Competing in the Networked Economy: The Development, Sustenance and Strategic Implications of Digital Platforms
A thesis submitted in partial fulfilment of requirements for the degree of Doctor of Philosophy
Cheuk Hang Au
The Discipline of Business Information Systems
The University of Sydney
Business School
2020
Supervised by
Associate Professor Barney Tan, Business Information Systems Statement of Originality
This is to certify that to the best of my knowledge, the content of this thesis is my own work. This thesis has not been submitted for any degree or other purposes.
I certify that the intellectual content of this thesis is the product of my own work and that all the assistance received in preparing this thesis and sources have been acknowledged.
Signature
Cheuk Hang Au
Name
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Publications Associated with this Thesis
Chapter 2 draws on material published as "Au, C. H., Tan, B., and Sun, Y., 2020. "Developing a P2P Lending Platform: Stages, Strategies and Platform Configurations," in Internet Research
• I designed the study, analysed the data and co-wrote the paper. Authorship is based on contribution.
Chapter 3 draws on material submitted as "Au, C. H., and Ho, K. K. W., 2020. "The Anti-Aging Secret of Massively Multiplayer Online Game (MMOG): Managing its Lifecycle," to Australian Journal of Management, currently under advanced round review.
• I designed the study, analysed the data and co-wrote the paper. Authorship is based on contribution.
Chapter 4 draws on material published as "Au, C. H., Tan, B., Leong, C., Ge, C., 2018. "Disrupting the Disruptor: The Role of IS in Facilitating Second-Mover Advantage," in Thirty-Ninth International Conference on Information Systems (ICIS), San Francisco, USA
• I designed the study, analysed the data and co-wrote the paper. Authorship is based on contribution.
Student name: Cheuk Hang Au
Signature: Date: 13.11.2020
As a supervisor for the candidature upon which this thesis is based, I can confirm that the authorship attribution statements above are correct.
Supervisor Name: Barney Tan
Signature: Date: 13.11.2020
This is to certify that to the best of my knowledge, the content of this thesis is my own work. This thesis has not been submitted for any degree or other purposes. I certify that the intellectual content of this thesis is the product of my own work and that all the assistance received in preparing this thesis and sources have been acknowledged.
Student name: Cheuk Hang Au
Signature: Date: 13.11.2020
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Acknowledgements It was the 18th of September 2015. I was on a footbridge in Hong Kong, where I determined in doing a PhD after receiving my GMAT score. Two years later, I know 18th
September was the birthday of Prof. Barney Tan– My Brother, Idol and Supervisor. It is all miracles, and I would first like to offer my thanks to God.
During my PhD journey, I met many friends and senior academics. The discipline of
Business Information Systems (BIS) has been so warm. The utmost important part of the journey, and probably my life, is Barney. Before becoming his student, I had no idea about qualitative research. But he has been helping me in every milestone while ensuring that I am absorbing and learning despite my weaknesses and limitations. He has also arranged the teaching opportunities for me in INFS1000 so that I could learn more about how to teach.
Beyond the advancement of research and teaching skills, I have also learnt how to be a real, mature and responsible man from the demonstration of Barney. It was not a national service, but it was an ah-boys-to-men journey. Barney is, and will be my BIS (I mean Brother, Idol and
Supervisor here).
I am also grateful to Prof. Dirk Hovorka and Prof. Sebastian Boell, who has been advising me, occasionally with a sense of humour when I got puzzled in my research. I also want to express my gratitude to Prof. Daniel Schlagwein, who has invited me to teach INFS1020. You have made me a more nurtured researcher.
Beyond academics, I am also grateful for having so many good peers along my journey, including Evelyn, Blair, Asaf, Xuetao, Priya, Daniel Kim, Prakash, Anna, Tim, Natalie,
Christian, Grace, Lin, Siqi and YT. I am also delighted to meet Ann and Jiaqi, two visiting doctoral students from Mainland China. On top, I am grateful that Ben and Sophia, the HDR
iii training coordinators, have been supporting me in different forms, such as counselling and coordinating various events. Most importantly, free food in all events!
Vitalina was giving her support through the ups and downs of this journey. Without her, I might have never been able to complete this thesis. Thank you that you are always there for me.
Outside USyd, I should also acknowledge Prof. Kevin Ho, Prof. Carmen Leong, Prof.
Felix Tan, Prof. Xiao Xiao, Prof. Yuan Sun and Prof. Chunmian Ge. They were supporting my data collection and paper writing. Especially, I am grateful to Prof. Ho as he had the confidence in my case study paper using netnography, an unconventional method that he had never used before.
I would also like to express my gratitude to Dr. Richard Lui, Dr. Walter Fung, Prof. Wai-
Ming Mak, Dr. Pamsy Hui and Prof Xin Xu from the Hong Kong Polytechnic University. They have been giving me support, especially when I visited Hong Kong from time to time.
Last but not least, I must reserve a few lines to express my gratitude to Momo the Corgi. I always feel relieved during the journey when I see her online despite the uncountable burdens.
Of course, thank you, Mr. Derek Ho and Miss. Yen Lo for taking care of her.
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Abstract The proliferation of the Internet has enabled the development of digital platforms, i.e., digital commercial networks of discrete entities (such as suppliers, intermediaries, and customers) that are connected through mutual dependencies and/or formal contracting.
Information systems (IS) researchers have advocated digital platforms as a new and promising research field. This thesis presents three essays to address the underexplored issues of digital platform management. More specifically, this thesis investigates a range of strategic implications, including how digital platforms may be enacted and sustained and how digital platform hosts may compete strategically using different IS capabilities.
The first essay considers the case of an online peer-to-peer (P2P) lending platform to reveal how digital platforms may be developed. The study reveals that the development process of an online P2P lending platform can unfold in a specific sequence across three stages, and the development of a particular side of the platform should be emphasised in each stage, i.e., partners, followed by lenders, and then borrowers. Each stage is also distinctive in terms of its strategies and platform configuration outcomes. The process model contributes to an in-depth view of how digital platforms should be established and nurtured to complement existing studies in the growing research area of digital platforms, especially considering the increasing number of digital start-ups that have adopted platform-based business models. In addition, this study suggests strategies that can facilitate the development of platforms in various stages, which can potentially serve as a foundation for formulating guidelines for managers of P2P lending and other digital platforms, allowing them to optimise the development of their platforms and extend the benefits of their services to a broader base of customers.
The second essay discusses the issue of sustenance in the context of digital platforms based on a case study of a massively multiplayer online game (MMOG). Adopting a theoretical lens of product lifecycle theories, a four-stage lifecycle model of digital platforms in
v conjunction with the technology–organisation–environment (TOE) framework has been proposed, and the theoretical implications of product lifecycle theories are presented.
Furthermore, the emphasis on different dimensions and strategies is discussed for each stage.
In turn, the model can facilitate the hosting of MMOGs and other types of digital platforms to manage the overall platform lifecycle and thus sustain the platform.
The third essay reports a comprehensive study of the role of IS in the achievement of second-mover advantages (SMA) in the context of digital disruption (DD) based on a case study of an accommodation-sharing platform. The fact that early-mover advantages are short- lived in the context of DD creates opportunities for second-movers, who can avoid the uncertainty in a competitive environment and lower costs by imitating, and often improving upon, the business models of early-movers. The benefits of SMA may be facilitated by IS, but its precise role in facilitating SMA is unknown, especially in the context of DD. Based on the case study findings, a three-stage process model that may explain the process of IS-enabled
SMA has been proposed. These stages are marked by the employment of distinct strategies and
IS capabilities, which, in turn, leads to several strategic implications for digital platforms. The proposed model can potentially serve as a foundation for formulating guidelines for digital platform hosts to enjoy the benefits of IS-enabled SMA and thus compete strategically.
Overall, the three essays are targeted at contributing to the research on development, sustenance, and strategic implications in the context of digital platforms.
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Table of Contents
Statement of Originality ...... i
Publications Associated with this Thesis ...... ii
Acknowledgements ...... iii
Abstract ...... v
Table of Contents ...... vii
List of Figures ...... xi
List of Tables ...... xiii
Chapter 1: Introduction ...... 1
1.1 Background and Aims ...... 1
1.2 Thesis Structure ...... 7
Chapter 2: Developing a P2P Lending Platform: Stages, Strategies and Platform Configurations ...... 9
2.1 Introduction ...... 9
2.2 Literature Review ...... 10
2.2.1 P2P Lending Platforms ...... 11
2.2.2 Platform Development ...... 15
2.3 Research Method ...... 16
2.3.1 Case Description ...... 17
2.3.2 Data Collection ...... 18
2.3.3 Data Analysis ...... 21
2.4 Findings ...... 22
2.4.1 Stage 1 – P-side Development (2013-2015) ...... 22
2.4.2 Stage 2 – L-side Development (2015-2017) ...... 24
2.4.3 Stage 3 – B-side Development (2017-2019) ...... 27
2.5 Discussion ...... 29
2.5.1 Theoretical Implications for P2P Lending ...... 29
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2.5.2 Theoretical Implications for Platform Development ...... 31
2.5.3 Practical Implications...... 32
2.6 Conclusion ...... 33
2.6.1 Limitations and Future Research ...... 33
2.6.2 Summary ...... 35
Chapter 3: The Anti-aging Secret of Massively Multiplayer Online Game (MMOG): Managing its Lifecycle ...... 36
3.1 Introduction ...... 36
3.2 Literature Review ...... 37
3.2.1 Massively Multiplayer Online Game (MMOG) ...... 37
3.2.2 Lifecycle Theory ...... 39
3.3 Research Method ...... 41
3.3.1 Data Collection ...... 42
3.3.2 Data Analysis ...... 43
3.4 Case Description ...... 44
3.5 Findings ...... 45
3.5.1 Stage 1 – Introduction ...... 46
3.5.2 Stage 2 – Growth ...... 49
3.5.3 Stage 3 – Maturity ...... 54
3.5.4 Stage 4 – Sustain ...... 61
3.6 Discussion ...... 69
3.6.1 Theoretical Implications for MMOG ...... 69
3.6.2 Theoretical Implications for Lifecycle Theories ...... 70
3.7 Concluding Remarks ...... 71
Chapter 4: Disrupting the Disruptor: The Role of Information Systems in Facilitating Second- Mover Advantage...... 73
4.1 Introduction ...... 73
4.2 Literature Review ...... 74 viii
4.2.1 Digital Disruption (DD) and Second-Mover Advantage ...... 74
4.2.2 IS Capabilities ...... 78
4.3 Research Method ...... 80
4.3.1 Case Background ...... 81
4.3.2 Data Collection ...... 81
4.3.3 Data Analysis ...... 83
4.4 Findings ...... 84
4.4.1 Stage 1: Engineering ...... 85
4.4.2 Stage 2: Experimenting ...... 87
4.4.3 Stage 3: Expanding ...... 89
4.5 Discussion and Conclusion ...... 91
4.5.1 Limitation and Further Research Directions ...... 91
4.5.2 Theoretical Contributions ...... 92
4.5.3 Practical Implications...... 95
Chapter 5: Summary and Conclusion ...... 97
5.1 Summary of Chapters ...... 97
5.1.1 Development of an Online Peer-to-peer (P2P) Lending Platform ...... 97
5.1.2 Sustenance of a Massively Multiplayer Online Fame (MMOG) ...... 98
5.1.3 Achievement of IS-enabled Second-mover Advantages (SMA) ...... 100
5.2 How are Digital Platforms Developed? ...... 101
5.3 How do you Sustain and Grow a Digital Platform? ...... 102
5.4 How can a Digital Platform Compete Strategically? ...... 104
5.5 Overall Theoretical Contributions ...... 106
5.6 Overall Practical Contributions ...... 108
5.6.1 For Digital Platform Hosts ...... 109
5.6.2 For Policymakers ...... 111
5.6.3 For Traditional Firm Owners ...... 112
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5.7 Limitations and Future Research Directions ...... 114
References ...... 117
Appendix ...... 144
Appendix A: Sample Interview Guide for Case Study One (P2PLend.com) ...... 144
Appendix B: Sample Interview Guide for Case Study Three (xBed) ...... 146
Appendix C: Sample Data Structure for Case Study One (P2PLend.com) ...... 148
Appendix D: Sample Data Structure for Case Study Two (Talesrunner) ...... 149
Appendix E: Sample Data Structure for Case Study Three (xBed) ...... 150
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List of Figures Figure 1: A process model of P2P lending platform development ...... 22 Figure 2: An MMOG lifecycle established in conjunction with the TOE framework ...... 46 Figure 3: Advertisement for recruiting game-testers ...... 47 Figure 4: Some untranslated Korean texts were found in the left upper part (in oval) ...... 47 Figure 5: YouTube video of the bug-utilising tutorial ...... 48 Figure 6: Junior players asking for assistance on how to get the special in-game virtual items and was responded by experienced players...... 50 Figure 7: Screenshot of a self-made promotion video of an in-game group of Talesrunner ... 51 Figure 8: A forum post that calls for buying in-game virtual items ...... 52 Figure 9: Inspiration message on the official forum regarding the results announcement of a Hong Kong public examination ...... 52 Figure 10: Players talking to in-game GM for getting instructions of new missions ...... 53 Figure 11: The website screenshots for the “Coming of Phantom” in-game mission ...... 55 Figure 12: Player-made MV using the screenshot video in Talesrunners with the song lyrics...... 56 Figure 13: Examples of the list that show the banned players because of using the cheating plugins. The plugins that they used were also listed ...... 57 Figure 14: A cyberbullying post towards a player in Talesrunner, which was accused of flirting multiple male players concurrently and using cheating plugins ...... 58 Figure 15: Assistance on how to play Talesrunner in Windows Vista ...... 59 Figure 16: Announcement of newly-recruited forum voluntary moderators from existing players ...... 59 Figure 17: A player asking about the technical issues in the forum ...... 60 Figure 18: A forum moderator answered the questions in Figure 17 ...... 61 Figure 19: Post of selling the MMOG account ...... 62 Figure 20: Example of messages in the official forum of unauthorised server player recruitment...... 63 Figure 21: Part of the rules listed in the official forum, which states that users who post messages related to the unauthorised server may be subject to a permanent ban on the forum...... 64
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Figure 22: Message of a warning posted by an experienced player who suggested the legal consequence of playing on and opening unauthorised servers, including 8-10 years imprisonment and compensation requirement to the MMOG host...... 65 Figure 23: “Party” poster on the official website of Talesrunners ...... 65 Figure 24: An example of forum messages about user-generated ceremonial content ...... 66 Figure 25: The volunteer moderator of the online forum openly collecting opinion about the merge of server ...... 67 Figure 26: A screenshot of the trailer of Season 2, which shows a player “fishing for the virtual items” ...... 68 Figure 27: A Process Model of IS-Enabled Second-Mover Advantage ...... 85
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List of Tables Table 1: Critical Success Factors of Platform Development ...... 2 Table 2: Examples of Process Theories on Digital Platform Development ...... 3 Table 3: Examples of Platform Development Strategies ...... 3 Table 4: Concepts Related to P2P Lending ...... 11 Table 5: Selected Works on P2P Lending Platforms ...... 12 Table 6: CSFs of Platform Development ...... 16 Table 7: Dimensions and Themes for Data Analysis in the Case Study of P2PLend.com ...... 18 Table 8: List of Informants in the Case Study of P2PLend.com ...... 19 Table 9: Critical Success Factors of Commercial Success of MMOG ...... 37 Table 10: Challenges for Achieving Commercial Success of MMOG...... 38 Table 11: A Summary of Selected Studies on IS Adoption Lifecycle ...... 40 Table 12: Lifecycle Management and Extension Strategies ...... 40 Table 13: Summary of Data Sources and Description for the Case Study of Talesrunner ...... 43 Table 14: Dimensions and Themes for Data Analysis for the Case Study of Talesrunner ..... 43 Table 15: Coding Techniques Used in Data Analysis for the Case Study of Talesrunner ...... 44 Table 16: Selected Studies on SMA in the Context of Digital Disruption ...... 76 Table 17: Wade and Hulland’s (2004) Taxonomy of IS Capabilities ...... 79 Table 18: List of Informants for the Case Study of xBed ...... 82 Table 19: Initial Dimensions and Themes of Theoretical Lens for the Case Study of xBed .. 83
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Chapter 1: Introduction 1.1 Background and Aims A platform is defined as a commercial network of discrete entities (e.g., suppliers, intermediaries, and customers) (Cusumano and Gawer 2002) that are held together through mutual dependencies and/or formal contracting (Pierce 2009). A platform tends to be structured around a platform sponsor, whose dominance stems from its control over network value creation or the underlying technological infrastructure (Teece 2007). The proliferation of the
Internet has enabled the launch of many digital platforms, while the emergence of relevant research can be understood as a response to the changes that digital platforms have brought to the contemporary business landscape (Iansiti and Levien 2004b).
The development of digital platforms can contribute significantly in terms of benefits for the participating entities, including enhanced market offerings, operational efficiency, increased information sharing, and optimised supply chain processes (Iansiti and Levien
2004b). These benefits have attracted many market players to develop innovative platform- based businesses. A notable example of a successful digital platform is Airbnb, which allow users to turn their apartments into private accommodation and has been a worldwide success
(Cusumano and Gawer 2002; Guttentag 2015). In addition, some established companies have expanded their business by establishing subsidiaries or business divisions that adopt platform- based business models. For example, in 2019, Disney established an over-the-top media service platform called Disney+ to expand its audience size (Littleton 2019).
The potential benefits of digital platforms have triggered related research on platform development, which can be classified as either variance-based or process-based. Variance- based research on platform development suggests the realisation of these benefits to be contingent on numerous critical success factors (CSFs), which include IT capabilities,
1 participation subsidies, critical mass, platform diversity, platform openness, continuous innovation, customer loyalty, and trust (see Table 1).
Table 1: Critical Success Factors of Platform Development
CSF Definition IT capabilities IT capabilities are the abilities to mobilise and deploy information technology (IT) based resources in combination with other resources and capabilities (Bharadwaj 2000), as well as alignment with business objectives (e.g., Nevo and Wade 2010; Overby et al. 2006) to enhance overall performance (Karimi et al. 2007) and achieve enterprise agility (see Tan et al. 2015a). Participation In the digital platform context, participation subsidies refer to measures of subsidies subsidising the participation costs for one group of entities, so that the participation value for other groups is enhanced through network effects (see Parker and Alstyne 2005). Typically, platform hosts will choose the side which, when attracted in volume, is valued by the other side to subsidise (Eisenmann et al. 2006). Critical mass Critical mass is a segment of the population that is large enough to make significant contributions to collective actions (Markus 1987; Oliver et al. 1985). In the digital platform context, critical mass enables a platform to become self-sustaining, which enhances integration in value co-creation and decreases the complexity of coordination (see Iansiti and Levien 2004b). Platform diversity Diversity is considered a critical characteristic of platform development (Darking et al. 2008) as it broadens the array of available resources (see Iansiti and Levien 2004b), enables new applications areas, and expands the platform scope (Ghazawneh and Henfridsson 2013). Platform diversity may be enhanced by, for example, facilitating third-parties’ contributions and participation (Ghazawneh and Henfridsson 2010). Platform openness Platform openness is the extent to which platform boundary resources support complements (de Reuver et al. 2018), which reflects the trade-off between retaining and relinquishing control over a platform (Benlian et al. 2015). In the digital platform context, platform openness can influence innovation and subsequently platform development, platform diversity, and profits (see Lee et al. 2015; Parker and Alstyne 2008). Continuous In the digital platform context, continuous innovation can be understood as innovation the continuous effort of implementing new combinations of digital and physical components, with new products or innovations as outcomes (Yoo et al. 2010), which can enhance the robustness of the platform (see Iansiti and Levien 2004b). Customer loyalty Customer loyalty can be considered as a customer’s favourable attitude towards the firm, resulting in repeat buying behaviour, higher willingness to pay more, increased word-of-mouth promotion (Srinivasan et al. 2002), and thus overall success and profitability (Gefen 2002; Zheng et al. 2017). It can be established by customising services, increasing convenience, and offering more choices (Srinivasan et al. 2002). Trust Trust is a complex social phenomenon that reflects the technological, behavioural, social, psychological, and organisational aspects of interactions among various human and non-human agents. In the digital platform context, given that trust may increase customers’ continuance intention (Zhang et al. 2015), platform providers should establish trust in the platform to attract different users (de Reuver et al. 2015).
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The realisation of these CSFs is driven by a variety of platform development processes, which are the focus of process-based research. Table 2 lists examples of process theory related to digital platform development.
Table 2: Examples of Process Theories on Digital Platform Development
Reference Arguments Tan et al. The development of a multi-side platform (MSP) is first driven by the discovery (2015a) of a problem and opportunities, followed by utilising the IS capabilities of market responsiveness, IS planning, and IS-strategy alignment. Having acquired the necessary IS capabilities for the initial development stages, the platform should start developing trust, value proposition and critical mass, followed by enhancing interactivity and ecosystem identity before fostering solidity and mutual dependency. Shaughnessy The platform transformation of a firm with traditional business models may begin (2016) by disruption analysis, options and pathways creation, decision criteria and process establishment, capacity assessment, and narrative design, followed by ecosystem and information layer establishment. Tan et al. A sharing economy with an eco-friendly vision and mission may be developed by (2017a) first amplifying pro-social objectives, followed by ensuring business viability and then blending market and social logics. Rampton (2017) A social network platform may be developed in eight steps: identifying the target community, defining features and functions, choosing right technologies, establishing a structure, designing activity streams, and offering status update features, including multiple post-viewing functions and attracting the right users.
Development processes may vary depending on their nature and context, but they are commonly driven by a variety of strategies. In the Web 2.0 environment, the platforms must have distinctive competitive strategies to establish or combine their core components and thus to formulate their value proposition (Lee et al. 2010). Table 3 lists some platform development strategies.
Table 3: Examples of Platform Development Strategies
Strategy Description Coring Coring refers to the set of activities a sponsor can use to identify or design an offering (i.e., a technology, product, or service), make the offering fundamental to the platform (Tan et al. 2015a), and thus establish the centrality and value proposition of the platform (Gawer and Cusumano 2008b). Tipping Tipping refers to the set of activities that platform hosts can use to shape market dynamics, acquire critical mass, and gain momentum when there are competing platforms (Tan et al. 2015a), which may be supported by IS technical skills and IS infrastructure capabilities (Gawer and Cusumano 2008b).
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Encapsulating An encapsulating strategy is a set of activities a core entity can use to fortify platform boundaries (Eisenmann et al. 2006), reinforce the collective identity of platform entities (Ma and Agarwal 2007), and thus mitigate the threat of envelopment due to the introduction of new entrants or expansion of the platform scope (Tan et al. 2015a). Delegating A delegating strategy is a set of activities a core entity can use to foster greater autonomy of members and encourage relationship building among platform entities (Tan et al. 2015a), which allows the platform sponsor to manage problems using the self-organisation among platform members (Ghazawneh and Henfridsson 2010). Meshing A meshing strategy is a set of activities a core entity can use to foster solidarity, encourage collective actions and establish mutual dependencies between platform entities (Adler and Kwon 2002; Tan et al. 2015a). Thus, it also provides a foundation for stability, productivity, and creativity in the platform (Iansiti and Levien 2004a). Empowering An empowering strategy is a set of activities used by a sponsor to enhance the strategic and operational capabilities of platform members through direct intervention or indirect facilitation (Tan et al. 2015a), which may foster their collective actions (Iansiti and Levien 2004a), relationship with members and members’ loyalty (Adler and Kwon 2002).
Previous literature indicated that the coring and tipping strategies are used in the initial stage of development for establishing the foundations, such as trust, critical mass of users, and developmental momentum. After the initial development stage, the delegating and meshing strategies are adopted to provide autonomy and encourage self-organisation between members.
This is followed by meshing and empowering strategies, which serves to foster mutual dependencies between platform members, and to enhance their strategic and operational capabilities.
