App platforms as two-sided markets: analysis and modeling of application distribution platforms for mobile devices

• App-Plattformen als zweiseitige Märkte : Untersuchung und Modellierung von App-Plattformen für Mobilfunkgeräte

Kouris, Iana; Piller, Frank Thomas (Thesis advisor)

Aachen : Publikationsserver der RWTH Aachen University (2013, 2014)
Dissertation / PhD Thesis

Aachen, Techn. Hochsch., Diss., 2013

Abstract

"App platforms" are electronic software distribution platforms for mobile devices like smartphones or tablets. They have gained popularity after Apple launched its App Store in July 2008. Since then, app platforms have transformed the entire mobile communication industry. Although the App Store’s advantage seemed to be incontestable, other app platforms like Google Play managed to enter the market and achieve high popularity. More platforms followed Apple and Google, trying to create niche markets. This makes the app platform market very dynamic and disruptive. App platforms are not a single example but a part of a large-scale change. Over the last decade, platforms became the "invisible engines" of our economies (Evans et al., 2006). Amazon, eBay, and Google have advanced to top brands worldwide. Following Gawer and Cusumano (2007), we define platforms as "systems of technologies that combine core components with complementary products and services usually made by a variety of firms." Platforms have spread across many industries, leading to creation of new business areas and products. Moreover, they change the whole economic structure and influence business strategies in fundamental ways. Platforms that enable interactions between two groups of customers, which value each other’s presence, are called two-sided markets. Two-sided market models reflect one of the key characteristics of app platforms, namely, the prominent role of indirect network effects. Unfortunately, currently existing two-sided market models are not suitable to model Internet platforms such as app platforms. Hence, it is necessary to come up with an appropriate two-sided market model first. Also, a dynamic two-sided model which would be able to reflect dynamic and disruptive nature of two-sided markets is lacking. These are the first two research gaps addressed in the dissertation at hand. The third research gap consists in developing strategies for app platforms based on two-sided market theory and existing management literature. The objective of this thesis is to address these gaps in three research papers: "An integrated two-sided market model", "Toward Understanding Dynamics and Disruptions in Two-sided Markets: A Dynamic Two-sided Market Model" and "App Store, Quo Vadis? Challenges and Strategies for App Platforms". The present thesis is structured as follows: part I includes an introduction to the research field, part II consists of the three stand-alone research papers. The first part begins with introduction to the research project motivation and structure. Background information on the app platform industry and overview of two-sided market theory follows. Then we provide derivation of research gaps and questions, summaries of the research papers and, finally, general discussion and conclusion. The second part of the dissertation at hand presents the three research papers. All three research papers are based on two-sided market theory and aim at providing insights for industries based on Internet platforms, in particular, for app platforms. The central objective of the first research paper is to develop a two-sided market model, which can be applied to analyze app platforms. In research paper I, we provide theoretical background and develop an integrated two-sided market model, which includes the most relevant parameters. We also provide a closed-form solution for this model and discuss how it can be used to analyze app platforms. The second research paper builds on the results of the first one and extends it to the dynamic setting. This allows us to go beyond static solution and provide insights regarding strategies in a dynamic and disruptive setting. We consider a range of situations and research questions, for instance, "chicken-and-egg" problem, minimal number of agents necessary to kick-off a platform and external shocks through competitive entry. In the third research paper, we discuss key challenges and central strategic decisions along the life-cycle phases. In addition to the two-sided market theory, we build on the platform management literature. The third research paper focuses on applying theoretical concepts to derive strategies and suggestions to mitigate challenges faced by app platforms. The integrated two-sided market model with its new parameters and a closed-form solution developed in the research paper I, and introduction of a dynamic two-sided market model in the research paper II, represent main theoretical contributions. Insights regarding strategies for app platforms along the life-cycle stages are crucial from the managerial point of view. The most promising avenues for future research include further development of the models, such as introduction of stochastic parameters, and empirical testing of the models.

Institutions

• Chair of Technology and Innovation Management (TIM) [812710]