Knowledge that Transforms

Frequent new product releases pose significant challenges for firms as they manage successive generations of product diffusion. We develop an analytical model to study the effect of different purchase options by strategic consumers on a firm’s profit and the firm’s strategies for the timing and pricing of its successive generations of product diffusion. We show that consumers’ strategic behavior, although adversely affecting the sales of the first-generation product, positively influences the sales of the second-generation product through an initial “seeding” effect. The influence of strategic consumers on profit and sales depends largely on the discount-to-price ratio of the first generation relative to the performance improvement in the second generation. When the relative discount is small, the seeding effect on the second-generation product dominates. When the relative discount is large, the “cannibalization” effect on the first-generation product dominates. We further demonstrate that the optimal entry timings recommended in the literature (i.e., “now,” “maturity,” or “never”) can occur under different market conditions. In general, higher performance improvement and lower salvage value would support a higher optimal price, a larger discount, and a later introduction time. In addition, the firm can benefit from patient consumers when the performance improvement is relatively small, and it can induce the complete substitution of the later generation for the earlier generation when the performance improvement is relatively large. Overall, our model provides a theoretical foundation for understanding the effect of consumer strategic behavior on product diffusion, and our results offer important insights about firms’ multigeneration product diffusion strategies.The online appendix is available at https://doi.org/10.1287/isre.2017.0720 .

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 .

Multihoming, the decision to design a complement to operate on multiple platforms, is becoming increasingly common in many platform markets. Perceived wisdom suggests that multihoming is beneficial for complement providers as they expand their market reach, but it reduces differentiation among competing platforms as the same complements become available on different platforms. We argue that complement providers face trade-offs when designing their products for multiple platform architectures—they must decide how far to specialize the complement to each platform’s technological specifications. Because of these trade-offs, multihoming complements can have different quality performance across platforms. In a study of the U.S. video game industry, we find that multihoming games have lower-quality performance on a technologically more complex console than on a less complex one. Also, games designed for and released on a focal platform have lower-quality performance on platforms they are subsequently multihomed to. However, games that are released on the complex platform with a delay suffer a smaller drop in quality on complex platforms. This has important implications for platform competition, and for managers considering expanding their reach through multihoming.The online appendix is available at https://doi.org/10.1287/isre.2018.0779 .

We study the effect of user privacy concerns on competition between online advertising platforms. Online platforms attract advertisers by offering capabilities to reach audiences likely to be receptive to their ads in a timely and accurate manner. However, the collection and processing of user information required for targeting of ads may lead to privacy concerns. We model the competition between two platforms as a two-stage game where platforms announce their targeting capabilities in the first stage and advertising fees in the second stage. The presence of heterogeneity in the user and the advertiser populations with respect to their preferences for targeting leads to differentiation between platforms. While one platform offers the minimum level of targeting feasible, the other platform offers a strictly higher level of targeting. The extent of differentiation in targeting levels depends on the intensity of competition between the platforms on the user side. When competition on the user side is relatively low, the extent of differentiation is higher. Such competition for users may decline, when users are less concerned about loss of privacy or when they choose to double home. Higher targeting differentiation allows platforms to charge higher advertising fees and earn higher profits. We also consider the case where platforms can reduce the privacy concerns of users by offering them greater control over their personal information. We demonstrate that awarding user control leads to reduced targeting differentiation between platforms and lower advertising fees. Last, we derive the equilibrium targeting levels for platforms that use a subscription-based business model instead of an advertising-based business model. The online appendix is available at https://doi.org/10.1287/isre.2017.0730 .

When a focal firm undergoes a product-harm crisis, nonfocal firms offering similar products or services can suffer from a negative spillover effect, but can also benefit from customers switching from the troubled focal firm, which we call the competitive effect. In response, a nonfocal firm can adapt its marketing strategy in consideration of these two opposing effects. Because social media is a flexible medium through which firms can quickly adjust marketing strategies in response to such unexpected events, we study how nonfocal firms adjust their post-crisis social media efforts to induce purchases and to improve customer relationships—two strategies known in the literature as offensive and defensive marketing, respectively. In particular, we use the daily social media activities of 56 major airlines on Twitter around the time of the Germanwings Flight 9525 crash to study how nonfocal airlines ran offensive and defensive marketing on social media before and after the crisis. We find that, on average, nonfocal airlines increased their defensive marketing efforts but decreased their offensive marketing efforts after the crash, which we attribute to the negative spillover effect. However, the strategic adjustment of decreasing offensive marketing is attenuated by the competition between nonfocal airlines and the focal one, which we attribute to the moderating role of the competitive effect. These results are shown to be robust in various tests and reveal how the interplay of the two effects of a product-harm crisis on nonfocal firms shapes their postcrisis social media strategies. The online appendix is available at https://doi.org/10.1287/isre.2017.0707 .

