THE SUCCESS FACTORS FOR APP STORE-LIKE PLATFORM BUSINESSES FROM THE PERSPECTIVE OF THIRD-PARTY DEVELOPERS: AN EMPIRICAL STUDY

BASED ON A DUAL MODEL FRAMEWORK

Hyung Jin Kim, School of Business, Yonsei University, Seoul, South Korea, wmistop@yonsei.ac.kr

Inchan Kim, School of Business, Yonsei University, Seoul, South Korea, ick881@yonsei.ac.kr

Ho Geun Lee, School of Business, Yonsei University, Seoul, South Korea, h.lee@yonsei.ac.kr

Abstract A platform business, such as Apple Inc.’s App Store, refers to a Web-based business in which anyone can participate and make profits by taking advantage of, with few restrictions, resources and infrastructures of the host firm operating the platform. Such businesses are enabled and thrived primarily by participation of third-parties in the business value chain. Perceiving that in the context of App Store-like businesses, outside application developers' participation and their development practices are crucial for the success of the platform business, we attempted to identify factors that influence developers' intention to develop applications frequently. As an underlying foundation for this study, we used a dual model framework, the theoretical importance of which has recently been verified by Kim & Son (2009). The dual model consists of two different, but related, mechanisms—a dedication-based mechanism and a constraint-based mechanism. The dual model, together with our careful observations, implies that application developers build applications frequently not only because they want to do so (a dedication-based mechanism), but also because they feel constrained to do so (a constraint-based mechanism). Hence, after in-depth interviews with seven application developers and an extensive literature review, we identified seven specific elements that developers take into account when developing applications, and categorized these factors according to the two mechanisms. In total, 112 sets of Web survey responses were collected from iPhone application developers in South Korea, and 10 hypotheses were tested by PLS. Our results indicated that for the dedication-based mechanism, benefit-sharing attractiveness, market demand for applications, usefulness of development tools, and review process fairness have positive impacts on intention to develop frequently through developer satisfaction. For the constraint-based mechanism, learning and set-up cost positively affect termination cost, in turn increasing dependence of developers. Finally, dependence is positively related to intention to develop frequently. This study applied a dual model to the context of the smartphone application development and set out practical guidelines for companies that wish to enter this type of business or to make their App Store-like business flourish.

Key Words: Platform Business, App Store-like Business, App Store, Application Development, Dual Model, Dedication, Constraint, Apple Inc.

272

1 INTRODUCTION

A platform business is referred to a Web-based business in which anyone can participate and make profits by taking advantage of, with few restrictions, resources and infrastructures of the host firm operating the platform. This business can be likened to a train station where any trains (i.e., third parties) can stop, take on passengers, and use facilities of the station. According to Hegel et al. (2008), today’s rapid development of technologies has enabled a much more favorable environment for a platform business than ever before. The authors also maintain that direct or even indirect participation of firms in platform businesses will have considerable effect on future profitability.

In May 2007, Facebook.com opened to the public its methodologies regarding how to develop applications tailored to its platform. This made it possible for third-party developers to take part in and make profits on the platform. Likewise, Apple Inc. made public in July 2008 some of the source codes needed for iPhone application development. Since then, outside developers have been able to develop, upload, and sell their own iPhone applications on the specialized website, App Store. Thanks to the participation of third-party developers, the App Store is providing a variety of applications for iPhone/iPod touch users.

Epitomizing the open participation strategy in this Web 2.0 era, App Store has attracted much attention not only from practitioners, but also from scholars. The reason is fairly straightforward. An important underlying principle of App Store is to draw critical resources—applications—from the outside, instead of primarily relying on firm-centric planning. In this way, it provides great values for users in terms of a variety of useful or interesting applications, thereby contributing to significant growth of the business. Seeing the advantages of this strategy, companies—namely, NOKIA, RIM, and SAMSUNG—have also opened, or plan to open, their own online application stores. For instance, in South Korea, SK Telecom has recently launched the App Store-like service, T store (Digital Times 2009). Consistent with this trend, the entire application transaction market is expected to be worth about 250 billion dollars by 2014 (Business Week 2009).

To our knowledge, the sustainability of an App Store-like business will largely depend on the number of high-quality new applications. A large pool of applications is able to lure various users continuously and thus attract more outside developers to the platform, resulting in additional applications and more visitors to the store—that is, a virtuous cycle forms. In line with this, we expect that accounting for the development practices of outside developers will provide a stepping-stone to advance understanding of primary factors for the successful App Store-like business.

