Paying Incumbents and Customers to Enter an Industry: Buying Downloads

Xing Li, Timothy Bresnahan, Pai-Ling Yin
2016 Social Science Research Network  
Success breeds success in many mass market industries, as well known products gain further consumer acceptance because of their visibility. However, new products must struggle to gain consumer's scarce attention and initiate that virtuous cycle. The newest mass market industry, mobile apps, has these features. Success among apps is highly concentrated, in part because the "top apps lists" recommend apps based on past success as measured by downloads. Consequently, in order to introduce
more » ... s to users, new app developers attempt to gain a position on the top app lists by "buying downloads," i.e., paying a user to download the app onto her device. We leverage a private dataset of one platform for buying downloads and identify the return from this investment. $100 invested will improve the ranking by 2.2%. To understand the investment rationale for buying downloads, we build a model that accommodates (1) the impact of buying downloads on top list rank, (2) optimal investment in buying downloads, (3) an empirical distinction between app diffusion generated by bought downloads and diffusion from organic downlads, and (4) a rich set of app-specific heterogeneities. We quantify the app-specific structural coefficients by estimating the model using time-series ranking positions of 2,755 free iOS apps. We find the median value of one organic download is 65% of the cost of buying one download, implying a huge marginal cost of buying downloads. App developers lose money during the initial days after release. The coefficients are correlated with ex-post quality, measured by user ratings, but uncorrelated with ex-ante observed app characteristics, suggesting that developers face a great deal of ex-ante uncertainty about the outcome for their apps when they enter the market. We then employ our model to estimate the diffusion delay resulting from the visibility problem in the mobile app industry. * This research project is based on data collection and analysis over a wide range of data sources. We are grateful to a number of research assistants who have worked on those datasets, gathered industry information, and joined us in industry interviews. Special thanks to Tobias Batton, Tavi Carare, Christopher Correa, Pedro M. Gardete, Wes Hartmann, Shibo Li, Qiaowei Shen, and seminar participants at the FCC. We are also very grateful to the many industry participants who have shared their time and expertise with us. The usual disclaimers apply.
doi:10.2139/ssrn.2834564 fatcat:o7wsjah2ifcl3cdblyoztrdkha