Research On Hardware Market Entry And First-Party Content Operation Strategies Of Digital Content Platform

At a certain stage of the development of digital content platforms,they will face the problem of how to break through the bottleneck and find new profit points.Entering the new market of hardware,and growing into smart-connected product platforms by investing in first-party content are the main channels for obtaining new profits.Especially in an era where content is king,the software,internet,and mobile communications revolutions creat a huge content market,posing challenges to the investment in first-party content and coordinated governance of corresponding platforms.Based on two main ways of business expansion for digital content platforms,this dissertation uses game theory to study the hardware market entry and software content governance strategies for digital content platforms in competitive environments.Firstly,this dissertation focuses on hardware products that provide consumers with access to digital content platforms,focusing on the consumer side,and studies the issue of hardware market entry strategy(envelope and connection)for two competing digital content platforms.The results show that the platform choosing envelope strategy always has higher hardware product quality and demand compared to the connection strategy whether the competitor platform chooses which strategy,but the size of product price depends on the correlation coefficient between product quality and advertising profit,and the development cost coefficient of hardware products.From digital content platforms perspective,the only Nash equilibrium is that both platforms adopt envelope strategy.However,from the platform system perspective,both platforms adopt envelope strategy and connection strategy may be the Nash equilibrium.In addition,under certain conditions,both platforms adopt envelope strategy may achieve a win-win situation between platforms and consumers.Subsequently,focusing on the supply side,the following three aspects were studied.This dissertation discusses the issue of first-party content investment strategy for digital content platforms based on the two relationships(complementarity or substitution)between first-party and third-party contents.Compared to platforms not investing in firstparty content,the results show that when investment efficiency is high/low,investing in complementary first-party content can increase/reduce the quality,price,and demand of third-party content;investing in substitutive first-party content can increase the quality,price,and demand of third-party content.Investing in complementary first-party content is always beneficial to the platform,but not necessarily beneficial to the growth of thirdparty content providers’ profit.Investing in substitutive first-party content is always conducive to both parties’ profits.In addition,when the platform invests in complementary first-party content,the larger the revenue sharing ratio,the more profitable the platform will not always be;when platform invests in alternative first-party content,it can always benefit more from a larger revenue sharing ratio.In a competitive environment,based on three compatibility options: incompatibility,one-way compatibility,and two-way compatibility,the compatibility strategy selection of two smart-connected product platforms is studied.The research shows that the compatibility decisions of competitive smart-connected product platforms with the same profit focus are jointly affected by competition intensity,two-way demand complementarity between hardware and software,and market size.When competition is fierce,regardless of whether the two platforms choose an incompatible strategy or a compatible strategy,there is an incentive to sell their hardware products below cost.From the perspective of platform profits and platform system profits,two-way compatibility is the only equilibrium.However,incompatibility may become an equilibrium when both competing platforms aim to expand the market size of their hardware products.Finally,this dissertation considers the strategic decision-making issue of competitive smart-connected product platforms regarding the charging or free of the first-party content,identifies the game equilibrium strategies and existence conditions,and reveals the factors that affect the platform’s two-sided pricing behavior and game equilibrium.The research shows that in a competitive environment,the strategic decision to whether provide free first-party content is influenced by both the cross-side network effect and function matching degree of the free version.In a monopolistic environment,platform only tend to choose charging strategy.In a competitive environment,both platforms charging for the first-party content and offering free first-party content may become the Nash Equilibrium.When the cross-side network effect is large and the function matching degree of the free version is small,both platforms can achieve a win-win situation for the platform and consumers by charging for the first-party content.In addition,startups can break the dilemma of no consumers and third-party content developers joining the platform by giving priority to developing the first-party content to attract consumers or giving priority to attracting third-party content developers through subsidies.In general,this dissertation mainly has the following contributions:(1)this dissertation expands from a monopolistic environment to a competitive environment,examines the strategic decision between free and paid first-party content of smartconnected product platforms,identifies the equilibrium conditions under which both platforms choose to charge or free for the first party content and the win-win range between the platform and consumers,and reveals the effects of cross-side network effect and function matching degree of free version on pricing behavior and equilibrium;(2)this dissertation innovatively characterizes compatibility by using two-way demand complementary between hardware products and software content.Aiming at incompatibility,one-way compatibility and two-way compatibility strategies,we construct a competitive smart-connected product platforms model,identify the equilibrium conditions for incompatibility or two-way compatibility to become the optimal strategy,and reveal the reasons for dynamic changes in compatibility decisions during the development of the platforms;(3)this dissertation builds a competitive platforms model to determine whether digital content platforms will enter the hardware product market,explores the impact of different strategies on the price and quality of hardware products,identifies game equilibrium conditions where both platforms adopt envelope strategy and connection strategy,and find that digital content platforms entering hardware market will provide higher quality hardware products than third-party providers,but the price may not necessarily be lower;(4)By subdividing the relationship between the first-party and third-party contents(complementarity or substitution),this dissertation studies the investment strategy of digital content platforms for the first-party content,reveals important impact of investment efficiency on platform decision-making under different investment strategies,and fills the theoretical gap in using quantitative research method to study investment types of the first-party content.