As organizations increasingly use digital platforms to facilitate innovation, researchers are seeking to understand how platforms shape business practices. Although extant literature offers important insights into platform management from a platform-owner perspective, we know little about how organizations manage industry platforms provided by external parties to generate opportunities and overcome challenges in relation to their infrastructure and work processes. As part of larger ecosystems, these digital platforms offer organizations bundles of digital options that they can selectively invest in over time. At the same time, organizations’ previous investments in digital infrastructure and work processes produce a legacy of digital debt that conditions how they manage their digital platforms over time. Against this backdrop, we investigate how digital options and digital debt were implicated in a large Scandinavian media organization’s management of a news production platform over nearly 17 years. Drawing on extant literature and the findings from this case, we theorize the progression of and interactions between digital options and digital debt during an organization’s digital platform management in relation to its infrastructure and work processes. The theory reveals the complex choices that organizations face in such efforts: While they may have to resolve digital debt to make a platform’s digital options actionable, hesitancy to plant digital debt may equally well prevent them from realizing otherwise attractive digital options. Similarly, while identified digital options may offer organizations new opportunities to resolve digital debt, eagerness to realize digital options may just as easily lead to unwise planting of digital debt.

While the growth of the mobile apps market has created significant market opportunities and economic incentives for mobile app developers to innovate, it has also inevitably invited other developers to create rip-offs. Practitioners and developers of original apps claim that copycats steal the original app’s idea and potential demand, and have called for app platforms to take action against such copycats. Surprisingly, however, there has been little rigorous research analyzing whether and how copycats affect an original app’s demand. The primary deterrent to such research is the lack of an objective way to identify whether an app is a copycat or an original. Using a combination of machine learning techniques such as natural language processing, latent semantic analysis, network-based clustering, and image analysis, we propose a method to identify apps as original or copycat and detect two types of copycats: deceptive and nondeceptive. Based on the detection results, we conduct an econometric analysis to determine the impact of copycat apps on the demand for the original apps on a sample of 10,100 action game apps by 5,141 developers that were released in the iOS App Store over five years. Our results indicate that the effect of a specific copycat on an original app’s demand is determined by the quality and level of deceptiveness of the copycat. High-quality nondeceptive copycats negatively affect demand for the originals. By contrast, low-quality, deceptive copycats positively affect demand for the originals. Results indicate that in aggregate the impact of copycats on the demand of original mobile apps is statistically insignificant. Our study contributes to the growing literature on mobile app consumption by presenting a method to identify copycats and providing evidence of the impact of copycats on an original app’s demand. The online appendix is available at https://doi.org/10.1287/isre.2017.0735 .

We investigate whether the discounts offered by online daily deals help attract consumer purchases. By tracking the sales of 19,978 deals on Groupon.com and conducting a battery of identification and falsification tests, we find that deep discounts reduce sales. A 1% increase in a deal’s discount decreases sales by 0.035%–0.256%. If a merchant offers an additional 10% discount from the sample mean of 55.6%, sales could decrease by 0.63%–4.60%, or 0.80–5.24 units and 42–275 in revenue. This negative effect of discount is more prominent among credence goods and deals with low sales, and when the deals are offered in cities with higher income and better education. Our findings suggest that consumers are concerned about product quality, and excessive discounts may reduce sales immediately. A follow-up lab experiment provides further support to this quality-concern explanation. Furthermore, it suggests the existence of a “threshold” effect: the negative effect on sales is present only when the discount is sufficiently high. Additional empirical analysis shows that deals displaying favorable third-party support, such as Facebook fans and online reviews, are more susceptible to this adverse discount effect. We draw related managerial implications. The online appendix is available at https://doi.org/10.1287/isre.2017.0772 .

Three-dimensional (3D) virtual environments (VEs) are collaboration platforms where group members are represented as avatars and interact in a customizable simulated world. Research from cognitive psychology has shown that it is possible to manipulate nonconscious cognition and behavior through “priming,” a well-known phenomenon in which words and images are used to activate desired concepts in participants’ minds. Our goal in this was to investigate whether priming during the task execution (called contextual priming) using 3D objects in the VE can improve brainstorming performance. To investigate this, we conducted two studies. The first used priming objects specifically related to the task topic and the second used priming objects related to creativity, in general. Compared to VEs without 3D priming objects, our results show that when groups brainstormed in the VEs designed with 3D priming objects, they generated better quality ideas as well as a greater breadth and depth of ideas. Thus, the 3D priming stimuli incorporated in a VE enhances brainstorming, which indicates that the design of VE has a direct effect on team brainstorming performance. Our results also show that target concept activation and task absorption act as the underlying mechanisms, partially mediating the relationship between the design of the VE (i.e., the presence or absence of priming objects) and performance outcomes.

In the last few years, leading-edge research from information systems, strategic management, and economics have separately informed our understanding of platforms and infrastructures in the digital age. Our motivation for undertaking this special issue rests in the conviction that it is significant to discuss platforms and infrastructures concomitantly, while enabling knowledge from diverse disciplines to cross-pollinate to address critical, pressing policy challenges and inform strategic thinking across both social and business spheres. In this editorial, we review key insights from the literature on digital infrastructures and platforms, present emerging research themes, highlight the contributions developed from each of the six articles in this special issue, and conclude with suggestions for further research.