Competition and Innovation in Smartphone Application Markets

Smart Phone

Principal Investigator: Dr Dmitry Sharapov

Funder: This project was funded by the British Academy from October 2013 – August 2015

A large and increasing share of global economic activity takes place in organizational ecosystems which consist of different groups of users conducting transactions through a technological platform. For example, mobile device application markets, such as the Apple App Store, allow device users to download applications created by independent developers. Both platform-leading firms, and those utilising it to supply goods and services, face distinctive management challenges.

The performance of firms taking a leading role in an ecosystem depends not only on their management of internal innovation challenges, but also on their ability to manage the differing challenges facing their suppliers and firms providing complementary products (complementors).   While much attention has been paid to co-operation with suppliers to overcome such challenges, less is known about how firms can effectively manage complementor innovation. Ecosystems leaders must also consider direct and indirect network effects when developing strategies to attract distinct groups of users to the ecosystem, and must be wary of threats of envelopment by other platforms

Complementors, on the other hand, must make choices regarding which platform(s) to make products for, taking into account a number of considerations, including platform popularity, competition, and technology. They must also compete against other complementors, while keeping in mind the possibility that the platform leader might choose to enter into their product space should their offering be successful.

This project focuses on the AppCampus initiative funded by Microsoft and Nokia to attract novel high- quality apps to the Windows Phone ecosystem by providing selected application developers with grants in return for temporary exclusivity of the application to the Windows Phone store. It will examine how application developers use competitive and institutional strategies in their efforts to create successful applications. A second research area considers how multiple ecosystems compete for complementors and how innovations within the ecosystem affect the competitive positions of different participants, and of the ecosystem as a whole.

Key Research Questions

The project is arranged around 2 key areas of investigation:

  • What are effective complementor strategies for competition and innovation in platform-based markets? Semi-structured interviews with developers in combination with secondary data sources will be used to build an in-depth understanding of the use of competitive and institutional strategies behind the development and positioning of mobile device apps, before their effectiveness is assessed using data on downloads, revenues and user ratings.
  • How can platform leaders effectively govern their relationships with complementors in order to attract high quality, innovative complementary products? Interviews with AppCampus staff will be combined with data on Microsoft’s general screening processes and those of rival app markets, to understand the effectiveness of such mechanisms in attracting high quality complementary products.

The expected outputs of this project include several academic and at least one practitioner journal paper, as well as empirical insights and methodologies for the collaborating companies.