Chapter 4: Research Findings
4.1 First-Mover Advantages in App Development
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4.1 First-Mover Advantages in App Development Technological leadership
According to the content of the interviews, we made the following observations.
First, only one of the interviewees’ development process was hindered by other competitors’ patents. If the patent owner had any intention of suing companies that infringed their patents for apps, then patents would be a great barrier to app development. “Due to competitors’ patents, we spent extra time to figure out alternative ways to achieve our functionality,” the interviewee said. Second, two respondents had their own patents, but they only use them defensively. One interviewee said “We will not sue other companies actively unless those companies sue first because the cost of litigation is not going to be cheap and we would rather concentrate on optimizing our apps’ features.” Another interviewee also said “I thought patents [would be] like an insurance policy. Our company is too small to stop competitors by suing them because of the cost.” Third, all interviewees thought that patents can only bring them advantages by increasing potential competitors’ barriers to entering the market temporarily.
According to these opinions, we concluded that developers thought competitors’
patents could not be potential obstacles to app development. Therefore we formed the following hypothesis:
It is unlikely for apps to gain advantages through patent protection.
Resources preempting
This study reviewed the past literature and found that in the standard business environment almost all of the desirable resources are tangible or limited, such as manufacturing locations and spatial resources. However, apps are digitalized products, so app development is not restricted by location or other physical resources. Further, the shelf space in app stores, such as Apple’s App Store and Google’s Google Play, is unlimited. Take Apple’s App Store as an example. It has over 500,000 apps for consumers to buy. It is hard for consumers to browse every app, so instead they browse apps through top charts, featured, searches, etc. Because the number of apps on top charts and featured is limited, this study identified the space in top charts and featured apps as preemptible resources in the app market.
Table 4-2 shows the distribution of the top charts of Apple’s App Store from February 8, 2008 to September 30, 2013. We found that 79.8% of apps did not have any advantages, meaning that those apps had been listed on the top charts less than a month. Only 1.5% off apps had long-term advantages, meaning that those apps had
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been listed on the top charts for more than 2 years. Therefore we formed the following hypothesis:
It is unlikely for apps to gain advantages through preempting space in the top charts.
Table 4-2. The Distribution of Apps That Had Been Listed on the iPhone Top Charts From February 8, 2008 to September 30, 2013
Genres Apps Without
Advantages Apps With
Short-Term Advantages Apps With
Medium-Term Advantages Apps With Long-Term Advantages
Book 133 20 2 3
Business 151 19 7 0
Catalogs 25 7 0 0
Education 381 52 4 3
Entertainment 873 261 31 19
Finance 107 12 2 6
Food & Drink 128 18 2 3
Games 5,243 1,206 135 67
Health & Fitness 353 53 9 9
Productivity 422 53 13 5
Reference 174 23 8 5
Social Networking 232 66 14 17
Sports 197 43 0 3
Travel 208 20 6 5
Utilities 539 89 22 15
Weather 92 25 3 3
Grand Total 11,137 2,308 304 208
Switching costs
From the results of the questionnaire, we tried to determine consumers’ switching behavior with regard to apps. First, we found that 91.4% of the participants would not switch to a new app because of the necessary data stored in apps that they were already using and the difficulty of transferring the data to another app. Therefore, we considered that apps could gain competitive advantages from the necessary data stored in them.
Second, 98.6% of the participants thought that it was easy to learn how to use a new app. Therefore, this study considered that the potential advantages stemming from
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learning costs did not exist in the app market. Third, when it came to the uncertainty costs, 94.1% of the participants thought that they would not purchase a new app because they were unfamiliar with the new app. In addition, 63.5% of participants thought that they would not download a new app, even if it was free, because they were unfamiliar with the new app. Therefore we formed the following hypothesis:
It is likely for apps to gain competitive advantages from uncertainty costs when apps were not free.
Network externality
According to the literature review, sellers and buyers were more likely to choose a market exchange that had attracted the most counterparties. By entering a market at an early stage, first movers acquire a differentiation advantage by seizing opportunities to nurture a large user base before potential competitors enter the market. According to the literature review, when consumers want to buy a new product but do not have enough knowledge about it, they are more likely to choose a product that the most people are using. In the app market, there is only one app store for each mobile operation system (i.e., the App Store for iOS, Google Play for Android), and every app store has top charts where users can buy or download the top apps. Therefore we formed the following hypothesis:
It is likely for apps to gain advantages through network externalities in the app market.
Pricing advantages
This study reviewed the past literature and found that first movers can gain advantages through higher prices or lower prices than competitors under specific conditions. First, with the experience and learning curve effect or preemption of resources, first movers can offer products with more competitive prices than later entrants due to lower product costs. However, in the app market, developers release an app to an app store, and all users can download or buy it directly. Also, the quantity supplied is limitless unless the developer removes it from the app store. Because there was no experience and learning curve effect in app development, this study found that apps could not gain advantages through charging lower prices than competitors. Second, evidence showed that customers would be willing to purchase the products at higher prices due to established brand loyalty or the uncertainty risk of buying alternative products. This study examined the 79 paid apps with long-term advantages that we identified as subjects. We found that among the 79 paid apps, 31 apps had never raised
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their prices, including 28 game apps, two music apps, and a utilities app. The two music apps were Ringtone Designer Pro (Blackoutlabs, 2014) and TuneIn Radio Pro (TuneIn, 2014), and the utilities app was Flashlight®. Furthermore, 23 apps, including 22 game apps and a music app, could keep their advantages and still be listed on the top charts after their prices were raised. The only music app, Ringtone Designer Pro (App Annie, 2014), for instance, had raised its price from $0.99 to $1.99 between Aug 25 and Sep 18, 2010, but its ranking never dropped out of the top 20 in the period. Another example is Doodle God™ (App Annie, 2014), a game app, which had raised its price to $1.99 off and on, but it remained on the top charts. Therefore we formed the following hypothesis:
Apps could enjoy pricing advantages through established brand loyalty or the uncertainty risk of purchasing alternative products.
4.2 Findings of Strategies to Sustain Advantages in App Development