In this study, we aim to identify critical factors that positively influence outside developers' intention to develop applications on the platform. The empirical analysis of our dual model makes an important contribution as it introduces a set of primary factors for the business, which provide insights to the business provider. We suggest that to maintain sufficient applications on the platform, the platform-providing firm should consider important factors from the third-party developers’ perspectives, such as benefit-sharing policy, quality of development tool, usefulness of online forum, fairness of review process, learning costs, and set-up costs. Our results also support the applicability of the dual model framework in the different, application development context, especially between the firm and outsider developers.

2 THEORITICAL UNDERPINNINGS

2.1 Dual Model

In this study, we adopt a dual model, the theoretical importance of which has been verified by Kim & Son (2009). The dual model indicates that relationship maintenance is generally driven by both positive and negative motivations. Our careful observations, together with in-depth interviews with seven iPhone application developers in South Korea, suggest that the relationship between Apple Inc. and third-party developers can be well-explained by the dual model framework. The developers are

273

likely to build iPhone applications frequently not only because they want to draw benefits, but also because they feel constrained to do so by their investment in the relationship.

According to the social exchange theory, people are believed to engage in ongoing relationships “either because they genuinely want to or because they believe that they have no option” (Wulf & Odekerken-Schröder 2001, p. 86). Within this conceptual background, two different types of commitment—dedication and constraint—characterize relationship maintenance (Bendapudi & Berry 1997). Dedication-based commitment originates from “genuine appreciation for the relationship” (Bendapudi & Berry 1997, p. 20), whereas constraint-based commitment occurs because of “economic, social, or psychological” investments devoted to the other party (Bendapudi & Berry 1997, p. 18).

The dual model has been shown to be useful in analyzing various kinds of relationships such as person–person relationships (Stanley & Markman 1992), employee–firm relationships (Dunham et al. 1994), customer–firm relationships (Bendapudi & Berry 1997; Hong et al. 2007; Kim & Son 2009), and firm–firm relationships (Ganesan 1994). These studies claim that in order to understand such complex relationships fully, addressing both dedication and constraint motivations is essential.

2.1.1 Dedication-Based Mechanism

According to prior studies (e.g., Bendapudi & Berry 1997), people become dedicated to a relationship because they favor and desire to pursue it. Dedication commitment is a favorable feeling towards partners and centers on such feelings as identification with, attachment to, and loyalty to partners. These feelings arise when people gain physical, psychological, and emotional benefits from their ongoing relationship (Oliver 1999; Srinivasan et al. 2002; Kim & Son 2009).

From the dedication-based mechanism perspective, Morgan (2000) emphasizes three types of content—namely, economic, resource, and social content—in relationship maintenance. Harris et al. (2003) and Ellegaard et al. (2003) also prove that these three components play a crucial role in forging a stable and sustained business relationship.

Economic content refers to monetary benefits that parties in relationships can draw (Morgan 2000). If a firm can reap pecuniary gains out of a business relationship, it values the relationship highly. Such benefits promote satisfaction, trust, and collaboration between the parties, making the relationship more stable and sustained (Morgan 2000; Harris et al. 2003; Ellegaard et al. 2003).

Resource content denotes resources that come from partners. If each party is able to acquire high-quality resources by way of interaction with the other, it is likely that the relationship lasts for a long time (Morgan 2000; Harris et al. 2003; Ellegaard et al. 2003). This is because the parties could take advantage of the outside resources to increase profitability and take superior position over competitors (Van de Van & Walker 1984; Morgan 2000).

Social content represents the social aspects (e.g., culture, policy, climate) of a relationship (Morgan 2000). It plays a salient role when a party makes a decision on whether to continue ongoing relationship with a partner (Contractor &.Lorange 1988; Bucklin & Sengupta 1993). In this situation, the party usually consider social benefits such that the extent to which the partner has a similar culture, communicates freely, shares necessary information, and behaves benevolently (Morgan & Hunt 1994; Morgan 2000; Sivadas & Dwyer 2000).

2.1.2 Constraint-Based Mechanism

Prior studies on relationship maintenance (e.g., Heide & John 1998; Ganesan 1994; Bendapudi & Berry 1997; Kim & Son 2009) also argue that a party tends to engage in a relationship on account of constraint commitment. That is, parties continue their extant relationship not just because they are content with the relationship but also they are constrained to stay in the relationship.

