1. Feng Zhu Harvard University Joint with Wen Wen at UT Austin
Threat of Platform-Owner Entry and Complementor Responses: Evidence from the Mobile App Market
Feng Zhu
Harvard University
Joint with Wen Wen at UT Austin

2. The Age of Platforms Facebook 7 mill apps and websites 160,000 drivers
Uber
1.6 mill apps
7 mill sellers
Android
Alibaba
8 mill public accounts
1.5 mill apps
iOS
WeChat

3. Concerns from Complementors
Platform owners may imitate and embrace their innovations.
vs.
vs.
Noah Corp.
vs.

4. Views from Platform Owners
“We started from the point that one company cannot be the best in all areas. So the more partners that we have to innovate around our technology, the more it will be a win/win situation.”
Henning Kagermann, former CEO and Chairman of the Executive Board of SAP
“We have to be extremely clear with our partners about what they can expect. One rule is that we cannot protect the partner forever – (we cannot guarantee) that there may not be a time when we are forced to enter his space.”

5. Empirical Literature
All empirical studies have shown positive benefits of platform-owner entry to consumers (at least in the short term).
Mixed evidence on the complementor side
Google’s prominent placement of its Flight Search service decreases the clicks on organic search listings (Edelman & Lai 2016).
Facebook’s integration of Instagram has a positive spillover effect on big third-party photo applications and a negative spillover effect on small third-party photo applications in its photo-sharing ecosystem (Li & Agarwal 2017).
Google’s entry into photo apps increased the demand for third-party photo apps (Foerderer et al. forthcoming).

6. Our Paper
Look at threats of platform-owner entry in multiple entry events
Focus on innovation incentives
How do complementors adjust their rate and direction of innovation efforts?
Provide additional reasons why platform-owner entry may not be bad for complementors

7. Research Design
Use the mobile platform Android as our research setting.
We examine how app developers on Android respond to Google’s entry threat and its actual entry into the Android app markets.
Identify changes in entry threat from Google using Apple’s entry into the same product space.

8. Take the flashlight market as an example:
Under Google’s entry threat
After Google’s actual entry t
June 2013
November 2014
August 2015
ANDROID APP DEVELOPER
iHandy
Adjusted its innovation/price on this affected app?
Responded differently during the actual-entry period?
Quick Scan - Barcode Scanner
Adjusted its innovation on this unaffected app (by an affected developer)?
ANDROID APP DEVELOPER
TWMobile
Adjusted its innovation on this unaffected app (by an unaffected developer)?

9. Research Design
Difference-in-differences regressions to compare the outcomes for three groups:
Affected Developers’ Affected Apps (ADAA)
Affected Developers’ Unaffected Apps (ADUA)
Unaffected Developers’ Unaffected Apps (UDUA) – control group (they are in the same category as ADAA and released before Apple’s entry)
Outcomeit = β0*Under Entry Threatit + γ0*Under Actual Entryit + β1*Under Entry Threatit*ADAAi + γ1*Under Actual Entryit*ADAAi + β2*Under Entry Threatit*ADUAi + γ2*Under Actual Entryit*ADUAi + Controlit + vi + ηt + εit

10. Data A total of ~200,000 apps in the Google Play store
Description, categories, release date, publisher
New version release events, price change events, user rating, ranking (for top 500 only) from January 2012 to August 2015
Drop “corporate apps”
Drop apps released after the matched entry threats
Manually compile a list of apps and important iOS features released by Apple from 2007 to 2015

11. 31 entry events, of which Google entered 25 of them (81%)
In 5 cases, Google entered earlier than Apple.

12. Identify Affected Apps and Developers
Manually identify a few affected Android apps for each Apple’s entry event
Use Google Play Store’s “similar apps” feature to gather additional affected apps
Consider developers of these affected apps as affected developers

13. Number of Apps in Each Group
Flashlight
Guided Access
Podcasts
Total
Number of affected apps by affected developers (ADAA)
251 48 79
378
Number of unaffected apps by affected developers (ADUA)
191 53 67
311
Number of unaffected apps by unaffected developers (UDUA)
2,054
432
811
3,297

15. Robustness Checks Analyze each event separately
Analyze pre-trends of treatment and control groups
Falsification test using markets where Google entered before Apple
Use different control groups
Use Flashlight-related apps as the control group for Guided Access-related apps.
Use Coarsened Exact Matching (CEM) based on pre-treatment attributes to construct a control group.

16. App developers release fewer similar apps under entry threats and actual entry

17. Affected developers release more unrelated apps under entry threat and actual entry
Unit of analysis: developer-month level

18. Summary
Complementors are strategic players and they react to platform-owner entry before actual entry takes place.
Platform-owner entry does not appear to diminish innovation incentives:
Complementors do not abandon the platform after the entry. They adjust their innovation directions and reallocate their innovation efforts.
Platform owners may reduce wasteful product development efforts through direct entry.

19. Thank you!