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While two-sided platforms (e.g., video game consoles) depend on complements (e.g., games) for their success, the success of complements is also influenced by platform-level dynamics. Research suggests that greater platform adoption benefits complements by providing more potential users, but this assumes that platform adopters are homogeneous. We build on extensive research exploring the heterogeneity between early and late platform adopters to identify counterintuitive dynamics for complements. Complements launched early in a platform’s life cycle face an audience entirely of early platform adopters, whereas later-launching complements face a mixed audience of both early and late adopters, and we argue that differences in preferences and behavior between early and late adopters affect whether complements will succeed and which types will be most successful. We explore these dynamics in the context of the console video game industry using a unique data set of 2,918 video games released in the United Kingdom from 2000 to 2007. We show that despite the increase in the potential user pool as the platform evolves, video games launched later in the platform life cycle realize lower sales than those launched earlier. While increased competition explains part of this effect, we show substantial evidence consistent with our theory of preference differences between early and late adopters. This includes the finding that the negative effect is stronger for novel games and that the gap between popular and less popular complements widens as later adopters move into the platform, consistent with late adopters being risk averse and seeking to avoid purchasing mistakes. The e-companion is available at https://doi.org/10.1287/orsc.2017.1183 .

Research Summary This paper studies the impact of platform‐owner entry threat on complementors in platform‐based markets. We examine how app developers on the Android mobile platform adjust innovation efforts (rate and direction) and value‐capture strategies in response to the threat of Google's entry into their markets. We find that after Google's entry threat increases, affected developers reduce innovation and raise the prices for the affected apps. However, their incentives to innovate are not completely suppressed; rather, they shift innovation to unaffected and new apps. Given that many apps already offer similar features, Google's entry threat may thus reduce wasteful development efforts. We discuss the implications of these results for platform owners, complementors, and policy makers. Managerial Summary We examine one prevalent source of conflict: platform owners' entry into complementary product spaces. We show that app developers on Google's Android system are strategic and nimble actors. They respond to the threat of Google's entry by adjusting both value‐creation and value‐capture strategies. We also show that platform owners could use direct entry to shape innovation directions and encourage variety of complements. Overall, on the one hand, Google's entry may have pushed complementors into other areas (which might be less lucrative) and strengthened its position in the mobile market. On the other hand, the entry may have reduced wasteful production efforts in the development of redundant applications. The overall welfare implication is thus ambiguous. Video 

We study the phenomenon of business ecosystems in which platform firms orchestrate the functioning of ecosystems by providing platforms and setting the rules for participation by complementor firms. We develop a theoretical framework to explain how the structural and evolutionary features of the ecosystem may shape the extent to which participating complementor firms can sustain their superior performance. The structural feature, which we refer to as ecosystem complexity, is a function of the number of unique components or subsystems that interact with the complementor’s product. We incorporate the evolutionary features by considering the role of generational transitions initiated by platform firms over time as well as the role of complementors’ ecosystem-specific experience. Evidence from Apple’s iOS and Google’s Android smartphone ecosystems supports our arguments that higher ecosystem complexity helps app developers sustain their superior performance, and that this effect is stronger for more experienced firms. In contrast, platform transitions initiated by Apple and Google make it more difficult for app developers to sustain their performance superiority, and that this effect is exacerbated by the extent of ecosystem complexity. The study offers a novel account of how the performance of complementor firms in platform-based business ecosystems may be shaped by their ecosystem-level interdependencies.

We study how platform owners’ decision to enter complementary markets affects innovation in the ecosystem surrounding the platform. Despite heated debates on the behavior of platform owners toward complementors, relatively little is known about the mechanisms linking platform owners’ entry and complementary innovation. We exploit Google’s 2015 entry into the market for photography apps on its own Android platform as a quasi-experiment. We conclude based on our analyses of a time-series panel of 6,620 apps that Google’s entry was associated with a substantial increase in complementary innovation. We estimate that the entry caused a 9.6% increase in the likelihood of major updates for apps affected by Google’s entry, compared to similar but not affected apps. Further analyses suggest that Google’s entry triggered complementary innovation because of the increased consumer attention for photography apps, instead of competitive “racing” or “Red Queen” effects. This attention spillover effect was particularly pronounced for larger and more diversified complementors. The study advances our understanding of the effects of platform owner’s entry, explicates the complex mechanisms that shape complementary innovation, and adds empirical evidence to the debate on regulating platforms. The online appendix is available at https://doi.org/10.1287/isre.2018.0787 .

Research Summary: Platform owners sometimes enter complementors' product spaces and compete against them. Using data from Amazon.com to study Amazon's entry pattern into third-party sellers' product spaces, we find that Amazon is more likely to target successful product spaces. We also find that Amazon is less likely to enter product spaces that require greater seller efforts to grow, suggesting that complementors' platform-specific investments influence platform owners' entry decisions. While Amazon's entry discourages affected third-party sellers from subsequently pursuing growth on the platform, it increases product demand and reduces shipping costs for consumers. We consider the implications of these findings for complementors in platform-based markets. Managerial Summary: Platform owners can exert considerable influence over their complementors' welfare. Many complementors with successful products are pushed out of markets because platform owners enter their product spaces and compete directly with them. To mitigate such risks, complementors could build their businesses by aggregating nonblockbuster products or focusing on products requiring significant platform-specific investments to grow. They should also develop capabilities in new product discovery so that they could continually bring innovative products to their platforms.

