Essec Business School

With ESSEC Knowledge Editor-in-chief

In 2015, Google debuted Google Photos, releasing the app on the Google Play Store. This came as a surprise to its competitors, unprepared for Google’s entry into the photography app market. Rather than crowding out the competition, however, the market saw an increase in innovation. What drove this increase? And what does it mean for platform owners and app developers? Thomas Kude, professor at ESSEC Business School, and his colleagues Jens Foederer (TU Munich), Sunil Mithas (University of South Florida), and Armin Heinzi (University of Mannheim) set out to explore this question in their recent paper, winner of the 2018 Best Paper award in the journal Information Systems Research.

The implications of a platform owner releasing their own app have been a question of interest for researchers and innovators, with little empirical data available to shed light on the answer. The release of Google Photos provided the opportunity to solve the puzzle, permitting Dr. Kude and his colleagues to compare the activity of app developers for three months before and after its release. They looked at over six thousand apps available on the Google Play store, including both photography-related applications and entertainment-related applications, to see if the rate of innovation was higher in the photography-related apps that were directly impacted by the release of Google Photos compared to the entertainment applications, which wouldn’t be in direct competition with Google Photos. Google Photos is designed to be an all-purpose photography app that lets users store, organize, and share photos. Its release garnered both media attention and user interest, counting millions of users after mere months on the market. This posed the question: did its massive popularity drive out app developers and stamp out innovation in doing so, or did the increased attention to photography applications and the intensified competition actually spur innovation? 

Dr. Kude and his colleagues found that the answer is the latter. Using app updates as a proxy for innovation, they found that innovation increased in response to the release of Google Photos. They then turned their attention to the motivation for innovation: was it the increased consumer attention, or the threat of a new competitor? Testing this, Kude and his colleagues compared the number of app reviews and consumer ratings of the applications, their logic being that if the increased innovation was due to increased consumer attention, this would be reflected by more reviews, and if it was instead due to a drive to be better than the competition, this would be reflected by the app’s ratings. By analyzing consumer behavior in this way, they found that the increase in innovation was more strongly linked to an increase in app reviews, meaning that the boost in consumer attention following the release of Google photos was the main driver behind said increase. In other words, Google Photos drew users’ attention toward the photography app sector, and app developers profited from this increased attention and capitalized on it by improving their product. This is especially true for app developers who have a large and diverse portfolio of apps in addition to their photography offering, perhaps because they have resources that permit them to swim, rather than sink, in the situation. 

This is intriguing news for both platform owners and app developers. For platform owners, it suggests that they stand to benefit not only from the eventual success of their app, but also from improved value by app developers’ offerings. App developers can also take note of this finding when building their strategy so that they can capitalize on user attention to a competing product to build value in their own product. In an economy where startups and entrepreneurship are increasingly popular, it’s essential to know how to fight rather than fold when competing with larger enterprises, and findings like this shed light on how to do so.

Takeaways and next steps

• The launch of a platform owner’s application increases innovation by app developers with similar offerings.
• The innovation boost is driven by increased consumer attention to the market.
• The boost is especially pronounced for app developers with a large and diverse portfolio of apps.
• Next steps involve assessing the duration of the attention spillover and innovation boost, to see how long this effect lasts, and seeing how this effect transfers to other platforms.