Several factors have been found to drive the constrain-based mechanism in relationship. For instance, such environmental factors as dynamism, munificence and complexity have been shown as the underlying factors behind the constraint-based mechanism (Aldrich 1979; Pfeffer & Salancik 1978).

274

Switching costs and relative attractiveness over alternatives have also been emphasized by previous studies (e.g., Jones et al. 2002).

More notably, scholars studying constraint-related behaviors (e.g., Heide & John 1988; Anderson & Narus 1990; Anderson & Weitz 1989, 1992; Kim & Son 2009) have paid much attention to transaction-specific investments. They have underscored the effect of transaction-specific investments, or costs on the sustainability of a relationship. Building on that transaction-specific investments are customized investments in a relationship that cannot be easily transferred to an alternative relationship (Williamson 1981; Heide & John 1988), prior studies indicated that the presence of transaction-specific assets create exchange difficulties of an investing party. Moreover, such investments include tangible (e.g., financial investment) and intangible ones (e.g., social and psychological investment) that have been devoted to a certain relationship or transaction (Heide & John 1988).

Importantly, if a firm effectively employs tactics for transaction-specific investments to its partner, the relationship with the partner is likely to be sustained. After a relationship ends, such investments spent in developing and maintaining the relationship tend to experience a plunge in their values. A party’s concern regarding this creates what is called “lock-in” effect, increases dependence on a partner, and finally renders a party reluctant to end the current relationship (Heide & John 1988; Ganesan 1994).

2.2 Dedication-Based Factors from Third-Party Developers’ Perspectives1

2.2.1 Benefit-Sharing Attractiveness (Economic Content)

Klein & Quelch (1997) noted that pricing policy represents economic content in an inter-organizational relationship. Benefit-sharing attractiveness refers to the degree to which third-party application developers favor the App Store-like business’ policy of sharing benefits with developers—for instance, a ratio of three (Apple Inc.) to seven (third-party developers). All participants in a market desire to obtain as much profit as possible from ongoing transactions with partners (Moody 1993). Likewise, outside developers want to receive a large portion of the profits when their own applications are sold on App Store-like platform.

2.2.2 Market Demand (Economic Content)

We define market demand as the extent to which users demand applications supplied by third-party developers. High demand for a particular application is the critical characteristic of App Store-like business that could bring developers great monetary benefits, making them want to continue the business.

2.2.3 Perceived Usefulness of Development Tools (Resource Content)

Perceived usefulness of development tools is referred to as the degree to which a development tool, such as a software development kit (SDK) offered by the platform-operating firm, is perceived as useful by developers for their work performance. An SDK enables third-party developers to work effectively and efficiently, reducing time and costs incurred during the process of application development. Given that iPhone applications must be written by using a particular programming language (i.e., Objective-C), a free iPhone SDK is likely to be useful to those who are unfamiliar with the language. One of our interviewees described his relevant experience to us like the below:

“I have experienced several programming languages over ten years. I’m pretty sure that for those who have less experience with programming languages, Xcode and built-in libraries are more useful.”

1 Our independent variables were initially identified by in-depth interviews with practitioners and validated by related literature. For brevity, the objective and process of our interview were omitted.

275

2.2.4 Perceived Usefulness of Online Forums (Resource Content)

The official online forum is a sort of supporting service that the platform business company offers to outside application developers. In general, online forum users share useful information via forums (Punj & Staelin 1983). In a similar vein, third-party application developers can exchange useful information as to application development on the given forum. Particularly, if developers address problems by means of expertise provided by the official forum, their commitment to the business relationship is more likely to increase. Consequently, useful online forum can be one of the ingredients that make developer inclined to stay in the existing relationship.

2.2.5 Review Process Fairness (Social Content)

Pointed by most of our interviewees, procedural fairness such as review process fairness is one of the critical social factors in the App Store business. Review process fairness is defined as the extent to which third-party developers perceive the process of evaluating applications as impartial. After finishing development, outside developers submit their application to the firm for being approved to be published. This is among the most sensitive issues for the third-party developers. It is thus possible that when the firm maintains objective evaluation policies over all of applications, the developers are satisfied with the business relationship, and positive cognitive and affective reactions toward the firm arise.

2.3 Constraint-Based Factors from Third-Party Developers’ Perspectives

2.3.1 Learning Costs

Developing an application for a particular platform may require developers to learn a new programming language as well as how to handle SDK. Most of our interviews revealed that they had to learn the unfamiliar programming language for iPhone application development.

