Evidence from crowdfunding
Platform Papers is a monthly blog about platform competition and Big Tech. Blogposts are written by prominent scholars based on their research. The blog is linked to platformpapers.com, an online repository that collects and organizes academic research on platform competition.
This blog is written by Zhiyi Wang and Lusi Yang.
Digital platforms are typically subject to the debate over promoting blockbusters or investing in the “long tails.” For example, Disney (or the Disney+ streaming platform) has capitalized on its library of iconic series by producing movies and TV shows within popular franchises, such as Marvel and Star Wars, to draw large audiences to its platform. In contrast, Netflix has been successful in its long-tail strategy by offering a wide variety of content, including indie films, documentaries, and foreign language content, to cater to diverse and niche interests.
The decision of a platform regarding blockbusters vs. long tails depends on the respective benefits of the two approaches. On one hand, it is clear why platforms like blockbusters: they have great potential to increase traffic, users, and word-of-mouth. On the other hand, blockbusters may intensify competition on the platform. By attracting most of the attention of users, they leave other complementors with less, potentially driving them eventually to leave the platform.
In our recent study published in Information Systems Research, we examine this tension around blockbusters on crowdfunding platforms, an emerging and open arena for entrepreneurs to launch their creative works. This work offers a different perspective with regard to blockbusters on digital platforms.
Blockbusters in Crowdfunding
Crowdfunding platforms help entrepreneurs bring their creative projects to life by asking individuals (called backers) to contribute small amounts of money. The largest reward-based crowdfunding platform, Kickstarter, has supported hundreds of thousands of entrepreneurs in achieving their goals and starting their ventures. Consistent with the platform’s objective of supporting creative and innovative works, some notable entrepreneurs have stood out on Kickstarter and gone on to play influential roles in the wider market. For example, the Pebble Smartwatch was initially funded on Kickstarter in 2012 for over $10 million. Before its acquisition by Fitbit, it was a pioneering company in the smartwatch market, establishing the key concepts and consumer expectations for wearable technology before its widespread adoption and the entry of major tech companies like Apple and Samsung. Indeed, Kickstarter has seen a few very successful entrepreneurs, and their projects have achieved overwhelmingly favorable outcomes.
The term “blockbuster” refers to a product recognized by its ability to create widespread awareness among consumers and obtain disproportionate market success.
We call these projects “blockbusters” on crowdfunding platforms. Blockbuster projects are those projects that achieve such exceptional performance that they attract great backer awareness and garner an extraordinarily large proportion of contributions. However, the tension surrounding blockbusters remains: crowdfunded blockbusters can be either beneficial, increasing the popularity of crowdfunding platforms, or detrimental, cannibalizing the funding received by other concurrent projects.
Network Effects of Blockbusters
The theoretical perspective of network effects offers us an angle to understand how blockbusters influence other projects on crowdfunding platforms. An important idea in two-sided platforms, like Kickstarter, is the cross-side network effect. This refers to the phenomenon where the size and activity on one side of the platform depend on those on the other side. On Kickstarter, creative projects attract backers to the platform, and more backers, in turn, help creative projects receive more funding.
The presence of cross-side network effects, however, is not the whole picture. Change on one side does not have to influence the other side equally or in a sustained way: instead, we may observe local and temporal network effects. For example, in the case of the Airbnb platform, an increase in Airbnb properties in a city mainly influences travelers to the city and nearby areas instead of other areas, and this increase does not necessarily influence travelers on a long-term basis because of the seasonality of traveling.
Blockbusters increase the activity and size of the backer side, which in turn benefits other concurrent projects. Further, related blockbusters exhibit a stronger positive effect on a focal project than unrelated blockbusters, and blockbusters that emerge before the launch of a focal project have a greater positive effect than those that emerge afterward.
