where the niche players survive. If a competitor differentiates while the incumbent focuses on diffusion, the market can support both. The differentiated platform serves a niche, while the incumbent dominates the mass market. Etsy carved out a niche in handmade and vintage goods, while eBay remained the go-to for general auctions. Both platforms coexist because they serve different user needs. Competitive absorption, where the underdog grows. If the incumbent differentiates but leaves parts of the market underserved, a competitor can swoop in with a diffusion strategy. Apple’s iOS targeted premium users, leaving room for Android to dominate the mass market with affordable devices. Android now has a much larger global user base, while iOS retains its loyal, high-spending customers. Competitive complementarity, where firms achieve peaceful coexistence When both platforms differentiate, they can coexist by serving distinct user groups. Xbox and Nintendo target different gaming audiences. Xbox appeals to adult gamers while Nintendo focuses on family-friendly games. Both thrive without directly competing. Figure 2 : Four Competitive Outcomes What lessons should this hold for platform managers? Balance speed and uniqueness. Rapid growth is tempting, but platforms that invest in differentiation build long-term resilience. Monitor competitors. A platform’s vulnerability depends on its strategic choices. If you rely on diffusion, expect competitors to exploit your weaknesses. Adapt over time. Platforms like Netflix shifted from diffusion (licensing content) to differentiation (producing originals) as competition intensified. Consider hybrid strategies. Some platforms combine elements of both approaches. Amazon aggregates third-party sellers (diffusion) while also offering exclusive products (differentiation). The future of platform competition As digital platforms continue to evolve, the tension between diffusion and differentiation will remain central. New technologies like blockchain and AI may change how platforms compete, but the core strategic trade-offs will persist. Platforms that understand these dynamics, and adapt their strategies accordingly, will be best positioned to succeed. Growth alone isn’t enough. Building unique value, whether through exclusive content or loyal communities, is what separates enduring platforms from fleeting ones. This blog is based on Digital Platform Strategies: Strategic Positioning and Competitive Dynamics in Network-Based Markets , the authors’ chapter in Value Creation in Digital Platforms and Business Ecosystems: Networks, Relationships and the Platform Markets , published by Routledge in 2026. Enjoying this post? Sign up to the LSE Business Review newsletter and receive a weekly roundup of all our articles. This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment. Image credit: joingate provided by Shutterstock. The post Digital platforms are taking part in a battle between diffusion and differentiation first appeared on LSE Business Review .

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