“Since I’m a Mac user, I’ve had no problem with handling Mac OS. However, the problem was the Objective-C programming language. Actually, it took much time to get used to the programming language because I had never used it before. Although I have experience with C, C++, and Java, the Objective-C programming environment was quite different.”

Learning new application development skills is a type of transaction-specific investments because the skills may be useless when an existing relationship terminates. Therefore, when the learning costs already spent are high, the developers are likely to feel that they are constrained to the relationship.

2.3.2 Set-up Costs

Set-up costs are referred to as physical or mental efforts and investments needed to start a new relationship (Jones 1998). Because Apple Inc. requires Mac OS for the development of iPhone applications, third-party developers who want to develop iPhone applications have no choice but to purchase a Mackintosh computer. Moreover, a developer must go through formalities to become an iPhone application developer. All of these efforts and investments may become almost meaningless when the relationship with Apple Inc. ends. Thus, set-up costs devoted to a relationship can act as a constraint in a decision to terminate the relationship.

3 RESEARCH MODEL AND HYPOTHESES

Drawing on the dual model framework, we propose a research model that depicts success factors for an App Store-like business from the perspectives of third-party application developers. Our hypotheses are jointly illustrated in the model shown in Figure 1.

276

Figure 1. Research Model

3.1 Mediating Variables

We consider satisfaction as the mediator in the first part of our model (i.e., dedication-based mechanism). Satisfaction has been recognized as an important factor in dedication-based mechanisms (Hinde 1979; Duck 1994). As firms draw enough benefits from the relationship, they first feel content (Anderson & Narus 1984) and tend to retain the relationship.

Another mediator in our model is termination costs which operate within the constraint-based mechanism. Termination costs refer to the perceived losses suffered when an existing relationship terminates (Kelley 1983; Kang & Oh 2009). Switching costs have usually been considered as a key variable in illustrating the constraint-based mechanism (Gefen 2002; Kim & Son 2009). These studies assume that once a relationship has terminated, a party automatically searches for another partner. However, the party may not seek a different relationship just because no alternative exists (Morgan & Hunt 1994). For instance, in the App Store market, a third-party developer does not have an alternative platform once it terminates its relationship with Apple. 2 Accordingly, it is more appropriate to deploy the concept of termination costs rather than switching costs in our study.

3.2 Dependent Variables

As we can see from other successful e-business cases (e.g., eBay), an App Store-like business also needs to attract a great number of outside developers and encourage them to develop many high-quality applications for iPhone users. The intention to develop applications specific to a platform is thus our outcome variable of interest. Particularly, we incorporate the frequency concept into the variable to better reflect developers’ dedication. It is also closely related to the success of an App Store-like business.

For the constraint-based mechanism in our model, dependence serves as the outcome variable because it, by nature, confines a party to an existing relationship (Ganesan 1994; Heide & John 1988). Dependence represents a party’s desire to retain a relationship so as to achieve its goal (Ganesan 1994). Especially, it portrays the situation where a vulnerable party intends to maintain the current relationship, taking on possible adverse behaviors of the other. Assuming the existence of similar situations in the application development context, we expect that the dependence variable well illustrate a phenomenon where third-party developers are reluctant to terminate existing relationships with the platform-providing firm.

2 Google and Nokia later introduced their own platforms for smart phone applications. But at the time of this study, most third-party developers did not have alternative platforms once they terminated a relationship with Apple.

277

3.3 Hypotheses for Dedication-based Mechanism

Economic content plays a great role in maintaining relationships (Morgan 2000). From the standpoint of third-party application developers, the most important economic content is the monetary benefit derived from the sales of applications on App Store-like stores. If the portion of profits earned from their applications sales is commensurate with the efforts spent in developing the applications, developers will be satisfied with the business relationship.

H1: Benefit-sharing attractiveness is positively related to developer satisfaction.

A manufacturer endeavors to prove (to distributors and retailers) that its products or services are in high demand because their profitability tends to rely on market demand (Desai 2000; Chu 1992). In a similar vein, the extent to which users demand applications is closely associated with the prosperity of the third-party developers. Consequently, if demand for an application is high, outside developers will be content with selling their applications through the outlet.

H2: Market demand is positively related to developer satisfaction.

