Chris Forman

Cocreation of value in a platform ecosystem: the case of enterprise software

It has been argued that platform technology owners cocreate business value with other firms in their platform ecosystems by encouraging complementary invention and exploiting indirect network effects. In this study, we examine whether participation in an ecosystem partnership improves the business performance of small independent software vendors (ISVs) in the enterprise software industry and how appropriability mechanisms influence the benefits of partnership. By analyzing the partnering activities and performance indicators of a sample of 1,210 small ISVs over the period 1996-2004, we find that joining a major platform owners platform ecosystem is associated with an increase in sales and a greater likelihood of issuing an initial public offering (IPO). In addition, we show that these impacts are greater when ISVs have greater intellectual property rights or stronger downstream capabilities. This research highlights the value of interoperability between software products, and stresses that value cocreation and appropriation are not mutually exclusive strategies in interfirm collaboration.

Can vendors influence switching costs and compatibility in an environment with open standards

This paper examines the potential social costs of standardization, including possible vendor reactions to standards and their impacts on the adoption of new technology and long-term market structure. Specifically, we study how vendors might react to standards in the market for routers and switches, two of the most important pieces of networking hardware for the information systems infrastructure of modern firms. Using data from over 22,000 establishments surveyed by Harte Hanks Market Intelligence, we provide evidence that vendors are able to maintain high switching costs in the market for routers and switches despite the presence of open standards in the industry. Several vendor actions are discussed in this paper, including manipulating horizontal compatibility between comparable rival products and vertical compatibility between complementary products, maintaining a broader product line, creating product suites, and targeting specific market segments. Our results further suggest that the presence of switching costs can lead to inefficient adoption of new information technology and that vendors may be able to influence the speed of new information technology adoption.

Geographic location and the diffusion of Internet technology

This study examines the sources of geographic variance in commercial Internet use. Until now, two opposing views have been argued on the relationship between Internet technology and economic agglomeration. One view, which we term global village theory, asserts that Internet technology helps lower communication costs and break down geographic boundaries between firms. The other view, labeled urban density theory, argues that the Internet follows a traditional pattern of diffusion - diffusing first through urban areas with complementary technical and knowledge resources that lower the costs of investing in new frontier technology. We provide a third view, industry composition theory, that asserts that demand for the Internet is increasing in location size because of the concentration of information-intensive firms in urban areas. We offer hard evidence on factors influencing the dispersion of Internet technology to businesses. We find no evidence for urban density theory in the diffusion of basic access and participation in the Internet network. We do find some evidence supporting global village theory for diffusion along this dimension. We also find that the pattern of adoption of frontier Internet technologies supports urban density theory not global village theory. Last, we show that business use of the Internet is significantly shaped by the prior geographic distribution of industry.

Assessing the Impact of RFID on Return Center Logistics

As many manufacturers, retailers, distributors, and logistics firms adopt RFID, the technology is becoming pervasive in the supply chain. Although its advocates include retail giants such as Wal-Mart, not all companies are enthusiastic about its benefits. It is not clear whether RFID is a boon or a curse to the supply chain---its market growth may just be an issue of compliance. To establish the real benefits of RFID, we conducted a field study with GENCO, a third-party logistics company that deployed RFID in the outbound logistics operations at one of its return centers. Our analysis found that the RFID implementation had a significant impact on the GENCO outbound process. The number of customer claims fell substantially following the RFID deployment. After controlling for other factors in our model, we confirmed that RFID was a key factor that contributed to the positive results at this return center. The current study underscores the potential of RFID for todays businesses.

Appropriability Mechanisms and the Platform Partnership Decision: Evidence from Enterprise Software

We examine whether ownership of intellectual property rights IPR or downstream capabilities is effective in encouraging entry into markets complementary to a proprietary platform by preventing the platform owner from expropriating rents from start-ups. We study this question in the context of the software industry, an environment where evidence of the efficacy of IPR as a mechanism to appropriate the returns from innovation has been mixed. Entry, in our context, is measured by an independent software vendors ISVs decision to become certified by a platform owner and produce applications compatible with the platform. We find that ISVs with a greater stock of formal IPR such as patents and copyrights, and those with stronger downstream capabilities as measured by trademarks and consulting services are more likely to join the platform, suggesting that these mechanisms are effective in protecting ISVs from the threat of expropriation. We also find that the effects of IPR on the likelihood of partnership are greater when an ISV has weak downstream capabilities or when the threat of imitation is greater, such as when the markets served by the ISV are growing quickly. This paper was accepted by Gerard P. Cachon, information systems.

