Growing Pains: The Effect of Generational Product Innovation on Mobile Games Performance

Research Summary: Strategy research advises firms to capture generative value by continually introducing generational improvements on their existing products. This article considers a potential dark side of such strategy. We argue that generational innovation can elicit a negative near-term response from customers, as it distorts their ingrained behavioral patterns and imposes learning costs. Further, we propose that this negative effect of generational innovation will diminish when the product has a leading market position; and it will be more severe as the product's technological legacy lengthens. Using a difference-in-differences research design based on mobile game apps that multihome on two platforms, we find supportive evidence for our hypotheses and discuss the corresponding implications for strategy and technology innovation literature. MAnagerial Summary: Firms are advised to capture the value in future innovations that are spawned from their existing innovation, and they can do so by releasing improved generations of current products. This article examines a potential dark side of such strategy—that generational innovation could alienate existing customers by unsettling their ingrained behavioral patterns. Utilizing a unique dataset of mobile game apps, we find evidence of this negative effect, which tends to be weaker for market leaders but more damaging for those having already experienced numerous generational changes.