However, many process theories and strategies related to platform development are either theoretical without evidence (e.g., Rampton 2017; Shaughnessy 2016) or too context-specific
(e.g., Tan et al. 2017b). Given the emergence of digital platforms in various sectors, several previous digital platform development works have highlighted the need for further studies on the development processes of other types of platforms to test the boundary conditions of their process models (e.g., Tan et al. 2015a).
In addition, the proliferation of digital platforms has led to rapid market changes and, in turn, less predictable customer demand (Bughin and Van Zeebroeck 2017; Liu et al. 2019). The
4 proliferation of different digital technologies may lower the entry barriers (Grossman 2016), but it also means that there will be more competitors (Møller et al. 2017). Moreover, it is easy for prospective customers to switch between different platforms or be on multiple platforms at the same time (multi-home) to maximize their own benefits (Zhu and Iansiti 2019). Therefore, it can be difficult for digital platforms to accumulate and sustain a critical mass of users, which is vital for the success of a platform (Iansiti and Levien 2004b). The increased number of competitors and decreasing switching costs for customers are collectively intensifying the competition between platforms; thus, many platforms are short-lived (Ström and Ernkvist
2014; Taneja and Chenault 2019). This may impede the development of digital platforms, discourage prospective digital platform hosts, and limit the benefits to customers in the long term (Gannamaneni et al. 2015). On the contrary, by developing knowledge for extending the lifecycle of digital platforms, hosts may sustain their platforms for longer periods of time, making it more likely they will recoup the initial developmental costs of the platform
(Anderson 2006).
Moreover, the proliferation of digital platforms has fundamentally disrupted the existing means of value creation within and across markets (Weill and Woerner 2015b). Given the impact created, the emphasis of existing prescriptions in the literature tends to be centred on speed and decisiveness (see Møller et al. 2017). However, acting swiftly may be inadequate on its own because early-mover advantages tend to be limited and short-lived, particularly in markets where technology is constantly evolving (Suarez and Lanzolla 2005). Conversely, later entrants may conduct reverse engineering of technologies and business models (Alt and
Zimmermann 2001) or imitate the business models of early-movers more effectively and reduce uncertainty. In fact, it is not uncommon to see an early-mover eventually not dominating the market or even being defeated by later entrants (Kopel and Löffler 2008). For example,
MySpace was an early-mover of social networking services, but they have been surpassed by
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Facebook, a later entrant to the market (Jung and Lee 2011). Therefore, instead of becoming an early-mover, some market players have considered the advantages of being second-movers, allowing them to adopt improved business models and compete in the market more strategically. In the context of digital disruption (DD), information systems (IS) may facilitate the achievement of second-mover advantages (SMA). For example, IS may facilitate potential second-movers in seeking the information of early-movers (Whelan et al. 2010) and thus imitating the business models of early-movers with enhancement before full-scale implementation of their own business models. However, previous research has not adequately addressed how IS capabilities may facilitate digital platform hosts to achieve SMA and gain a significant presence in the market. This is especially vital in the context of DD given that the entry barriers of many industries have been lowered by platform-based business models (Wang et al. 2016). Because everybody can move fast, moving with an enhanced business model is, therefore, more important.
To address the abovementioned literature gaps, the objectives of this thesis are threefold:
(1) To address the lack of research focusing specifically on the development process of digital platforms, a case study of a website has been presented, discussed under the pseudonym
‘P2PLend.com’, which is a highly successful online peer-to-peer (P2P) lending platform in mainland China, with a focus on exploring their development process in detail. With the findings, a platform development process model is established, which provides an empirically supported framework for digital entrepreneurs to develop their platform-based businesses. (2)
To address the lack of research focusing on platform sustenance, a netnographic case study investigating the lifecycle of digital innovations was presented for Talesrunner, a highly successful MMOG in Hong Kong and Taiwan. The findings contribute to the literature on the sustenance of digital platforms and lifecycle theories, and they provide practitioners with an empirically grounded framework of lifecycle management of digital innovations and platforms.
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(3) To address the lack of research on the strategic implications of digital platforms, a case study of xBed, a highly successful second-mover in the accommodation-sharing industry that has been recognised as the first ‘Internet hotel’ in mainland China, has been reported. Based on the case study findings, a process model has been proposed, showing how digital platforms may compete strategically as second-movers with improved business models by utilising various IS capabilities, thus achieving SMA.
Beyond its academic importance, the utility of this thesis lies in tracing a range of strategic implications to unlock the potential of digital platforms (i.e., comprehending the digital platform development process, the attainment of digital platform sustenance, and achieving SMA facilitated by different IS capabilities). In doing so, this thesis can potentially serve as a useful practical reference outlining a detailed roadmap for strategic formulation in terms of development, sustenance, and SMA, enabling prospective entrepreneurs to utilise the opportunities presented by the proliferation of digital platforms. At the same time, policymakers may formulate a balanced regulation between monitoring and fostering the development of digital platforms. Moreover, traditional firms’ owners may formulate countermeasures in response to the proliferation of digital platforms. In summary, the research questions of this thesis are (1) “How are digital platforms developed?”, (2) “How do you sustain and grow a digital platform?”, and (3) “How can a digital platform compete strategically?”.
1.2 Thesis Structure This thesis is organised into five chapters. Chapter 1 presents a general outline of the thesis, including its background, aims, motivation, and research questions. It sets the broader context of the thesis to give the reader an overview of the current understanding surrounding digital platforms as well as related research gaps. This thesis presents three case studies to empirically answer the three abovementioned research questions. Chapters 2, 3, and 4 describe the three
7 case studies in detail and address research questions (1), (2), and (3), respectively. The case studies all follow a similar structure. In each of Chapters 2 and 3, the first section presents an introduction to the case study, followed by a detailed literature review of the phenomena and theoretical foundation related to that case. The third section outlines the research method applied, which begins with the background of the case under discussion, followed by the data collection and data analysis techniques employed for the case. The fourth section presents the findings of the case study in detail. The fifth section presents the discussion, which details the construction of the process models and implications. Finally, a concluding section outlines the limitations and scope for future research and summarises the study. The structure of Chapter 4 is similar to those of Chapters 2 and 3, except the discussion and conclusion sections are consolidated into one section. Chapter 5 concludes the thesis, presenting a recap of the research gaps and research questions that the thesis sought to address, a summary of each case study, and finally the overall theoretical and practical contributions of the thesis.
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Chapter 2: Developing a P2P Lending Platform: Stages, Strategies and Platform Configurations 2.1 Introduction Peer-to-Peer (P2P) lending refers to the process of establishing a loan between individual borrowers and lenders, with an online platform operating as an intermediary (Bruton et al.
2015). It uses social networks to harness communities of both borrowers and lenders to improve the efficiency and effectiveness of aggregating and transferring funds (Lee and Teo 2015). By offering faster and more convenient access to loans for borrowers, and an alternative investment channel for lenders (Bachmann et al. 2011), the popularity of P2P lending has skyrocketed especially in developed financial markets across the globe in recent years (Chen et al. 2015a; Yan et al. 2018). In fact, analysts are projecting that the size of the P2P lending market will reach approximately US$370 billion by 2025 (Bloomberg 2019).
Despite its growing prominence in the contemporary business landscape, our knowledge on how to develop and manage the digital platforms that make P2P lending possible is limited
(Bachmann et al. 2011; Lee and Teo 2015). In particular, of the handful of published works in this area, most of them are centred on identifying the critical success factors (CSFs) of the development of these platforms (e.g., Chen et al. 2015a; Lee and Teo 2015). However, without grasping the underlying nature of the process, the field is currently lacking a “recipe that strings
[the CSFs] together in such a way as to tell the story of how [the outcome] occurs whenever it does occur” (Mohr 1982, p. 37). It is essential to address this knowledge gap because most P2P lending platforms are start-ups with limited resources (Chen et al. 2014) that can ill afford to bear the consequences of sub-optimal strategic choices and competitive actions
(Castrogiovanni 1996). If these platforms cannot achieve business sustainability, they may go out of business as many within the P2P lending sector already have, which may hurt the confidence of the general public in the emergent business model and thus impede the development of the entire industry (Yan et al. 2018). Addressing this knowledge can reduce 9 the likelihood of business failure (Dietz et al. 2016), and consequently, sustain the momentum of the global P2P lending revolution.
Our paper aims to address this knowledge gap through a case study of P2PLend.com (a pseudonym), one of the leading P2P lending platforms in China. More specifically, through an in-depth examination of the strategies deployed and actions taken across the various stages of
P2PLend.com’s development, as well as their consequences, we are seeking to derive a process model of P2P lending platform development. In doing so, we hope that our study can contribute a process perspective of the phenomenon to complement the existing studies in the literature and provide more nuanced guidelines for practitioners on how such platforms can be developed and managed effectively. Accordingly, the research question of our study is: “How can a P2P lending platform be effectively developed?”
2.2 Literature Review Based on the literature review methodology recommended by Creswell (2002), we conducted a search on three leading academic search engines (i.e., Google Scholar, Web of
Science, and EBSCOhost) based on different relevant search phrases (such as “FinTech”, “P2P lending”, “digital platform”) in August 2017. Based on this initial search, we accumulated a pool of 143 papers. All of us on the research team then proceeded to review the abstract of these papers independently, with each member creating with a shortlist of papers that were deemed relevant to our research topic. For the papers that were common across our shortlists, we included them in our final pool of papers for in-depth review. For those papers that were only in some but not all of the shortlists, the research team had a meeting to discuss each of those papers, and decide on which papers should also be included in our literature review. Our literature review was conducted over five iterations using the same search engines, with the last iteration occurring in February 2020. The subsequent iterations yielded an additional 59 papers, which was added to our initial pool and subjected to the same selection process.
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Eventually, 32 articles related to P2P lending platforms and 21 articles related to platform development were reviewed in-depth, which we will summarise in the stream of reporting that follows.
2.2.1 P2P Lending Platforms As a relatively recent phenomenon (Lee and Lee 2012; Yan et al. 2018), P2P Lending may be traced back to the founding of Zopa, one of the earliest P2P lending platforms, in 2005
(Bachmann et al. 2011). However, despite its short history, studies of the phenomenon have been steadily emerging in recent years, catalysed by the proliferation of P2P lending platforms in practice and the rapid growth of the sector worldwide (Chen et al. 2015a). P2P lending is related but distinct from a number of concepts in the growing literature on Financial
Technologies (FinTech). Table 4 provides a list of related concepts and clarifies the differences between them in terms of their definitions.
Table 4: Concepts Related to P2P Lending
Terms Definitions P2P Lending P2P lending refers to the facilitation of loans between individuals via online platforms (Bachmann et al. 2011). These platforms use social networks to harness communities of both entrepreneurs and investors to improve the efficiency and effectiveness of aggregating and transferring funds (Bruton et al. 2015). Crowdsourcing Crowdsourcing refers to a participative process in which the “crowdsourcer” and the “crowdsourcees” engage to create mutual benefit (Estellés-Arolas and González-Ladrón-De-Guevara 2012). Crowdsourcing is an online, distributed problem-solving and production model enabled by digital technologies (Brabham 2008). Relationship to P2P Lending: P2P lending may be considered a specific form of crowdsourcing, where there is a more specific problem (i.e., raise money) to solve with the help of a crowd, and money is the subject of contribution (Zhao et al. 2017). Crowdfunding Crowdfunding is the practice of raising relatively small amounts of funding from many people (i.e., the crowd), typically via the Internet or social media (Lee and Kim 2015). Crowdfunding is typically directed toward a specific objective or cause, and these projects cater to the crowd’s willingness to invest in a future product, service, or reward (Bruton et al. 2015). Relationship to P2P Lending: Unlike crowdfunding, which is centred on a project, a business, or a product/service that is yet to be developed, P2P lending may not have business-oriented objectives for lending and borrowing (Zhao et al. 2017).
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FinTech FinTech is a broad umbrella term that refers to the design and delivery of financial products and services through information technology of disruptive technologies in the financial sector (Leong et al. 2017). Relationship to P2P Lending: While P2P Lending is a subset of Fintech, the latter is a more general term that can refer to mobile payment, cryptocurrencies, and crowdfunding as well (Shim and Shin 2016).
In particular, the existing works on P2P lending platforms can generally be classified into three main categories (refer to Table 5): (1) Studies examining their developmental drivers
(e.g., Lee and Teo 2015), (2) studies investigating their operational effectiveness (e.g., Guo et al. 2016), and (3) studies exploring their economic and social impact (e.g., Bruton et al. 2015).
Table 5: Selected Works on P2P Lending Platforms
Source Key Prescriptions and Arguments Developmental Drivers Kupp and The rise of online P2P lending was largely enabled by Web 2.0, which emphasise Anderson (2007) online collaboration and sharing among users, as well as the growing trend of self-employed freelance workers. Chen et al. Acquiring lenders is the most important factor in P2P lending platform (2014) development, which, in turn, is influenced by trust in borrowers and the platform. Chen et al. Trust is a critical determinant of willingness to lend. When there is a critical mass (2015a) of lenders, a vibrant and self-sustaining P2P lending platform can be achieved. Lee and Teo There are five important CSFs of P2P lending platform development: Low-Profit (2015) Margin, Asset Lightness, Scalability, Innovativeness and Ease of Compliance. Milne and In order to have lenders’ continuous commitment of capital, P2P lending Parboteeah platforms must enhance the transparency to the lenders by providing information (2016) such as historical loan performance and future loan projections. Huang (2018) The explosive growth of online P2P lending market is due to the simultaneous emergence of three key factors: (1) Deep penetration of Internet, (2) large supply of funds and (3) unmet financial needs. Operational Effectiveness Kupp and When a loan request is made, interest rates should be dynamically computed and Anderson (2007) personalised based on the borrowers’ age, marital status, geographical location and loan purpose. Bachmann et al. Most P2P lending platforms provide an overview of the financial characteristics (2011) of the borrowers, such as credit ratings, property ownership, income-expense information and debt-to-income ratio, to indicate creditworthiness. Emekter et al. To predict the likelihood of loan default, an online P2P lending platform should (2015) assess loan applications based on the borrowers’ credit rating, debt-to-income ratio and credit score. Guo et al. (2016) Historical data on previous loan applications and repayment is key to predicting the performance of new borrowers and the viability of a P2P lending platform.
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Leong et al. Risk assessment capabilities, a viable digital hybrid business model, an (2017) ecosystem approach, and user education are critical to the operations of a P2P lending platform. Ma et al. (2018) As some borrowers are unbanked or may not have detailed financial histories, P2P lending platforms have to find alternative data sources and develop the means of predicting defaults with low costs but high accuracy. Liang and He For loan applications on online P2P lending platforms, the semantic features of (2020) soft textual information can significantly improve the predictability of default risks. Economic and Social Impact Heng et al. Online P2P lending platforms help to reduce the costs of doing business through (2007) disintermediation, which may be crucial to generating economic and social benefits by facilitating the growth of small-medium enterprises (SMEs) Bachmann et al. For borrowers, online P2P lending provides greater convenience and access to (2011) financial services, potentially under better terms. Bruton et al. P2p lending platforms provide access to loans for borrowers who are otherwise (2015) unlikely to obtain them from traditional financial institutions. Both lenders and borrowers may enjoy improved service quality and more efficient loan processes on these platforms. Wang et al. Compared to traditional banking services, online P2P lending platforms are more (2015) transparent and faster in a variety of business processes. Milne and The advantages of P2P lending may be grouped into four categories: i) offering Parboteeah better investment rates for lenders and lowered fees for borrowers; ii) provision (2016) of loans borrowers who are unable to access bank lending; iii) a perception of financial services with a higher social value and responsibility than conventional banking; and iv) improving the quality and speed of service. Anagnostopoulos The emergence of FinTech and P2P lending platforms has forced incumbent (2018) financial institutions to transform their business models and has led to both competition and collaboration between these institutions and their Fintech challengers.
More specifically, the development drivers of the first category refer to the factors that are crucial to the successful development of a P2P lending platform, which includes trust, a critical mass of lenders and borrowers (Chen et al. 2014; Chen et al. 2015a), low-profit margins, asset lightness, scalability, innovativeness, ease of compliance (Lee and Teo 2015) and transparency to users (Milne and Parboteeah 2016). In addition, the studies of the second category of research are centred on how the platforms should operate and manage risks. For instance, some studies have suggested that the interest rate and risks of these platforms should be calculated based on different parameters (such as the borrowers’ age, marital status, geographical location, loan purpose, credit rating, debt-to-income ratio and credit score
(Emekter et al. 2015; Kupp and Anderson 2007). Finally, the third category of research is 13 seeking to examine the economic and social consequences of P2P lending, which include cost reduction (Heng et al. 2007), enhanced accessibility of financial services (Bachmann et al.
2011), and improved quality services as compared to that of traditional financial institutions
(Milne and Parboteeah 2016).
Notwithstanding the academic and practical contributions of the existing body of work, our review of the literature reveals an important gap in relation to our research question. In particular, many existing works are based on variance theories, but few have examined the P2P lending platform development from an in-depth process perspective (see Markus and Robey
1988). A process perspective is crucial to deepening our understanding of the phenomenon because not only can it serve to integrate the diverse perspectives on the necessary conditions for P2P lending platform development, but it incorporates temporality to potentially sequence those conditions as well (e.g., Tan et al. 2015b). For example, a variance-oriented perspective may yield a list of crucial factors to the successful development of a P2P lending platform, but a process perspective will string these factors temporally to shed light on when each factor should be applied (Mohr 1982). This may result in the development of more nuanced and sophisticated theories, as well as provide a foundation for the formulation of precise, step-by- step guidelines for practitioners to reduce the likelihood of platform mismanagement or failure.
In spite of the unique traits, P2P lending platforms are, at their core, a type of multi- sided platform (see Hagiu 2007). This is because they consist of a diverse array of entities that interact to realise a collective value proposition (see Adner 2017). Consequently, in the absence of research that looks at the development of P2P lending platforms specifically, we turn to the literature on platform development as the starting point of our inquiry. This is to construct a theoretical lens and “sensitising device” (Klein and Myers 1999, p. 75) that can be subsequently used to help us make sense of that data that we are collecting, as well as to serve as building blocks that we can use to develop our theory (Pan and Tan 2011).
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2.2.2 Platform Development Research on platforms emerged as a response to the new reality of inter-network, as opposed to inter-firm, competition that characterises the contemporary business landscape
(Iansiti and Levien 2004b). A platform is defined as a commercial network of discrete entities
(e.g., suppliers, intermediaries, and customers) (Cusumano and Gawer 2002) that are held together through mutual dependency and/or formal contracting (Pierce 2009). The platform tends to be structured around a platform sponsor, whose dominance stems from its control over network value creation or the underlying technological infrastructure (Teece 2007). A platform fulfils an essential role in improving services or contribute to solving fundamental technological problems in an industry, provides easy connectivity for expanding the use of the platform, and allow new and even unintended end-uses (Cusumano and Gawer 2002).
A platform should be open, implement automatic business processes and exhibit network effects, which means that increasing user participation on the platform would enhance the value of the platform for both the owner and users (Dhar and Stein 2017). This is because both the owner and users now have greater access to the network of users and often a set of complementary resources and sources of innovation (Gawer and Cusumano 2014). Examples of platform businesses include eBay, Alibaba and Facebook (Bakos and Katsamakas 2008; Tan et al. 2015a). As digital platforms, eBay and Alibaba connect prospective buyers and sellers together, which facilitate transactions while earning a commission as a revenue source. In the case of Facebook, it serves as a digital social networking platform that connects users that are physically separated to establish virtual social connections (Dwyer et al. 2007) while earning revenue primarily from advertising.
The development of a platform can bring about several important benefits for the participating entities, including an enhanced market offering, operational efficiency, increased information sharing and optimised supply chain processes (Iansiti and Levien 2004b). The
15 realisation of these benefits, in turn, is contingent on a number of CSFs, which previous studies have identified to include IT Capabilities, Participation Subsidies, Critical Mass, Platform
Diversity, Platform Openness, Continuous Innovation, Loyalty and Trust (refer to Table 6).
Table 6: CSFs of Platform Development
CSF Description IT Capabilities IT capabilities can enable various strategic logics to drive platform development to attain enterprise agility (see Tan et al. 2015a). Participation Subsidising the costs of participating on a platform for one group of entities Subsidies can enhance the value of participation for other groups through network effects (see Parker and Alstyne 2005). Critical Mass Critical mass enables a platform to become self-sustaining, which enhances integration in value co-creation and decreases the complexity of coordination (see Iansiti and Levien 2004b). Platform Diversity Platform diversity makes a wider array of resources available for the collective goals of the platform (see Iansiti and Levien 2004b). Platform Openness Platform openness can influence innovation, and subsequently, platform development and profits (see Parker and Alstyne 2008). Continuous By continuously innovating and serving as a point of reference for other Innovation platform members, a platform sponsor can enhance the robustness of the platform (see Iansiti and Levien 2004b). Loyalty Customer loyalty may be viewed as the strength of the relationship between an individual's relative attitude and repeat patronage (Dick and Basu 1994) and has been considered as a pivotal path to success and profitability for many platforms (Zheng et al. 2017). Trust Given trust may increase the customers’ continuance intention (Zhang et al. 2015), platform providers should seek to create buzz and establish trust in the platform for attracting different user groups (de Reuver et al. 2015). 2.3 Research Method The case research method is especially appropriate for our study because its strengths lie in exploring ‘how’ research questions (Walsham 1995), understudied and multi-faceted phenomena (Siggelkow 2007), as well as processes that cannot be separated from their contexts
(Rynes and Gephart Jr 2004) - all conditions that are relevant to our study. To address our research question, we identified two criteria for case selection. First, the ideal case study target should be a P2P lending platform that has achieved a significant extent of commercial success so that we can develop theories based on proven, if not best, practices (Pan and Tan 2011).
Second, the case organisation should ideally have employed a variety of strategies and
16 initiatives in platform development so that a broader range of possibilities for action may be uncovered (Tan et al. 2010).
Based on these criteria, we selected the case of P2PLend.com Financial Services, an online P2P lending platform in China. P2PLend.com is especially appropriate for the purpose of our study because not only is it one of the commercially successful P2P lending platforms in China with a registered capital of CNY$50 million and physical branches in over 80 locations across the country, but a preliminary investigation into the background of the firm revealed that P2PLend.com had deployed a variety of creative strategies and initiatives toward the development of its platform, fulfilling both of our selection criteria perfectly.
2.3.1 Case Description P2PLend.com Financial Services (P2PLend.com) is a China-based online P2P lending platform, which was established in November 2013 and was headquartered in Hangzhou. In
January 2017, it successfully obtained over CNY$80 million in financing from external investors and currently employs over 2000 employees. P2PLend.com focuses on the car- financing market and operates within the government requirement of diversified, small-sized loans. The applicants drive their car to the nearest branch to apply for a loan, which will be assessed for condition and value. In addition, the applicants would provide a variety of personal details to P2PLend.com. These include credit records, academic qualifications, as well as bank account and identity card information, which would be used by P2PLend.com to determine the credit rating of each applicant. Information on the car, such as its make, car type, photos, accumulated mileage and registration records would also be captured at this point. All information would be processed using data analytics to determine the outcome of the loan applications, including the size and interest rate of the loan.
When the application is approved, the applicants are required to install a GPS tracking device on their vehicle so that P2PLend.com would be able to check the location of the car,
17 while information on the successful loan application would be uploaded to the platform for prospective lenders to view (with sensitive information masked). The platform is accessible by both computer and smartphones. If the lenders choose to invest in a loan, they may invest a minimum amount of CNY$100. When the targeted loan size has been reached, the funds will be transferred to the applicant’s designated bank account.
2.3.2 Data Collection Research access was granted in July 2017. The study consisted of two main phases: a preparatory phase and a fieldwork phase. The focus of the preparatory phase was to collect and analyse data from various secondary sources, including websites, newspapers, online investment forums and internal organisational documents to gain an overview of the case organisation (Strauss and Corbin 1998), as well as to conduct an initial review of the academic literature. From this initial review of the literature on P2P lending platforms and digital platform development, we derived a set of aggregate dimensions and themes that served as the initial theoretical lens to guide our interviews and data collection in the subsequent fieldwork phase (Myers and Newman 2007). More specifically, the dimensions and themes were used in the formulation of our interview questions (e.g., the theme Borrower Benefits was explored with the questions: “What are the benefits of borrowing from a P2P Lending platform?), which included the drivers and outcomes of P2P lending platform development, as well as the critical success factors of the development of platforms in general. Table 7 shows the dimensions and themes used in the data analysis, while Appendix A included a sample interview guide for this case study.
