Venture Growth and Multi-homing Expansion: Evidence from Open Source Platform Complementors

Abstract

This study examines how a complementor’s multi-homing expansion to an alternative technology platform affects its user base in the original platform. Prior research has extensively examined the performance implications of the broadening of a firm’s scope across industries. Yet, research is yet to examine whether existing insights apply to technology platforms, in which significant network effects exist and most providers of complementary products are entrepreneurs and small ventures that are resource-constrained. Strategy research on platforms, in turn, has highlighted the performance consequences of technological interdependencies between firms that create complementary products within a platform but has stopped short of investigating dynamics that unfold across platforms. We argue that a complementor’s expansion to an alternative technology platform through multi-homing has a positive effect on its user base in the original platform as a result of inter-platform transfer of network externality. We empirically test our arguments using data on 2 million software technologies in 34 open source software development platforms. In support of our core proposition, our difference-in-differences analysis shows that a multi-homing complementor that expands to an alternative open source software platform experiences a greater increase in user base than a matching counterfactual complementor. We discuss implications for research on firm scope, platform-based competition, and open innovation.