User Preferences and Strategic Interactions in Platform Ecosystems

Research summary: User demand affects the emergence and growth of platform ecosystems through indirect network effects. But how do these effects play out in the strategies of platform providers and complementors as the ecosystem evolves? We study how user preferences for ecosystem innovativeness (complement novelty and quality) and ecosystem size (number of complementors/complements), and demand-based economies of scale, shape the strategic interactions between the platform provider and the complementors in the ecosystem. Using an analytical model, we identify the conditions that give rise to a trade-off between ecosystem innovativeness and size; when (and why) this trade-off generates a tension between value co-creation and appropriation among ecosystem participants; and the strategic implications for ecosystem competitiveness and for the different stages of the ecosystem's evolution. Managerial summary: Managing complementors’ incentives is critical for the success of a platform ecosystem. Such incentives may be offered not only for joining the platform, but also for contributing high-quality, innovative complements throughout the ecosystem's evolution. In this article, we show that demand-side economies of scale are the driving force of complementors’ incentives, and hence the key success factor for platform strategies. The strength of user preferences ultimately determines whether a larger ecosystem can also be more innovative, in which case all ecosystem participants can gain; or if instead there is a trade-off between size and innovativeness, which could also lead to a tension between value co-creation and appropriation among the platform provider and its complementors. The different stages of the evolution of a platform ecosystem call for different strategies that adapt to the evolution of user preferences.