Yoris A. Au

The economics of mobile payments: Understanding stakeholder issues for an emerging financial technology application

Economic theory provides a unique vantage point from which to examine issues with respect to emerging technologies, where standards and adoption, business process changes and implementation outcomes, information security, investments and business value, and industry impact require care and consideration on the part of senior management strategists and financial services leaders. In this article, we examine a new technology application which is coming into its own around the world, in association with the revolution in wireless connectivity: mobile payments. Although there are likely to be nuances and surprises with this technology application, we caution the reader to recognize that many of the same economic forces will be at work as were with other financial services and related technology applications in the past. We apply a robust evaluative framework that permits identification of the relevant stakeholders and applicable theory in the analysis of consumer, firm, business process, market, industrial and social issues. Our findings are intended to guide senior managers in dealing with the economic aspects of mobile payments, and to help identify some important directions for the research.

Should We Wait? Network Externalities, Compatibility, and Electronic Billing Adoption

This study examines the adoption of electronic bill presentment and payment (EBPP) technology. EBPP continues to grow and will become a multibillion dollar e-commerce industry. The technology adoption configuration in this context is quite interesting because it involves four stakeholders: billers, bill consolidators, banks, and consumers. Banks and bill consolidators compete to act as an intermediary between billers and consumers. Network externalities play a significant role: the more billers that adopt the technology, the more consumers are willing to use the services. Our analysis is based on the welfare economics concept of finding the socially optimum adoption configuration and the resulting adoption pattern in a market with sponsored technologies. The results show that due to network externalities, billers are more likely to adopt the existing technology early, though the next technology might be superior to the current one. When the higher costs of early adoption are taken into account, the model shows that billers are more willing to wait, ceteris paribus. Our results also show that anticipation of a new and better, but compatible, technology might cause billers to wait, depending on what benefits they expect by adopting early, and how much cost they anticipate to incur upgrading their technology later.

What Do You Know? Rational Expectations in Information Technology Adoption and Investment

This study examines the potential applications of the rational expectations hypothesis (REH) and adaptive learning theory in IT investment and adoption decision-making. Despite the fact that rationality is commonly assumed in economic analyses, the REHs assumptions make it a unique theory and allow us to offer new perspectives on IS/IT adoption and investment decision-making. Our application of these theoretical perspectives to the IT adoption context--the first time in the IS literature to our knowledge that REH has been used to examine the mechanism for business value expectations formation--will allow us to treat the investment and adoption issues using a perspective that is based on a longer time horizon. Such settings require managers, as economic agents, to form a set of expectations about the values of various variables related to the business value of IT. Rational expectations and adaptive learning assume that decision-makers are able to utilize all available decision-relevant information efficiently and can learn the true value of a prospective investment over time. We present a number of propositions that characterize this perspective, and discuss some illustrative examples that demonstrate the efficacy of the theoretical perspective that we present to characterize the business value expectations formation process in IT adoption.

Virtual organizational learning in open source software development projects

We studied virtual organizational learning in open source software (OSS) development projects. Specifically, our research focused on learning effects of OSS projects and the factors that affect the learning process. The number and percentage of resolved bugs and bug resolution time of 118 SourceForge.net OSS projects were used to measure the learning effects. Projects were characterized by project type, number and experience of developers, number of bugs, and bug resolution time. Our results provided evidence of virtual organizational learning in OSS development projects and support for several factors as determinants of performance. Team size was a significant predictor, with mid-sized project teams functioning best. Teams of three to seven developers exhibited the highest efficiency over time and teams of eight to 15 produced the lowest mean time for bug resolution. Increasing the percentage of bugs assigned to specific developers or boosting developer participation in other OSS projects also improved performance. Furthermore, project type introduced variability in project team performance.