Table 7: Dimensions and Themes for Data Analysis in the Case Study of P2PLend.com
Dimensions Themes P2P Lending Platform Lender Acquisition, Platform Transparency, Low-Profit Margin, Development Drivers Asset Lightness, Scalability, Innovativeness and Ease of Compliance (see Table 5)
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P2P Lending Platform Borrower Benefits (Bachmann et al. 2011), Platform Self- Development Outcomes Sustainability (Leong et al. 2017), Social Benefits (Lee and Teo 2015) CSFs of General Platform IT Capabilities, Participation Subsidies, Critical Mass, Platform Development Diversity, Platform Openness, Continuous Innovation, Loyalty, Trust (See Table 6)
The emphasis of the fieldwork phase, on the other hand, was to collect primary data in relation to our research question and to explore the development process of P2PLend.com’s platform in an in-depth manner (Pan and Tan 2011). Semi-structured interviews are the primary means of data collection during the fieldwork phase (Myers and Newman 2007), and a total of
16 informants (see Table 8 for the list of informants) were identified and interviewed. This sample size was not determined in advance. As will be explained in the following sub-section, data collection concluded when we arrived at theoretical saturation, which refers to the state where no new data can be found and incorporated to improve our theoretical model (Eisenhardt
1989). This sample size is not dissimilar to a number of case research papers based on single case studies that have been published in established information systems journals (e.g., Pan et al. 2006; Sarker et al. 2006).
Table 8: List of Informants in the Case Study of P2PLend.com
Job Title / Role Topics Discussed 1. Deputy CEO Overview of platform and business model, operations of the platform, needs of lenders and borrowers, use of data analytics in loan application processing 2. Operations Manager (A) Marketing to lenders and borrowers, user statistics, competitors in the P2P lending sector, the evolution of strategic objectives 3. Operations Manager (B) Measures for attracting lenders, interest rate setting, handling/responding to customers’ feedback 4. Co-founder Reasons for establishing the company, relationship with other market players, measures for attracting customers 5. Head of Legal Division Legal issues related to loans contracts for borrowers and operations of the platform 6. Head of Data and Product The design of financial products for customers based on data Division analytics of customer needs 7. Data and Product Manager The design of financial products for customers based on data analytics of customer needs
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8. Head of Organizational The acquisition of external capital sources for loan transaction and Capital Division platform development, provision of complementary services such as insurance policies for lenders/car owners 9. Head of Marketing Platform development and customers communications 10. Head of Finance Financial analysis and management of the company, management of local branches that cater to lenders 11. Head of Lease Financing Evolution of the company, managing the risks of loan defaults 12. Head of Risk and Audit The acquisition of data on borrowers from external sources, issues Department and difficulties in data analytics for loan assessment 13. Head of Risk Management Loan assessment and related applications of data analytics 14. Head of Human Resources Inter-departmental collaboration at P2PLend.com and recruitment policies 15. Head of Technology IT applications for internal communication and platform operations 16. Head of Collateral and Division of work in the company, management of collateral from Loan operations borrowers and the operations of local branches
The informants were composed of representatives from P2PLend.com’s top management, organisational IT function, as well as its various business units. The number and diversity of interviewees are to ensure the representation of “a variety of voices” (Pan and Tan
2011, p. 169). Each interview took an average of 45 minutes and was conducted with the help of the interview guide prepared in the preparatory phase. The guide consists of a set of standard questions related to P2PLend.com’s development strategies, as well as specific questions tailored for each informant based on their role within the organisation (Pan and Tan 2011). In line with the ethics policies of the institutions that the various members of the research team are affiliated with, we have obtained consent from the organisation under study to use the data provided and their company name in our study. In negotiating for case access and arranging the interviews, all our informants have also acknowledged and given consent to use the information that they provide in our research report. All the interviews were recorded, transcribed to ensure data accuracy, and subsequently translated for data analysis (Walsham
1995). In addition, the transcripts were also individually sent to and checked by the relevant informants to ensure that we are reporting what they have said accurately.
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2.3.3 Data Analysis To take full advantage of the flexibility of the case research method, data analysis was conducted in parallel with data collection (Eisenhardt 1989). We first used the visual mapping and narrative strategies to organise our data (see Langley 1999; Tan et al. 2015a). The visual mapping strategy was used to condense the massive amount of data into a manageable form
(Langley 1999) and for building the orders of events (Van de Ven and Huber 1990), while the narrative strategy was used to create a summary of the key events, activities and decisions related to the process of platform development (Van de Ven and Huber 1990). Beyond serving as summary devices, both the visual map and narrative were subsequently verified with some of our informants to validate our interpretation of what happened. The data collected was then coded using a blend of open, axial and selective coding (Pan and Tan 2011). Open coding was first used to assign theoretical labels to the evidence from the interviews, forming second-order concepts (Gioia et al. 2013). Axial coding was then used to identify new (e.g., development of risk assessment capabilities) and validate existing first-order themes (e.g., participation subsidies) aligned with those dimensions (Strauss and Corbin 1998). Finally, selective coding was then used to group the second-order themes into a number of new (e.g. Platform
Configuration) and existing (e.g., CSFs of Platform Development) aggregate dimensions
(Gioia et al. 2013). Whenever new concepts, themes or dimensions emerged that challenged the existing schema represented by our theoretical lens, the scheme would be modified, and the process of coding would be restarted. Appendix C shows a sample data structure we used in the coding of our data based on the method of Gioia et al. (2013) in this case study. The process of iterating between data, analysis and theory development continued until the state of theoretical saturation is reached (see Eisenhardt 1989), and each of our findings was supported by at least two sources of data (Glaser and Strauss 1967), and thus fulfilling the principle of data triangulation.
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2.4 Findings The findings from our study of P2PLend.com suggests that the development of a P2P lending platform is a process that traverses at least three stages (refer to Figure 1). As each of the stages is emphasising the development of a particular side of the platform (made up of
Partnering firms, Lenders, and Borrowers), we term the stages P-side Development, L-side
Development and B-side development accordingly. More importantly, each stage is marked by the employment of a distinct platform development strategy, which, in turn, leads to a specific platform configuration and its associated developmental outcomes. The following stream of subsections will present our findings in relation to each of the stages in sequence.
Stage 1 - P-Side Development Stage 2 - L-Side Development Stage 3 - B-Side Development Antecedent Conditions Unmet need for car loans Inadequate user base (Lenders Challenges of service within the market and Borrowers) homogeneity (for borrowers) Platform Development Strategy Leveraging Partnerships Subsidising Lenders Facilitating Borrowers Establish partnerships with Enact initiatives to lower the Provide additional services to external firms to develop risk costs of participation for lenders borrowers to enhance delivered assessment capabilities and the (e.g. setting up user guides and value and reduce the need for financial resources needed organising monthly lenders multi-homing meetings) Resultant Platform Configuration and Developmental Outcomes
Acquire core resources and Achieve critical mass of lenders Differentiate service, lock in capabilities, as well as attain and reduce dependency on borrowers, and achieve legitimacy business partners platform balance and business sustainability Figure 1: A process model of P2P lending platform development
2.4.1 Stage 1 – P-side Development (2013-2015) At the point of its inception, the founders of P2PLend.com realised that there was an unmet need for financial services (i.e., car loans) among people who had limited or no credit histories (Chen and Jin 2017), which has made it difficult for them to obtain loans from
22 conventional channels (Bruton et al. 2015). The Deputy CEO of P2PLend.com explained using the case of a sole proprietor of a small food store as an example: “There was an owner of a small food store that sells stinky-tofu. All of their transactions are cash-based, and thus he has no credit records (to show the banks). Customers like that (who wish to obtain car loans) may use their newly purchased cars as collateral and borrow money from us.”
Consequently, P2PLend.com was founded as a P2P lending platform to cater to this unmet need. However, P2PLend.com, as a fledgeling start-up, was lacking in even the most basic operational capabilities (e.g., the ability to assess the creditworthiness of their customers) at the time. This could have led to hesitance or reluctance on lenders and borrowers to participate on P2PLend.com’s newly established platform (Chen et al. 2015a), and hindered its business viability. According to the Operations Manager (A) of P2PLend.com: “At the beginning, it was difficult to get the customers. While nowadays we have more data to support our work of analysing credit risks, when we first started, however, we have very limited data on our customers.”
To overcome these challenges, P2PLend.com’s strategy in this stage was centred on establishing partnerships with external firms to develop the capabilities for risk assessment, which previous scholars have identified as a core business process for a P2P lending platform
(see Leong et al. 2017). To this end, P2PLend.com began working with third-party big data firms to acquire information on potential borrowers. The Operating Manager (B) of
P2PLend.com explained: “The big data (obtained from the big data firms) would help us in identifying and evaluating the risk of the applications. We may determine the interest rate and loan amount based on the likelihood of credit default”. In addition, P2PLend.com sought to work with a number of financial institutions so as to acquire the monetary resources required to operate as a lending platform. The Head of P2PLend.com’s Organizational Capital Division explained the rationale behind working with financial institutions initially even as the vision
23 for the firm was to evolve into a P2P lending platform eventually: “We may acquire funds in advance, occasionally but not always, and therefore we needed some external funding to support us”. As the focus of P2PLend.com’s strategy in this stage was on the formation and leverage of relationships with external partners, we term this stage P-side Development.
As a result of the external partnerships formed, P2PLend.com was able to acquire the core resources and capabilities that were required to get its business off the ground (see Guo et al. 2016). For example, according to the Head of the Risk and Audit Department at
P2PLend.com: “This is leveraging the strengths and capabilities of our business partners… so that we can learn about our loan applicants that would support our core business of facilitating loans”. More importantly, working with existing financial institutions allowed P2PLend.com to achieve some extent of legitimacy (see Scott 2013), which served to mitigate the liability of newness (see Singh et al. 1986), manifested in the reluctance or hesitance of potential borrowers and lenders in relation to participating on its nascent platform. According to the
Head of P2PLend.com’s Legal Division: “Our customer segment may not be in the scope of these established financial institutions, or the customers may be too small for them. However, they may refer these customers to us in return for a commission”. This resonates with the suggestion in previous studies that establishing partnerships or collaboration with larger and more well-known firms may be a means of establishing legitimacy for smaller or new firms
(Zott and Huy 2007).
2.4.2 Stage 2 – L-side Development (2015-2017) With its basic operational capabilities and some extent of legitimacy in place,
P2PLend.com set about growing its user base. As P2PLend.com’s management felt that the demand for its car loan services was already significant, they believed that it was more critical at this juncture to attract lenders as opposed to borrowers (see Chen et al. 2014). The Operations
Manager (A) of P2PLend.com explained: “There are so many P2P lending and car-financing
24 firms in China, and it is hard to compete for lenders”. The Head of Finance added: “More people are now switching to loan-based consumption, and therefore there will be more and more people needing money”. In other words, the demand for borrowing is real and significant, but the competition for lenders is intense. P2PLend.com’s experience at this juncture resonates with previous studies on P2P platforms that suggest that it is more critical to attract lenders than borrowers, especially when the platform is in a fledgeling state (Chen et al. 2014; Milne and Parboteeah 2016). Consequently, P2PLend.com pursued a platform development strategy seeking to provide participation subsidies to potential lenders, effectively subsidising one side of its platform to generate network effects and attract members of the other side (see Parker and Alstyne 2005). Because of P2PLend.com’s focus on its lenders during this period, we term this stage L-side development.
As part of its developmental strategy, the participation subsidies provided by
P2PLend.com included a number of initiatives such as publishing user guides and organising monthly lender meetings for lenders to share knowledge on how to invest on the P2PLend.com platform, effectively reducing the transaction costs (see Tan et al. 2015a) and mitigating the concerns of the lenders. According to the Deputy CEO of P2PLend.com: “We occasionally invite investors to a monthly gathering at our headquarters to explain to them our current business situation. The investors in online P2P lending are young and smart, and may even help to answer the questions of others that may typically need a professional staff to answer.”
P2PLend.com also set up a number of physical branches in major cities across the country to facilitate the inspection of the vehicles being put up for collateral. The inspection would generate a standardised set of information in the form of photos and vehicle details. This enhances the transparency of the borrowers’ listings, which enhances the lenders’ trust and lowers the search costs (see Parker and Alstyne 2005) for the lenders as well. The Operations
Manager (B) of P2PLend.com explained the underlying rationale of increasing information
25 transparency: “We would provide detailed information to the prospective investors… We include different photos (of the cars) in all applications, which is hard to do and has created a huge workload… (but nevertheless) it helps us to gain our lenders’ trust.”
As a result of these participation subsidies, P2PLend.com achieved a critical mass of lenders, which triggered positive network effects (Gawer and Cusumano 2014) to make it easier for them to attract borrowers as well. The Operations Manager (B) of P2PLend.com described the rapid growth that P2PLend.com experienced during this period: “In mid-2016, the development was really fast… we have optimised the system and accumulated a critical mass of customers. On top of this, we now have new lenders found us on their own (via P2P lending platform ranking sites), and we have gained adequate web traffic along with this development.”
In addition, as more lenders came on board, P2PLend.com was becoming the P2P lending platform that it originally envisioned, which made it possible for P2PLend.com to reduce its dependency on the financial institutions that it partnered with in the first stage. The
Head of Organizational Capital Division provided an illustration: “(Initially) we need much external funding from financial institutions… Currently, (loans based funds obtain from the financial institutions) only accounts for approximately 10% of our loan volume”. In other words, P2PLend.com has transformed from heavily depending on its business partners for capital in the initial stages to depending on their lenders instead. In addition, in relation to customer and loan data, P2PLend.com’s reliance on external data sources have decreased as well because they now have accumulated a significant amount of data from their own transactions. The Head of Risk and Audit Department explained: “We can now compare our existing customers, including those who repay loans normally or abnormally, with the new customers using the data we have accumulated to generate a scorecard. In the longer term, we can look to automate the processes of credit assessment as well.”
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2.4.3 Stage 3 – B-side Development (2017-2019) With a critical mass of lenders on its platform, the management of P2PLend.com turned their attention toward scaling their business. In particular, they were now seeking to attract more borrowers and achieve the balance between the multiple sides of their platform so as to transform their network into a symbiotic and self-sustaining ecosystem (Tan et al. 2015a). The challenges they faced, however, were mainly associated with the homogenous nature of the services it provided (see Leong et al. 2017; Ranaweera and Neely 2003): borrowers had alternative means of obtaining loans (e.g., from another P2P lending platform, illegal moneylenders, etc.) and there was a need to differentiate its services and retain the borrowers that it has already acquired (Leong et al. 2017). The Head of Risk Management of
P2PLend.com explained: “Borrowers will always gravitate toward the quickest way of obtaining loans, and what costs the least”. As P2PLend.com’s focus was on its borrowers during this period, we term this stage B-side development.
More specifically, to overcome the challenges associated with service homogeneity,
P2PLend.com pursued a developmental strategy centred on facilitating its borrowers. As part of this strategy, P2PLend.com conducted a thorough analysis of its borrowers’ needs and developed a suite of services to address them (complementing their original car loans service).
For instance, P2PLend.com began offering fast-tracked loan services to enhance convenience for long-term customers with good credit histories, developing a mobile application for loans management, while also providing additional value-adding services (see Bachmann et al. 2011) that catered to their borrowers’ needs holistically (e.g., car insurance and maintenance services for the borrowers, who were also car owners). The Head of Lease Financing at P2PLend.com provided an illustration: “We developed our own mobile application for the management of loans and investment, as well as our other related services….. On top of that, we are on the track of product diversification, in response to changing customer requirements”.
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These measures served to enhance the value proposition of P2PLend.com’s services, and because most of the car-related needs of the borrowers can be met by P2PLend.com, these measures also reduced the need for multi-homing (i.e., participating on other platforms - see
Armstrong 2006) for the borrowers as well. The Deputy CEO of P2PLend.com explained: “All customers have to buy insurance for their vehicles. And although the vehicle may be of good value, they may not always be able to pay for the insurance. And the insurance policy may not be available until the payment is made. We can provide an add-on insurance option for them, and they just add the insurance premium to their regular instalments. If they do not pay the loan, we can withdraw the insurance policy at a very low service charge. In this way, we earn both the commission and interest for selling the insurance.”
As a result of this developmental strategy, P2PLend.com could differentiate its services from its competitors and lock-in its borrowers (Leong et al. 2017). P2PLend.com’s Head of
Lease Financing described how the firm sought to differentiate itself from its competitors: “Our competitors are also developing quickly, but for our firm, we emphasise more on our products based on the customers’ needs before releasing it to the market. We may refer to the product of our competitors, and improve on them to provide our customers with even more value”.
More importantly, P2PLend.com was also better able to strike a balance between the multiple sides of the platform as well, which is especially crucial to P2P lending (Chen et al. 2014).
These outcomes allowed P2PLend.com’s platform to become self-sustaining, defined as a state where a platform can maintain itself and continue to grow without external intervention (Fourie
2016). The attainment of self-sustainability is thought to be crucial to promoting symbiosis among platform participants and is typically acknowledged as one of the key goals to be fulfiled toward becoming a mature multi-sided platform (Lee and Teo 2015; Tan et al. 2015a).
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2.5 Discussion
2.5.1 Theoretical Implications for P2P Lending Our study has made a number of theoretical contributions to the literature on P2P lending. First, we have presented a conceptual innovation in the inductive derivation of a process model of P2P Lending Platform Development. In doing so, our process model contributes an in-depth view of how P2P lending platforms should be established and nurtured to complement the existing conceptual and variance theory-based studies (see Markus and
Robey 1988) in this rapidly growing research area. In particular, our process model reveals that the development of P2P lending platforms can unfold across a specific sequence in three stages, and the development of a particular side of the platform should be emphasised in each stage.
More specifically, at its inception, a platform should emphasise the leverage of business partnerships to acquire the basis of operating, so that the platform can be launched in the quickest and most efficient way possible (Leong et al. 2017). With this in place, the platform should then focus on subsidizing lenders in order to attract lenders. This is because it is usually easier to attract borrowers (Feng et al. 2015), and attracting the lenders would also attract borrowers and reduce the platform’s dependency on its business partners. In particular, after having achieved a critical mass of lenders, these lenders would offer more capital for fulfilling the demand for loans, and thus the dependency on external financial resources may be decreased (Chen et al. 2015a). Moreover, with the transactions that occur over time, it becomes possible for a P2P lending platform to accumulate a significant amount of loan and customer data. Consequently, the dependency on external data providers would also decrease. Finally, with a critical mass of lenders in place, our process model suggests that the platform should channel its efforts toward facilitating the borrowers so that the borrowers are less likely switching to other platforms (Armstrong 2006).
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Second, beyond revealing that the development of a different side of a P2P lending platform should be emphasised in each stage of the process, our study also hints at the strategies that can facilitate the various stages. For instance, when cultivating partnerships during P-side development, our study suggests that the developmental strategy of the platform should be centred on the acquisition of financial resources and risk assessment capabilities in particular
(see Guo et al. 2016). In particular, the former would support the meeting of the initial demand for the platform’s services and the attainment of legitimacy (Scott 2013), while the latter would provide a stronger understanding of the market and transactions so that the viability of the fledgeling business will be, to some extent, assured. Conversely, our study suggests that during
L-side development, the platform should pursue a developmental strategy centred on market education. At P2PLend.com, this is manifested in the user guides that they published as well as the monthly lenders' meetings that they organised. The purpose of these initiatives is to make it easier for the lenders to use their platform and gain more confidence in P2PLend.com’s business model, thereby lowering the participation costs for this group of stakeholders (Parker and Alstyne 2005). Finally, our study suggests that the developmental strategy of a P2P lending platform should be centred on providing complementary and value-adding additional services during B-side development. This is largely due to the homogenous nature of the services of these platforms (see Ranaweera and Neely 2003) as borrowers may have access to alternative means of obtaining loans. By differentiating its services and catering holistically to their needs, the platform may retain its borrowers better and reduce the need for multi-homing (see
Armstrong 2006) to achieve platform self-sustainability (see Leong et al. 2017). The attainment of self-sustainability is thought to be crucial to promoting symbiosis among platform participants and is typically acknowledged as one of the key goals be fulfiled toward becoming a mature multi-sided platform (Lee and Teo 2015; Tan et al. 2015a).
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2.5.2 Theoretical Implications for Platform Development Our study also makes a number of contributions to the literature on platform development as well. The first contribution is that unlike the majority of theories and studies on platform development that do distinguish between the various sides of a platform (Gawer and Cusumano 2008a; Tan et al. 2015a), our study suggests instead that a specific side should be emphasised during the various stages of development. More specifically, it is not a single side of a platform that should be subsidised all the time (Parker and Alstyne 2005), but in fact, the end goal of platform development should be to achieve a balance between its multiple sides.
A possible reason for this is that a sustained emphasis on a single side of the platform may result in increasing the dependency and bargaining power of this specific group of stakeholders
(Cusumano and Gawer 2002). Our study suggests that the attainment of balance between the multiple sides of a platform can mitigate these dependencies and distribute the value and benefits of platform participation more equitably (Iansiti and Levien 2004b) for the optimal development of the platform.
Our second contribution to the literature on platform development lies in the way we have contextualised the existing prescriptions for platform development to the specific setting of P2P lending. For instance, even though all platforms are necessarily service providers
(matching different sides of the platform to one another), our study suggests that it is important to consider the extent of service homogeneity as well. In particular, if the extent of service homogeneity is high (see Evans and Schmalensee 2010; Jin and Rysman 2015), our study suggests that there is a need to develop a complementary suite of services surrounding the core service of the platform to better differentiate it from its competitors and potential substitutes.
For instance, in the case of P2PLend.com, the additional value-adding services took the form of fast-tracked borrowing services for borrowers with good credit records, as well as the complementary car-insurance products that were introduced to lock in their customers. These
31 complementary services will enhance the value proposition of the platform, fortify its boundaries (Tan et al. 2015a) and reduce the motivation for multi-homing (Armstrong 2006), which can facilitate the retention of platform members. In addition, our study sheds light on how the various platform development strategies that have been proposed in the literature should be implemented in the specific context of P2P lending as well. For example, our study suggests that the coring strategy proposed by Gawer and Cusumano (2008a) can be efficiently implemented in conjunction with a number of complementary business partners in the nascent stage of the platform, while the tipping strategy proposed by the same authors can be carried to fruition by facilitating the participation of lenders and borrowers in turn. This increases the precision and sophistication of these generic prescriptions in relation to the context of P2P lending, and advances our understanding on the development of this specific type of platforms.
2.5.3 Practical Implications We believe that our study has significant implications for practice, particularly for two groups of stakeholders related to the P2P lending sector. The first group would, of course, consist of the owners and managers of P2P lending platforms. For this group, our work can provide guidance by indicating the challenges that may be encountered along with the development of their platform, how these challenges can be overcome, and the strategies to adopt in the various stages. We have also presented a sequence of the platform development stages, as well as the nature and outcomes of each stage. As such, we believe that our work can serve as the foundation for formulating concrete, if not step-by-step, guidelines for the owners and managers of P2P lending platforms, so that they are able to make the most of the efforts and resources invested in their platforms and extend the benefits of P2P lending to a broader base of customers. In relation to the psychological concerns and risks related to online P2P lending platforms (Yan et al. 2018), we believe the prescriptions offered by our study will be
32 helpful towards mitigating these issues, so as the contributions toward the development of self- regulating and more socially responsible online P2P lending platforms overall.
