Sharing Economy, Platforms and Crowds
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Paper Type
Complete
Paper Number
2539
Description
Extant research has popularized the perspective that strong network effects produce “winner-take-all” outcomes. Platforms with large user bases, however, have both succeeded and failed. The central question is: When is a large user base insufficient to dominate a market? In answer, we develop a model of inter-temporal effects and within-period network effects. The within-period effect only yields contemporaneous user attraction, while the inter-temporal effect contributes to user stickiness across periods. Strong within-period effects that do not persist can stall platform value. Using Groupon data, we estimate these two effects on users' participation choices. Our results show that the inter-temporal effect of Groupon's customer base is weak which causes poor user stickiness. Thus, common marketing practices to attract customers offer inferior returns compared to platform designs that increase stickiness. Overall, these findings remind managers not to overemphasize user acquisition when network effects do not persist and instead focus on platform design.
Recommended Citation
Zhou, Zhou; Zhang, Lingling; and Van Alstyne, Marshall, "How Users Drive Platform Value" (2020). ICIS 2020 Proceedings. 18.
https://aisel.aisnet.org/icis2020/sharing_economy/sharing_economy/18
How Users Drive Platform Value
Extant research has popularized the perspective that strong network effects produce “winner-take-all” outcomes. Platforms with large user bases, however, have both succeeded and failed. The central question is: When is a large user base insufficient to dominate a market? In answer, we develop a model of inter-temporal effects and within-period network effects. The within-period effect only yields contemporaneous user attraction, while the inter-temporal effect contributes to user stickiness across periods. Strong within-period effects that do not persist can stall platform value. Using Groupon data, we estimate these two effects on users' participation choices. Our results show that the inter-temporal effect of Groupon's customer base is weak which causes poor user stickiness. Thus, common marketing practices to attract customers offer inferior returns compared to platform designs that increase stickiness. Overall, these findings remind managers not to overemphasize user acquisition when network effects do not persist and instead focus on platform design.
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