Abstract
1. Introduction
2. Literature review
3. Empirical context
4. Empirical analysis and results
5. Discussion and conclusion
Appendix A. Supplementary data
References
Abstract
Innovators and entrepreneurs developing products and competing “on top” of digital platforms face different conditions than do those in more traditional industries. In this paper, we explore how this affects appropriability strategies in novel data on mobile app developers’ appropriability strategies. We find that the many smallest developers in the “long tail”— the vast majority of all developers – do in fact take actions to capture value and to protect their intellectual property, but do so only through informal mechanisms. By contrast, larger developers exploit a combination of both informal mechanisms and formal intellectual property rights, using copyright, patents, and trademarks. Several strategies particular to digital platforms are also documented. We link this pattern of different strategies pursued by different competitor types to the structural features of digital competition.
Introduction
A central question in the study of innovation is appropriability, that is, how innovators are able to protect and profit from their innovations so that they have an incentive to undertake innovation in the first place (Arrow, 1962; Levin et al., 1987; Laursen and Salter, 2014; Teece, 1986). Over the past decade, the emergence of digital platforms has given rise to a new mode of production (Gawer and Cusumano, 2002; Tiwana, 2004; Parker et al., 2016), allowing smaller firms to create complementary innovations on top of platforms to bring them to market. While the importance of third-party developers appropriating value has been established (Huang et al., 2012; Parker and Alstyne, 2017; Gawer and Henderson, 2007), little of the research on appropriability mechanisms and strategies (Cohen et al., 2000; Levin et al., 1987; Hall and Ziedonis, 2001) has yet examined touched on the strategies of these innovators working on digital platforms. In this paper, we seek to provide more insights into this under-studied question, and particularly how the smallest developers on digital platforms, protect and appropriate value from their innovations. The value of digital platforms depends on the availability of complements (Parker and Alstyne, 2005; Rochet and Tirole, 2006). For instance, the value of computer operating systems depends on the availability of complementary third-party software. As a result, platform owners have tried to increase ease of access and lower the costs of developing for their platforms, to allow even small firms or individuals to do so, and for a “long tail”of developers to join, including hobbyists and amateurs. While these small-scale innovations may individually account for a tiny share of revenue, collectively the long tail can sometimes represent a considerable share of economic activity. Take, for example, that most developers on both the Unity asset store and the Salesforce app market are small 3rd-party developers generating billions of dollars in revenue.