Development tools, such as iPhone SDK, allow developers to work effectively. For instance, built-in libraries make the development process shorter, increasing the work performance and productivity. Regarding that the development process consists of knowledge-intensive work which requires a wide range of expertise, the usefulness of the development kit is more meaningful in practice. As a useful resource of relationship, such tools are likely to lead to developers’ satisfaction with the business relationship. According to the literature (e.g., Hong et al. 2007; Agawal & Karahanna 2000; Kim & Jung 2001) perceived usefulness of information technology acts as an antecedent of satisfaction.

H3: Perceived usefulness of development tools is positively related to developer satisfaction.

Online forums are another useful resource to application developers when they need to address developmental or procedural problems. In the case of Apple Inc., it seems likely that collective knowledge on the official forum (http://discussions.apple.com) helps outside developers resolve their problems. As the online forum is provided by the firm, if developers perceive it as helpful, developers’ satisfaction with the business relationship will increase.

H4: Perceived usefulness of the online community is positively related to developer satisfaction.

After submitting applications for the review process, developers expect that the firm treats the outcome of their considerable efforts fairly enough. As indicated by prior studies (e.g., Kumar 1995; Martin et al. 2009; Patterson et al. 1997), procedural fairness has an impact on a party’s satisfaction. Evaluating or reviewing applications is one of important processes in the App Store-like business.

H5: Review process fairness is positively related to developer satisfaction.

Frequent development of applications tailored to a platform is regard as an active and voluntary behavior that emerges when a developer’s commitment or loyalty is high. According to Gruen et al (2000), such a good behavior is a function of satisfaction. In this study, we expect that outside developers are likely to develop iPhone applications more frequently when they are satisfied with the transaction.

H6: Developer satisfaction is positively related to intention to develop applications frequently.

3.4 Hypotheses for Constraint-based Mechanism

Platform-operating firms such as Apple Inc. and Google have established their own platforms in a different ways with unique programming languages, inherent development-supporting tools, and distinctive evaluation procedures, etc. This increases learning costs of outsider developers, which are typically transaction-specific (Kim & Son 2009). The costs already spent in learning for the relationship will be closely associated with developers’ perceptions of expected losses that would occur at the time of termination of the relationship (Morgan & Hunt 1994; Vatanasombut 2008).

H7: Developers’ learning costs are positively related to their termination costs.

278

As implied by its definition, set-up costs are also relationship-specific (Heide & John 1992; Grover & Malhotra 2003) and, thereby, can act as a constraint to outside developers. If costs of starting the relationship (e.g., purchasing Mackintoshes, emulators, and books related to application development) are substantial, the developers are likely to be conscious of significant termination costs.

H8: Developers’ set-up costs are positively related to their termination costs.

Developers tend to feel locked into a relationship when the costs already incurred are sensed as very high. According to Bendapudi & Berry (1997), this feeling gives rise to dependence on the relationship.

H9: Developers’ termination costs are positively related to their dependence.

3.5 Hypotheses for Relationship between the Two Mechanisms

Prior studies (e.g., Heide & John 1988; Ganesan 1994) point out that dependence on a relationship partner accompanies a strong desire to achieve objectives in the relationship. When there are no better alternatives, a party tends to seek for gains from the current relationship. In the case of application developers, their ultimate aim is to make sufficient profits by developing and selling applications through App Store-like stores.

H10: Developers’ dependence is positively related to intention to develop applications frequently.

4 METHODOLOGY

4.1 Data Collection

Apple Inc.’s App Store was chosen as the specific empirical setting for this study because it is viewed as representative of the whole App Store-like businesses. To test our hypothesized, we adopted a survey methodology. We developed a web survey system so as to collect data and requested members of the biggest Korean online community for iPhone application developers, named “Mac BuGi” (http://cafe.naver.com/mcbugi), to participate in our survey. An announcement of the survey was posted to the community for two weeks. Follow-up invitation letters were sent by email. We also acquired from App Store email addresses of developers and invited them to take part in our survey. In total, 153 third-party developers responded. Out of 153 responses, 41 were not used in our analysis, either because they were unreliable or because the respondent had no experience in developing iPhone applications. This resulted in a total of 112 usable responses3. Economic rewards ($10 worth of coupons) were given to 50 participants selected by lottery.

