How Nesting Changes Platform Strategy

Should your platform host another platform — or be hosted by one? Here's how to think through the choices.

- By Elizabeth J. Altman, Mary Tripsas, Tommaso Buganza, and Daniel Trabucchi

WHEN ONE OF US, A LONGTIME Spotify user, set up her new Sonos speaker, the Sonos app prompted her to link music services. With a quick login, she was able to connect her Spotify account to Sonos. Suddenly, Sonos became her go-to gateway for music at home. Spotify, once her primary music platform, became relegated to a secondary role within Sonos's ecosystem. While this arrangement is convenient for the user, it has strategic implications — both challenges and opportunities — for the companies involved.

We refer to an arrangement where one platform embeds into another platform’s user experience as a nested platform. The host platform gains partial or total control of the customer experience. The nested platform provides an embedded experience. User experiences span both platforms, which aim to create value for users while increasing their own strategic advantage. A host may choose to allow multiple platforms to nest into it: Amazon Music, Apple Music, Spotify, and other streaming services are all nested into the Sonos platform. Similarly, a nesting platform may choose to nest on multiple hosts; for example, Spotify also nests into other hardware platforms, such as Amazon devices that use its Alexa virtual assistant. Further, platforms may choose to nest in some cases and host in others. Spotify, for example, nests into Sonos’s app but also has its own Spotify Connect interface, which allows it to function as a host with device platforms nesting into it.