by Feng Zhu
As platform owners continue to expand their ecosystems, many of them have started to provide consumers with their own complementary applications. These moves position the platform owners as direct competitors to their complementors. This paper surveys empirical studies that examine the direct entry of platform owners into complementors’ product spaces. It finds that both the motivation and impact of such entries on complementors are multifaceted. The motivation behind platform owners’ direct entry goes beyond value capture, and the impact of platform entry on complementors varies across empirical settings. It identifies several future research directions that can help advance our understanding of the relationships between platform owners and complementors.
The following section is a Q&A with Dr. Zhu
1. Please briefly describe the main findings of your literature survey.
My literature survey finds that both the motivation and the impact of platform-owner entries on complementors’ domains are multifaceted. The motivation behind platform owners’ direct entry goes beyond value capture, and the impact of platform entry on complementors varies across empirical settings. As a result, there is still much work to be done to further understand the dynamics between platform owners and complementors.
2. How did you first become interested in the relationships between platform owners and complementors?
My interest in this topic started in 2000 when I interned as a software engineer. At that time, Microsoft was accused of engaging in anti-competitive practices regarding its operating system and web browser integration. Many of my colleagues then were also using ICQ to communicate with each other, although they were all optimistic that MSN Messenger would eventually take over the market leadership. Since then I always had an interest in understanding the power dynamics between platform owners and complementors and how complementors can survive and thrive.
3. What are some especially compelling or concerning examples of platform owners acting as direct competitors to their complementors?
In addition to the Microsoft example above, it turns out that many popular platforms today can act as direct competitors to some of their complementors. For example, Amazon sometimes enters its third parties’ product spaces to sell identical products. Apple and Google often release apps/features on their mobile operating systems (e.g., flashlight) to compete with third-party app developers. The European Union recently imposed a record-high fine on Google for leveraging its dominance in the search engine market to favor its own comparison-shopping services.
4. What are the most important managerial and public policy implications of this work?
Understanding the motivation and impact of platform owners’ direct entry into complementors’ product spaces has important implications for platform owners, complementors, and policy makers. One consistent empirical pattern across different studies is that after the platform-owner entry into a product space, the demand for that product typically increases (because the platform owner can either offer the product at a lower cost or promote the product better due to better integration). The empirical evidence on the complementor side is mixed. While a few studies show that platform owner entry reduces the demand for third-parties’ competing offerings, others show that there could be positive spillover effects because the entry can raise consumers’ awareness of such products. It is also not clear whether the entry necessarily reduces complementors’ incentives to innovate. In some cases, complementors may actually shift their innovation efforts into other product categories. As a result, there does not seem to be a single prescription that policymakers can follow in regulating platform-owner entry. This also means that for every platform owner entry, there is a need for careful empirical analysis.
5. What directions might you suggest for further research?
We need more qualitative studies to help understand platform owners’ motivations in entering complementors’ domains. It is often difficult to infer platform owners’ exact motivations through quantitative analysis because different motivations can lead to the same empirical patterns.
We also need studies that examine the long-term effects of platform-owner entry. All empirical studies thus far have examined the short-term effects. The long-term effects could be quite different. For example, even if consumers may benefit from platform owner entry in the short run, existing or prospective complementors may be discouraged and thus bring fewer innovative products to the platform going forward. As a result, consumers may suffer from a reduction in product variety in the long run.
It is also important to recognize that in addition to direct entry, platform owners can use other means to capture more value. For example, they can increase service fees or adopt policies to favor complementors that share more value with them. Future research could explore the impact of such strategies.