The second stakeholder group that can be potentially informed by our study consists of the government authorities and policymakers who are overseeing and regulating the P2P lending sector. While this new means of obtaining loans will likely become more and more commonplace in the future, it is almost inevitable that the majority of P2P lending platforms will fail (Dietz et al. 2015). As such, for this stakeholder group, our study can help them to identify the platforms that have a higher likelihood of survival or success because they are deploying strategies that have been demonstrated to be appropriate for their developmental stage. Resources and support can then subsequently be made available to these platforms with priority to increase their chances of survival. In addition, our study can help policymakers and government authorities identify the platforms that are less likely to succeed. The appropriate help can then be given to these firms (e.g., advice on strategy or establishing a regulatory sandbox for new business variants), so as to preserve the resources that have been invested in the establishment of these platforms and, potentially, mitigate the rate of business failure.
2.6 Conclusion
2.6.1 Limitations and Future Research Our study is not without its limitations. First, our research design is based on a single case study, and although studies based on single cases may be considered as a typical and legitimate endeavour (Lee and Baskerville 2003), the problem of external validity or generalizability has been a fairly common criticism of the approach (Walsham 2006). While we acknowledge the impossibility of statistical generalization in relation to our research approach, we contend that the process model developed in this paper and our findings are nevertheless generalizable because of the principles of analytic generalisation (Yin 2003). In other words, in corroborating our study with established theories and propositions in the
33 existing literature that are inherently generalised, we believe our model and findings to be applicable beyond the specific context of P2PLend.com (Lee and Baskerville 2003). In any case, we must acknowledge that the strategy of the organization studied may not be the best or only workable strategy for a P2P lending platform. While it has been undoubtedly highly successful, other strategies, especially when applied in different contexts, may be just as effective. As such, not only should future studies seek to investigate the propositions and prescriptions implied in our study via statistical techniques so that the validity and boundary conditions of our process model can be better established, but they can explore other potential strategies for P2P lending firms as well to enhance the sophistication of our knowledge in this area.
A second limitation is related to the limits of the data collected. More specifically, while we have uncovered a linear sequence of developmental stages based on the trajectory observed at our case organization (i.e., partners, followed by lenders, and then borrowers), and we have explained the underlying logic behind this sequence, it is unclear if other variations of the process are possible (e.g., can the process by cyclical or diverge into parallel paths?). While we contend that our study can nevertheless be used as a baseline reference that future studies can build upon, exploring potential variations to the developmental trajectories of P2P lending platforms based on case studies conducted in different contexts, as well as the consequences of those variations, would certainly be a fruitful avenue for future research. In addition, the risks and concerns of users/consumers in the context of online P2P lending platforms are pertinent issues that have not been studied to a significant degree in the literature. While we were unable to delve into these issues because the users/consumers of these platforms were not the focus of our study, an in-depth exploration of the psychological concerns (see Casado-Aranda et al.
2018a), online consumer risks (see Casado-Aranda et al. 2018b) and trust issues (see Dimoka
2010) related to online P2P lending platforms may also be an important area for future study.
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In exploring these future research directions, we hope that a more holistic and nuanced understanding of P2P lending platform development, as well as its strategic and organizational implications, can emerge.
2.6.2 Summary In this paper, we have explored the development of online P2P lending platforms in response to their growing prominence in the global financial landscape. Based on our case study on P2PLend.com, one of the most successful online P2P lending platforms in China, our study reveals that the development of a P2P lending platform can unfold across three stages.
Each of these stages emphasises a specific side (i.e., partners, followed by lenders, and then borrowers), and consists of distinctive strategies and platform development outcomes. With its findings, our study complements the growing body of literature in the on online P2P lending.
More importantly, our study may serve as a baseline theory for future studies of this phenomenon, and offer prescriptions for the managers of P2P lending platforms so as to optimise the development of these platforms and extend the benefits of P2P lending more broadly. In addition, our study could offer insights for government authorities and policymakers to help them better oversee and regulate the emergent P2P lending sector.
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Chapter 3: The Anti-aging Secret of Massively Multiplayer Online Game (MMOG): Managing its Lifecycle 3.1 Introduction Massively multiplayer online game (MMOG) refers to large online videogames that can support hundreds of thousands of players concurrently (Setterstrom and Pearson 2019). This type of game attracts different players, given its highly socially interactive environment for players to establish friendship and emotional support (Constantiou et al. 2012). As a result of attractiveness, the size of the global MMOG market is estimated to reach USD 26.65 billion by 2025 (Joshi 2019).
And yet, the research and development (R&D) of an MMOG may require significant investment in terms of both time and cost but without guaranteed outcomes (Setterstrom and
Pearson 2019), given the rapid market changes and less predictable customer demands (Liu et al. 2019). While a successful MMOG may have a long lifespan (Ström and Ernkvist 2014), most MMOGs may be popular for only a very short period. Also, MMOG hosts may encounter various issues such as the virtual economy and social interactions (Cole and Griffiths 2007), which may significantly influence the success and lifespan of the game.
Without achieving business sustainability, MMOGs may go out of business as many within the MMOG sector already have. This situation may impede the development of the entire sector and limit the enjoyment of MMOG players in the long term. Conversely, it would be beneficial for MMOG hosts to understand and pre-plan the lifecycle of MMOG, including the activities and strategies in different stages (Levitt 1965). This knowledge would help the hosts extend the lifecycle of their MMOG, and thus increase the likelihood of covering the
R&D costs and achieving greater success along hosting the game (Anderson 2006). Our paper aims to address this knowledge gap through a netnographic case study of “Talesrunner”, which has successfully operated for more than a decade, longer than many other MMOGs. Through
36 an in-depth examination of the strategies deployed and actions taken across the various stages of Talesrunner’s lifecycle, as well as their consequences, we seek to derive a process model of
MMOG lifecycle management. We hope that our model may complement the existing literature and provide more nuanced guidelines for practitioners on how MMOGs can be managed effectively. Accordingly, our research question (RQ) is, “How do we manage and extend the lifecycle of an MMOG?”
3.2 Literature Review
3.2.1 Massively Multiplayer Online Game (MMOG) Being capable to concurrently engage millions of players (Setterstrom and Pearson
2019), MMOG offers a highly detailed visual and auditory world in which players create and control their characters (Liao et al. 2019). It is estimated that within 2015-2025, the revenue of the global MMOG market will grow at a compound annual growth rate of 10.2% (Joshi 2019).
MMOG hosts should consider different critical success factors (CSFs) and challenges for achieving commercial success (See Table 9 and Table 10) because of the rapidly changing environment (Ström and Ernkvist 2014).
Table 9: Critical Success Factors of Commercial Success of MMOG
CSFs Description Virtual economy Virtual economy is an emergent economy existing in a virtual world, primarily involving the exchange of virtual goods or transactions (Nazir and Lui 2016). Some MMOG players may pay virtual currencies or real money for various virtual goods (Lehdonvirta 2005), given they want to upgrade their characters and social status in the game (Constantiou et al. 2012). Gaming elements An attractive MMOG should combine different gaming elements, such as integration rewards, additive elements, clear goal structure, challenges, competition, and balanced game mechanism (Ducheneaut et al. 2006; Lui and Au 2018). The integration of the gaming element should, in turn, offer a sense of achievement (Constantiou et al. 2012; Ducheneaut et al. 2006), opportunities for self-realization (Liao et al. 2019), and a unique gaming experience (Cole and Griffiths 2007). Social interactions Social interaction is a primary motivation for playing MMOG (Setterstrom and Pearson 2019). Its realization requires a large number of players to support (Cole and Griffiths 2007) and may be in forms of friendship groups, support between players, in-game guilds, or larger online gamers’ communities (Ducheneaut et al. 2006; Setterstrom and Pearson 2019).
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These measures may help attract or retain players (Gong et al. 2019; Ström and Ernkvist 2014) and foster players’ willingness-to-pay (Constantiou et al. 2012; Setterstrom and Pearson 2019). Consumer-Brand CBI is a social identity-related concept which concerns consumers’ identification (CBI) perceptions about a brand similarity to them (Stokburger-Sauer et al. 2012). In MMOG contexts, CBI refers to the degree to which players identify themselves as a population of the MMOG, and may decrease players’ likelihood of switching to other games (Setterstrom and Pearson 2019). Willingness-to-pay WTP refers to the maximum monetary amount a consumer would spend to (WTP) obtain a given product or service (Ciriacy-Wantrup 1947). In MMOG contexts, WTP may be enhanced by players’ in-game social status, certainty on hosts’ behaviours, and disinhibiting effects on online plays (Constantiou et al. 2012; Setterstrom and Pearson 2019). Loyalty Loyalty refers to the strength of the relationship between an individual relative attitude and repeats patronage (Dick and Basu 1994), which may serve as an important source of a firm’s competitive advantages (Huang et al. 2016). It is subject to factors, such as trend, challenge, the critical mass of players, enjoyment, expectancy for growth, and other in-game social elements in MMOG contexts (Hamari 2015; Liao et al. 2019). Higher players’ loyalty may provide the MMOG host with a competitive edge (Teng 2013) and enable more team-based participation (Liao et al. 2019). Testing and Before the full launch, the MMOG should be tested to collect feedback (Liu feedbacks et al. 2019), identify the bugs, determine the aesthetic appeal of the game, and judge the interaction between the functions (Stacey and Nandhakumar 2009). Customer services Customer services will take advice and feedbacks for future input in the products/services innovations by launching hotlines, help desks, and online forums (Ström and Ernkvist 2014). In turn, it may enhance and sustain firms’ relationships with the customers (Chiew et al. 2019). Constant refinement MMOG is constantly refined and expanded over several years after launch, which would, therefore, require excellent operational services and capabilities of the company (Ström and Ernkvist 2014).
Table 10: Challenges for Achieving Commercial Success of MMOG
Challenges Description Long development Developing an MMOG typically takes 2 to 3 years, which is 2 to 3 times time longer than that of a traditional single-player game (Hsiao and Yuan 2005). Some MMOG development projects may even fail before launching (Ström and Ernkvist 2014). Real-money trading Given some in-game virtual goods may be highly popular among the players, some players may privately trade these items using real money (Papagiannidis et al. 2008), which should be discouraged or monitored as it may negatively impact players’ feeling and motivation of participation (Constantiou et al. 2012) Technical issues After launching the MMOG, the host may encounter technical problems such as bug-fixing and content-addition. Regarding the maintenance of the MMOG server, service reliability, availability, and security of the MMOG should be considered (Hsiao and Yuan 2005), or players may feel dissatisfied and quit the MMOG (Ström and Ernkvist 2014). Localization Upon gaining success, MMOG developers may launch their games in other markets (Díaz Montón 2007). Upon expanding to new markets, testers of the MMOG should debug, determine the overall appeal of the game (Stacey
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and Nandhakumar 2009), and translate the game properly (Díaz Montón 2007). Cyberbullying Cyberbullying refers to online repeated aggressive behaviours with the intent to harm, and where a power differential exists between the victims and the perpetrator (Li 2015). Cyberbullying in MMOG is often targeted to the opponents and motivated by the desire of rank promotion (Ballard and Welch 2017), while the victims of cyberbullying may leave the game (Li 2015). Fairness Fairness refers to the balance of the internal economy and parameters in the game, as well as fair competition between players, which may be ensured by, for example, justified game rules (Hong et al. 2009; Lui and Au 2018) and prompt actions against cheating software (Mishima et al. 2013). Market and customers The accelerating MMOG market has made hosts’ continuous innovations, prediction and customer needs predictions vital for maintaining their position and performance in the existing market and while expanding into the new one (Callele et al. 2005; Liu et al. 2019). Unauthorised Some unauthorised server administrators may use different reverse- (Private) server engineering measures to copy or simulate the original MMOG server. They may add new content to offer their players an alternative experience. These may significantly harm the revenue of the official MMOG host (Debeauvais and Nardi 2010).
Despite the substantial opportunities in the MMOG market, the inadequacy of realizing the CSFs and addressing the potential challenges may harm the profits of MMOG hosts and shorten the lifespan of the MMOG. Yet, previous research mostly illustrated these CSFs and challenges as a batch of variance factors and matched limited desired activities and strategies concerning different stages of the MMOG as technological innovation. On the other hand, previous cases of technological innovations have indicated that by successfully pre-planning and managing the product lifecycle, the firm may enjoy lead time for vital strategic moves after launching the market (Levitt 1965; Steinhardt 2010). In response to our RQ, we begin to review previous literature related to the lifecycle theory.
3.2.2 Lifecycle Theory Lifecycle refers to the life of a product or service in the market concerning the business costs and sales measures (Rink et al. 1999), which has been widely adopted for explaining the growth and decline of sales (Anderson and Zeithaml 1984; Buckley 1999), as well as formulating the marketing strategies (Rink et al. 1999) of different products and services
(Anderson and Zeithaml 1984; Buckley 1999). Information Systems (IS) researchers are
39 interested in knowing the lifecycle of the IS, such as what happened when a system dies, the time of replacement or renovation, and how to manage system declines (e.g., Costa and
Aparício 2007). Table 11 shows a selected list of studies of IS adoption lifecycle in different contexts.
Table 11: A Summary of Selected Studies on IS Adoption Lifecycle
Context Argument References Knowledge The effective diffusion process of a KMS may undergo the Xu and Quaddus Management stages of initiation, adoption, pilot implementation, organic (2005) System (KMS) growth, and organizational implementation before the full diffusion. Generic IS An information system lifecycle may consist of 4 stages, Costa and including launching, spreading/developing, producing, and Aparício (2007) declining. Enterprise The adoption of an ES in transition economies will undergo Somers and Systems (ES) the stages of initiation, adoption, adaption, acceptance, Nelson (2004) routinization, and infusion. The ES lifecycle may start from project chartering, Markus and followed by configuration, shakedown, and onwards-and- Tanis (2000) upwards. The chartering stage includes defining business cases and constraints, while the configuration stage involves getting the system and end-users up and running. The shakedown stage involves stabilizing and debugging, while onwards-and-upwards involves maintenance and upgrading.
As shown in Table 11, after the introduction/initial and adoption stages, some IS may reach a full adoption stage with occasional maintenance work required. However, some may gradually reach a decline stage, with the product/services quitting the market afterwards (Zhang
1995). Given the rapid technological development, the decline stage may come quicker for many technological innovations and products (Rink et al. 1999) as they may become obsolete or replaced owing to users’ social-psychological reasons such as trend (Box 1983). As this may harm the profits to cover the firms’ R&D costs (Schramm-Klein and Wagner 2011), researchers and practitioners have become interested in investigating how to extend and manage lifecycles of different products and services (See Table 12).
Table 12: Lifecycle Management and Extension Strategies
Strategy Description
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Fostering usage Promoting more frequent usage of the product or suggesting new usage frequency methods may extend the lifecycle (Levitt 1965; Steinhardt 2010). Creating new The firms may recruit new customers by expanding into market segments customer segments (Levitt 1965; Steinhardt 2010) with potential customers that are not previously informed (Zhang 1995). Co-branding The sales of products/services may be fostered by associating the products/services with another strong brand (Steinhardt 2010) via, for example, launching cross-brand products/services (Ensign and Lunney 2015). Re-packaging Re-packing products may revive their overall appeal, which may be done by different measures such as redesigning user interface and new promotional campaigns (Rink et al. 1999; Steinhardt 2010). Retrenchment In the declining stage, some firms may eliminate marginal customers and erode firm service before a full withdrawal or release the next-generation products (Lilja et al. 2015). The resources saved may be deployed to support the development of other products or the overall service’s survival (Rink et al. 1999). Cost-leadership In the declining stage, the customers’ demand for the product may decrease strategy (Harrigan and Porter 1983). By using more efficient facilities (Porter 2008), a cost-leadership strategy may be adopted before launching the next generation of products (Lilja et al. 2015). Product updates and In technological innovation contexts, improving the products in terms of improvement technological dimensions or exterior design may extend the products’ lifecycle and offer customers better value (Schramm-Klein and Wagner 2011). This is essential for maintaining profits and market shares when the product has reached its maturity stage (Anderson and Zeithaml 1984).
Failure of lifecycle management may shorten or fail the lifecycle without reaching any peak (Somers and Nelson 2004). However, previous literature about lifecycle management was not specific to MMOGs, while Steinhardt (2010) has highlighted that not all products/services may have the same lifecycle. In MMOG contexts, business successes would rely on the existence of social interaction and virtual economy (Constantiou et al. 2012; Setterstrom and
Pearson 2019) based on a critical mass of customers, which is distinctively different from other technological innovations. A unique MMOG lifecycle is therefore needed so that MMOG hosts may achieve business successes.
3.3 Research Method We adopted a case research method with netnography for our study for several reasons.
First, case research methods are robust at exploring ‘how’ research questions (Benbasat et al.
1987) and processes that are inseparable from their contexts (Rynes and Gephart Jr 2004).
Second, given the phenomena of MMOG is multi-dimensional and includes both external and
41 technological dimensions, it has become too complex for adopting an objective research approach (Gable 1994). Therefore, a case study approach has become appropriate to examine such phenomena (Klein and Myers 1999).
Netnography is a written account resulting from studying the cultures and communities that emerge from Internet-based communications, where both the fieldwork and the textual interpretation are methodologically informed by the traditions and techniques of cultural anthropology (Kozinets 2010). It can help discover more profound insights from experiences that are less addressed in earlier researches (Langer and Beckman 2005) and may be used with qualitative methods (Kozinets 2010). Given we are primarily analyzing the phenomenon of
MMOG, netnography would become a suitable option.
We identified two ideal case selection criteria. First, the selected MMOG should be a highly successful one with a significant number of players, so that we can build our theories on proven, if not the best practices (Pan and Tan 2011). Second, the host of the selected MMOG should have adopted a variety of strategies in the lifecycle. Based on the above criteria, we chose Talesrunner in Hong Kong and Taiwan as our selected case. Developed by Smilegate in
Korea, Talesrunner has been hosted and operated by GigaMedia (under the brand of FunTown) in Hong Kong and Taiwan for more than a decade, much longer than many MMOGs over the world, and is a good indicator of its commercial success. Second, our preliminary research indicated that Funtown had adopted a large variety of strategies in hosting Talesrunner in lifecycle management. These strategies enabled the business successes and longevity of
Talesrunner in Hong Kong and Taiwan. Thus, it fits our second case selection criteria.
3.3.1 Data Collection We collected data using a mix of data sources to cover the voices of a comprehensive range of stakeholders for data triangulation, and thus to establish a deeper understanding of the phenomenon under-study (Venkatesh et al. 2013), to offer richer details to interpret the findings
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(Gable 1994) and to ensure the case representativeness (Pan and Tan 2011). More specifically, our data collection started from the official game website and forum. From the official forum, we identified relevant social media pages, fans-made websites, and YouTube links for further data collection (See table 13 for data sources that we covered). We also utilised Google by searching with different keywords, such as the name of the in-game items and characters.
Table 13: Summary of Data Sources and Description for the Case Study of Talesrunner
Data Sources Description Official forum The official forum is the primary site of understanding player behaviours, feedback, and output of value co-creation. We extracted the official forum posts and replies (a total of over 5.2 million messages). Official website and It allows us to know more about the game, as well as various actions and Facebook page announcements of hosts that may be related to new functions and in-game missions at different times. Other unofficial The purpose of including unofficial online forums is similar to that of the online forums official forum, but we would compare the official and unofficial forums. Some player communities are indeed formed in these unofficial forums, instead of in the official one. Other unofficial They serve as the knowledge bases to facilitate our sense-making on different relevant websites aspects of the game, such as various in-game missions and incidents. In-game screen and It helps us understand how the game can be played, and the different video capture missions/outcomes that may be accessed only by senior players.
3.3.2 Data Analysis We collected and analyzed the data concurrently to take advantage of the flexibility of the case research method (Eisenhardt 1989). Based on our literature review, we arrived at a set of 2 theoretical dimensions and 4 second-order themes that served as an initial theoretical lens for data analysis (See Table 14).
Table 14: Dimensions and Themes for Data Analysis for the Case Study of Talesrunner
Theoretical Dimensions Second-order themes MMOG Critical Success Factors of hosting MMOG (See Table 9) Challenges in hosting MMOG (See Table 10) Lifecycle theory Activities in different stages (See Table 11) Management and extension strategies (See Table 12)
In addition, we code the data collected using a mix of open, axial, and selective coding
(Gioia et al. 2013; Strauss and Corbin 1998). Table 15 shows the details about these coding techniques that we adopted.
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Table 15: Coding Techniques Used in Data Analysis for the Case Study of Talesrunner
Coding Type Purpose Open coding Open coding was used to assign conceptual labels to our data to create first- order concepts that have not been anticipated a priori (e.g. Game-master in MMOG). The first-order concepts were then grouped into second-order themes via axial coding. Axial Coding Axial coding was used to validate the existing second-order themes of our theoretical lens (e.g. Challenges in hosting MMOG) and identify new themes (e.g. engagement of celebrities) that did not fall within our current schema. Selective coding Selective coding was then used to distil the second-order themes into new (e.g. management issues in players communities) or existing aggregate dimensions (e.g. Successful Factors of hosting MMOG).
When coding the data, we also adopted the method of Gioia et al. (2013) to draw data structures (See Appendix D for an example). Moreover, we utilised visual maps and narratives to summarise our findings (Langley 1999). More specifically, visual maps involved documenting the emergent theory in diagrams, while narratives served for constructing a story that represented our understanding of what happened. We also cross-referenced multiple sources to ensure the data consistency and the findings comprehensiveness (Klein and Myers
1999). In addition, we adopted a temporal bracketing strategy (Langley 1999) based on the possible distinct stages of the MMOG lifecycle. We continued utilising the visual maps, brackets, and narratives for building the emergent theory until we reached the point of theoretical saturation (Glaser and Strauss 1967), which means the induced model have a comprehensible account for the case data and we no longer gained new insights (Eisenhardt
1989).
3.4 Case Description TalesRunner is a massive multiplayer online game (MMOG) created by Rhaon
Entertainment in South Korea and hosted by GigaMedia (under the brand name of FunTown) in Hong Kong and Taiwan, an online entertainment software and services provider listed on
NASDAQ. Talesrunner combines the genres of social, fantasy, and racing games; players compete by running, jumping, dashing, skiing, and climbing across different magical fairy tale settings. Adopting a freemium business model, TalesRunner only charges players based on in-
44 game items and avatars. The Hong Kong version has been largely localised with Cantonese interface and audio instruction. Its host has collaborated with many Hong Kong singers to make the theme songs and in-game characters’ voice-coverings.
It is relatively easy to learn how to play, but the advanced missions can be challenging.
In multiplayer mode, players may collaborate with, compete with, or even trap others. On top, the game has built a progressive learning path, which consists of different missions and allows players to get familiar with the game environment. Along the path and missions, players may gain various forms of scores that may be used for purchasing different in-game items for facilitating the players’ in-game performance or building the players’ avatars.
3.5 Findings Our findings indicated that the lifecycle of an MMOG may transverse at least four stages
(See Figure 2). The activities along the lifecycle may be categorised under the Technology-
Organization-Environment (TOE) framework, which identified three groups of factors influencing the IT adoption from technological, organizational, and environmental contexts
(Oliveira and Martins 2011), and has been adopted for explaining the adoption, implementation, and post-adoption of IS in different contexts (e.g., Zhu and Kraemer 2005).
MMOG host should maintain a shorter introduction stage and growth stage, yet with the largest possible mass of players. On the other hand, the host should try to extend the sustain stage and thus a longer lifespan for maximum revenue under the long-tail theory (Anderson
2006).
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Figure 2: An MMOG lifecycle established in conjunction with the TOE framework
3.5.1 Stage 1 – Introduction At its inception, MMOG hosts should focus on testing the game and gather feedback before a larger scale launch. It would help the MMOG host reduce some of the research and development (R&D) costs (Dong and Zhang 2016), as well as the later correctional costs (Au et al. 2018). We name this stage “Introduction” given it is the beginning of the lifecycle when the MMOG is being introduced.
The launch of Talesrunner in Hong Kong and Taiwan began with the internal testing for discovering various bugs and potential problems of the game (Liu et al. 2019; Stacey and
Nandhakumar 2009), which was similar to the pilot implementation stage of some IS lifecycles
(Xu and Quaddus 2005). To recruit testers, FunTown advertised in various mediums to invite players for testing the game, with incentives of cash coupons and in-game points based on in- game performance (See Figure 3), which would be an early promotion of the game.