We consider firms in the context of their business ecosystems and explore how differences in the ways in which firms are organized with respect to complementary activities affect their decision to invest in new technologies. We argue that, in addition to creating differences in incentives and bureaucratic costs, firm-complementor organizational form plays an important role in the firm's ability to coordinate accompanying changes in complementary activities so as to shape the benefits from investing early in the new technology. We test our predictions in the U.S. healthcare industry from 1995—2006. The study makes a strong case for viewing firms' competitive strategies in the context of their business ecosystems and for the existence of an important link between firms' coordination choices and their strategic investments.

This paper studies two fundamentally distinct approaches to opening a technology platform and their different impacts on innovation. One approach is to grant access to a platform and thereby open up markets for complementary components around the platform. Another approach is to give up control over the platform itself. Using data on 21 handheld computing systems (1990-2004), I find that granting greater levels of access to independent hardware developer firms produces up to a fivefold acceleration in the rate of new handheld device development, depending on the precise degree of access and how this policy was implemented. Where operating system platform owners went further to give up control (beyond just granting access to their platforms) the incremental effect on new device development was still positive but an order of magnitude smaller. The evidence from the industry and theoretical arguments both suggest that distinct economic mechanisms were set in motion by these two approaches to opening.

PurposeThe concept of open innovation has captured the attention of both academics and practitioners alike. However, there is a dearth of research on how innovations can be diffused within open innovation ecosystems, a critical condition for the sustainability of such ecosystems. In this regard, the study advances a research agenda for guiding future inquiries into innovation diffusion within open innovation ecosystems.Design/methodology/approachBased on a systematic review of the extant literature on open innovation, this article identifies knowledge gaps in innovation diffusion, along with recommendations for bridging these gaps in the future. The study advocates that future research should consider not only innovation generation processes, but also innovation diffusion processes, especially in light of the growing application of open innovation in the context of digital goods and services.FindingsSubscribing to an evolutionary view of innovation diffusion, the article draws on a five-phase framework – knowledge, persuasion, decision, implementation, and confirmation – to illustrate the roles played by three distinct yet interconnected parties (i.e. platforms, complementors, and individuals) within open innovation ecosystems as well as the research opportunities it brings.Originality/valueThe article examines the critical, yet underexplored role of innovation diffusion in sustaining open innovation ecosystems and outlines potential research avenues that can contribute to growing the understanding of the innovation diffusion process.

PurposeInnovation ecosystem research has highlighted complementors as the critical force to determining focal firm innovation’s success in addition to the traditional value chain or supply chain perspective. However, literature is relatively scarce in terms of innovation ecosystem governance, especially, on how to manage various types of complementors. The purpose of this paper is to fill this theoretical gap by developing a typology of managing complementors from multiple case studies.Design/methodology/approachThis study conducted multiple case studies of three leading focal firms with ecosystem strategies to understand innovation ecosystem governance. Theoretical themes are inductively generated to reveal their success in managing complementors in their ecosystems.FindingsThe case analysis reveals four generic strategies to manage complementors. These strategies are contingent on the types of complementors and level of interdependence: focal firms tend to engage functional complementors and collaborate with infrastructural complementors when the level of interdependence is higher, and acquire functional complementors and nurture infrastructural complementors when the level of interdependence is lower.Practical implicationsFor practitioners, this study can improve their understanding on the mechanisms of innovation ecosystem governance, particularly interdependence between participants in an innovation ecosystem, and developing appropriate strategies to manage different types of complementors in innovation ecosystems.Originality/valueThis study contributes to innovation ecosystem literature by enriching the conceptualization of interdependence in innovation ecosystems and unpacking innovation ecosystem governance with the inductively developed holistic typology of strategies to manage complementors. Meanwhile, this study also suggests underlying mechanisms for how innovation ecosystem governance and, therefore, contributes to a systematic theory on understanding innovation ecosystem governance.

Software platforms’ success largely depends on complementors’ willingness to repeatedly invest their time and effort to the development of platform applications that attract users and increase the platform’s installed base. But how can platform providers encourage desirable behaviours by complementors (i.e., application developers) in the absence of formal roles and hierarchical control structures? Although previous studies of software-based platforms have identified openness as critical instrument at the macro (i.e., platform) level and have provided initial attempts to measure the construct, no research has been dedicated to comprehensively conceptualize and operationalize platform openness at the micro level from the perspective of application developers. To go beyond these preliminary findings and to theorize about the nature and effects of platform openness as perceived by application developers, we develop a construct called perceived platform openness (PPO). Drawing on recently advanced scale development methodologies, we conceptualize PPO as a multidimensional construct and empirically validate it with important consequent variables linked to developers’ continuous platform contributions. Empirical evidence from several rounds of qualitative and quantitative steps supports the conceptual validity of the construct and empirical relevance of the scale across different smartphone platform contexts (i.e., Apple iOS and Google Android). Researchers will benefit from the study’s systematic and comprehensive conceptualization of PPO, how it is measured, and how it relates to critical application developer beliefs and attitudes. Platform managers may use our results to target the underlying facets of PPO most likely to contribute to the platform’s long-term goals.