Let a Thousand Flowers Bloom? An Early Look at Large Numbers of Software 'Apps' Developers and Patterns of Innovation

Abstract

It is often presumed that bringing more members on board a multi-sided platform will stimulate value creation. Here I study the thousands of software producers building applications (“apps”) on leading handheld computer platforms (1999-2004). Consistent with past theory, I find a lock-step link between numbers of producers and varieties of software titles. The narrow, unchanging scope of producers and a series of other patterns are consistent with a pronounced role of specialization and heterogeneity of producers. I also find that while adding producers making different types of software stimulated investment incentives, consistent with network effects, adding producers making similar software crowded-out innovation incentives. The latter of these two effects dominates in this context. The patterns also indicate non-random generation and sorting of producers onto platforms, with later cohorts generating systematically less compelling software than earlier cohorts of entrants. Overall, added producers led innovation to become more dependent on population-level diversity, variation and experimentation - while drawing less on the heroic efforts and investments of any one individual innovator.

Keywords: competition and innovation, multi-sided platforms, distributed and open innovation, network effects, software and digital innovation