Edited by Annabelle Gawer
Chapter 8: Protecting or Diffusing a Technology Platform: Tradeoffs in Appropriability, Network Externalities, and Architectural Control
Melissa A. Schilling INTRODUCTION In many high-technology markets, there are forces that create strong pressure for the selection of a single technology standard. This standard (or ‘dominant design’) may be embodied in a product design, the system architecture of a family of products (a ‘platform’), or the process by which products or services are provided (Tushman and Anderson, 1986; Utterback and Abernathy, 1975). Although there may have initially been many competing standards on offer, increasing returns to adoption can cause a minor advantage in the number of users to cause a positive feedback effect, resulting in a single technology achieving a nearly insurmountable advantage over all others (Arthur, 1989, 1994; Garud and Kumaraswamy, 1993; Schilling, 1998, 2002). This dynamic can lead to ‘winner-take-all’ markets that create natural monopolies. A firm that controls the standard can reap monopoly rents, and can exert significant architectural control over both its own and related industries (Ferguson and Morris, 1993; Henderson and Clark, 1990). This enviable position can be so lucrative that firms may be willing to lose money in the short term in order to improve their technology’s chance of rising to the position of dominant design. In fact, firms are sometimes extolled to liberally diffuse their technologies (through, e.g., open source or liberal licensing arrangements) in order to accelerate the technology’s proliferation and thereby jump-start the self-reinforcing feedback effect that can lead to the technology’s dominance (Lecocq and Demil, 2005). However, the firm often faces a dilemma: if it liberally diffuses the technology...
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