Threat of Platform-Owner Entry and Complementor Responses: Evidence from the Mobile App Market

Wen  Wen; Feng  Zhu

Article | Strategic Management Journal | 2018

Threat of Platform-Owner Entry and Complementor Responses: Evidence from the Mobile App Market

by Wen Wen and Feng Zhu

Abstract

We examine how app developers on the Android mobile platform adjust their innovation efforts (rate and direction) and value-capture strategies in response to Google’s entry threat and actual entry into their markets. We find that, after Google’s entry threat increases, affected developers reduce innovation and raise the prices for the affected apps. Once Google enters, the developers reduce innovation and increase prices further. However, app developers’ incentives to innovate are not completely suppressed; rather, they shift innovation to unaffected and new apps. Given many apps already offering similar features, Google’s entry may reduce such social inefficiency.

Keywords: platform-owner entry; entry threat; innovation; complementors; mobile app industry; Technology Platform; Mobile Technology; Market Entry and Exit; Price; Innovation and Invention;

Format: Print

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Citation:

Wen, Wen, and Feng Zhu. "Threat of Platform-Owner Entry and Complementor Responses: Evidence from the Mobile App Market." Strategic Management Journal 40, no. 9 (September 2019): 1336–1367.

One common complaint from third parties about platform businesses is that they see what succeeds on their platforms and then enter the most profitable areas themselves, often decimating third parties in the process. Studies have identified several motivations for platform-owner entry beyond just value capture. Multiple studies have suggested that platforms opt to enter directly in order to improve quality, for example. And the effect of platform entry on complementors is mixed. Some studies found that platform entry can create positive spillover effects on third parties and increase their demand. However, a few other studies find that the impact of entry on complementors can be negative. Google’s introduction of flights into its search engine decreased clicks on other organic results, for example. Careful empirical analysis is needed before policy intervention.

ZBJ.com (ZBJ), an online platform that connects knowledge workers to small- and medium-sized enterprises, is China’s largest outsourcing platform. Founded by Mingyue Zhu in 2006, ZBJ had grown into a unicorn with 4,000 employees and a daily transaction volume of RMB15 million by 2017. During the company’s 11-year history, ZBJ had launched ten transformation campaigns to overcome various challenges by changing its products, operations, and business model. For example, it encountered a winner-takes-all competition, disintermediation (when service providers and clients took transactions off the platform to avoid the platform’s 20% commission fees), the rise of fake transactions, member management issues, and difficulties in delivering satisfactory services to large enterprises. Zhu must decide how to use the next campaign to address challenges that had emerged since the last campaign as well as how ZBJ should expand globally.

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Threat of Platform-Owner Entry and Complementor Responses: Evidence from the Mobile App Market

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