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Figure 3: Advertisement for recruiting game-testers
The importance of testing may be illustrated by some bugs or typos discovered in the game. In the internal testing stage of Talesrunner, some Korean texts were not translated (See
Figure 4), which, in turn, harm the players’ enjoyment (Díaz Montón 2007).
Figure 4: Some untranslated Korean texts were found in the left upper part (in oval)
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However, the more severe issue is the bugs that facilitate unfair advantages or are related to information security issues. These bugs may reduce players’ willingness-to-pay
(Setterstrom and Pearson 2019) and may create additional maintenance costs for the MMOG host (Au and Fung 2019). Figure 5 shows a screenshot of a YouTube video, which taught players how to enter the virtual items shop in an unsolicited way by utilising the bugs of the game in Talesrunner. These acts may destruct the virtual economy of the MMOG (Lehdonvirta
2005) and, thus, the long-term revenue of the host, given fewer players are motivated to buy the in-game virtual items.
Figure 5: YouTube video of the bug-utilising tutorial
These bugs, untranslated texts, and other issues may become part of the early players’ feedbacks. These feedback notes should be collected by diversified means, which would ensure
48 players’ needs being addressed timely (Stacey and Nandhakumar 2009). For Talesrunner, the host established an email and a phone hotline, as well as an official forum, which included sub- forums that covered chit-chat and topics related to Talesrunner. By setting their avatars in the forum, players may also find the forum a venue for self-realization, and thus, become more motivated to the MMOG (Liao et al. 2019). In the long-run, the forum may engage the players more tightly and facilitate the formation of player's communities, which, in turn, foster in-game social interactions (Cole and Griffiths 2007) and help retain the players in later stages (Gong et al. 2019).
The outcome of this stage is the minimal structure of the MMOG, which means the
MMOG is ready to be launched and welcomes all prospective players. The minimal structure will allow the host to gain a critical mass of players and thus to reach business successes, which is similar to the need for minimal structure in the early stage of digital platform development
(Au and Sun 2019).
3.5.2 Stage 2 – Growth Based on the minimal structure of the MMOG, the host should work on the growth of the players’ population to enable the virtual economy (Lehdonvirta 2005) and social elements
(Liao et al. 2019), and thus the overall success of the MMOG. We name this stage the growth stage accordingly.
To gain more players, Funtown continued the previous promotion efforts and to expand into newer customer segments (Levitt 1965). They invited Stephy Tang, a Hong Kong female singer, to sing the theme song and act as the goddess of a time-limited game mission. Many of her fans were middle and high school students, which aligned with the target group of
Talesrunner. Having Stephy in the MMOG enhanced the overall consumer-brand identification
(Setterstrom and Pearson 2019), while her fans might seek more information on the MMOG and eventually join the game (Levitt 1965). The impact of engaging the right celebrities can be
49 long-lasting. For example, after almost a decade, some players still recalled Stephy as a reason for joining Talesrunner:
“Offensively speaking, I initially played Talesrunner because of Stephy Tang, given she
looks like Akiho Yoshizawa” (Note: Akiho Yoshizawa is a famous (retired) adult video
actress.)
“True, she is quite sexy and beautiful.”
Upon having more players, there will be more assistance requests from players, which may be related to technical issues or in-game advancement, but the official channels may not promptly address the requests. Instead, these requests may be addressed by the forum established earlier, given some of the queries may be raised in these communities and addressed by other players. For example, some players may want to gain some virtual items and would like to have assistance from experienced users (Lee and Lee 2010), who may look for intrinsic satisfaction and potential in-game social status enhancement brought by the game (Constantiou et al. 2012; Wang and Wang 2008). Figure 6 shows an example of requests for assistance and how it was addressed.
Figure 6: Junior players asking for assistance on how to get the special in-game virtual items and was responded by experienced players.
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Together with the growth of the players’ population, there will be more interactions between players (Cole and Griffiths 2007; Ducheneaut et al. 2006), and some in-game groups may be formed. Players may team-up when competing with other players in the game, possibly looking for friendship and advancement of in-game social status (Constantiou et al. 2012). In the case of Talesrunner, some of the in-game groups even made their own promotional videos using the in-game screenshots (See Figure 7), which might show their desired in-game image as a part of self-realization (Liao et al. 2019).
Figure 7: Screenshot of a self-made promotion video of an in-game group of Talesrunner
Other than in-game groups and assistance requests, some players may start trading various in-game items, which leads to the formation of the virtual economy in the game (Nazir and Lui 2016). The subject items are usually hard to obtain, and thus may be traded in means of other virtual items, virtual currencies, or real-life currencies (Papagiannidis et al. 2008).
However, these may lead to some controversies, such as arguments between users (Constantiou et al. 2012). To reduce these controversies, Funtown has established a sub-forum for in-game items trading within the official forum for monitoring these tradings. They also announced in the forum and stated that they discouraged private trading of in-game items and would not be responsible for any related disputes (Castronova 2006) (See the Chinese text [with translation] at the top of Figure 8).
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Figure 8: A forum post that calls for buying in-game virtual items
Upon forming a solid player community, the forum discussion may cover other topics that players are also interested in on top of the MMOG. For example, Figure 9 shows a post in the official forum of Talesrunner, which was related to the announcement of public examination results in Hong Kong.
Figure 9: Inspiration message on the official forum regarding the results announcement of a Hong Kong public examination
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Nevertheless, addressing players’ requests should not be handled only by the players’ community. While the customer feedback channels established in the early stage may continue to play their role, the MMOG host may also include some Game Masters (GMs, a group of in- game characters) in the game (see Figure 10 for an example in Talesrunner), who would “talk” to the players and help them accomplish the missions (Ström and Ernkvist 2014). The
“conservations” between the players and the GMs may also constitute the stories of the missions, and may thus enhance the overall gaming experience (Cole and Griffiths 2007).
Figure 10: Players talking to in-game GM for getting instructions of new missions
Along with the growth of the MMOG in the aspects of the virtual economy and online communities, the MMOG host should also pay attention to the server maintenance.
Occasionally, it may require the host to shut down the game server for maintenance temporarily. The host should inform the players in advance and ensure maintenance timeliness
(Huang et al. 2004). In Talesrunner, there were a few occasions that FunTown had to extend
53 the server downtime for maintenance. Thus, it resorted to offering minor compensation in terms of in-game virtual items.
The outcome of this stage is the increased popularity of MMOG, enabled by player communities mediated by rules and mechanisms, and promotion campaigns which may involve various celebrities. The popularity will help attract more new players, and thus, the MMOG will gain adequate users to sustain.
3.5.3 Stage 3 – Maturity With the increasing popularity and number of players, the MMOG will gradually reach its maturity stage. While the virtual economy, players’ communities, and online social interactions continue to exist, this stage focus on increasing the cohesion between players and consumer-brand identification (Setterstrom and Pearson 2019). We name this stage “maturity” because the growth of users may slow down. At the same time, the hosts focus on managing and utilising the existing user base and their social interactions.
The host should continuously refine and improve the game for keeping a sense of freshness to the customers, which may be done by, for example, introducing new characters and missions in the game (Steinhardt 2010; Ström and Ernkvist 2014). The host may also engage some new celebrities to inform other new potential players (Zhang 1995). For example,
Funtown has engaged Jonathan Wong, another Hong Kong singer, to sing two new theme songs and to voice-cover for a new in-game mission, which might offer a sense of achievement to players if they successfully overcome (Constantiou et al. 2012) and be considered as a co- branding between Wong and Talesrunner (Ensign and Lunney 2015). Figure 11 shows a screen capture of a webpage promoting the new in-game missions and theme song.
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Figure 11: The website screenshots for the “Coming of Phantom” in-game mission
The retention of existing players may also be facilitated by altering the revenue model, for example, by introducing a VIP mechanism. In Talerunners, the VIP mechanism was based on the online time and the virtual items purchased of the players, in order to foster the usage frequency (Levitt 1965; Steinhardt 2010). The VIP of Talesrunner would be given exclusive in-game items which might significantly improve the players’ performance, and thus their sense of achievement (Constantiou et al. 2012; Ducheneaut et al. 2006).
The diversified engagement strategies of introducing in-game elements, revenue model, and news faces may be responded to by other players in forms of, for example, derivative works, which may create a positive reinforcement of the cohesion. Figure 12 below shows an
MV created using the screenshot video of Talesrunner, with a song of Hong Kong singer
Miriam Yeung. The user-generated content will offer the players a higher sense of achievement upon being appreciated for these co-created work (Cai et al. 2019; Kim et al. 2018).
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Figure 12: Player-made MV using the screenshot video in Talesrunners with the song lyrics.
Beyond diversified player-engaging strategies, MMOG hosts should also address the issues that may harm players’ experience, such as cheating (Mishima et al. 2013), cyberbullying (Ballard and Welch 2017), and other technical issues (Ström and Ernkvist 2014).
This user management issue is especially important when the game has reached a stage of maturity, because discontented players may quit the game if they find their concerns not being addressed. Nevertheless, it is relatively difficult to recruit new players because of the decreased popularity in the trend (Liao et al. 2019).
More specifically about the players’ cheating issue, MMOG hosts should emphasise the game's overall balance and fairness (Hong et al. 2009; Mishima et al. 2013). For example, hosts should address the rise of cheating plugins, which may become popular, given the players would like to get themselves upgraded or obtain in-game items by putting in their efforts and/or money (Mishima et al. 2013). However, it may also create a sense of unfairness for honest
56 game players. These issues may be addressed by, for example, including a sub-forum in the online communities for players to report others’ cheating (Ström and Ernkvist 2014). Based on the players’ reports, MMOG hosts should restrict the players who used cheating plugins to enjoy unfair advantages. In Talesrunner, Funtown would ban the players who used cheating plugins, forfeit relevant in-game virtual items, and list their account name on the official website (See Figure 13).
Figure 13: Examples of the list that show the banned players because of using the cheating plugins. The plugins that they used were also listed
Beyond cheating, the increased social interactions within the players’ community may also bring users’ disputes, arguments, or even cyberbullying (Ballard and Welch 2017). The cyberbullying issues may have emerged in earlier stages. However, it may become more significant when the player community is expanded (See Figure 14 for an example of cyberbullying messages in the official forum of Talesrunner). Failure to address the disputes or cyberbullying issues may heat the online arguments and harm the players’ feelings, while victims may quit the game (Li 2015). Rules should be established to suppress different offensive behaviours, such as personal attacks in the game and the online communities (Au and
Ho 2019).
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Figure 14: A cyberbullying post towards a player in Talesrunner, which was accused of flirting multiple male players concurrently and using cheating plugins
Other than the cyberbullying and cheating issues, technical issues triggered by external parties should also be addressed (Hsiao and Yuan 2005). In Talesrunner, given they have sustained for over a decade, many players may have updated the operating systems several times, but newer operating systems may not accommodate the older software. To prevent the loss of existing players, Funtown has posted some relevant technical assistance to help the players adjust the system (Zhang 1995), and thus to retain them (See Figure 15).
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Figure 15: Assistance on how to play Talesrunner in Windows Vista
To handle the massive amount of issues and disputes, the host may empower some voluntary players to become forum moderators who would, in turn, become more loyal
(Constantiou et al. 2012; Teng 2013) and motivated to facilitate the community management
(Thomas and Velthouse 1990), while the burden of the MMOG host is reduced (See Figure
16).
Figure 16: Announcement of newly-recruited forum voluntary moderators from existing players
More specifically, the moderators may help execute the established rules to address the online dispute, cyberbullying, as well as the feedback and technical difficulties questions of
59 other players (See Figure 17 for the question raised and Figure 18 for the respective reply from the moderator). By addressing the players’ issues more quickly, players are less likely to quit.
Figure 17: A player asking about the technical issues in the forum
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Figure 18: A forum moderator answered the questions in Figure 17
The outcome of this stage is the critical mass of the active in-game population. The engagement of voluntary moderators may increase their loyalty and cohesion, which increases the interactions with the players’ communities. Such engagement is essential for mediating the burden of the host and sustaining the entire MMOG.
3.5.4 Stage 4 – Sustain It is common to observe that, after operating for an extended period, some players may no longer participate in the official game server (Debeauvais and Nardi 2010). While the stage after maturity is named as “decline” for many technological innovations (Levitt 1965), successful technical innovations may reach relatively constant and long-lasting usage (Zhang
1995), which should be the aim of MMOG hosts. Accordingly, we name this stage “sustain”.
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A primary reason for losing players is the decrease in interest and loyalty. Given that loyalty is a trendy issue in MMOG contexts (Liao et al. 2019), players may gradually lose their interest in the game for social-psychological reasons (Box 1983), and thus become inactive or even sell their accounts (See Figure 19).
Figure 19: Post of selling the MMOG account
Some players may quit the game, however, not due to the trending issue but the temptation of unauthorised servers. When the game has become popular, some players may be able to obtain server-side source codes and thus establish some unauthorised servers of the
MMOG (Debeauvais and Nardi 2010). These unauthorised servers may offer an alternative gaming experience (Cole and Griffiths 2007; Debeauvais and Nardi 2010). Upon seeing the encouragement (See Figure 20 for an example of messages in the official forum which invited players to participate in the unauthorised servers), some players may be attracted by these unauthorised servers and eventually leave the licensed, official one.
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Figure 20: Example of messages in the official forum of unauthorised server player recruitment.
Nevertheless, some of these unauthorised servers are unstable or gradually closed. For example, there was a once-popular but unauthorised server of the alternative version of
Talesrunner in Mainland China but had shut down unexpectedly. The server closure triggered the discussion and concerns of players in Hong Kong, which were related to the immigration of these unauthorised server participants, the sustainability of unauthorised servers, and the legal consequences of hosting these servers.
“No one is paying, how can they support the server?”.
“I believe many players will register on the Hong Kong Server.”
“There was an unauthorised server of another game. The server host was arrested by
the Shanghai police and was sentenced for three years and punished for two hundred
thousand dollars”.
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Among all challenges, unauthorised servers may be the most problematic one given it may not be a legal offence in many jurisdictions (other than Mainland China as discussed above). MMOG hosts had limited rights to suppress these servers beyond prohibiting the discussion of these servers in the forums or platforms where they can control or discourage the players from joining the unauthorised servers. Figure 21 shows a screen capture from the official forum about the rules of not allowing the discussion of unauthorised servers.
Figure 21: Part of the rules listed in the official forum, which states that users who post messages related to the unauthorised server may be subject to a permanent ban on the forum.
Fortunately, some experienced players or voluntary forum moderators may offer facilitation to address the above issues (Dong and Zhang 2016). Moderators may help exercise the rules of not allowing the discussion of the unauthorised servers, while experienced players may explain problems of these unauthorised servers, such as copyrights and computer viruses.
The actions help discourage participation in these servers. Figure 22 shows a message in the
Talesrunner official forum, which discouraged using unauthorised servers regarding legal consequences.
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Figure 22: Message of a warning posted by an experienced player who suggested the legal consequence of playing on and opening unauthorised servers, including 8-10 years imprisonment and compensation requirement to the MMOG host.
However, solely having discouragement rules to restrict the posts related to cyberbullying or unauthorised servers may not help the game survive. Therefore, engagement measures are needed to retain the existing players or to attract the previous players to come back to the game (Liao et al. 2019; Teng 2013), possibly with free in-game virtual items or various forms of discounts (Harrigan and Porter 1983). Talesrunner, after 13 years of the operations, has hosted an in-game “birthday party,” which would allow players to get virtual items very easily in the relevant missions (See Figure 23 for the poster of the “party”).
Figure 23: “Party” poster on the official website of Talesrunners
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Other players may echo these official events and activities. For example, some experienced players may initiate some anniversary events or create ceremonial content (Dong and Zhang 2016), which are supported by other players. For example, in Talesrunner, an experienced player shared his complication of background music (BGM) of the game on the official forum (See Figure 24), which might recall other players’ memory.
Figure 24: An example of forum messages about user-generated ceremonial content
On top of re-attracting old players, MMOG hosts may also adopt the cost-leadership strategy to reduce the maintenance cost (Rink et al. 1999). For example, many hosts may maintain multiple servers. When the number of players drops, shutting down some servers may be an option (Markus and Tanis 2000). In 2015, Funtown decided to merge the Taiwan Server to that in Hong Kong and called for an opinion regarding the changes (See Figure 25). It was responded by different players from the two places, with some constructive feedback that may facilitate the smooth transition of the game.
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Figure 25: The volunteer moderator of the online forum openly collecting opinion about the merge of server
“Taiwanese players prefer their own version of voice-over. We may release some time-
limited in-game items to help their transition.”
“We may have some more Taiwanese players to become the forum moderators to
facilitate the exchange between different players”.
Nevertheless, such decisions may not always be welcomed and may trigger various concerns. In the maturity stage, the MMOG may not attract as many new players as in the earlier stage (Liao et al. 2019). Therefore, the retention of existing players has become more critical. In the case of Talesrunner, many Hong Kong players expressed concerns about the difference in terms of in-game virtual items, game functions, and the cultural gaps between the two regions.
“I just hope that the Taiwanese players will understand our language.”
“Please fully open the functions that were previously only available in Taiwan version.”
“The Hong Kong server should re-release the crystal wing. Many Taiwanese players
are having that. It is unfair to us.”
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Players’ needs and opinions may be diversified. However, it is vital for hosts to proactively address players’ voices since the server merge may significantly impact the players, but the host would like to retain them.
After a long period of operation, it may be desirable to launch the next generation of the game due to the dropping profitability of the first generation (Rink et al. 1999). The next generation may require significant development efforts to offer new functions and gaming experience, so that both existing and prospective players may sense a stronger freshness (Zhang
1995). For Talesrunner, their second-generation (or known as “Season 2”) allowed the players to build their own castles and to “fish” for different items (See Figure 26), on top of new missions, virtual items, stories, and characters. They also engaged Cilla Kung, another Hong
Kong female singer, to sing a new version of their theme song (Steinhardt 2010).
Figure 26: A screenshot of the trailer of Season 2, which shows a player “fishing for the virtual items”
The outcome of this stage is the sustainable existence of the MMOG. Comparing with earlier stages, the size of players’ populations and overall revenue may decrease. However, following the long-tail theory, the longer lifespan may offer higher chances of making an
68 overall balance of the business (Anderson 2006). Depending on the nature of the game, MMOG hosts and developers may consider launching the next generation of the game, which means proceeding to another introduction stage with the existing user base.
3.6 Discussion
3.6.1 Theoretical Implications for MMOG Our study has made several theoretical contributions to the literature on MMOG. First, we presented a conceptual innovation in the inductive derivation of a process model of MMOG lifecycle management. This model contributes an in-depth view of MMOG lifecycle management to complement the existing conceptual and variance theory-based studies (see
Markus and Robey 1988) in this rapidly growing research area. Comparing with typical lifecycle models of other products/services, our MMOG lifecycle has highlighted some unique issues that may not exist in the context of other products/services. For example, while generic product lifecycle may suggest the emergence of competitors in the market growth stage (Levitt
1965), the hosts of MMOG should be well aware of the competitors as early as at the beginning of the lifecycle. Besides, the lifecycle of a long-lasting MMOG has a consistently higher level of customer involvement in different stages, which will enhance customer loyalty and enlarge the customer base (Dong and Zhang 2016).
Second, beyond revealing that the emphasis of MMOG lifecycle management in each stage of the process, our study also hints at the strategies and activities that can facilitate the various stages. For instance, when engaging the celebrities, the MMOG may benefit from the large fan-base of the celebrities, and thus the players’ population will be enlarged (Kim et al.
2018). Within the game itself, the experience may be enhanced by including various new missions and maps in the game (Ström and Ernkvist 2014), which may be considered as new challenges for offering a sense of achievement (Constantiou et al. 2012). Additionally, MMOG hosts may establish an online forum to enhance the community and social factors, which will
69 help attract more players and retain existing players (Gong et al. 2019; Ström and Ernkvist
2014). In our case, the discussion topics in the official forum covered both the MMOG itself and other phenomena that players are interested in. With a critical mass of players, MMOG hosts may engage some players to facilitate content creation and player community management, which may enhance players’ social interaction and loyalty (Dong and Zhang
2016). More specifically for content creation, engaging loyal players may foster the overall exposure of the MMOG in different platforms (e.g. the player-made MV using screenshots of
Talerunners). For player community management, loyal players may help MMOG hosts by answering some queries, offering advice to hosts and facilitating junior players on how to play the game, which may mediate hosts’ burden (Dong and Zhang 2016).
3.6.2 Theoretical Implications for Lifecycle Theories Our study also makes several contributions to the literature on lifecycle theories. First, we hint at the applications of the lifecycle model in conjunction with the TOE framework, with the consideration and extension measures during different stages. It aligns with previous literature that adopts the TOE framework to explain or study post-adoption behaviours and innovation performance (e.g., Mishra et al. 2007; Zhu and Kraemer 2005). This is important for commercial successes of technological innovations, given the inadequacy of considering non-technological dimensions may resist or even fail the assimilation of technological innovations (Oliveira and Martins 2011). For example, before the full release of Windows 10 in 2015, Microsoft had undergone a wide range of activities, similar to our TOE-lifecycle framework. These activities include internal testing (in the technological dimension), getting non-Microsoft testers’ feedback (in the organizational dimension), and various online and offline promotions (in the environmental dimension).
Second, our study also hints at various lifecycle extension strategies of technological innovations. For instance, as a lifecycle extension strategy, user engagement may be applied in
70 technological innovations other than MMOG that are intensively involving users. It also aligned with previous literature about the interactions between entrepreneurs and other social actors within and outside the organization to extend the lifecycle of the technology innovations
(Drori et al. 2009). In earlier stages, this may be achieved by engaging some users to test the products and offer feedback (Dong and Zhang 2016), so that the company may test the business models and products earlier to avoid higher correctional costs (Au et al. 2018). On the ground of adequate customers’ trust (See-To and Ho 2014), user engagement may be in the form of value co-creation and users’ self-managed communities, which will enhance users’ loyalty and usage frequency on the technological innovations (Levitt 1965). More specifically about users’ self-managed communities, the technological innovations providers may empower some experienced users so that the burdens from junior users’ questions are mediated (Thomas and
Velthouse 1990). Other than user engagement, our findings regarding the lifecycle extension strategies also aligned with some of the previous literature and business cases. For example, establishing a VIP mechanism may foster a more frequent usage of products/services of the same company, which is also seen in other contexts in terms of, for example, airline loyalty programs. Also, to sustain the overall products/services, hosts may shut down some of the facilities in order to maintain the overall survival of products/services (Lilja et al. 2015).
3.7 Concluding Remarks A major limitation of our study is due to the single-case research design (Walsham 2006), although single-case studies are typical and legitimate endeavours (Lee and Baskerville 2003).
While we contend the value of our study based on the principle of analytical generalization
(Yin 2003), given our study corroborated with established theories and propositions in the existing literature on MMOG and lifecycle in technological innovations, further studies on different cases are encouraged on testing the boundary conditions of our model and thus lead to a more generalised answer to our RQ.
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We believe that our study has significant implications for practice, particularly for two groups of stakeholders. The first group would, of course, consist of MMOG hosts. Our work can provide them guidance by indicating possible challenges along with the operating of their
MMOG, how these challenges can be overcome, and the strategies to adopt in the various stages. We have also presented a sequence of the MMOG lifecycle, as well as the nature and outcomes of each stage. As such, we believe that our work can serve as the foundation for formulating concrete, if not step-by-step, guidelines for MMOG hosts, so that they can make the most of the efforts and resources invested in their platforms and extend their MMOG to a broader base of players as well as the lifecycle of their MMOG. The second stakeholder group that can be potentially informed by our study consists of the practitioners of other technological innovations. These practitioners may follow the TOE-lifecycle framework and lifecycle extension strategies that we suggested so that they can consider the lifecycle of their technological innovations from the dimensions of technological, organizational, and environmental factors, and thus achieve greater overall business success. In the end, it is hoped that our findings can facilitate different developers and hosts to manage and extend the lifecycle of their MMOGs and other technological innovations, and thus to extend the benefits of these innovations to the customers.