Effects of Freemium Strategy in the Mobile App Market: An Empirical Study of Google Play

Abstract This paper examines the effect of the freemium strategy on Google Play, an online marketplace for Android mobile applications. By analyzing a large panel data set consisting of 711 ranked mobile apps, we found that the freemium strategy is positively associated with increased sales of the paid mobile apps. Positive trial experience as represented by high review rating of the free version of a mobile app leads to higher sales of its paid version, whereas high visibility of the free version of a mobile app as represented by its product rank does not have a significant impact on the sales of its paid version. This finding suggests that although offering a free trial version is a viable way to improve the visibility of a mobile app, offering a quality free app is more important in boosting sales of the paid app. Moreover, we found that the impact of review rating is reduced when the free version is offered, or when the mobile app is a hedonic app, because consumers have the ability to experience the app themselves before purchase. These findings extend understanding of the freemium business model to include a market characterized by simultaneous intramarket competition for both the freemium and paid products and demonstrate how such dynamics may influence sales of the paid products.

Rational expectations, optimal control and information technology adoption

Abstract.The existing economics and IS literature on technology adoption often considers network externalities as one of the main factors that affect adoption decisions. It assumes that potential adopters achieve a certain level of expectations about network externalities when they have to decide whether to adopt a particular technology. However, there has been little discussion on how the potential adopters reach their expectations. This article attempts to fill a gap in the literature on adoption of information technology (IT), by offering an optimal control perspective motivated by the rational expectations hypothesis (REH) and exploring the process dynamics associated with the actions of decision makers who must adjust their expectations about the benefits of a new technology over time due to bounded rationality. Our model primarily addresses technologies that exhibit strong network externalities. It stresses adaptive learning to show why different firms that initially have heterogeneous expectations about the potential value of a technology eventually are able to arrive at contemporaneous decisions to adopt the same technology, creating the desired network externalities. This further allows the firms to become catalysts to facilitate processes that lead to market-wide adoption. We also discuss the conditions under which adoption inertia will take over in the marketplace, and the related managerial implications.

Information technology investment and adoption: a rational expectations perspective

This study examines the potential applications of the rational expectations hypothesis (REH) in information technology (IT) investment and adoption decision-making. Although REH has been widely used in other areas of microeconomics and macroeconomics, we have not yet seen common use of the related theory in the information systems (IS) field. In this paper, we introduce REH theory together with some of its applications in non-IS/IT areas. Despite the fact that rationality is commonly assumed in economic analyses, the REHs rather strong assumptions make it a unique theory and allow us to offer new perspectives on IS/IT adoption and investment decision-making. We discuss how the theory can potentially be applied in IS/IT cases by presenting several illustrative examples. We then examine issues in the evaluation of adoption and investments of new and emerging ITs. Based on the theory, we argue that managers that are risk-averse are most likely to wait and adopt or invest in new and emerging technologies later than managers that are risk-takers. We suggest that for the earlier adoption or investments, the conventional method for estimating investment value may not be appropriate. We also suggest research directions with regard to the application of REH in the IS field.

Rethinking FS-ISAC: An IT Security Information Sharing Network Model for the Financial Services Sector

This study examines a critical incentive alignment issue facing FS-ISAC (the information sharing alliance in the financial services industry). Failure to encourage members to share their IT security-related information has seriously undermined the founding rationale of FS-ISAC. Our analysis shows that many information sharing alliances’ membership policies are plagued with the incentive misalignment issue and may result in a “freeriding” or “no information sharing” equilibrium. To address this issue, we propose a new information sharing membership policy that incorporates an insurance option and show that the proposed policy can align members’ incentives and lead to a socially optimal outcome. Moreover, when a transfer payment mechanism is implemented, all member firms will be better off joining the insurance network. These results are demonstrated in a simulation in which IT security breach losses are compared both with and without participating in the proposed information sharing insurance plan.

Should we wait? Network externalities and electronic billing adoption

The study examines the adoption of electronic bill presentment and payment (EBPP) technology solutions. EBPP continues to grow and has a huge potential for becoming a multi-billion dollar e-commerce industry. The adoption configuration is quite interesting because it involves four stakeholders: billers, bill consolidators, banks and consumers. In this case, banks and bill consolidators compete against each other to act as an intermediary between billers and consumers. Network externalities play a significant role since the more billers that adopt the technology, the more consumers are willing to use the services. The analysis is based on the welfare economics concept of finding the socially optimum adoption configuration and the resulting adoption pattern in a market with sponsored technologies. The results show that because of expected network externalities, billers are more likely to adopt the existing technology early, despite the fact that the next technology might be superior to the current one. When the higher costs of early adoption are taken into account, the model shows that billers are more willing to wait, ceteris paribus.