The Ecosystem of Software Platform: A Study of Asymmetric Cross-Side Network Effects and Platform Governance

Abstract

While past research on software platform has recognized the existence of cross-side network effects (CNEs) between the application side and the user side, little is known about the asymmetry between the CNEs of the two sides on each other. Informed by a perspective of complex adaptive systems, this study theorizes how the user-to-application CNE is temporally different from the application-to-user CNE, and how these CNEs may be influenced by the governance mechanisms of the platform. We empirically test our theoretical arguments using a longitudinal data about a leading software browser. Our first main finding is the temporal asymmetry between the user-to-application CNE and the application-to-user CNE. Specifically, while the increased installed base of end users has a primarily long-term impact on the growth of application number and variety, the increased number and variety of applications have primarily short-term impacts on the growth of end users. Our second finding is that the length of application review time weakens the long-term user-to-application effect, but not the short-term application-to-user effect. Third, we also find that frequent platform updating can significantly weaken both the long-term user-to-application CNE and the short-term application-to-user CNE. Our study generates important theoretical and practical implications.

Network effects on crowdfunding platforms: Exploring the implications of relaxing input control

“…First, we add to the still nascent research on two‐sided markets that attempts to shed light on the mutual influences within and between market sides by quantifying SNEs and CNEs in 1 holistic model. Departing from the prevailing notion of mutual CNEs between the supply and demand sides of digital platforms and self‐sustaining growth, our results show that the growth of crowdfunding platforms is primarily driven by the supply side of the market rather than by reciprocal effects that have been shown to exist on consumer‐to‐consumer or software platforms (Chu & Manchanda, ; Song et al, ). The results therefore help to develop a deeper understanding of how specific characteristics of digital platforms affect their growth through network effects.…”

“…The availability of rich and fine‐grained data on the evolution and growth of digital platforms makes it possible to quantify CNEs and SNEs in platform contexts and gather a deeper understanding of the mutual influences between and within the supply and demand side of a platform over time. This enables researchers to identify possible asymmetries in the timing and magnitude of network effects on either side of the market (Song, Xue, Rai, & Zhang, ) and to subsequently pinpoint the side of the platform that is most critical for its overall growth during specific time frames of the platform's life cycle (Chu & Manchanda, ). This stream of research can foster our understanding of why certain platforms succeed while others do not, showing how platforms should be consciously designed to leverage the power of network effects.…”

“…While previous studies analyzed the role of network effects on gaming, consumer‐to‐consumer, or software platforms (ie, Boudreau & Jeppesen, ; Chu & Manchanda, ; Song et al, ), we quantify SNEs and CNEs in the crowdfunding context. One of the key differences between these settings is that crowdfunding campaigns can only be invested in for a limited period of time (ie, days or weeks), while games on Steam or apps on Apple's App Store are available for a longer period of time (ie, months or years).…”

“…The magnitude of IC can therefore influence the behaviours of entrepreneurs and funders, making it worthwhile to examine how this platform governance mechanism interacts with CNEs and SNEs. Although the relationship between platform governance and network effects has received some recent attention (Song et al, ; Tiwana et al, ), it still requires further empirical exploration, especially with regard to input control.…”

Innovation Diffusion of Mobile Applications in Social Networks: A Multi-Agent System

“…As various mobile applications allow users to share happiness and dissatisfaction with others on the Internet, users' decisions on mobile applications are also influenced by social relations and social network structure [8,9]. In addition, research evidence also supports the fact that there are network effects in the diffusion of mobile applications; that is, the utility of mobile applications to users will increase with an increase in the number of applications [10]. Specifically, network effects can be divided into global and local network effects.…”