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Chapter 4: Disrupting the Disruptor: The Role of Information Systems in Facilitating Second-Mover Advantage 4.1 Introduction Digital disruption (DD) refers to the process of business model innovation as a result of technological advancement at a pace and magnitude that fundamentally change the existing means of value creation within and across markets (Weill and Woerner 2015b). DD involves changes of an industry through restructuring of supply chains, breaking down of industry barriers, creation of new opportunities, redistribution of profits and/or changes in consumer behaviours (Casadesus-Masanell and Ricart 2011), and it can occur in any industry (Grossman
2016). One example is the rise of digital media stores such as iTunes that has introduced an alternative distribution channel of songs (Arditi 2014; de Reuver and Bouwman 2015). To show how DD can be deliberately induced, the existing prescriptions in literature tend to emphasise the speed and decisiveness of a firm (see Tan et al. 2017b). However, acting swiftly may be inadequate on its own because early-mover advantages may be limited and short-lived, particularly in markets where technology is constantly evolving (Gomez et al. 2016). For instance, previous studies have found that early-movers rarely attain the position of a market leader and may even diminish in later stages (Markides and Sosa 2013). This is because early- movers tend to have imperfect business models, which open up opportunities for “second- movers” to imitate and improve on them (see Feng et al. 2020). In fact, researchers questioned that the importance being the first out of the gate given the phenomenal success of a number of second-mover firms including AirBnb, Taobao, and Uber (Hagiu and Rothman 2016).
The attainment of second-mover advantage (SMA) of these firms is underpinned by
Information Systems (IS). In particular, IS can facilitate the dissemination of information
(Whelan et al. 2010) for second-movers to imitate more effectively and reduce uncertainty. An example is the competition between Facebook and MySpace. Despite being an early-mover,
MySpace was overtaken by Facebook as the leader of social networking websites as Facebook 73 acquired more substantial and diversified IS capabilities for inventing new services and features to attract the potential users (Press 2018). Moreover, second-movers may be able to utilise IS in the reverse engineering of technologies and business models (Querbes and Frenken
2017) to erode the competitive advantage of the early-movers in a cost-effective manner (Deng and Wang 2016). And yet, despite the importance of IS, there is a lack of research on the precise role of IS in facilitating SMA, especially in the context of DD. Addressing this knowledge gap is important because the knowledge on the strategies of early-movers may not be effective or relevant for guiding the strategies and practices of second- or late-movers (Klingebiel and
Joseph 2016).
To address this knowledge gap, we conducted a case study of xBed, a recognised second- mover that has proven to be a highly successful accommodation-sharing platform in China's hospitality industry. More specifically, through an in-depth examination of how xBed utilised
IS based on technologies such as the Internet of Things (IoT) and mobile computing to learn from its competitors and improve on what they were doing, we develop a process model of IS- enabled SMA. In doing so, we are hoping that our study can shed light on this crucial aspect of the attainment of SMA that has been neglected in the literature to date and provide guidelines for practitioners on how IS may be deployed toward this goal more effectively. Accordingly, the research question of our study is: “How does IS facilitate the attainment of SMA?”
4.2 Literature Review
4.2.1 Digital Disruption (DD) and Second-Mover Advantage DD is an industry-altering phenomenon in which the rules of competition is fundamentally changed as a result of the emergence of new, technology-enabled business models. Some recent examples of firms that have been considered disruptive include Uber (see
Cramer and Krueger 2016) and Airbnb (see Guttentag 2015), which have severely affected the incumbent taxi and hotel industries respectively. As the disruptor within an industry would
74 tend to have significant advantages over the incumbents should the disruption take hold, a number of studies of the phenomenon have offered prescriptions for effecting DD that are centred on speed (see Møller et al. 2017; Skog et al. 2018). This is because if the time to market can be shortened, a disruptive firm may be able to enjoy early-mover advantages to establish enduring market share and generate switching costs for its customers (Deng and Wang 2016).
However, in markets where technology is rapidly evolving, these advantages may be limited and short-lived (Gomez et al. 2016). And even if a market-leading position is attained, it may be indefensible in the long run, especially for technology-centric markets (Markides and Sosa
2013). This is in light of the increasingly accessible resources (Deng and Wang 2016) and lowered entry barriers (Conroy et al. 2015). For example, the cost of hardware and software required for digital entrepreneurs are decreasing (Wang et al. 2016), which makes initial IT investment costs less significant as an entry barrier. In addition, there is an increasing number of Massive Open Online Courses (MOOCs) in recent years (see Au et al. 2016), which has provided greater access to the technical knowledge required for prospective digital entrepreneurs.
Consequently, a number of other studies have discussed the advantages of being second-mover firms instead (e.g., Deng and Wang 2016; Feng et al. 2020). More specifically, second-mover advantages may be understood as the advantages enjoyed by late market entrants as a result of an accumulation of customers and technical knowledge, as well as lower investment in R&D, market education and market risks (Chae 2019; Yong and McDonald
2018). These late entrants may acquire relevant market and technical knowledge from online resources after the lessons learnt by the early-movers, utilise a larger range of templates and libraries for establishing their websites and mobile applications (Deng and Wang 2016), or enact reverse engineering to discover how the systems of early-movers work (Rayna and
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Striukova 2009). Thus, the second-movers may leapfrog the first-movers into a market-leading position (Ma et al. 2008). Table 16 presents a list of studies on SMA in the context of DD.
Table 16: Selected Studies on SMA in the Context of Digital Disruption
Source Key Arguments/ Prescriptions Lieberman and First-movers may benefit from developing critical resources and creating Montgomery customer switching costs, but they may also suffer from disadvantages due to free- (1998) rider effects, market uncertainty, shifts in technology or customer needs, and incumbent inertia. On the other hand, these disadvantages may be avoided by second-movers. Hoppe (2000) In the adoption of new technology, being an early-mover does not always result in advantages due to high costs and uncertainty. Second-movers, instead, may gain more knowledge on customers and the market, and face lower uncertainty. Mellahi and In e-commerce contexts, first-mover advantages are short-lived and subject to Johnson (2000) erosion due to the lack of regulations, new entrants and new technologies. For example, because of low entry and imitation barrier, it is easy for second-movers to copy from the earlier successful first-mover. Mathews (2002) In high technology sectors, late entrants may acquire SMA by emulating earlier successful movers. They can overcome the barriers erected by incumbents through certain industrial and technological advantages. Suarez and In a market where technology is evolving rapidly, early-movers can only enjoy Lanzolla (2005) limited and short-lived advantages, because it is easy for the late entrants to access the newer technologies to compete with the early-movers. Kopel and In technological-oriented sectors, being first-to-market is often associated with Löffler (2008) improved performance, but empirical and anecdotal evidence suggested that they may not always sustain their advantages and may get leapfrogged by second-to- market firms or even late entrants. Ma et al. (2008) IS capabilities and other technologies may help leap-frogging the first-movers by observing the standardization of emerging technologies and gaining knowledge of users’ need. Thus, they may formulate better business and technology strategies. Deng and Wang In the context of e-commerce, late movers may enjoy advantages by free-riding (2016) on the first-movers’ efforts to educate customers, establish market demand and nurture talents. Luther (2016) In his study related to Bitcoins and other cryptocurrencies, Luther (2016) highlighted that second-movers of cryptocurrencies, such as alt-coins, may enjoy second-mover advantages as they can identify different common complaints about bitcoins and other early-movers. Querbes and Second-movers may start searching when more functionalities are already known Frenken (2017) and typically come up with superior product designs. For products and services that involves more complex technologies, the advantages enjoyed by second- movers will be more probable. Feng et al. In the contexts of platform economy, entering the market as a pioneer may not be (2020) safe if quality advantages are not remarkable and sustainable. In addition, second- movers who have a higher initial platform quality than early-movers guarantees SMA, but early-movers with a higher initial platform quality than second-movers do not ensure FMA.
Our review of the existing literature revealed two traits of the previous works on SMA in the context of DD. First, many of them have acknowledged the importance of technology to
76 the attainment of SMA, but they tend to treat the role of technology as a black box, relegating it to the context (e.g., Deng and Wang 2016) or focusing only on its implications for the focal firm or the industry (e.g., Mathews 2002). The precise role of IS in enabling SMA has not been explored. For example, Deng and Wang (2016) who studied the relationship between firm tenure and sales in a cross-border e-commerce context, have argued for the diminishment of early-mover advantages because of free-riders and market uncertainties. However, they provided limited discussion on the role of technologies in different stages of the development.
Second, most of the existing works are conceptual in nature and are not backed by empirical evidence. For example, the arguments of Kopel and Löffler (2008) were based on an econometric model which assumes (1) followers are only reactive to the actions of a market leader, and (2) both market leader and followers offer a homogeneous product. However, their arguments are not supported by empirical evidence, and it may not always be valid that the offerings of market leaders and followers are fully homogeneous, or that late entrants are only reactive to the actions of the early-movers. Similarly, the propositions of Luther (2016), while intriguing and insightful, were only substantiated by anecdotal evidence and provide limited indications for prospective second-movers. Without empirical corroboration, the prescriptions and arguments presented in these works can only remain in the realm of guesswork and intuition, which can leave practitioners lacking in firm guidance (Tan et al. 2015b).
Collectively, these two traits indicate that our understanding of how IS facilitates SMA in the context of DD is limited. This is a knowledge gap that is important to address, especially in light of the fact that the influence of IS on firm performance may not always be positive. For instance, previous studies have suggested that IS capabilities should be deployed in an agile manner if it is to contribute to the overall performance of the firm (Felipe et al. 2019).
Furthermore, ineffective use of IS can lead to increased costs and financial losses due to mistakes (Hoppe 2000). To address this gap, we aim to conduct a thorough investigation of the
77 process through which SMA can be attained through the deployment of IS. As this involves examining the role of IS capabilities in organizational contexts for achieving SMA, we turn to the literature on IS capabilities to construct the theoretical lens as the starting point of our inquiry (see Tan et al. 2015a).
4.2.2 IS Capabilities IS capabilities refer to the abilities of an organization to utilise IT-based resources in combination with other resources and capabilities to enhance its product innovativeness (Chen et al. 2015b), overall efficiency and effectiveness, as well as its flexibility in response to market demands (Bharadwaj 2000). They are related to the notion of resource complementarities, which occur when a particular IS resource augments the value of another, or when multiple resources are strategically employed in a mutually enhancing manner (Ravichandran and
Lertwongsatien 2005). When strategically applied, IS capabilities can generate competitive advantages. However, the attainment of competitive advantage is not due to the mere possession of IS capabilities per se as they can easily be replicated by competitors
(Ravichandran and Lertwongsatien 2005). Instead, it is dependent on how IS capabilities are leveraged and embedded within a firm’s processes and routines (Bharadwaj 2000).
Different taxonomies of IS capabilities have been proposed in the literature (see Tan et al. 2015a). Following a careful review, we decided to adopt the typology of Wade and Hulland
(2004) for our study because it is considered one of the most robust and comprehensive frameworks (Doherty and Terry 2009) that is best aligned with the theme of our research. Wade and Hulland (2004) classified IS capabilities into three broad categories: (1) inside-out capabilities, which refer to the externally-oriented IS capabilities that centred on understanding competitors and creating sustainable relationships with customers and partners, (2) outside-in capabilities, which refer to the internally-deployed IS capabilities in response to industry demands and opportunities, and (3) spanning capabilities, which refer to the IS capabilities
78 involving both internal and external analyses that are used for the integration between the two previous categories of IS capabilities. Table 17 lists the IS capabilities and their definitions as classified by Wade and Hulland (2004) under these three categories.
Table 17: Wade and Hulland’s (2004) Taxonomy of IS Capabilities
IS Capability Definition Inside-out IS Capabilities IS Technical Skills The relevant and updated technology skills / knowledge assets which are related to hardware and software held by a firm’s IT employees. IS Infrastructure The physical IT assets of a firm, such as hardware, software and networking technologies. Cost-effective IS The ability of a firm for providing cost-effective and efficient IS daily Operations operations on an ongoing basis. IS Development The capabilities of a firm to develop, test or implement emerging technologies, and thus to offer innovative services. Outside-in IS Capabilities Market The firm’s ability to sense and respond to changes in the external Responsiveness environment, such as offering fast delivery and enacting fast product life cycle. External Relationship It is a firm’s ability to manage and develop the relationships between its IT Management function and external stakeholders (e.g. vendors and customers). Spanning IS capabilities IS Planning and It is a firm’s ability to plan, manage and apply the technology architectures Change Management and standards that fit its business objectives, which involves abilities of problem-solving, understanding business and managing changes. IS-business It is a firm’s ability to integrate its business strategy, IS strategy, business Partnership infrastructure and IT infrastructure for IS-Business alignment, and thus overall business synergy.
The importance of these capabilities for second-movers has been acknowledged by earlier studies in both IS as well as technological and strategic management. For example, adequate market responsiveness is needed for choosing the right technologies to implement at the right time (Wang 2017), while IS Technical skills and knowledge in IS Development are required for second-movers to implement the relevant technologies and to imitate the first- mover (Gallaugher and Downing 2000). To avoid costly IT investments by pioneers and market uncertainties, the ability of planning and change management is of critical importance (Hawk et al. 2013). In a similar vein, both Bennett and Eustis (1999) and Tan et al. (2015a) have also
79 suggested that external relationship management capabilities may help the firms to understand the customers, and thus to establish the late-mover advantages. As such, we integrate these capabilities into a single theoretical lens, which will serve as a “sensitizing device” (Klein and
Myers 1999, p. 75) to guide our study. This is because each capability is unlikely to be adequate in facilitating SMA in isolation, and in tandem, the combination of these potential theoretical building blocks will likely provide greater robustness and accuracy (Langley 1999).
4.3 Research Method The case research method was adopted because of its strengths in exploring emerging phenomena, processes that are inseparable from their contexts, and ‘how’ research questions
(Pan and Tan 2011), all of which are conditions that are relevant to our study. To fulfil our research objectives, we identified two criteria for selecting our case organization. First, the selected organization must be a second-mover that has utilised IS effectively to achieve a significant measure of commercial success. This is because we are seeking to develop theories based on proven, if not the best, practices (Tan et al. 2015b). Second, in line with our focus on the context of DD, the selected case must have “disrupted a disruptor” within an existing industry. Based on these criteria, we selected the case of xBed for our study.
xBed is especially appropriate for our study because the firm is a recognized second- mover that followed the footsteps of Airbnb in China (i.e., the original disruptor) as a sharing economy platform for accommodation services. xBed’s business has grown exponentially since 2015, and it is currently operating in over 100 cities in China, offering over 30,000 rooms.
More importantly, xBed has leveraged a range of technologies, such as IoT and mobile computing, to establish its competitive advantage over its predecessor Airbnb within the hospitality industry. Its commercial success was recognised by the China Hotel Association, from whom xBed received the recognition of being the first “Internet Hotel” in the country. In contrast, Airbnb, one of the earliest movers within the accommodation sharing sector in China,
80 has seen a sub-optimal performance as compared to xBed in terms of the number of registered users and listings (Forman 2019; Li 2017). Therefore, xBed fulfils both of our selection criteria perfectly.
4.3.1 Case Background Founded in May 2015, xBed is an accommodation-sharing platform based in
Guangzhou, China. Its business model was designed specifically to address the various issues encountered by the early-movers within the accommodation sharing sector, such as high expenses of labour and property rent, as well as customer dissatisfaction due to unstandardised services. xBed engineered its value proposition to place greater emphasis on service quality and the overall customer experience. This is achieved by, first, furbishing the rooms with a unique design and supplying them with higher quality consumables with the support of various business partners and suppliers. And second, by developing two supplementary platforms in forms of mobile apps, namely “xHost” and “xKeeper”. In particular, “xHost” serves the need of the property owners by allowing them to check the status of their rooms, make their rooms available/unavailable, and to track the rental revenue generated, while “xKeeper” serves another group of platform entities, i.e., the housekeepers, who are not xBed’s direct employees.
Unlike conventional hotels, xBed engaged and maintained a large group of freelance housekeepers through the xKeeper, which allowed them to bid on cleaning orders that are generated upon a customer’s checkout. As a result, it enhanced the experience of both property owners and customers.
4.3.2 Data Collection Research access was granted in September 2017. The study was designed with two main phases: a preparatory phase and a fieldwork phase. The preparatory phase focuses on collecting and analyzing data from a variety of secondary sources to gain an overview of the case organization, while the fieldwork phase involves collection of primary data that are
81 specific to our research question and explore the process of IS-enabled SMA in depth (Pan and
Tan 2011).
Interviews were the primary means of data collection (Myers and Newman 2007) and we adopted a chain referral sampling approach to identify the informants (Biernacki and
Waldorf 1981). More specifically, the identification of informants was based on the interview questions we formulated, and carried out with the help of the CEO of the firm, who served as our “gatekeeper” (Pan and Tan 2011, p. 165). A total of 15 informants were interviewed (See
Table 18 for the list) who represented xBed’ top management, its IT function, and all of its key business units (i.e., Operations, Marketing, Product Development, etc.). Each interview took an average of 60 minutes and were conducted with the help of a semi-structured interview guide that had a set of standard questions with respect to the development of xBed, its strategies and its use of IS (See Appendix B for a sample interview guide for this case study). There were also questions that were tailored for each informant based on their role within the firm (Pan and Tan 2011). All the interviews were recorded, transcribed in Mandarin, and subsequently translated for data analysis. To avoid possible biases and systematic distortion in the accounts provided by the informants (Klein and Myers 1999), data from secondary sources were gathered to corroborate all of our key findings (Klein and Myers 1999).
Table 18: List of Informants for the Case Study of xBed
Informant Topics Discussed CEO and Founder Insight in the China hospitality industry and sharing economy (and solutions in response to the problems), Establishment of initial business model, Government regulation issues, Innovations in businesses Co-founder Comparison with competitors, User experience expectation, Initial challenges, Insights in the China hospitality industry, Relationship with property owners, Properties furnishing, IT requirement Deputy CEO A Business model development/experiment (and market responses), Comparison with competitors, Company development and milestone. Deputy CEO B Business model development, Operation department, Imitation of competitors, Relationship with partners, suppliers and property owners.
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CEO Assistant and Challenges in the development processes, Role of IT in the business model, Marketing Director Implementation of customer relationship management, Internal audit with IT, Future development plan Head of Technical Technological changes in xBed, The need of IT and other technologies in Division xBed, Staff issues within the division Customer Service Issues in customer services, Role of IT in customer services, Business model Manager A changes in response to external feedback Customer Service Issues in customer services, Daily tasks in the division, Role of IT in customer Manager B services Product Manager Customers experience, Rooms reservations management, Service quality control Operations Manager Customers Service and enquiries, Business model changes in response to external feedbacks xHost Manager The operation of "xHost", External market conditions, Insights about online accommodation sharing services, Relationship management with property owners Marketing Manager Brand establishment, Role of IT in marketing, Comparison with competitors, Rating mechanism of xBed. e-Commerce Chief Plan of promotion and development, The rise of sharing economy and its Brand Officer (CBO) adoption by xBed xKeeper Manager Operations of “xKeeper”, Human Resources (HR) issues of housekeepers, Role of IT in the HR issues. Showroom Customers’ experience, Evolution of services, Demonstration of xBed and Representative xHost mobile applications
4.3.3 Data Analysis Data analysis was performed concurrently with data collection to take full advantage of the flexibility that the case research method affords (Eisenhardt 1989). A set of aggregate theoretical dimensions and second-order themes (Gioia et al. 2013) were first derived from the existing literatures on IS capabilities to serve as the theoretical lens to guide data collection and analysis. The dimensions of our theoretical lens include the three categories of IS capabilities identified by Wade and Hulland (2004), while the second-order themes refer to the specific IS capabilities that fall under each category (see Table 19).
Table 19: Initial Dimensions and Themes of Theoretical Lens for the Case Study of xBed
Dimensions Themes Inside-out IS Capabilities IS Technical Skills, IS Infrastructure, Cost-effective IS Operations, IS Development Outside-in IS Capabilities Market Responsiveness, External Relationship Management Spanning IS Capabilities IS Planning and Change Management, IS-Business Partnership
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The data collected was then coded using a mix of open, axial and selective coding
(Strauss and Corbin 1998). More specifically, open coding was first used to apply conceptual labels to the relevant excerpts of our interviews to form first-order concepts (see van Maanen
1979). The first-order concepts were then grouped into second-order themes via axial coding.
In particular, if the first-order concept fitted an existing second-order theme within our coding structure, the concept was assigned to the theme directly. Conversely, if the fit was not exact or if the concept related to a theme that did not yet exist, an existing or new second-order theme was modified or created accordingly (see Gioia et al. 2013) before coding was restarted based on the changes made. Finally, selective coding was used to further abstract the second-order themes into a number of aggregate dimensions. Appendix E shows a sample data structure we used in the coding of our data based on the method of Gioia et al. (2013) in this case study. The visual mapping and narrative strategies were also used to help us make sense of the voluminous amount of data collected (Langley 1999). The former involved documenting the key milestones and stages of xBed’s development, as well as the strategies and IS used in each stage in a diagram. The latter, on the other hand, entailed creating a textual summary of the key events, activities and decisions that transpired in relation to IS-enabled SMA. The visual maps and narratives were not only summary devices, but they were verified repeatedly with some of our informants to validate our interpretation of the case evidence as well (Klein and Myers 1999).
The process of iterating between data, analysis and theory development will continue until the state of theoretical saturation is reached (Eisenhardt 1989).
4.4 Findings Based on our analysis, we were able to trace the evolution of xBed’s business strategies, leverage of IS capabilities, and the development of its business model to derive a process model, which suggests IS-enabled SMA is a process that traverses at least three stages: an
Engineering stage, an Experimenting stage and an Expanding stage (refer to Figure 27). In
84 particular, its strategy is facilitated by a specific category of IS capabilities in each stage to generate a distinct outcome, which will be elaborated on in the following subsections.
Figure 27: A Process Model of IS-Enabled Second-Mover Advantage
4.4.1 Stage 1: Engineering With 12 years of experience in the hospitality industry in China, the founder of xBed was familiar with the nuances of the market and the unmet needs of customers, such over- complicated and onerous business processes (e.g., checking in) and a lack of differentiation in terms of accommodation experience. This familiarity with the market and the customers’ needs allowed him to identify the causes of the stagnation within the industry, which include increasing competition, rising human resources expenses and property costs (Arbelo et al.
2017). He also noted that the industry’s responses, such as service enhancements and diversification into the short-term leases market, were inadequate to address the root causes of
85 those challenges. As he explained: “(The existing firms within the industry) were not changing the operating model or cost structure. As a result, they cannot enjoy any cost advantages”. The realization was that a novel business model was needed (Tornjanski et al. 2015). We term this stage the Engineering stage as the focus of xBed was on engineering a new business model.
With this realization, the founder of xBed analyzed the needs of the market comprehensively and arrived at the conclusion that there were only two things about accommodation services that were truly indispensable: beds and cleaning. Consequently, considering the increasing penetration of the Internet and mobile technologies in China (Au et al. 2020; Zhou et al. 2014), as well as the global emergence of the sharing economy (Cusumano
2015), the founder of xBed decided to adopt Airbnb’s business model as the template for his organization at its inception. And yet, he felt the need to improve on this First-Mover
Template. The founder of xBed explained: “Airbnb has enjoyed success outside China but not in China… because its business model is fundamentally flawed. The main problems of Airbnb are unstandardised services, and that it places the burden of cleaning on the owners… Most people wouldn’t want that”.
xBed’s solution was to adopt a Gap Filling Strategy, designing and planning for the development of a second platform, the aforementioned xKeeper, which would address the need for cleaning services to complement their original platform. xKeeper was conceptualised as an online platform for all xBed’s housekeepers to receive and bid for room-cleaning orders, as well as to track their job performance and wages. When a new cleaning order is created, it would be uploaded to xKeeper. Housekeepers may then choose to bid on these cleaning orders by considering the payout of the individual orders, as well as the location and distance of the rooms from their current location. Upon acceptance, xKeeper would provide the directions on a map to lead the housekeepers to the designated room. After the room-cleaning order is fulfiled, the performance of the housekeeper will be reviewed via customer-rating mechanism,
86 and the housekeeper will be rewarded if they get a 5-star rating (the highest possible rating) for their performance.