Based on this theoretical framework, we derive several key findings with regard to blockbusters on Kickstarter. Overall, blockbusters have a positive spillover effect on other concurrent projects. Blockbusters increase the activity and size of the backer side, which in turn benefits other concurrent projects. In particular, as overwhelmingly successful projects, blockbusters increase the popularity of the platform and are of high quality, delivering positive experiences to their backers; these backers develop positive impressions and heightened expectations as to the quality of crowdfunding projects, making them likely to participate in backing other concurrent projects, which essentially drives the positive spillover effect. Further, related blockbusters exhibit a stronger positive effect on a focal project than unrelated blockbusters (local effect), and blockbusters that emerge before the launch of a focal project have a greater positive effect than those that emerge afterward (temporal effect).
How blockbusters shape crowdfunding platforms can be illustrated from a backer’s viewpoint: When there is an overwhelmingly successful blockbuster project on the platform, she is very likely to be attracted by it. After backing this blockbuster, she develops a strong positive impression and expectation because the blockbuster is of high quality and increases the platform’s popularity. As a backer, she is then likely to browse further and support other available projects. As she does so, her attention is primarily focused on related projects because she wants to find something similar to the previous success. Meanwhile, she may not do this immediately but may spend some time identifying the next creative project she wants to support. This process underlies the overall, local, and temporal effects of blockbusters on crowdfunding platforms.
Implications for Platforms
Our study shows that digital platforms or platform-like businesses should consider blockbusters or superstars as an important strategy for gaining a competitive advantage. Our findings suggest that blockbusters should be promoted on an open platform. Blockbusters not only increase the size of the user base but also drive higher participation from users, such that other complementors on the same side are able to harvest the benefits that spill over from them. This is especially the case for live streaming platforms, content consumption platforms, and e-commerce platforms offering diverse, creative, and limited-time content.
To take full advantage of blockbusters, platforms should keep track of potential blockbusters and leverage them to boost the audience and popularity of the platform. Notably, the content of blockbusters matters. Users’ attention can be directly shifted to complementors offering content related to blockbusters: platforms should be aware of such local effects to take better advantage.
In the summer of 2023, Lionel Messi joined Inter Miami in Major League Soccer (MLS). With such a superstar in the league, Apple TV’s MLS Season Pass subscription experienced 1,690% growth in the US on the first day Messi played for his new team. There was also a spillover effect on Apple TV: 15% of the MLS subscribers also became Apple TV+ subscribers. Clearly, when a superstar like Messi plays in the MLS, it immediately changes the league’s global image, making it more attractive to players and viewers. It also accelerates revenue growth and brings new sponsors to the league. Messi only plays for Inter Miami, but the “winner” is the entire league.
The power of blockbusters is everywhere, and it is not always a case of “winner takes all”: blockbusters create significant value through their spillover effects, and not only for digital platforms. For any platform-like business with multiple sides, blockbusters can be the driving force of the entire market.
This blog is based on Zhiyi and Lusi’s research, which is published in Information Systems Research and is included in the Platform Papers references dashboard:
Wang, Z., Yang, L., & Hahn, J. (2023). Winner takes all? The blockbuster effect on crowdfunding platforms. Information Systems Research, 34(3), 935-960.
Platform-Paper Updates
Today’s blog is part of a series of two blogposts that explore the tension between supply-side effects in the form of complementor competition and demand-side effects in the form of end-user demand in the context of platforms. Check back next month for Oren Reshef’s blog on how seller entry and demand expansion balance each other out in platform markets. Also see Melissa Schilling’s excellent blog on how platforms can implement some of these lessons on promotions and ecosystem orchestration.
It’s been a rather busy month for me as I am in the middle of my teaching term! This week, students are analyzing Epic Games’ transition from a traditional product business model (Epic 1.0) to a platform business model (Epic 5.0). Surely, some of them will mention Disney’s $1.5 billion equity investment in the company as the animation juggernaut looks to increase its footprint in gaming and metaverse-type experiences. It’s always great to get students’ take on real-world cases and some of their presentations are just … epic!
Anyway, eight excellent papers were just added to the Platform Papers reference dashboard, including a review of empirical studies on platform competition by Hsing Kenneth Cheng, Danny Sokol and Xinyu Zang and a paper looking at platform-endorsed quality certifications (aka promotions) in the context of Airbnb by Sanjeev Dewan, Jooho Kim and Tingting Nian.
See you next month!
Platform Papers is curated and maintained by Joost Rietveld.