4.2 Measures

Wherever possible, we adapted scales that have proven reliable and valid from previous studies. Appendix 1 exhibits a summary of the measures. Scale items were measured using seven-point Likert scales with “strongly disagree” and “strongly agree” anchors. To check the content validity of our measures, two developers and an MIS faculty member were chosen and asked to review our items. The two developers were experienced developers of iPhone applications—they had developed more than 15 iPhone applications for less than one year. On the basis of the developers’ advice, we modified some survey items to avoid any confusion, and the survey was finally revised by the faculty member.

3 iPhone application development in South Korea was in the early stages at the time of our survey. According to an online application publisher (http://touch.connect.kr/), about 154 developers had been actively participating in App Store application development by June of 2009.

279

5 ANALYSES AND RESULTS

Table 1 exhibits the demographics of our survey participants. Considering that the App Store had been running for less than one year in Korea at the time we collected data, it seems reasonable that most of the participants had developed one to three iPhone applications. As a whole, we conclude that our sample is not biased due to the characteristics of respondents.

5.1 Measurement Model

Data analysis was conducted with partial least squares (PLS) regression. Since our sample is relatively small, PLS is more appropriate than other SEM techniques such as LISREL and EQS.

5.1.1 Reliability and Validity

In the PLS analysis, composite scale reliability (CSRI) and average variance extracted (AVE) generally show the reliability of measures. Acceptable levels of CSRI and AVE have been established at 0.70 and 0.50 or higher, respectively (Fornell & Larcker 1981). The scores of the variables exceed the recommended values (i.e., CSRI: 0.754 ~ 0.989 and AVE: 0.509 ~ 0.966).

Index Frequency Portion

20 ~ 29 42 37.5 30 ~ 39 61 54.4 Age 40 ~ 49 9 8.0 Male 109 97.3 Gender Female 3 2.6

High School 20 17.8 Bachelor 71 63.6 Degree

Higher than Bachelor 21 18.7 1~3 83 74.1 4~6 14 12.5 7~9 7 6.3

Developed Application (number)

10~ 8 7.1 1~5 39 34.8

6~10 50 44.6 11~15 20 17.8

Developer Career (year)

16~ 3 2.6 Employed 37 33.0 Employment

Type (as a developer) Freelancer 75 67.0

Table 1. Demographics

Convergent validity is inferred when PLS indicators load much higher on their hypothesized factor than on other factors (Pavlou & Gefen 2005). All of our items loaded well on their respective factors, which are much higher than all cross-loadings (omitted for brevity). The cross-loadings also show that measures for each variable have adequate discriminant validity. According to Barclay et al. (1995) and Chin (1998), in order for a measure to establish convergent validity, an item loading should be at least 0.6. The loading of the second item for set-up costs was 0.5937. This value is very close to 0.6 and is much higher than any other cross-loadings. Thus, we did not exclude the item from the scale set.

Discriminant validity is shown if the square root of the AVE of a variable is larger than its correlation coefficients with other measures (Chin 1998; Fornell & Larcker 1981). We found that the square roots of all AVEs are much larger than all the cross-correlations, which suggests that discriminant validity is satisfactory (see Appendix 2). Consequently, our measures were considered to be appropriate for subsequent tests of the causal model.

280

5.2 Structural Model

We used a structural equation modeling technique, particularly partial least squares regression analysis, to test our research model. As shown in Table 2, all of our hypotheses except H4 were empirically supported4.

Hypothesis Relationship Coefficients T-value Support

H1 Benefit-Sharing Attractiveness → Satisfaction 0.201 2.035** Yes H2 Market Demand → Satisfaction 0.300 3.672*** Yes H3 Usefulness of Tool → Satisfaction 0.330 3.310**** Yes H4 Usefulness of Online Forum → Satisfaction -0.091 1.010 No H5 Review Process Fairness → Satisfaction 0.161 1.917* Yes H6 Satisfaction → Intention to Develop Frequently 0.462 6.907**** Yes H7 Learning Costs → Termination Costs 0.244 2.372** Yes H8 Set-up Costs → Termination Costs 0.242 2.367** Yes H9 Termination Costs → Dependence 0.396 3.003*** Yes

H10 Dependence → Intention to Develop Frequently 0.191 2.018** Yes (*: p<0.1, **: p<0.05, ***: p<0.01, ****: p<0.001)

Table 2. Hypothesis Test

Contrary to hypothesis 4, perceived usefulness of the online forum does not significantly influence developers’ satisfaction (β=-.091, t=1.010). We speculate that this unexpected result has something to do with the development careers of our respondents: the online forum tends to appeal to novice developers, and skilled developers might already have the skills and knowledge necessary to develop iPhone applications. Since most of our respondents are adept developers with several years of development experience, the online forum may not increase their level of satisfaction. Another possible explanation is that, according to our interviewees, many developers frequently gain useful information through web searches rather than through the official online forum.