In other words, the way that xBed conceptualised and designed IS-enabled solutions to coordinate the work of the various entities within its ecosystem is an example the workings of
External Relationship Management (Ravichandran and Lertwongsatien 2005). In tandem with the Market Responsiveness exhibited by its founder (see Wade and Hulland 2004), these
Outside-In IS Capabilities enabled xBed to improve on the First-Mover Template to develop an Enhanced Business Template that better fits the needs of its intended market (see Bughin and Van Zeebroeck 2017). The founder had a metaphor to describe the underlying philosophy of the Engineering stage: “We should not wear new shoes to walk on an old road, or to follow others blindly. In crafting our new value proposition, we should eliminate the elements that are not value-adding”.
4.4.2 Stage 2: Experimenting With Enhanced Business Template in place, xBed wanted to test the new business model first before bringing its services to market. As Deputy CEO (A) of xBed explained, this is because it would be easier to adjust the model iteratively based on small scale tests before the official launch of the platform and, possibly, the onset of resistance to change among its employees (who may have expectations of how a hotel business should work) when the business reaches a significant scale (Shi and Zhang 2018). This insight resonates with studies on businesses that were learning by trial-and-error, which found that refining the business model and aligning with the local context early on in a firm’s development can help to avoid a larger correction (and its associated costs) in the later stages (see Chesbrough 2010). Other informants also recognised the need for experimentation to minimise the risks and potential costs of failure. For instance, the co-founder explained: “We essentially faced a blank slate, and we are free to develop our business model in any way we want. However, developing our
87 business model carefully is what responsible and mature entrepreneurs should do. If we do not test our model extensively, we may reach a deadlock when our business is launched, and we may not be able to go back.” As a result of this new emphasis of xBed, we term this period the
Experimenting stage as xBed was testing its business model and gathering feedback for its future development.
The stage began with the offering of 23 rooms for booking. Based on the data from fulfilling the bookings and the customers’ feedback received, xBed implemented various refinements to its business model over time as part of an iterative Value Enhancing Strategy.
To illustrate, the technology used to enable remote room access was gradually transformed from a passcode-based solution to one that was based on face-recognition to enhance the security of a “human-less” room check-in process. The features of its xKeeper platform, launched at this point int time, were also continuously upgraded to ensure a greater standardization in terms of the quality of cleaning service. For example, the app provided the freelance housekeepers with a task checklist as well as photographs to show the standard placement of items in a room. The number of payment methods accepted by xBed was also increased as a direct response to customer feedback. Customer Service Manager A of xBed explained: “At first, the company only supported WeChat Pay. In response to the customers' feedback, we advised the management to support Alipay and UnionPay as well”. Customer
Service Manager B also elaborated on the changes made to xBed’s mobile app in response to the issue of locating the rooms: “Some customers found it difficult to locate the room that they have reserved. We have brought their feedback to the IT department to refine our mobile application.”
All of these refinements were possible and cost viable because of the acquisition and development of new systems, as well as the technical expertise and experience of xBed’s IT and Operations department. In other words, the Inside-Out IS Capabilities of Cost-Effective
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IS Operations, IS Infrastructure, IS Development, and IS Technical Skills were crucial to the execution of xBed’s strategy in this stage (see Wade and Hulland 2004). The result of applying these IS capabilities is an Improved Business Model that is both market-tested and actualised in a controlled manner, which previous scholars have asserted to be critical to the commercialization of technological innovations (Hu 2014). In addition, it echoes the findings of previous studies that suggest that the fusion of technologies and IS capabilities is crucial to
DD (Kodama and Shibata 2016).
4.4.3 Stage 3: Expanding Following the development of its Improved Business Model, xBed was ready to deliver its offerings to the mass market. Scaling its business was always a necessity to achieve profitability (Salter 2016), but in order to do so, xBed had to engage and work with a number of complementary business partners, while updating the systems it had implemented constantly, to expand the reach and richness of its services. When elaborating on the need of achieving the business scale, the co-founder explained: “The entire hotel industry is evolving overall, and we have to expand our sources of income”. Accordingly, we term this period of xBed’s development as the Expanding stage as the focus of the organization was on the expansion of revenue and the growth of its business, as well as its service offerings.
One of the first things that xBed had to do as part of this Business Expansion Strategy was to acquire more rooms on its platform. This, in turn, required the attraction of more property owners. To this end, xBed launched a second complementary platform called xHost, which allowed property owners to access information on the rooms that they have put up for rent, manage their availability, and track the rental revenue accrued. This is a manifestation of the IS capability of IS-Business Partnership (see Wade and Hulland 2004) because it effectively integrates the use of IT to support the organization’s core business process (i.e., renting out rooms), while providing greater convenience for one of the key entities of xBed’s
89 platform and lower their costs of participation. The Manager of the xHost described the importance of catering to these platform entities: “It is vital to have the property owners supporting us and being confident with our business model… otherwise, we may not have enough rooms to rent!”
A second initiative enacted by xBed to grow its revenue was related to the digitalization of consumable products and appliances, such as tea leaves, pillows and TVs, that were placed in each of their rooms. As the top management of xBed felt that guests who enjoyed the experience of staying in its rooms may be inclined to purchase some of the items in the rooms for use in their own homes (e.g., a comfortable pillow), xBed began tagging their items with
QR codes, which when scanned, redirected the guests to an e-commerce website. Deputy CEO
B explained the rationale behind this initiative: “We provide a channel (i.e., xBed’s rooms) for our suppliers to promote their products, since customers can experience the product quality.
However, we are not directly marketing or hard-selling the products”. As such, beyond their physical presence, the items placed in xBed’s rooms now have a digital presence and can provide xBed with another source of potential revenue. This creation of an additional revenue stream without having to invest in the development of new systems is an example of the IS capability of IS Planning and Change Management (see Tan et al. 2015a). This is because the initiative is centred on exploiting the existing IT infrastructure and systems more fully, achieving increased profitability while utilising the IS capabilities at hand. More importantly, these Spanning IS Capabilities and the cumulative outcomes of the previous stages enabled xBed to achieve a distinct Second-Mover Advantage. This is because xBed has avoided the risks and uncertainty that early-movers may encounter, and spent less effort educating the market (Hoppe 2000). More importantly, xBed had an enhanced value proposition as compared to Airbnb, which was the original disruptor of the industry. This allowed xBed to carve a
90 lucrative niche for itself and grow exponentially (see Bughin and Van Zeebroeck 2017), giving rise to its commercial success and achievements to date.
4.5 Discussion and Conclusion
4.5.1 Limitation and Further Research Directions Our study is not without its limitations. First, our research design is based on a single case study. Although studies based on a single case may be considered as a typical and legitimate endeavour (Lee and Baskerville 2003), the problem of generalizability has been a commonly-cited criticism of the approach (Walsham 2006). While we acknowledge the impossibility of statistical generalization, we contend that our findings are nevertheless generalizable in line with the principles of analytic generalizability (Yin 2003). In any case, future research can seek to statistically validate the propositions of our study so that the boundary conditions of the process model developed in this paper can be better defined.
Another limitation is related to the scope of our research. In particular, while we have uncovered a unique sequence of achieving IS-enabled SMA (i.e., engineering, experimenting, expanding), our theorizing is constrained by our data and the context of the case organization studied. Our study is also conducted from the perspective of the platform because we expect its IS capabilities to have a direct influence (Tan et al. 2015a) on the attainment of SMA.
However, the operations of xBed, as well as the kaleidoscopic array of platform-based businesses that are emerging in the present age, may involve other peripherical entities too
(e.g., Tan et al. 2020). Although their influence may be less direct, the collective and independent influence of these entities on the attainment of SMA for the focal platform cannot be discounted. In addition, a second-mover could certainly possess different characteristics
(e.g. offering different products/services). While it is certainly impossible to exhaustively account for the influence of all the related entities and characteristics of a second-mover in a single-case study, examining such influence would certainly be a fruitful avenue for further
91 inquiries. Therefore, future research may validate our propositions by investigating how other successful second-movers achieve digital disruption under different contextual conditions or examine the influence of the peripheral entities of a platform-based business, so that a more holistic understanding or other possible sequences of achieving IS-enabled SMA, as well as its strategic and organizational implications, can emerge.
4.5.2 Theoretical Contributions Our study makes a number of contributions to the literature on DD and IS-enabled
SMA. More specifically, our study presents a conceptual innovation in suggesting that the process of IS-enabled SMA may traverse across three sequential stages: Engineering,
Experimenting and Expanding. This complements the existing research on SMA by shedding light on an important means through which SMA can be achieved (i.e., via the strategic application of IS). In addition, the process model developed in our study has specified the strategies that could be adopted in each stage, as well as the IS capabilities that should be leveraged in support of those strategies. In particular, our model suggests that the road to the attainment of SMA could unfold in a specific sequence, beginning with the establishment of
Enhanced Business Template that stems from the leverage of the Outside-In IS capabilities.
This is because these capabilities will help sensitise the organization to the needs of the industry, and acquire the complementary capabilities from business partners to develop a value proposition that improves on the template provided by the early-movers (Luther 2016; Shankar et al. 1998). The process should then progress to the development of an Improved Business
Model through the deployment of the Inside-Out IS Capabilities. This is because the business model should be trialled and tested so that mistakes on a broader scale can be avoided, and iteratively refined over time, and these capabilities would be crucial to experimentation and continuous innovation (Michailova and Zhan 2015). Finally, our model suggests that IT- enabled SMA can be attained through the leverage of Spanning IS capabilities once the
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Improved Business Model is in place. This is because these capabilities integrate the capabilities of the earlier stages to generate synergies and improve the scalability of the business (Berman et al. 2012). This would generate economic and strategic benefits for second- mover firms, and ensure the sustainability and defensibility of its unique value proposition.
A second contribution to this body of literature is that it raises the possibility that supplementary platforms can be incorporated as an extension to the business models of early- moving platform-based businesses for the attainment of IS-enabled SMA. These supplementary platforms in isolation may not create significant value for the focal platform.
However, when used to augment the core business model of the early-movers, these supplementary platforms may address the fundamental weaknesses of the core business (e.g. xKeeper was a supplementary platform established to address the service quality management issues of xBed), which, as our study suggests, can be identified through the leverage of Outside-
In IS Capabilities (Bennett and Eustis 1999). The fundamental weaknesses of the core business model are likely to be first encountered by the early-movers, and can become the sources of first-mover disadvantages (Lieberman and Montgomery 1988). Conversely, second-movers may be able to utilise supplementary platforms to overcome these weaknesses, effectively fighting fire with fire, toward the attainment of SMA.
Our study also contributes to the literature on IS capabilities. The first contribution is that we have identified a specific sequence in which IS capabilities should be deployed for the attainment of SMA in the context of digital disruption (i.e., Outside-in, followed by Inside-out, before Spanning capabilities). More specifically, outside-in IS capabilities (i.e., Market
Responsiveness and External Relationship Management) should first be leveraged to gain an understanding of the market and establish a unique value proposition. This should then be followed by the leverage of inside-out IS capabilities (i.e., IS Technical Skills, IS Infrastructure,
Cost-effective IS Operations, IS Development) so that experimentation with the business model
93 can unfold in a constrained setting, before exploiting spanning IS capabilities (i.e., IS-Business
Partnership and IS Planning and Change Management) to manage the partnerships with external stakeholders (e.g., property owners in the case of xBed) as the business grows to full scale. The sequence identified is not only a conceptual innovation that contextualises our understanding of IS capabilities to the realm of DD, but it provides indications on the IS resources and capabilities that a second-mover firm should pay attention, especially for resource-constrained technological start-ups that may not be well-equipped to acquire or develop a full suite of IS capabilities. Particularly for platform-based businesses, the roles that partners and peripheral entities on the platforms play in the development of their business has not been extensively studied to date. Our study is an initial step in this direction, as it reveals that these entities can be a source of additional IS resources and capabilities, which can culminate in a critical mass of resources to sustain or grow the business (Au et al. 2020).
A second contribution to the literature on IS capabilities is that our study sheds light on the role of IS capabilities for vertical expansion, and thus the establishment of closed-loop service ecosystem (e.g., xBed was helping its property owners to manage and stay informed about their property). More specifically, the capabilities of Market Responsiveness comes from understanding the unmet needs of the existing customers (e.g., the burden of maintenance of property owner in the case of xBed), while the capabilities of IS Planning and Change
Management may facilitate the creation of additional revenue streams without significant investments in system development (e.g., the digitalization and sale of consumable products and appliances in the case of xBed). Furthermore, the capabilities of External Relationship
Management will facilitate the coordination of the various entities within the closed-loop service ecosystem (Tan et al. 2015a). Consequently, the various entities of the ecosystem can address the customers' needs more holistically and comprehensively.
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4.5.3 Practical Implications Our study also has practical implications for two groups of stakeholders: (1) existing and potential second-mover firms, as well as (2) platform-based businesses in general. For the former, our work has illustrated the applications of IS capabilities for attaining SMA in the context of DD, specifying the specific steps, as well as the strategies and IS capabilities that should be deployed in the various stages, so that they can more fully exploit the resources invested in the development of their business and extend the benefits of their businesses to a broader base of customers. In particular, our study suggests that this group of stakeholders should consider the maturity of their business model and the timing of market entry carefully.
Many entrepreneurs may want to enter the market as early as possible to capture market share
(Suarez and Lanzolla 2005), but this may also mean that their business model can be imperfect.
As a result, their early-mover advantages may not be sustainable (Markides and Sosa 2013), and they may even suffer from early-mover disadvantages such as technological and market uncertainties (Hoppe 2000). For xBed, they have deliberately chosen not to be an early-mover, but rather to utilise the capabilities of Market Responsiveness and External Relationship
Management to gain an understanding of the competitive landscape, select a basic template for their business, and subsequently improve on the template. This suggests that other second- movers aspiring to effect disruption can adopt a similarly considered approach to business development. This is because if they can offer a business model which can address the market needs more holistically from the outset, they may avoid many of the pitfalls associated with being an early-mover, and thus achieve greater success for their business.
For platform-based businesses more broadly, our work has illustrated a number of strategies that may be particularly useful for effecting disruption. For example, they may engage their business partners to provide complementary, value-adding services to their customers and aim at the development of a closed-loop service ecosystem. This will increase
95 the revenue potential of the customers beyond the core business (e.g., the digitalization of consumables in the case of xBed), while locking them in to mitigate potential responses from the incumbent early-movers. In addition, these businesses may also consider incorporating supplementary platforms to address the inherent weaknesses of platform-based business models. One such issue is that of ensuring the quality of the products/services offered on the platform, because the platform does not typically supply the products/services offered directly.
For example, in the case of xBed, the business models of early-movers in the accommodation- sharing sector fared poorly in addressing the issue of unstandardised services. Consequently, xBed established a supplementary platform called xKeeper, to accumulate and maintain a fluid pool of labour resources that will serve its housekeeping needs. This will ensure the consistency of the overall product/service quality and, ultimately, enhance customers’ satisfaction. While these strategies may be applied in other contexts as well, they may be especially suited for platforms in the context of DD. This is because these IS can lower entry barriers and the fixed costs associated with establishing and managing a platform (Conroy et al. 2015), and the costs and risks of establishing supplementary platforms can be lowered.
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Chapter 5: Summary and Conclusion This thesis presented a multi-case analysis of digital platforms triggered by the proliferation of the Internet. The insights presented in this thesis are the results of an inductive case research methodology, suitable for studying emerging phenomena, such as digital platforms. The research gaps that this thesis sought to address were the (1) lack of research on the process of digital platform development, (2) limited research exploring the lifecycle of digital platforms, and (3) limited research specifically investigating how Information Systems
(IS) enables the achievement of second-mover advantages (SMA). This thesis makes several important theoretical contributions. This is one of the earliest attempts in theorising the development, sustenance, and strategic implications of digital platforms from a stakeholder perspective, which is a complex but important dimension. In the following sub-sections, I present a summary of each case study, answer the research questions stated in Chapter 1, explain the overall theoretical and practical contributions of the thesis, and highlight some limitations and future research directions.
5.1 Summary of Chapters
5.1.1 Development of an Online Peer-to-peer (P2P) Lending Platform The first case study considered the process of online P2P lending platform development. The findings revealed that the development of an online P2P lending platform unfolds in three stages: the partner-side (P-side) stage, the lender-side (L-side) stage, and the borrower-side (B-side) stage. The P-side stage was triggered by the unmet need for car loans within the market, which stimulated the host to create an online P2P lending platform by establishing partnerships with external firms to develop risk assessment capabilities and obtain the required financial resources. Following the P-side stage, the firm entered the L-side stage by enacting initiatives to lower the costs of participation for lenders by implementing user guides and organising monthly lender meetings to address the inadequate user base. The
97 initiatives towards lenders would come first, given that the demand for loans was already significant, and it was more critical to attract lenders rather than borrowers. (Chen et al. 2014).
These initiatives would lead to the achievement of a critical mass of lenders, as well as reduced dependency on business partners because there was more funding available and more data generated from the loan transactions. Thus, the outcomes of the initiatives resulted in the B- side stage, the final stage of development. This stage is characterised by facilitating borrowers through providing additional services to borrowers to enhance the value delivered and to reduce the need for multi-homing. This is because after being established for an extended period of time, the platform had to address the challenges of service homogeneity owing to similar services offered by competitors (see Leong et al. 2017). The outcome of this stage was differentiated services, lock-in borrowers, and the achievement of platform balance and business sustainability.
P2PLend.com is an example of the successful establishment of an online P2P lending platform, which helped to reveal the different stages of developing such a platform, the dynamics of development of different stages, which have different functions, and the influence on platforms and specific outcomes from each of the stages.
5.1.2 Sustenance of a Massively Multiplayer Online Fame (MMOG) The second case study presented a TOE-lifecycle framework in the context of a
Multiplayer Online Game (MMOG). The framework unfolded in four distinct stages: the
Introduction stage, the Growth stage, the Maturity stage and the Sustain stage. Compared with traditional IS lifecycle models (e.g., Costa and Aparício 2007), the TOE-lifecycle framework established in this study included three groups of factors influencing IT adoption across the four stages: technological, organisational, and environmental (Tornatzky and Fleischer 1990).
The need for preparing a full-launch prototype triggered the introduction stage. This stage is characterised by internal testing for debugging, establishment of online player
98 community for obtaining players’ and testers’ feedback, and initial promotion for exposure and tester recruitment. This stage spurred the hosts to establish the minimal structure for the future growth of the MMOG. Following the introduction stage, the need for gaining market share and additional players were the key enablers that led to the initialisation of the second stage of growth, where the MMOG hosts focused on server maintenance, management of the player community and virtual economy, and engagement with celebrities for promotion. The growth stage is characterised by the primary outcome of increased MMOG popularity.
Nonetheless, the popularity of and players’ loyalty to an MMOG are issues related to the trend of the macro-environment (Liao et al. 2019). In other words, they are largely dependent on external factors beyond the quality of services offered by the firm. Therefore, increased player cohesion and overall consumer-brand identification (CBI) are required, which led to the maturity stage of the lifecycle. In this stage, MMOG hosts must take various actions in response to external technological changes, such as introducing new in-game missions, launching new revenue models, facilitating content co-creation with existing players, and engaging new faces to maintain the overall freshness of the MMOG. These actions maintain the critical mass of players within the game. Similar to many information systems, an MMOG may gradually decline, but many hosts nevertheless aim to extend the lifespans of their
MMOGs. This has led to the fourth stage, sustenance, where the host may consider merging some of the servers, retaining players by discount, special missions, or other measures, and addressing the threats from unauthorised servers. Before the full decline of the existing generation of the game, MMOG hosts may consider the development of various distinctive features and re-branding for the next generation of the game. These would lead to the sustainable existence of the MMOG in the market.
Along the entire lifecycle, MMOG hosts should maintain shorter introduction and growth stages but with the largest possible mass of players. However, the hosts should try to
99 extend the sustenance stage, leading to a longer lifespan for maximum revenue under the long- tail theory (Anderson 2006). With an MMOG that has been sustained for more than a decade being the study target, the third case study presented an illustration of how MMOG hosts should manage the lifecycle of their game in a specific sequence to extend its sustenance and address the new challenges from the technological, organisational, and environmental dimensions.
These insights may serve as a reference in managing the lifecycles of not only MMOGs but also of other types of digital platforms and innovations.
5.1.3 Achievement of IS-enabled Second-mover Advantages (SMA) The third case study presented a qualitative temporal exploration of the role of IS in facilitating SMA. The findings revealed that the attainment of IS-enabled SMA evolves through three stages of development; further, it revealed a pattern of expansion from engineering to experimenting and then to expanding. The engineering stage was triggered by the existence of a first-mover business, which presented immense opportunities for start-ups.
However, second-movers should address the fundamental limitations of a first-mover’s business model by utilising outside-in IS capabilities (market responsiveness and external relationship management) and thus establish an enhanced business template. Following the engineering stage, the inside-out IS capabilities (IS technical skills, IS infrastructure, cost- effective IS operations, and IS development) and enhanced value proposition for target market were the key developmental drivers that fuelled the experimenting stage of achieving IS- enabled SMA. The experimenting stage is characterised by the testing of the business model template, which leads to the improvement of the business model as the primary outcome. With this improved business model, second-movers can expand their business by increasing the scale and diversity of revenue streams. Having built a diversified range of revenue streams, the firm achieved SMA in the final expanding stage, where the engaging collection of varied
100 stakeholder groups facilitated the offering of complementary service providers that could address the concurrent needs of the customers of the growing second-movers.
The case study of an accommodation-sharing platform considered a digital platform that achieved SMA after Airbnb in China (i.e., the original disruptor) but improved the business models in different aspects and thus has outperformed Airbnb. Therefore, it has been recognised as being the first Internet hotel in China. This study was a suitable case to unpack the different stages (engineering, experimenting, and expanding) of IS-enabled SMA, the strategies and IS capabilities between the different stages of maturity, and the specific outcomes from each stage.
5.2 How are Digital Platforms Developed? Regarding the development of digital platforms, the primary contribution of my thesis is a process model that illustrates the sequence of developing different sides of the platform.
Many prospective platform hosts struggle to choose the side to be developed first, which is sometimes referred to as the ‘chicken-and-egg’ problem in the context of digital platform development (Stummer et al. 2018). My study has indicated that prior to the development of any side of users, the partners’ side should be developed if the platform hosts lack critical capabilities. In the case of P2PLend.com, they utilised the capabilities of their partners in terms of financial resources and data analytics in their initial stage of development. Doing this may enhance the legitimacy and overall business viability of the platform, thus mitigating the initial development barriers that arise from hesitance or reluctance of potential users to participate on the platforms (Edelman 2015).
Beyond the development of the partner-side, my study also revealed that platform hosts may choose the side of users that have a smaller demand on the services offered by the platform to focus on at the first instance, given that the other side will be more active in finding their required products and services, and thus, less effort is required to engage them. For example,
101 the host of P2PLend.com identified the existing and significant demand for its car loan services; hence, they turned their focus to attracting lenders as opposed to borrowers. However, there is no side that should be neglected all the time (Parker and Alstyne 2005). In fact, the end goal of platform development should be to achieve a critical mass of users (Iansiti and Levien 2004b) as well as a balance between its multiple sides. Otherwise, the over-emphasis or dependence on one side increases the dependency and bargaining power of this specific group of stakeholders (Cusumano and Gawer 2002).
With a critical mass of users being achieved, platform hosts may develop additional services to enhance the value delivered to the customers (e.g. the sale of vehicle insurance policies in the case of P2PLend.com) and reduce the burden of participation (e.g. the user guides and monthly lender meetings for lenders to share knowledge on how to invest on
P2PLend.com, as well as the online community in the case of Talesrunner). These services reduce the multi-homing needs of platform participants (see Zhu and Iansiti 2019) which may stop them from switching to competitors.
