Comparing Digital Platform Governance and Innovation Performance in Small Service Firms

Abstract

Digital platforms have fundamentally transformed the operational landscapes of small service firms, providing unprecedented access to global markets while simultaneously imposing complex governance structures. This study investigates the longitudinal relationship between digital platform governance mechanisms and the innovation performance of small service firms. Utilizing a comprehensive panel dataset comprising five hundred small service enterprises over a six-year period, the research employs fixed-effects regression models to isolate the impacts of algorithmic transparency, data accessibility, and dispute resolution fairness on both product and process innovation. The findings reveal that equitable platform governance significantly enhances innovation capabilities by reducing environmental uncertainty and lowering transaction costs. Specifically, high levels of algorithmic transparency and data accessibility provide small firms with the critical market intelligence required to develop novel service offerings and streamline operational processes. Conversely, restrictive governance architectures characterized by opaque algorithms and asymmetrical data control stifle resource allocation toward innovative endeavors. This study contributes to the burgeoning literature on digital ecosystems by providing robust empirical evidence of the causal linkages between platform policies and tenant firm outcomes over time. The insights derived from this analysis offer critical strategic guidance for small business managers navigating platform dependencies and provide actionable recommendations for platform owners and policymakers aiming to foster sustainable innovation ecosystems.