The review process fairness variable was found to affect developers’ satisfaction only marginally (β= .161, t=1.917). This marginal significance might be attributed to the possibility that there are many developers in our sample who do not think of the review process as objective. One of our interviewees expressed his resentment:

“Evaluation criteria have not yet been made public. It happens quite often that an application having similar design and content to an already-passed application get rejected. I don’t think there is a clear and objective guideline in the review process. To us, Apple’s [application] review process is obscure. I believe whether an application gets accepted or not seems to depend on who reviews the application.”

Our data also support the possibility. The mean value of the review process fairness variable is 3.44 (SD: 1.62), which is not very low, but the lowest among our independent variables.

6 CONCLUSIONS AND INPLICATIONS

To understand the success factors for platform businesses such as App Store, this study identified primary factors and tested their roles, drawing on a dual model framework. Taken together, our findings suggest that App Store-like businesses need to take into consideration both dedication-based

4 Descriptions of supplementary analyses are omitted for brevity. The purposes of the additional tests were twofold: to examine significance of the direct paths between IVs and their DVs; to examine the relationships between IVs and the opposite mediators, respectively. To summarize, the results reinforced the validity of our research model.

281

and constraint-based motivations to advance understanding of how to maintain a large pool of third-party-enabled applications.

Our work in this paper makes important contributions. First, this study fills a gap in literature by taking a step towards building knowledge in the platform business area. Past studies have paid little attention to the supplier’s perspectives. By identifying important factors from the third-party developers’ standpoints and employing the dual model framework, this study provides a scholarly foundation to understand why such factors are important and how they contribute to the successful platform business. Our work also provides a stepping-stone for future work to further extend our understanding of the new type of platform business that is not only similar to a traditional e-marketplace business such as eBay, but also somewhat different. Second, we examined the external validity of the dual model by successfully adapting and testing it in the emerging business relationship. In this study, the dual model was found to be suitable to the relationship between third-party developers and the platform business firm. In line with prior studies (e.g., Morgan & Hunt 1994; Ganesan 1994; Bendapudi & Berry 1997; Hong et al. 2007; Kim & Son 2009), our results support that the two mechanisms mainly function independently, slightly connected each other.Third, this study provides evidence that in a certain context, termination costs can be more appropriately employed than switching costs to explain the constraint-based mechanism. To date, prior studies have predominantly dealt with switching costs as a constraint-driving factor. However, switching costs include not only costs incurred from investments devoted to current relationships, but also expenses incurred in attempting to find and settle into another relationship. Thus, in a similar context to that of App Store-like businesses where few attractive outlets exist, switching costs may be used improperly. On the other hand, termination costs capture only the expected losses due to already-devoted investments.

Last but not least, our findings are of great value to online application stores. In particular, the independent variables provide insights into platform business management. Our results suggest that it will be more effective for the platform-providing firm to manage both dedication-based factors and constraint-based factors. If the firm does not care about outside developers’ benefits derived from the economic, resource, and social content in the business relationship, it may not guarantee the successful growth of the business, ultimately because of insufficient supply of high-quality applications. In addition, to maintain a large number of developers, lowering costs too much may not be a good decision because the developers easily terminate the relationship and seek for other platforms.

7 LIMITATIONS AND FUTURE RESEARCH

This study has also limitations that present opportunities for future research. First of all, although our sample seems to include the whole population of iPhone application developers in South Korea, the number of survey responses is not large enough for a model-fit analysis. To verify clearly the distinctive patterns of the dual model, future research will need to increase sample size. Gathering data across countries could be a good option.

Second, future research on the success factors of the App Store-like platform business could be extended with other stakeholders’ perspectives. The perspectives of product users, who consume the applications supplied by third-party developers, would shed light on different facets of the platform business. Future research including this alternative viewpoint could also investigate other types of social content such as reputation, image, and culture.

Acknowledgement This work was supported by 2009(National Research Foundation of Korea) Grant funded by the Korean Government (National Research Foundation of Korea)-(NRF-2009-32A-B00264).

