Disentangling the Impact of Indirect Network Effects on Platform Growth

Abstract

Indirect network effects are established as key drivers for platform growth. However, in platforms like newspapers and open source software platforms, these effects are asymmetric across the different sides. In this paper, we examine how the symmetricity of indirect network effects influences platform growth trajectory. We find that platforms grow at an exponentially increasing rate only when indirect network effects are symmetric, whereas growth of platforms with asymmetric indirect network effects follows a S-shaped trajectory. Within these trajectories, we examine how the platform sponsor can improve the strength of indirect network effects. We find that the growth rate can be augmented by aligning the sources of indirect network effects?membership and usage benefits?with the marketness of the platform. We introduce marketness as a construct to refer to the extent to which platforms employ market-like value-creation systems.