Understanding how platform modularity enhances network effects

Abstract

With modular architecture, digital platforms comprise decomposable modules and well-defined interfaces that provide the technical capabilities for reconfiguring, extending, and evolving products. Drawing on research in engineering design and industrial economics, we investigate how the architectural modularity of platforms can be employed to enhance network effects. We illustrate how the structural elements and capabilities of modular architecture can be leveraged to strengthen network effects and how the objective of scaling platforms can drive the formulation of modularization principles to define modules and interfaces. We then discuss Microsoft Power BI, a business intelligence platform, as a specific example and describe how the components and functions of Power BI are utilized to strengthen network effects. Our study highlights the interplay between platform architecture and network effects, showing how architectural modularity can lead to network growth. It contributes to research on digital platforms and digital product innovation.