Rietveld (2015)
Contents
Source Details
| Rietveld (2015) | |
| Title: | Value Creation from Complements in Platform Markets Studies on the Video Game Industry |
| Author(s): | Rietveld,J. |
| Year: | 2015 |
| Citation: | Rietveld, Joost. Value Creation from Complements in Platform Markets: Studies on the Video Game Industry. Diss. City University London, 2015. |
| Link(s): | Definitive , Open Access |
| Key Related Studies: | |
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| About the Data | |
| Data Description: | The author built a novel and comprehensive dataset of sell-through data for
2,921 video games released in the UK. Data was collected and combined from multiple primary and secondary sources. Video game and console sell-through data come from a series of proprietary databases provided by one of the platform owners. These datasets include information on video games’ release date, average selling price, genre, and publisher identity. Quality measures were obtained from online review aggregation database Metacritic.com/games. Information on game innovativeness was hand-collected. Data on instrumental variables come from the US Bureau of Labor Statistics |
| Data Type: | Primary and Secondary data |
| Secondary Data Sources: | |
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| Data Analysis Methods: | |
| Industry(ies): | |
| Country(ies): | |
| Cross Country Study?: | No |
| Comparative Study?: | No |
| Literature review?: | Yes |
| Government or policy study?: | No |
| Time Period(s) of Collection: |
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Abstract
This dissertation is comprised of three empirical studies that examine the effect of platform-level variation on value creation strategies and market performance for providers of complementary goods (“complementors”) in platform-based markets. The studies all investigate the video game industry as a canonical example of a platform market. Three empirical studies are preceded by an industry chapter outlining the evolution of the video game industry as perceived by one of the industry’s key actors: Nintendo.
How does platform maturity affect the adoption of complements in two-sided markets? A key feature of two-sided markets is the existence of indirect network effects. In the first empirical study, I argue that demand heterogeneity from end-users adopting the platform at different points in time, moderates the extent to which complements enjoy these indirect network effects. An inflow of late adopters that buy fewer complements and mimic earlier adopters’adoption behavior, increasingly offsets the benefits of a growing installed base. Using a dataset of 2,855 sixth-generation console video games, I find that platform maturity has a concave curvilinear effect on video games’ unit sales. Platform maturity, however, does not affect all types of games equally. Late adopters increasingly favor non-novel video games at the cost of innovative ones. Furthermore, the adoption disparity between superstars and less-popular video games also widens as platforms mature.
In the second empirical study, I and my co-authors (Joseph Lampel and Thijs Broekhuizen) contribute to the debate between researchers who argue that the emergence of online distribution platforms allow content producers in the creative industries to bypass powerful publishers and distributors, and other researchers who argue that this strategy cannot succeed without the complementary assets that these intermediaries provide. We use a case study of the Dutch Video Game Developer (DVGD) bringing to market an identical video game using two different but comparable distribution platforms as a quasi-experiment: in the first release DVGD used online distribution to reach consumers directly, whereas in the second it used an alliance with an established video game publisher. We find that, while the alliance required DVGD to share with the publisher a substantial fraction of the value appropriated by the game, the alliance strategy resulted in greater absolute financial performance and relative market performance compared to the self-publishing strategy. We conclude that the differences in performance can be traced back to specialized complementary assets required for successful commercialization.
Technological change, such as the advent of digital distribution platforms, facilitates the implementation of novel business models. Yet, we know little about how managers make sense of novel pathways for doing business after the emergence of a widespread technological change. The third empirical study aims to shed light on this issue by asking why managers in the context of the video game industry changed their business models following the advent of digital distribution platforms, and how? A mixed-method study comprised of a sector-wide survey and four in-depth case studies in the market for digital video games in the United Kingdom provides insight into mangers’ reasons and motivations. I and my co-authors (Joost van Dreunen and Charles Baden-Fuller) find that managers moved away from the de facto work-for-hire business model into three novel business models: artist-led-distribution; freemium; and multisided. In changing their business models, managers do not have increased economic gains as solitary objective per se. Instead, novel business models offer ways of doing business in which a cognitive tension between important organizational objectives – a desire for creative autonomy versus mitigation of financial risks – can be resolved in alternative and typically preferred ways.
Main Results of the Study
- New IP is a binary variable that takes the value of 1 if a video game is based on a new IP and 0 otherwise. 29% of all video games in the sample are based on new IP. Thee statistic corresponds with generally accepted statistics of non-imitative or really new innovations in a market. Figure 3.2 displays the distribution of video game
introductions per platform and the ratio of new IP introductions by platform maturity. The figure illustrates that, across different levels of platform maturity, there is sufficient variance in terms of the number of games entering each platform as well as the ratio of video games that are based on new intellectual property.
- There exists a concave curvilinear effect of platform maturity on complement sales. As the number of late platform adopters increases, the positive effect of indirect network effects is mitigated by differences in late adopters’ characteristics and behavior. Moreover, these differences do not affect all types of complements equally. First, late adopters increasingly shy away from choosing innovative complements in favor of non-novel ones. Platform maturity thus amplifies the sales disparity between innovative and non-novel complements. Secondly, late adopters increasingly congregate around superstar complements amplifying the skewness between popular and less popular complements on the platform.
- Two auxiliary findings are that there exist positive indirect network effects and negative
same side network effects in the market for console video games. An additional game entering the platform has a negative effect on cumulative unit sales for games launched in the subsequent month. The latter result adds support to the “competitive crowding” hypothesis of direct network effects for complements in platform markets (Boudreau, 2012; Wareham et al., 2014). The finding is consistent with Venkatraman and Lee (2004) who conclude that video game developers are less likely to enter crowded video game platforms. Additionally, the finding aligns with Boudreau et al. (2011) who find that the effect of adding competitors in the context of innovation contest platforms is contingent on the uncertainty and nature of the challenge. In a split-sample analysis comparing innovative with less novel games, the author found that the negative effect of competitive crowding is stronger for innovative games.
Policy Implications as Stated By Author
- How does platform maturity affect the adoption of complements? Taking a demand-side perspective, the author argued that the shifting composition of end-users on the platform moderates the extent to which complements enjoy indirect network effects. The benefit of a growing installed base is juxtaposed by late adopters’
adoption pattern of complements.
- In the study of sixth generation console video games in the
United Kingdom, the author found that platform maturity has a concave curvilinear effect on complements’ adoption rates. Additionally, platform maturity did not affect all types of complements equally. He found that innovative complements enjoy increasingly lower adoption rates than do non-novel complements.
Coverage of Study
Datasets
| Sample size: | 2,921 |
| Level of aggregation: | Videogames |
| Period of material under study: | 2000-2007 |
| Sample size: | 1492 |
| Level of aggregation: | Videogames |
| Period of material under study: | Not stated |
