Complementors' engagement in an ecosystem: A study of publishers' e‐book offerings on Amazon Kindle

• Published date: 01 January 2020
• Author: Richard D. Wang,Cameron D. Miller
• DOI: http://doi.org/10.1002/smj.3076
• Date: 01 January 2020

RESEARCH ARTICLE

Complementors' engagement in an ecosystem:

A study of publishers' e-book offerings on Amazon

Kindle

Richard D. Wang

1

| Cameron D. Miller

2

1

Management Division, Babson College, Babson Park, Massachusetts

2

Whitman School of Management, Syracuse University, Syracuse, New York

Correspondence

Richard D. Wang, Management Division,

Babson College, Babson Park, MA 02457.

Email: rwang@babson.edu

Funding information

Syracuse University Whitman School of

Management; University of Minnesota

Carlson Dean Small Grant; Babson Faculty

Research Fund

Abstract

Research Summary:In ecosystems, tensions between

value creation and appropriation can arise when com-

plementors form relationships with a partner that benefits

from network effects. While creating value collectively,

these relationships strengthen the network effects, which

increase the partner's ability to appropriate value. We posit

that complementors strategize their product offerings to

benefit from the relationship with the partner while pre-

serving bargaining power by keeping relationships with

other partners as outside options. We examine book pub-

lishers' product portfolios in the Amazon Kindle e-book

and the printed book ecosystems. Our results illuminate

specific product offering decisions by large publishers that

are more protective of the printed book ecosystem and less

conducive to Kindle's success. This research adds to the

literature on interorganizational relationships, platform

ecosystems, and managing digital innovations.

Managerial Summary:How do book publishers deal with

Amazon? This paper compares book publishers' product

offerings on Amazon's Kindle digital platform and in the

physical print channel. We find that publishers offer high

demand products as e-books on Kindle to benefit from

logistics savings. Yet, relative to small publishers, large

publishers product decisions that support Kindle less, such

Received: 6 July 2017 Revised: 5 July 2019 Accepted: 30 July 2019 Published on: 23 August 2019

DOI: 10.1002/smj.3076

Strat Mgmt J. 2020;41:3–26. wileyonlinelibrary.com/journal/smj © 2019 John Wiley & Sons, Ltd. 3

as withholding some of their greatest revenue generating

books. Such decisions could both limit Kindle's attractive-

ness to the consumers and preserve the economic viability

of the print channel as an outside option. These findings

improve our understanding of how companies can lever-

age their product portfolios to both benefit from digital

technology efficiencies and maintain their bargaining

power vis-à-vis digital platforms.

KEYWORDS

digital innovation, network effects, platform ecosystems, product offering

decisions, value creation and appropriation

1|INTRODUCTION

Complementors join a partner's ecosystem to create and capture value (e.g., Ceccagnoli, Forman,

Huang, & Wu, 2012; Huang, Ceccagnoli, Forman, & Wu, 2013; Iansiti & Levein, 2004; Kapoor,

2018; Zhu, 2019). However, tension between value creation and value appropriation can arise when a

complementor enters into a relationship with a partner who benefits from network effects (Shapiro &

Varian, 1998). While the complementor and the partner create value collectively, their relationship also

strengthens the network effects, which increase the partner's ability to appropriate value. For example,

content suppliers joining a digital platform—such as record labels selling digital music on Apple's

iTunes, or publishers selling e-books on Amazon's Kindle—attract consumers to the digital platform.

This strengthens the digital platform's ability to outcompete other distribution channels and dominate

the downstream market, thus gaining bargaining power over the upstream content suppliers (Hecker &

Kretschmer, 2010; MacDonald & Ryall, 2004). Content suppliers with foresight might take actions

towards the digital platform early on in order to sustain their long-term performance. Identifying ways

that complementors manage such relationships, therefore, is of interest to strategy scholars.

In this paper, we investigate how complementors manage value creation and value capture in their

interactions with a partner that benefits from network effects. We focus on relationships between

content suppliers and a digital platform. We posit that content suppliers protect their bargaining

power by preserving alternative channels as economically viable outside options, and they do so by

limiting the extent of their engagement with the digital platform while maintaining their relationships

with the alternative channels. In particular, we posit that content suppliers calibrate their engagement

with the digital platform through product offering decisions.

Our intuition comes from an event in 2014 when Big Machine Records—the label company that

represented artists such as Taylor Swift and Tim McGraw—pulled all the songs by Taylor Swift from

the music streaming company Spotify. Big Machine Records attributed the withdrawal decision to

incompatibility in business models between the digital platform and the label company (Peters,

2014). Ironically (or perhaps strategically), Big Machine Records continued to offer Tim McGraw's

songs on Spotify.

The relationship between Big Machine Records and Spotify suggests that, rather than engaging

fully with a digital platform to maximize joint value creation, content suppliers selectively choose

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