282

References References are available from the authors upon request. Appendix 1. Measures Construct Items Reference

The profit distribution policy is acceptable considering my (our) effort spent to develop my (our) applications. Compared to other companies’ policies, Apple Inc.’s profit distribution policy (i.e., developer 7: Apple Inc. 3) is attractive.

Benefit-Sharing

Attractive-ness

Apple Inc.’s profit distribution policy is fair.

Kumar (1995)Martin et al.

(2009)

Using iPhone SDK enhances my (our) effectiveness when I (we) develop an application that has features I (we) want. Using iPhone SDK enhances my (our) productivity when I (we) develop an application that has features I (we) want.

PU of Develop-ment Tool

Using iPhone SDK improves my (our) performance, when I (we) develop an application that has features I (we) want.

Davis (1989)

Using the online community forum enhances my (our) effectiveness when I (we) develop an application. Using the online community forum enhances my (our) productivity, when I (we) develop an application.

PU of Online Forum Using the online community forum improves my (our) performance when I (we) develop an application.

Davis (1989)

Many iPhone/iPod users download iPhone applications. Demand is strong for iPhone applications. Market

Demand The category that iPhone applications belong to is growing quickly.

Kaufman (2006)

Apple Inc.’s application review processes are fair. Apple Inc.’s application review processes are objective.

Review Process Fairness Apple Inc.’s application review processes are fast.

Kumar (1995)Martin et al.

(2009) It takes time to go through steps of the enrolment as an iPhone developer, and to develop applications. There are a lot of formalities involved in enrolment as an iPhone developer and in application development. Set-up

I (We) have made significant investments in resources dedicated to my (our) relationship with Apple Inc.

Burnham et al. (2003)

Chiou (2009)

Learning to use SDK features offered by Apple Inc. took a lot of time and effort. I (We) spent a lot of time and effort to learn how the SDK works. Learning App Store business for Apple Inc. took a lot of time and effort. Learning the fundamentals of App Store business of Apple Inc. took a lot of time and effort. Learning to use Objective-C features took a lot of time and effort.

Learning

I (We) spent a lot of time and effort to learn how Objective-C works.

Kim and Son (2009)

I (we) am (are) delighted with my (our) overall relationship with Apple Inc. It is a pleasure developing iPhone applications. Satisfac-

tion Apple Inc. is a good company to do business with.

Leuthesser (1997)

It would be hard for me (us) to end relations with Apple Inc. right now, even if I (we) wanted to. If I (we) stopped developing iPhone applications, I (we) would waste substantial time, energy and effort that have gone into developing applications. Termina-

tion Cost If I (we) stopped developing applications on App Store, I (we) would waste substantial money that has gone into developing iPhone applications.

Kim and Son (2009)

It would be difficult for me (us) to replace Apple Inc. in the online application store area. Depend-ence I (We) am (are) dependent on Apple Inc. for sales in the online application store area. Ganesan(1994)

I (We) plan to develop iPhone applications frequently in the future. I (We) intend to develop iPhone applications frequently in the future.

Intention to Develop Frequently I (We) expect that I (we) will develop iPhone applications frequently in the future.

Troy(2007)

Appendix 2 . Correlations MD BSA DPE IDF LC PUD PUC RPF SAT TC SC MD 0.903 BSA 0.288 0.928 DPE 0.031 0.216 0.92 IDF 0.271 0.248 0.271 0.983 LC -0.013 -0.194 0.006 -0.117 0.832 PUD 0.151 0.256 0.064 0.301 -0.333 0.928 PUO 0.238 0.253 -0.08 0.007 0.056 0.168 0.932 RPF 0.131 0.429 0.087 0.207 -0.151 0.22 0.069 0.851 SAT 0.407 0.417 0.163 0.494 -0.295 0.447 0.097 0.352 0.81 TC -0.087 -0.085 0.382 0.098 0.382 -0.163 -0.063 -0.019 0.056 0.741 SC -0.026 -0.139 0.08 -0.014 0.516 -0.263 0.107 -0.295 -0.178 0.389 0.713

*Values in shaded boxes represent the square root of average variance extracted

*MD: Market Demand, BSA: Benefit-Sharing Attractiveness, DPE: Dependence, IDF: Intention to Develop Frequently, LC: Learning Costs, PUD: Perceived Usefulness of Development Tools, PUO: Perceived Usefulness of Online Forum, RPF: Review Process Fairness, SAT: Satisfaction, TC: Termination Costs, SC: Set-up Costs.

283