Firms strategically expand to countries that offer important location advantages. Yet, for digital firms, which can instantly release their technologies worldwide, it is unclear whether a focus on specific locations can still provide strategic advantages. The authors argue that digital firms reap critical demand-side location advantages for the internationalization of their technologies by strategically interacting with users in lead markets that exhibit either high within-country demand heterogeneity or preference overlaps with several other countries. Simply penetrating a lead market is not enough, however, as both demand-side and supply-side factors influence the digital firm’s potential to take advantage of lead markets. On the demand side, a digital firm should avoid focusing on paying users or acquiring light users. On the supply side, the digital firm must deploy adequate technological and marketing capabilities to benefit from user interactions in lead markets. Thus, the authors link demand-side opportunities and supply-side firm capabilities to develop nuanced theory on how digital firms can spur international expansion. They find empirical support for their arguments by analyzing a large multicounty database of mobile apps in Apple’s App Store.
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