Towards a Model of Determinants of Web Services Platform Adoption by Complementers

Rubleske, Joseph B.

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https://hdl.handle.net/2142/15137 Copy

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Title

Towards a Model of Determinants of Web Services Platform Adoption by Complementers

Author(s)

Rubleske, Joseph B.

Issue Date

2008-02-28

Keyword(s)

• software platforms
• web services
• adoption
• network effects
• complementarities

Abstract

The recent surge of interest in web services has called attention to the increasingly intense competition between owners of the platforms on which these services run. Given that widely adopted operating systems and middleware platforms have yielded sizable economic returns for their owners, many web services platform owners are aggressively pursuing strategies that can give them a competitive advantage and, it is hoped, similarly sizable returns. A review of the broader literature on software platform competition reveals widespread acceptance of network effect theory as an explanatory framework. Network effect theory posits that the value of a software platform to a potential user is associated positively with the number of existing users of the platform (who generate direct network effects) and the number of developers of complementary software applications (who generate indirect network effects) (see, e.g., Katz and Shapiro, 1986; Zhu et al., 2006). Users realize direct network effects when, for example, they share compatible files with other users (Gao and Iyer, 2006; Lin and Kulatilaka, 2006) or participate in ‘trading communities’ (Zhu et al., 2006). Indirect network effects are realized through the availability of useful, innovative and compatible software applications (Lin and Kulatilaka, 2006). Users of widely adopted software platforms also gain value from the reduced likelihood of being “stranded with a failed and unsupported platform” and consequent switching costs (Gallaugher and Wang, 2002, p. 306). In the presence of network effects, then, software platform owners pursue strategies that will secure them an ‘installed base’ of users and complementers that is sufficiently large to attract more and more new users (Shapiro and Varian, 1998; Suarez, 2005). While one set of strategies is aimed at promoting adoption by new users, another set emphasizes the value generated for users by indirect network effects and aims instead at promoting adoption by complementers. (This distinction reflects the idea that platform markets are two-sided, with (end) users populating one side and complementers populating the other.) There appears to be considerably more research on strategies for increasing user adoption (see Gallaugher and Wang (2002), von Westarp (2003) and Zhu and Iansiti (2007) for reviews) than on complementer adoption strategies. Nonetheless, three studies of the latter merit mentioning here. First, in their study of the U.S. video game industry from 1976 to 2002, Venkatraman and Lee (2003) find that platform dominance (i.e., largest installed base), together with complementers’ path dependency and level of experience with platform architecture, largely determine platform adoption by complementers. Second, in his investigation of how software platform owners maintain a balance between “adoption and appropriation,” West (2003) concludes that software platform owners who disclose some proprietary code will attract more complements (thereby fostering innovation), but cautions against disclosing any code that confers a competitive advantage. Finally, Cusumano and Gawer’s (2002) landmark study of Intel’s platform management strategies culminated in the endorsement of four ‘levers’ for platform leadership, with one of these levers aimed at managing relations with ‘external complementers’. Specific strategies include building a consensus on technical specifications and standards, handling potential conflicts of interest and letting complementers keep any intellectual property they develop on the platform. Both West (2003) and Cusumano and Gawer (2002) also underscore the importance of providing complementers with an interface to connect to the platform. Beyond West’s (2003, p. 1260) suggestion that software platform owners “create and evolve application programming interfaces (APIs),” though, the varied ways in which these APIs might influence a complementer’s choice to adopt have not been sufficiently explored by these or other authors. The research-in-progress described in the following section aims to bolster the somewhat scant literature on software platform adoption by complementers. More specifically, the proceeding research design outlines a proposed investigation of the determinants of complementer adoption of geo-mapping web services platforms. The reasons for including independent variables are discussed, and some methodological details are introduced. The paper concludes with a brief discussion of anticipated outcomes of the study.

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