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

Forthcoming in Information Systems Research

33 Pages Posted: 7 Jul 2016 Last revised: 23 Feb 2018

See all articles by Jens Foerderer

Jens Foerderer

University of Mannheim - Department of Business Administration and Information Systems

Thomas Kude

University of Mannheim

Sunil Mithas

University of Maryland - Robert H. Smith School of Business

Armin Heinzl

University of Mannheim

Date Written: June 30, 2016

Abstract

Platform strategies have become important for leveraging complementary innovation. When firms follow a platform strategy, the focus of value-creating activities shifts from the coordination of production and supply toward the governance of complementary innovation. We study the consequences of platform owners’ decision to compete with complementors by entering their market segment with an own, rival product on the innovation output of complementors. 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 existing models predict such an entry to erode complementary innovation, our analyses of time-series data on a random sample of 6,620 apps suggest the contrary. After entry, complementors were more likely to incrementally innovate their photography apps and to release new apps to the affected market category. We estimate that the entry caused an increase in the likelihood of major app updates by 9.6% for apps affected by Google’s entry, as compared to similar but not affected apps. Further analyses lend little support to the “racing” or “Red Queen” explanation that increased innovation is a competitive response to entry. Instead, our analyses suggest increased innovation to result from a spillover of consumer attention. Our findings suggest that Google's entry created additional consumer attention and demand for photography apps, which spilt over to complementors in the same category. This attention spillover effect was particularly pronounced for larger and more diversified complementors. We discuss implications for research, policy, and practice for managing complementary innovation in digital platforms.

Keywords: Platform Entry, Complementors, Innovation, Google Photos, Racing, Red Queen, Attention Spillover

Suggested Citation

Foerderer, Jens and Kude, Thomas and Mithas, Sunil and Heinzl, Armin, Does Platform Owner's Entry Crowd Out Innovation? Evidence from Google Photos (June 30, 2016). Forthcoming in Information Systems Research. Available at SSRN: https://ssrn.com/abstract=2805510

Jens Foerderer (Contact Author)

University of Mannheim - Department of Business Administration and Information Systems ( email )

68131 Mannheim
Germany

Thomas Kude

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Sunil Mithas

University of Maryland - Robert H. Smith School of Business ( email )

​Van Munching Hall
7699 Mowatt Ln
College Park, MD 20742-1815
United States

HOME PAGE: http://sunilmithas.com/

Armin Heinzl

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
72
rank
317,242
Abstract Views
522
PlumX Metrics