Because information technologies are often characterized by network effects, compatibility is an important issue. Although total network value is maximized when everyone operates in one compatible network, we find that the technology benefits for the users depend on vendor incentives, which are driven by the existence of "de facto" or "de jure" standards. In head-to-head competition, customers are better off "letting a thousand flowers bloom," fostering fierce competition that results in a de facto standard if users prefer compatibility over individual fit, or a split market if fit is more important. In contrast, firms that sponsor these products are better off establishing an up-front, de jure standard to lessen the competitive effects of a network market. However, if a firm is able to enter the market first by choosing a proprietary/incompatible technology, it can use a "divide-and-conquer" strategy to increase its profit compared with head-to-head competition, even when there are no switching costs. When there is a first mover, the early adopters, who are "locked in" because of switching costs, never regret their decision to adopt, whereas the late adopters, who are not subject to switching costs, are exploited by the incumbent firm. In head-to-head competition, customers are unified in their preference for incompatibility when there is a first mover; late adopters prefer de jure compatibility because they bear the brunt of the first-mover advantage. This again underscores the interdependence of user net benefits and vendor strategies.
This paper presents evidence on ways in which firms in the IT industry respond to in creased business dynamics. We show that the use of internal and external communication technologies and the adoption of informational "focus" strategies increase with the "clockspeed," or dynamics, of the business environment. Our results support the information processing view of the firm.
This paper evaluates the free-access policy as a control mechanism for internal networks. We derive the optimal message pricing scheme, compare it to the free-access policy, and study the associated net-value loss. We derive uniform upper bounds on this value loss, and apply our results to the polar implementations of ethernet and token ring networks. The results show that the free-access policy is often attractive.
Collopy, Adya and Armstrong (1994) (CAA) advocate the use of atheoretical "black box" extrapolation techniques to forecast information systems spending. In this paper, we contrast this approach with the positive modeling approach of Gurbaxani and Mendelson (1990), where the primary focus is on explanation based on economics and innovation diffusion theory. We argue that the objectives and premises of extrapolation techniques are so fundamentally different from those of positive modeling that the evaluation of positive models using the criteria of "black box" forecasting approaches is inadequate. We further show that even if one were to accept CAA's premises, their results are stilt inferior. Our results refute CAA's claim that linear trend extrapolations are appropriate for forecasting future IS spending and demonstrate the risks of ignoring the guidance of theory.
This paper develops a model of the growth of information systems expenditures in the United States. The model incorporates two major factors that influence the rate and pattern of spending growth--the diffusion of technological innovation and the effect of price on the demand for computing. Traditional studies have focused on the role of innovation while ignoring the effects of price on the growth process. We show that while information systems expenses initially grew following an S-curve, more recent growth has converged to an exponential pattern. These patterns are consistent with our integrative price-adjusted S-curve growth model.