Date of Award

May 2015

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Department

Management Science

First Advisor

Purushottam Papatla

Committee Members

Amit Bhatnagar, Janice Miller, Kanti V. Prasad, Ehsan Soofi

Keywords

Empirical Investigation, Extreme Competition, Mobile App

Abstract

Some products and services today compete against hundreds or thousands of competitors. Faced with so much competition, developers offer their products and services for free, or at a very low price, to those who are interested in the hope of attracting a large group of users. We label such markets where producers give products away for free or charge a nominal price as extremely competitive markets. Businesses competing in extremely competitive markets need insights regarding how they can increase the interest in, and use of, their products by potential customers. Unfortunately, the literature provides few such insights. This is the gap that I address in this dissertation research using the mobile app category with a specific focus on three questions: (1) what factors affect the number of users who download an app (2) why do some apps generate more interest among their users in terms of the word of mouth that they generate than other apps and (3) why do some apps acquire users faster than other apps?

In the first essay, I propose and empirically verify an implicit assumption to explain why businesses in extremely competitive market charge a zero or a very low price. The assumption is that a product with a large group of users will generate profits in the future through one or more mechanisms. For instance, the large user group could attract advertisers interested in targeting the users with promotions for their products. Alternatively, it may create network effects which could, in turn, increase the willingness of users to buy the product. Finally, a free product with a large user group may increase the developer’s ability to target the users with improved versions of that product, or other related new products, at a positive price. Findings from our investigation for essay I on the factors that affect the number of users who download an app suggest that the extent of interest of users in other apps offered by the developer has a significant positive effect on the ability of a currently offered app to attract users. Not surprisingly, charging a price rather than giving it away reduces the number of users and so does an increase in the app’s physical size, i.e., the memory that it requires on the phone. In terms of the app’s rating, interestingly, we find that apps that either have a low-maturity rating – meaning that they are approved for children as well – or have a high-maturity rating – meaning that their use by kids is not advised – do well in terms of the number of users they attract. Our findings also suggest that apps from some genres such as brain teasers, arcade games and sports gain more users than others. Competition-wise, we find that conversations among users who installed competing apps attract more users for the app while an increase in the price of competing apps that were installed reduces the number of users that an app attracts. Overall, therefore, our results suggest that developers with more experience and awareness among users can attract users more easily for new apps than those with no prior experience thus providing empirical support for one of the three mechanisms that the app industry seems to assume. While they are from one category that involves extreme competition, our results may also apply to other categories such as video channels and blogs in similar markets.

From the first essay, we find that users’ discussion of apps developed by a certain developer will help in acquiring users for their future products. In the second essay, therefore, we investigate the issue of the factors that affect consumers’ word-of- mouth for apps. Our analysis of the word of mouth for apps also provides some surprising insights into why users discuss some apps more than others. Specifically, we find that users are more likely to post comments, reviews, and discuss apps that they paid for rather than those that they obtained for free. This is clearly a finding with significant implications for the pricing and promotion of apps: apps that are given away are less likely to attract users who are advocates that are willing to promote them to potential users. Developers of apps therefore need to take this into account in their pricing decisions. In addition to this immediate implication for the app category, our finding also raises the possibility that, in general, consumers are more likely to discuss products that they purchased than those that they received as promotional items. Other findings and managerial implications are discussed.

In the third essay, I aim to jointly analyze the customer acquisition reached and the time to get there using a joint ordinal-survival analysis model. The focus in this research is on why, in the face of such extreme competition, some apps acquire customers faster than others. I investigate this question using data on the number of users acquired, and the acquisition growth, for about 2455 Apps from Google Play. I categorize the number of users acquired into ordered tiers and formulate a joint model of growth and customer acquisition using a survival model for the former and an ordinal logit model for the later. The explanatory variables include price, valence of customer rating, and other product attributes. Additionally, effects of competitive contexts and frames are considered. I also consider the role of information cascades on customer acquisition and growth in extremely competitive markets. The model is calibrated within a Bayesian framework using MCMC methods. Findings for the app category as well as generalizable implications for extremely competitive markets are discussed.

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