The Ecosystem of Software Platform: A Study of Asymmetric Cross-Side Network Effects and Platform Governance

Abstract

While past research on software platform has recognized the existence of cross-side network effects (CNEs) between the application side and the user side, little is known about the asymmetry between the CNEs of the two sides on each other. Informed by a perspective of complex adaptive systems, this study theorizes how the user-to-application CNE is temporally different from the application-to-user CNE, and how these CNEs may be influenced by the governance mechanisms of the platform. We empirically test our theoretical arguments using a longitudinal data about a leading software browser. Our first main finding is the temporal asymmetry between the user-to-application CNE and the application-to-user CNE. Specifically, while the increased installed base of end users has a primarily long-term impact on the growth of application number and variety, the increased number and variety of applications have primarily short-term impacts on the growth of end users. Our second finding is that the length of application review time weakens the long-term user-to-application effect, but not the short-term application-to-user effect. Third, we also find that frequent platform updating can significantly weaken both the long-term user-to-application CNE and the short-term application-to-user CNE. Our study generates important theoretical and practical implications.

Keywords: Software platform, two-sided market, network effect, IS governance, complex adaptive systems