Does Platform Owner’s Entry Crowd Out Innovation? Evidence from Google Photos

Abstract

We study platform owner's decision to enter the market complementary to its platform with its own complement, and the consequences of such an entry on complementors' decision to innovate in the affected market category. We ask: if a platform owner like Google releases an app for its Android platform, does it keep app developers from innovating in the future? We investigate two mechanisms that suggest entry to stimulate complementary innovation. A racing mechanism, which prompts affected complementors to innovate due to competitive "Red Queen" dynamics, and an attention spillover mechanism, which suggests increased innovation to result from spillover consumer attention to same-category complements. We exploit a unique setting provided by Google's entry into the market for photography apps on its own Android platform in 2015 as a quasi-experiment. Whereas several models predict such an entry will erode complementors' incentives to innovate, our difference-indifferences analyses of time-series data on a random sample of 6,620 apps suggest the contrary. After entry, app developers were more likely to incrementally innovate their photography apps and to release new apps to the affected market category. Although we do not observe a racing effect, our analyses support the attention spillover effect. In other words, Google's entry created additional consumer attention and demand for photography apps, which spill over to complementors in the same category.

Ecosystem-specific advantages in international digital commerce

“…Thus, to transfer ESAs, platforms may need to recalibrate their governance rules; they might introduce in other markets valuable third-party innovations as their own offerings so as to expand their scope and attract more users and complementors. Previous research confirms that platform integration as such can guide the allocation of innovation resources among ecosystem participants (Foerderer, Kude, Mithas, & Heinzl, 2018). This may have implications for the competitiveness of the ecosystem as a whole and can constitute a unique, dynamic advantage for platforms operating in multiple markets.…”

Friends or foes? Examining platform owners’ entry into complementors’ spaces

“…The spillover effect is positive for the large third‐party apps and negative for the small third‐party apps, which suggests that this integration benefits competing third‐party applications with a large user base but hurts those with a small user base. Foerderer, Kude, Mithas, and Heinzl () find similar results after examining Google’s entry into the market for photography apps on its own Android platform in 2015. They find that entry creates additional consumer attention and demand for photography apps, which has a positive spillover effect on complementors in the same category.…”

Too Many User-Reviews! What Should App Developers Look at First?

“…Then, we calculate weighted cosine similarity [60] between each release note and key topics versus non-key topics. Release notes highlight the major updates in an app [61]. We calculate the similarity using the words in release notes and vectors of words that are extracted by applying the topic modeling (see Section 2.3).…”