News Media Channels: Complements or Substitutes? Evidence from Mobile Phone Usage

The media industry has undergone a fundamental shift over the past decade as new online distribution channels have proliferated in an unprecedented manner. Although mobile devices have experienced rapid adoption among consumers, their effect on consumer behavior and their subsequent implications for publishers and advertisers have yet to be understood. The authors examine consumers’ news consumption behavior on mobile news websites in response to the introduction of a mobile news app. Pseudo-panel analysis based on repeated cross-sectional data suggests that the introduction of a mobile app by a major national media company leads to a significant increase in demand at the corresponding mobile news website. In addition, the authors report that this effect is greater for consumers with (1) greater appreciation for concentrated news content, (2) stronger propensity for a particular political viewpoint, and (3) fewer time constraints. The results are consistent with the interpretation that the adoption of a providers news app stimulates corresponding mobile news website visits. The authors discuss the implications of these findings for advertisers, media publishers, and policy makers.

Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources?

We examine whether there is a trade-off between employing internal (firm) resources and purchased external (local) resources in process innovation. We draw on a rich dataset of Internet investments by 86,879 US establishments to examine decisions to invest in advanced Internet technology. We show that the marginal contribution of internal resources is greater outside of a major urban area than inside one. Agglomeration is less important for firms with highly capable IT workers. When firms invest in innovative processes they act as if resources available in cities are partial substitutes for both establishment-level and firm-level internal resources.

From Wires to Partners: How the Internet Has Fostered R&D Collaborations Within Firms

How did the diffusion of the Internet influence research collaborations within firms? We examine the relationship between business use of basic Internet technology and the size and geographic composition of industrial research teams between 1992 and 1998. We find robust empirical evidence that basic Internet adoption is associated with an increased likelihood of collaborative patents from geographically dispersed teams. On the contrary, we find no evidence of such a link between Internet adoption and within-location collaborative patents, nor do we find any evidence of a relationship between basic Internet and single-inventor patents. We interpret these results as evidence that adoption of basic Internet significantly reduced the coordination costs of research teams, but find little evidence that a drop in the costs of shared resource access significantly improved research productivity. This paper was accepted by Lee Fleming, entrepreneurship and innovation.

Competition and patching of security vulnerabilities: An empirical analysis

We empirically estimate the effect of competition on vendor patching of software defects by exploiting variation in number of vendors that share a common flaw or common vulnerabilities. We distinguish between two effects: the direct competition effect when vendors in the same market share a vulnerability, and the indirect effect, which operates through non-rivals that operate in different markets but nonetheless share the same vulnerability. Using time to patch as our measure of quality, we find empirical support for both direct and indirect effects of competition. Our results show that ex-post product quality in software markets is not only conditioned by rivals that operate in the same product market, but by also non-rivals that share the same common flaw.

Research Note---The Impact of Intellectual Property Rights Enforcement on Open Source Software Project Success

We investigate how intellectual property rights (IPR) enforcement against developers and users of open source software (OSS) affects the success of related OSS projects. We hypothesize that when an IPR enforcement action is filed, user interest and developer activity will be negatively affected in two types of related OSS projects — those that display technology overlap with the OSS application in dispute and business projects that are specific to the disputed OSS platform. We examine two widely publicized lawsuits — SCO v. IBM and FireStar/DataTern v. Red Hat — using data from SourceForge.net. Our difference-in-difference estimates show that in the months following the filing of SCO v. IBM, OSS projects that exhibit high technology overlap with the disputed OSS experienced a 15% greater decline in user interest and 45% less developer activity than projects in the control group; OSS projects that are intended for business and specific to the disputed OSS platform had a 34% greater decline in user interest and 86% less developer activity than the control group. We find similar results following the filing of FireStar/DataTern v. Red Hat. Our results are also robust to a variety of robustness checks, including a falsification exercise and subsample analyses.