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Dongwon Lee Associate Professor of MIS Korea University Business School mislee@korea.ac.kr
August 8, 2011
Research Background
Characteristics of Smartphone Market
The Environment of Smartphone
Number of Smartphone Subscribers in Korea 1)
600 500
High
Relationship
Market Segment
400
SKT KT LGU+
200 100 0
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11
300
Service Availability
Source: Aggregated data (e.g., newspaper, each company)
Source: 1), 2) Announcement of each company, 2011 Unit : 1) thousand, 2) ten thousand
Research Background
Characteristics of Mobile Application Market
Mobile Application Market in the U.S.
Mobile Application Market Forecast1)
Market
400,000 350,000 300,000 250,000
Multi-sided market Uniqueness : Ubiquitous transaction Spontaneity : Platform (or service) providers play a minor role compared to those of other markets. Consumer centric product Uniqueness : Affected rarely by external factors such as mass media, but by user experience or WOM Spontaneity : Application developers and consumers play a key role.
Product
Jan-11 Jun-11
Price
Important but a minor issue Uniqueness : Co-existence of free and paid market Spontaneity : Application developers and consumers play a major role rather than service providers (almost fixed price).
Research Background
Free vs. Paid Download Ratio & Average Selling Price Among 300 Most Popular Applications
Research Background
Content needs to be localized to be successful in Asia
Among 300 most popular applications, 87% of free apps and 78% of paid apps are regionally aimed in South Korea.
34%
Free Apps
Research Questions
Different in Free vs. Paid Market? WOM (Word of Mouth)? Level of Exposure (Slot Effect)? Rationality vs. Herding? PodGate App Apple iTunes
Free Apps Paid Apps Paid Apps
Research Context
iTunes SW and PodGate website provide identical top 300 popular mobile application
http://podgate.com Apple iTunes
Name of application
Current price Developer Category of app. Last update date Rating Number of raters Number of recommendations Number of downloads Number of hits
Research Objectives
Objectives Evaluation of the factors influencing the consumer demand (i.e., application downloads) Understanding of the factors influencing the survival of the applications (i.e., the number of days downloaded) Measuring the role of exposure of applications in smartphones using sales rank (i.e., the number of days listed in the charts (e.g., top 300 list))
Literature Review
Topic
Literature Derived from the information asymmetry: Akerlof (1970), Stigliz (1989) WOM: Individuals use information about the experience of others to make their purchasing decisions (Clemons et al. 2006, Li & Hitt 2008, Zhu & Zhang 2010) Sales Rank: Current popularity is an important determinant of future demand ( Salganik et al. 2006, Duan et al. 2009) Information made by others acts as a source of one's decision. Individuals follow the behavior of the preceding individuals without regarding to their own information. ( Banerjee 1992, Bikhchandani et al. 1992,1998, Kauffman et al. 2000, Walden & Browne 2009) Expectations are informed predictions. Rational means what an agent has to do with the expectations. Individuals may not know about the full information, but they learn enough about it through efficient use of available information over time to make their expectations. (Muth 1961, Grossman 1981, Zimmerman 1986, Herstein 1990, Au & Kauffman 2003, 2004)
Uncertainty
Herding
Rational Choice
Developing a software agent to extract needed information from an aggregate site, PodGate.
Description
Daily downloads Daily downloads of a specific application # of days downloaded # of days ranked Review Rating
Number of days downloaded during the period Number of days listed on the top 300 Number of reviews Consumer ratings scaling from 1 to 8
Period III
Model
Dependent Var.
Objective for Use We can understand what factors have significant effects on consumer demand.
Demand
Daily downloads
Survival
We aim to know what factors are significant for the survival of the applications .
Aggregated Dataset
Descriptive Statistics (Pooled Dataset)
Variable Daily purchase # of days downloaded # of review # of recommendation Released period Rating # of days ranked Price ($) Obs. 601 601 601 601 601 535 601 601 Mean 116.69 54.14 36.17 77.52 144.77 5.18 46.30 1.30 St. Dev. 223.50 36.93 107.96 131.07 123.25 2.34 35.62 3.44 Min 0.00 1.00 0.00 0.00 9.80 1.00 1.00 0.00 Max 3.22 97.00 1.96 1,467.02 843.27 8.00 97.00 49.99
Variable # of review # of recommendatio n Released period Rating Price # of days ranked Constant
Observations R-squared
Standard errors in bracket ***p<0.01, **p<0.05, *p<0.1
Observations R-squared
Standard errors in bracket ***p<0.01, **p<0.05, *p<0.1
Discussion
Research Implications
WOM plays a critical role on the demand of mobile applications Consumers show different patterns on the free and paid application market The exposure of popularity has no influence on consumer demand in paid app market while a strong influence in free app market
Research Contributions
Using the number of downloads as consumer demand : We did not use the sales rank of applications as a proxy of consumer demand Using sales rank as an independent variable : We evaluate the relationship between sales rank and consumer demand to measure the effect of exposure Explaining different patterns in free and paid markets using rational choice and herding behavior : We found heterogeneous demand patterns in mobile application market
Future Research
Data I. Supplementing the different period of data II. Comparing the results of panel data set