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