Super apps are becoming increasingly popular across some countries in Asia, though their success is not always guaranteed. To know more about this, let’s dive into the very question every manager or entrepreneur has to answer when building a business: Is it better to specialise in a single product or to offer multiple products to the market?
The most obvious answers are coming from the company’s perspective: a multiproduct company can benefit from shared resources and potential synergies. So, expanding into different product lines makes sense as long as gains outweigh losses such as coordination costs.
My recent paper in the journal Management Science, however, takes a new lens to this question. The costs customers incur when they switch companies can affect whether the single-product or multiproduct company would do better in that industry.
When switching between providers is costly or time-consuming for customers, multiproduct companies tend to overperform their specialised competitors. This is because multiproduct firms can provide customers with the flexibility to change offerings as their preferences evolve over time.
Thus, markets tend to be dominated by a few large companies with a vast array of products. Customers can simply choose among these products and change in future if needed, without a need to switch provider.
When costs that customers face to switch providers fall, however, companies have the incentive to specialise their offerings. In this case, markets can sustain several specialised firms.
Take the global mobile telecommunications industry for example. It used to be dominated by large multiproduct firms. However, data shows that when the mobile number portability (MNP) policy was introduced, allowing customers to keep their numbers while switching to other providers, specialised companies had an opportunity to catch up. Thanks to MNP, it is was so easy for customers to make the switch. As such, specialised companies could grow their market share. Newcomers quickly adjusted their entry strategies too: The frequency of entry of specialists has increased when compared to the pre-policy era.
My research brings the attention back to switching costs and their prominent role in shaping the firm scope and industry structure. Take WeChat, for instance, as an example of how switching costs can help a digital multiproduct company grow. The super app is now an inseparable part of life in China: people use it to message friends, buy groceries, book a ride, and even a doctor’s appointment.
One may ask why these varied services are provided by a super app in China while provided separately by specialised companies in other countries like the United States. Well, as anticipated, policies can influence the emergence and success of multiproduct companies. The growth of super apps in countries like China has been accelerated by government policies aimed at connecting the digital identity of people with such apps, substantially increasing customer switching costs. WeChat, for instance, is now being used as a virtual ID for social security by the Chinese government.
At the first look, these practices may offer convenience, but they certainly help increasing the market power of large digital platforms. Hence, governments need to carefully examine the repercussions of policies that create switching costs for customers.