5.3 How do you Sustain and Grow a Digital Platform? My thesis suggested that the sustenance and growth of digital platforms may be managed by a TOE-lifecycle framework, which includes four stages (introduction, growth, maturity, and sustain). The strategies and activities of each stage should cover three dimensions: technological, organisational, and environmental, which were adopted from the framework originally developed by Tornatzky and Fleischer (1990). The introduction stage covers the testing of digital platforms, possibly involving the recruitment of some external testers who may also be prospective customers of the platform. This testing may allow early corrections of issues (e.g., the bugs for unauthorised access to the virtual items shop in Talesrunner and the difficulties for customers to locate their rooms in the case of xBed). In addition, the establishment of user communities may foster cohesion, emotional ties and mutual support
102 between users (Constantiou et al. 2012), which are especially important if the products/services offered by the platform are highly dependent on the critical mass of users. After the introduction stage, the development of the platform will reach the growth stage, where hosts should expand their businesses by reaching more customers, possibly with the engagement of influential users or public figures that match the targeted customer demographics. In addition, some experienced customers may be empowered to moderate the community and support other new customers.
This may offer the empowered customers a sense of self-realisation (Liao et al. 2019) and decrease the burdens of platform hosts (Dong and Zhang 2016). After growing for a certain period, the platform will reach the maturity stage as the growth of users typically slows down.
Continuous refinement and improvements of the platforms, possibly including changes in the revenue model, may be required to address the changing needs of customers and offer some sense of freshness to customers (Tan 2011). These changes should also address external technological changes, given that these external changes may prevent customers from enjoying the products or services of the platform. Depending on the nature of the platforms, co-creation of products and services alongside customers may offer the customers a higher sense of achievement upon being appreciated for these co-creations (Kim et al. 2018). After the maturity stage, sustenance will be the focus of the lifecycle as it may be relatively difficult to attract new customers in this stage (Setterstrom and Pearson 2019). Sustenance is achieved by customer retention measures, such as offering various discounts and a sense of freshness, as well as resource re-deployment to develop the next generation of platforms. The development of the next generation of platforms may be essential, given that the existing platforms have been in use for a long period, and incremental changes of the existing platforms may not be sufficient to address the changing needs of customers.
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5.4 How can a Digital Platform Compete Strategically? For a digital platform to compete strategically, a number of considerations have been provided, including (1) digital platforms’ achievement of IS-enabled SMA in the context of digital disruption (DD), (2) the importance and measures of quality control in maintaining digital platforms, and (3) the importance and measures of participation facilitation.
More specifically, for digital platforms’ achievement of IS-enabled SMA in the context of DD, many practitioners are now focusing on the speed and decisiveness of a firm, possibly for the achievement of early-mover advantages (see Møller et al. 2017). However, early-mover advantages may not be sustained in the context of DD because the fundamental technologies for establishing a platform are easily accessible nowadays (Hein et al. 2020). A good example is MySpace, who was an early-mover of social media but was defeated by Facebook (Press
2018). In fact, entering the market with a solid business model is more important than entering the market with speed. Second-movers may adopt, imitate, test, and improve the business model templates of early-movers, giving them SMA (see Feng et al. 2020). My thesis has presented a process model of business model experimenting and improvement, which led to
SMA realization for digital platforms. My process model specifies the strategies that can be adopted in each stage as well as the IS capabilities that should be leveraged in support of such strategies. In particular, my model suggests that the road to SMA by digital platforms could unfold in a specific sequence, beginning with the establishment of an enhanced business template that stems from leveraging the outside-in IS capabilities. This is because these capabilities will help sensitise platforms to the needs of the industry and help them acquire the complementary capabilities from business partners to develop a value proposition that improves on the template provided by early-movers (Luther 2016; Shankar et al. 1998). The process should then progress to the development of an improved business model through the deployment of the inside-out IS capabilities. This is because the business model should be
104 trialled and tested such that mistakes on a broader scale can be avoided and iteratively refined over time; moreover, these capabilities are crucial to experimentation and continuous innovation (Michailova and Zhan 2015). Finally, my model suggests that IS-enabled SMA can be attained by leveraging spanning IS capabilities once the improved business model is in place.
This is because these capabilities integrate the capabilities of the earlier stages to generate synergies and improve the scalability of the business (Berman et al. 2012). This will generate economic and strategic benefits that enhance the sustainability and defensibility of the overall unique value proposition of the second-mover’s digital platform.
The service quality control issue in maintaining digital platforms is becoming increasingly vital given the low barriers for establishing digital platforms, and solely being an intermediary or multi-sided platform will not lead to business success. Conversely, a major key to platform success is product/service quality control (Tan et al. 2017a), which may be achieved by at least three approaches: platform review and rating mechanism, quality standardisation protocols, and supplementary platforms. Specifically, review and rating mechanisms may reveal the performance of different staff or resource providers as well as the potential issues of the platform (Belk 2014). These can facilitate the identification of poor and outstanding performers as well as the continuous improvement and quality maintenance of the platform.
This can protect the reputation of a platform when there is damage due to quality issues that may not be directly controlled by the platform hosts (Spindeldreher et al. 2018). In addition, quality standardisation protocols may facilitate resource owners (possibly from one side of the platform) to maintain their resources with reasonable quality and standards (e.g., the offering of high-quality consumables in accommodation in the case of xBed). This can ensure a more controlled and standardised service experience for resource users. Furthermore, quality control and maintenance on the subject resources of a digital platform may also be facilitated by a
‘supplementary platform’ that engages another group of stakeholders (e.g., xKeeper in the case
105 of xBed, which engaged a group of housekeepers). These platforms in isolation may not create significant value for the focal platform, but when they are used to augment the core business model, these supplementary platforms may address potential quality issues and point out other inherent weaknesses of the business model.
The importance of participation facilitation on digital platforms, as highlighted by the measures adopted in the selected cases, has been discussed. These facilitations may be achieved by different means, such as automation of over-complicated business processes (e.g., automation and human-less check-in for accommodation access in xBed), marketing education
(e.g., monthly e-newsletter and lender meetings with prospective customers in P2PLend.com), maintenance of subject resources (e.g., freelance housekeepers in xBed), enhancement of information transparency (e.g., showing property rental information to property owners in xBed and photos of the collateral cars in loan applications for prospective lenders in
P2PLend.com), and establishment of user communities (e.g., online community with voluntary moderators in Talesrunner). These measures are particularly important for prospective users who may not immediately enjoy the products and services of a digital platform or when platformisation of businesses in the given context is relatively new. In these scenarios, participation facilitation will encourage prospective users to join, fostering a critical mass of platform users, and thus the competitiveness of the platform (Tan et al. 2015a).
5.5 Overall Theoretical Contributions Beyond answering the three research questions related to the strategic implications of digital platforms, my thesis has also provided some theoretical contributions related not only to digital platforms but to digital innovations in general.
First, my thesis has highlighted the emergence of customer communities and their impact on businesses. A major advantage of having customer communities is the mediation of the burdens of daily operations. Within a community, less experienced customers may raise
106 questions related to the products and services, which may be answered by not only the frontline staff of the business but also by other customers who have the relevant experience (e.g., the monthly lenders meeting in the case of P2PLend.com). The formation of customer communities is especially essential if the success of products and services is highly dependent on a critical mass of users. With stronger perceived support received, customers will be less likely to switch to competitors (Wang et al. 2016). Besides mediating the burden of daily operations, customer communities may also be a potential venue for gathering customer feedback (Labrecque et al. 2013), especially when there are major changes to the products and services (e.g., server merge in the case of Talesrunner). Nevertheless, customer communities may be unofficially established (i.e., not controlled by the business) and may emerge even if the business is not platform-based (Pongsakornrungsilp and Schroeder 2011). For example, in the case of Talesrunner, beyond the official community established by FunTown, some players and external parties have formed their own groups and communities in external outlets, such as YouTube and Discuss.com.hk (a flagship online discussion forum in Hong Kong). Beyond my case studies, a good example of an unofficial customer community is surfaceforums.net, which is an unofficial community containing several users of the Microsoft Surface series.
Within the community, members may seek assistance regarding different issues related to their
Surface, and technical issues that are commonly encountered by users are also discussed. In other words, the influence of customer communities is not restricted only to platform-based businesses.
In addition, my thesis focuses on the role of IS capabilities in vertical expansion for digital platform businesses, and, in turn, the establishment of a closed-loop service ecosystem.
Primarily, this thesis suggests that the capabilities of market responsiveness serve to understand unmet customer needs, while the capabilities of IS planning and change management serve to create additional revenue streams without significant additional investments, possibly by
107 working with different partners (e.g., the digitalisation and sale of consumable products and appliances in the case of xBed and the sale of vehicle insurance policies in the case of
P2PLend.com). To foster the establishment of these business ecosystems, digital platforms, as the core of the ecosystem, need to coordinate various entities that may offer extra value on top of the existing value proposition (Huang et al. 2010). This is becoming more important under the proliferation of digital platforms because the entry barriers of digital platforms have lowered for many industries (Jin and Hurd 2018), which may lead to an increased number of competitors as well as decreased customer switching costs (Weill and Woerner 2015a). The formation of a business ecosystem will, in turn, facilitate overcoming the challenges of service homogeneity and form a closed loop that may stop the customers from switching to competitors. Nevertheless, the applications of IS capabilities in vertical expansions are not limited to platform-based businesses only. For example, in the aviation and tourism industry, passengers who take a flight may also require hotel rooms, travelling SIM cards, and other travel-related products. AirAsia, a Malaysia-based airline, has demonstrated its market responsiveness by selling various travel-related products to address the wide range of needs of their similar groups of customers. In addition, these products are sold through the core website of AirAsia, which also sells their flight tickets. This is an application of planning and change management as AirAsia introduced new revenue streams without significant additional investment (Fickry et al. 2020). Therefore, the example of AirAsia demonstrates that the role of IS capabilities for vertical expansion, and thus the establishment of a service ecosystem, is analogous between platform-based and non-platform-based businesses.
5.6 Overall Practical Contributions In terms of practical implications, my thesis can facilitate the hosts of digital platforms in making informed decisions in terms of the development, sustenance, and management of digital platforms; policymakers in introducing more informed policies and support; and
108 traditional firm owners in formulating countermeasures in response to the proliferation of digital platforms.
5.6.1 For Digital Platform Hosts This thesis provides a few practical implications for digital platform hosts. First, being an early-mover does not always bring prospective digital platforms significant advantages.
Conversely, it is essential to have a well-planned development process for establishing the business with an enhanced business template based on those of early-movers as well as a planned lifecycle for the products/services being offered to the customers. The development process of a digital platform may include acquiring capabilities from partners as well as testing the subject business model or platforms before a full-scale launch that engages any particular side of users (Andries et al. 2013). These tests may provide feedback to digital platform hosts and may help them to avoid the potential costs of correcting the business model and platforms in later stages. On top of a critical mass of users to participate in the platforms (Tan et al.
2017a), quality control has become more important given that the barriers for establishing platforms as well as customer switching costs have significantly lowered. To establish competitive advantages, quality has become a key factor (Tauscher and Kietzmann 2017).
Digital platform hosts may also consider establishing user communities to increase the cohesion and emotional ties between customers (Constantiou et al. 2012). As a realization of the empowering strategy, some experienced customers may be recruited as community moderators to offer assistance to other newer customers, which may reduce the burden of customer support on the hosts. In addition, meshing strategies may be realized by fostering unique membership identities within the community, which may foster solidarity and encourage collective actions (Adler and Kwon 2002; Tan et al. 2015a). Nevertheless, platform hosts should also be aware of conflicts in these communities, such as cyberbullying, given that these conflicts may gradually force participants to leave the platforms (Li 2015). However, the
109 development of platforms may gradually reach a mature stage, where it is difficult for platform hosts to gain new customers. Therefore, platform hosts should address the issues that may discourage further participation on the platform.
To sustain their platforms, hosts must recognise various forms of challenges (e.g., loyalty issues for an MMOG and multi-homing issues in sharing economy platforms) and formulate solutions accordingly. For example, loyalty issues in MMOGs may be addressed by engaging different celebrities and influential users (Kusumasondjaja and Tjiptono 2019), as well as launching new functions, which can offer a sense of freshness to the players. In the context of a sharing economy platform, platform hosts may consider launching various supplementary services, possibly by working with external partners, to address the concurrent needs of existing customers (Hänninen et al. 2018). This will reduce the service homogeneity and, in turn, the number of customers switching to competitors. Addressing these challenges will help extend sustenance and thus the revenue of digital platforms. This is essential for covering initial development costs, which can be significant for some types of platforms, such as MMOGs.
Depending on the nature of the platform, platform hosts may need to consider revolutionary changes or even launch of an entirely new platform after operating for a certain period. This is because the old platform may have changed multiple times, and further incremental changes may no longer be adequate to address new customers’ needs. Before the launch of the new platform, the host may consider downsizing part of their services to save resources (Lilja et al. 2015), which may be re-deployed in developing the next generation of the platform. As a result, the newly developed platform may engage new customers, address changing customers’ needs more effectively, and achieve sustainability for the entire firm.
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5.6.2 For Policymakers In addition, my thesis has offered a number of practical contributions to facilitate policymakers in being more informed about the lifecycle and development sequences of different digital platforms. First, policymakers may establish policies and programmes to support firms in the era of digital economies, which may be related to tax exemption, seed funding, and other forms of entrepreneurial support. In particular, the initial development stages of digital platforms may require more support before attaining critical mass (Caillaud and Jullien 2003). Another point at which digital platform hosts may require more support is during revolutionary changes to the platforms as this may incur significant development costs.
By identifying the unique types of support required by the platforms in different stages, policymakers may prioritise support and resource allocation more appropriately.
The need for monitoring virtual economies in MMOGs and other pre-paid mechanisms of different platforms has also been stressed upon in this thesis. It has become an essential issue for policymakers to address because of the increasing number of participants on these pre-paid mechanisms, which may involve real-world currencies (Frenken et al. 2020). The collapses of these platforms or controversies within their mechanisms may therefore affect, or even harm, the interests of platform participants. Therefore, policymakers may establish some regulations to monitor various virtual economies and other pre-paid mechanisms (Bombace 2013). For example, policymakers may ask hosts whose platforms have established pre-paid mechanisms to register with a government or establish their own measures to monitor disputes within their platforms such that the rights of the platform participants are protected. Beyond measures for platform hosts, policymakers may also communicate to the general public to provide a sense of awareness of potential issues in virtual economies and pre-paid mechanisms in digital platforms. For example, they may discourage the general public from trading for items within a virtual economy outside official platforms as it would otherwise not be monitored, and
111 disputes related to these trades may not be addressed by the hosts. Moreover, policymakers may discourage the general public from pre-paying excessively to avoid the loss that could occur if the platform falls.
5.6.3 For Traditional Firm Owners Finally, my thesis has offered some practical contributions for traditional firm owners to formulate countermeasures in response to the impact brought by the proliferation of digital platforms. More specifically, I have provided some countermeasures for traditional firms to address the impacts in terms of (1) quality control, (2) cost structure, and (3) service experience.
Furthermore, I have discussed the option of business model platformisation of these firms.
Firstly, regarding quality control issues, many digital platforms are adopting a wide range of measures to ensure the quality of products and services offered to customers, with some of these measures utilising the efforts of the customers themselves. Similarly, traditional firm owners may also adopt different measures to encourage their customers to rate their products and services, which is similar to the rating mechanism established by xBed and may thus serve as a means of monitoring the overall quality. This is achievable even if the firm is not adopting a platform-based business model. For example, they may offer some incentives to customers for ratings and reviews of their products and services. This would allow traditional firms to be more informed on what areas they can improve in. In addition, some customer reviews may be published online on third-party websites, which may allow traditional firms to enhance their social media presence (Ilhan et al. 2018), and thus become more competitive in the industry.
Secondly, regarding the cost structure issue, my case studies indicated that some digital platforms converted some of their fixed costs into variable costs (Liu and Tyagi 2017). For example, compared with traditional hotels, xBed has converted the labour costs for housekeepers from fixed (i.e., monthly or daily) to varied (i.e., per room cleaned). This allows
112 xBed to engage an unlimited number of housekeepers within the entire mainland China, while the housekeeping expenses remain proportional to the revenue generated by transactions.
Therefore, to address challenges from competitors, another possible countermeasure that traditional firms can adopt is to reconsider and convert fixed costs into variable costs. This may be done by, for example, adopting more cloud-based computing resources instead of purchasing fixed-cost computer equipment as many cloud-based computing services providers charge customers based on the bandwidth used (Jäätmaa 2010). In other words, the expense is proportional to the number of transactions of the firm. The changes in cost structure will, in turn, enhance the agility of the firm and its capabilities of addressing different challenges.
Thirdly, my thesis has provided practical implications related to the service experience dimension. In all three case studies, many parts of the service experience were automated without human interactions to a large extent, such as the human-less room check-in of xBed and the game-masters who ‘talk’ to the players to address their enquiries in Talesrunner. In general, automation of service processes may bring several advantages to both customers and firms, such as reducing queueing, enhancing convenience, and improving operating efficiencies (Griffy-Brown et al. 2008). Therefore, while many digital platforms are automatising their service processes with the elimination of face-to-face services, traditional firms may also consider the adoption of various automation technologies to increase their operating efficiency.
Finally, business model platformisation may also be an option in response to the challenges faced by platform-based competitors (Bygstad and Hanseth 2018). Many digital platforms have demonstrated their business successes, which may attract owners of traditional firms to consider the diversified business opportunities brought by digital platforms. While some successful experience of platformisation or platform adoption by traditional firms has been observed (e.g., Disney+ by Disney), it has been found that many firms are not able to
113 formulate proper strategies in response to DD. For example, they may be narrow-minded regarding cost-efficiency or expect immediate and significant benefits upon adopting platform- based business models (Bughin and Van Zeebroeck 2017). My findings on digital platform development can facilitate these traditional firm owners in establishing their own platforms or platformising their business models. Similar to other prospective digital platform hosts, they may test the subject platforms in advance to avoid correctional costs as well as establish user communities to increase bonds between customers and decrease the service maintenance burden on the firm. To foster the development and sustenance of their digital platform, they may also adopt various participation facilitation and lifecycle management strategies, as described in this thesis.
5.7 Limitations and Future Research Directions This thesis does have some limitations. Although the single-case research method used in addressing each of my research questions is a ‘typical and legitimate endeavour’ in qualitative research (Lee and Baskerville 2003), case research methods are often subject to criticism related to generalisability or external validity (Walsham 2006). While the impossibility of statistical generalisation given the adoption of a single-case research method should be acknowledged, the validity and generalisability of the single-case studies of my thesis given the developed process models are not only grounded in the empirical reality of real-world organisations but also corroborated by the propositions of some of the most established works in the management and IS literature. As such, my case studies invoke the principles of ‘analytic generalisation’ (Yin 2003) or what some researchers refer to as
‘generalising from description to theory’ research (Lee and Baskerville 2003). Nevertheless, I encourage future research directed at validating my proposed process models and testing the boundary conditions of the inductively derived theories that constitute this thesis.
114
A second limitation of this thesis is the retrospective nature of the personal interviews that formed the primary source of data in the cases of P2PLend.com and xBed. As retrospective responses are susceptible to errors of recall (Glick et al. 1990), I tried to avoid this problem by only having informants who were involved in the events of the relevant periods of interest (Pan et al. 2007) and focused the interviews on only the major events or milestones that could be reliably recalled. Furthermore, I included a systematic data verification procedure, which could ensure that all the information used in this thesis was relayed by no less than two sources of data or informants, thus ensuring overall accuracy.
Finally, the third limitation is related to the scope of my research. More specifically, while I have uncovered the sequences related to IS-enabled SMA achievement and the development, growth, and sustenance of digital platforms, my theorising was constrained by the available data and context of the cases considered. Despite my endeavour for inclusivity, I must acknowledge the impossibility of exhaustively describing all possible mechanisms related to digital platform development and sustenance or the achievement of IS-enabled SMA. For example, the platform development model discussed in the case study of P2PLend.com may be subject to boundary conditions of the regulation and business environment of mainland
China, which may be significantly different from those of other countries. Furthermore, the
TOE-lifecycle framework that I identified is based on an MMOG operated in Hong Kong and
Taiwan. Similarly, the players’ characteristics and operating environment in Hong Kong and
Taiwan may differ from those in other countries. Moreover, the process model of the achievement of IS-enabled SMA was established based on an accommodation-sharing platform, which may be subject to the boundary conditions of the hospitality industry.
Therefore, future research can investigate mechanisms beyond those examined in this thesis or statistically validate the mechanisms that were identified.
115
In summary, I hope that my thesis provides solid theoretical implications for the theories of digital platform development and my chosen theoretical lens as well as practical implications for digital platform hosts to maximise their success and for policymakers to establish informed measures and regulations over digital platforms such that all Internet users can enjoy the maximised benefits brought by digital platforms.
116
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Appendix Appendix A: Sample Interview Guide for Case Study One (P2PLend.com) Interviewee Background
Objective: To gather informant’s background information
Can you briefly describe your company and its products/services? How/why did you get involved with P2PLend.com? Can you briefly describe your role at P2PLend.com?
Platform Background
Objective: To gather information on the background of the platform
What are the business objectives of P2PLend.com? Could you describe how the company was founded and the rationale behind founding the company?
Development of the Platform
Objective: To gather information on the different development stages of the platform
What were the main challenges that P2PLend.com faced in setting up the platform? How did you overcome these challenges? What forms of external support did you obtain in the early stages? Which side of the users, borrowers or lenders, did you choose to develop first? Can you explain the measures of attracting lenders and borrowers? How do you work towards cooperation/partnership with other platforms or organisations?
Value of the platform
Objective: To gather information on the social implications of the platform
What is the main value of the platform for the various participants? How does the platform help its participants to improve their financial situation?
Strategy and Governance
Objective: To gather information on the developmental strategy of the platform
Along with the platform development, do you use the strategies or business models of any other IT firms as templates?
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With the competition becoming increasingly fierce, how does your platform differentiate itself? When it is easy for customers to switch to other platforms, how do you lock them? How do you evaluate the progress of the development of the platform? Can you highlight some critical success factors of your platform? How does your platform react towards government policies and initiatives?
145
Appendix B: Sample Interview Guide for Case Study Three (xBed) Interviewee Background
Objective: To gather informant’s background information
Can you briefly describe your company and its products/services? How/why did you get involved with xBed? Can you briefly describe your role at xBed?
Platform Background
Objective: To gather information on the background of the platform
What are the business objectives of xBed? Could you describe how the company was founded and the rationale behind founding xBed?
Development of the Platform
Objective: To gather information on the different development stages of the platform
What were the main challenges that xBed faced as it was growing? How did you overcome these challenges? How could you reach your critical mass of users required for the platform to be sustainable? Could you explain the distinctiveness of xBed, comparing with your competitors, possibly in terms of business models or other dimensions? How did you collaborate with other platforms or organizations? How did you refine your initial business model? Can you explain your applications of different IS capabilities or resources?
Value of the Platform
Objective: To gather information on the social implications of the platform
What is the main value of the platform for the various participants? Could you describe your measures of controlling the service quality? Could you describe how do you mediate the burden of participants? Could you share with us your measures of gaining the trust of the participants?
Strategy and Governance
Objective: To gather information on the developmental strategy of the platform 146
Along with the platform development, do you use the strategies or business models of any other IT firms as templates? With the competition becoming increasingly fierce, how does your platform differentiate itself? When it is easy for customers to switch to other platforms, how do you lock them? How do you evaluate the development progress and outcomes of the platform? Can you highlight some critical success factors of your platform? How does your platform react towards government policies and initiatives?
147
Appendix C: Sample Data Structure for Case Study One (P2PLend.com)
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Appendix D: Sample Data Structure for Case Study Two (Talesrunner)
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Appendix E: Sample Data Structure for Case Study Three (xBed)
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