Managing same-side and cross-side innovations in two-sided platforms

Abstract

Purpose Innovations are vital tasks for modern two-sided platforms to grow and avoid defunct. How these two-sided platforms innovate to impact platform performance remains virtually unexplored in literature. The purpose of this paper is to classify two types of platform innovations – same-side and cross-side – and to hypothesize that their performance is contingent on platform monetization type, growth rate and user acquisition and retention costs. Design/methodology/approach The authors collected news announcements of 177 same-side producer-to-producer (P-P), 216 same-side consumer-to-consumer (C-C) and 284 cross-side producer-to-consumer (P-C) innovations from 30 two-sided platforms and used event study and econometric techniques in data analysis. Findings The findings reveal that same-side innovations cannot sufficiently lead to an impact on platform performance, while cross-side innovations are always beneficial. Same-side P-P innovations can affect platform performance positively on consumer-monetized platforms, whereas same-side C-C innovations can only do so on producer-monetized platforms. Besides, when platforms grow rapidly (slowly), cross-side (same-side) innovations strengthen platform performance. On platforms that are subject to higher (lower) user acquisition and retention costs, only same-side (cross-side) innovations can enhance platform performance. Practical implications This study provides actionable insights for platform practitioners to implement proper strategies to manage same-side and cross-side innovations based on the three platform attributes of platform monetization type, growth rate and user acquisition and retention costs. Originality/value This study offers the first systematic and empirical investigation of two-sided platform innovations by classifying them as same-side innovations for building capability in managing users and cross-side innovations for establishing capability in managing exchange, which are the two core capabilities for two-sided platforms to avoid defunct. This study further provides a contingency framework that is unique to the two-sided platform setting to study the performance impact of these innovations.