Entrepreneurship, Innovation, and Platforms: Volume 37

In a dynamic environment where underlying competition is “for the market,” this chapter examines what happens when entrants and incumbents can instead negotiate for the market. For instance, this might arise when an entrant innovator can choose to license to or be acquired by an incumbent firm (i.e., engage in cooperative commercialization). It is demonstrated that, depending upon the level of firms’ potential dynamic capabilities, there may or may not be gains to trade between incumbents and entrants in a cumulative innovation environment; that is, entrants may not be adequately compensated for losses in future innovative potential. This stands in contrast to static analyses that overwhelmingly identify positive gains to trade from such cooperation.

Past work has shown that failure tolerance by principals has the potential to stimulate innovation, but has not examined how this affects which projects principals will start. We demonstrate that failure tolerance has an equilibrium price – in terms of an investor’s required share of equity – that increases in the level of radical innovation. Financiers with investment strategies that tolerate early failure will endogenously choose to fund less radical innovations, while the most radical innovations (for whom the price of failure tolerance is too high) can only be started by investors who are not failure tolerant. Since policies to stimulate innovation must often be set before specific investments in innovative projects are made, this creates a trade-off between a policy that encourages experimentation ex post and the one that funds experimental projects ex ante. In equilibrium, it is possible that all competing financiers choose to offer failure tolerant contracts to attract entrepreneurs, leaving no capital to fund the most radical, experimental projects in the economy. The impact of different innovation policies can help to explain who finances radical innovations, and when and where radical innovation occurs.

We investigate product innovation by a cohort of entrants who use technology that eventually suffers disruption. We concentrate on two types of entrants – those with and those without relevant prior experience in the disrupted technology. Using the industrial robotics industry as the context of our study, we explore product innovation using disrupted technology during two time periods: the first prior to sales takeoff of the disruptive products and the second subsequent to takeoff. We find that the two types of entrants did not differ in product innovation prior to takeoff, but firms with prior experience in the disrupted technology manufactured more innovative products subsequent to the sales takeoff of disruptive products. Our research underscores that the boundary conditions of the utility of prior experience is more nuanced than that which literature suggests – it affects product innovation only in the post-sales takeoff period when the demand uncertainties are relatively low. Our findings also suggest that the boundary conditions of Christensen’s thesis are narrower than predicted by prior literature.

In this chapter, we explore the relationship between organizational complexity and firm-level innovation. We define and operationalize a new construct, experienced complexity, which is the extent to which the organizational environment makes it challenging for decision makers to do their jobs effectively. We distinguish experienced complexity from structural complexity, which is the elements of the organization, such as the number of reporting lines or integrating mechanisms, that are deliberately put in place to help the organization deliver on its objectives, and we argue that structural complexity correlates positively with firm-level innovation, while experienced complexity correlates negatively with innovation. Using a novel dataset combining survey and objective data on 209 large firms, we find support for our arguments.

When considering whether to adopt a network technology, how does uncertainty about whom a potential adopter might interact with affect their adoption choice? On the one hand, uncertainty about potential network partners might enhance adoption incentives, as increased uncertainty induces the potential for economies of scope across the potential network. On the other hand, uncertainty may reduce the expected value of any particular connection, and reduce adoption incentives. Since this is a theoretical puzzle, this chapter presents empirical evidence to help illuminate it. It presents evidence the destabilizing of a social network may increase the scope of network externalities, using data on sales of a video-calling system made to an investment bank’s employees and subsequent usage by these customers. The terrorist attacks of 2001 led potential customers in New York to start communicating with a new and less predictable set of people when their work teams were reorganized as a result of the physical displacement that resulted from the attacks. This did not happen in other comparable cities. These destabilized communication patterns were associated with potential adopters in New York being more likely to take into account a wider spectrum of the user base when deciding whether to adopt relative to those in other cities. Empirical analysis suggests that the aggregate effect of network externalities on adoption was doubled by this instability, and that for those with diffuse networks, this more than compensated for the negative baseline effects of the instability.

Platform, open/user innovation, and ecosystem strategies embrace and enable interactions with external entities. Firms pursuing these approaches conduct business and interact with environments differently than those pursuing traditional closed strategies. This chapter considers these strategies together highlighting similarities and differences between platform, open/user innovation, and ecosystem strategies. We focus on managerial and organizational challenges for organizations pursuing these strategies and identify four institutional logic shifts associated with these strategic transitions: (1) increasing external focus, (2) moving to greater openness, (3) focusing on enabling interactions, and (4) adopting interaction-centric metrics. As mature incumbent organizations adopt these strategies, there may be tensions and multiple conflicting institutional logics. Additionally, we consider four strategic leadership topics and how they relate to platform, open/user innovation, and ecosystem strategies: (1) executive orientation and experience, (2) top management teams, (3) board-management relations, and (4) executive compensation. We discuss theoretical implications, and consider future directions and research opportunities.

The dynamics of platforms, particularly the eventual need for renewal, are too often neglected. This chapter adopts a four-stage model – Birth, Expansion, Leadership, and Self-Renewal – to analyze the requirements at each stage of the platform lifecycle in terms of its dependence on the high-level dynamic capability categories of sensing, seizing, and transforming. The requirements evolve from a heavy emphasis on generative sensing and planning-stage seizing in the birth phase, through greater emphasis on “seizing” activities and minor transformations as the platform, ideally, grows and stabilizes. When platform renewal is called for, the emphasis returns to sensing future possibilities and generating new ideas for a platform and business model, developing them alongside the existing business, and eventually undertaking a major transformation to restart the platform lifecycle. An awareness of these lifecycle changes can help managers adopt a longer-term perspective on the competitive requirements of their platform-based business.

Rather than organize as traditional firms, many of today’s companies organize as platforms that sit at the nexus of multiple exchange and production relationships. This chapter considers a most basic question of organization in platform contexts: the choice of boundaries. Herein, I investigate how classical economic theories of firm boundaries apply to platform-based organization and empirically study how executives made boundary choices in response to changing market and technical challenges in the early mobile computing industry (the predecessor to today’s smartphones). Rather than a strict or unavoidable tradeoff between “openness-versus-control,” most successful platform owners chose their boundaries in a way to simultaneously open-up to outside developers while maintaining coordination across the entire system.

Industry platforms can alter relations among exchange partners in such a way that the industry structure is changed. The focus of much industry platform research has been on how platform creation and leadership offers advantages to the most central firms, but platforms can also be advantageous for small specialist firms that compete with the most central firms. We examine book publishing as an example of an industry in which the central players – large publishing firms – are losing power to self-publishing authors because the distributor Amazon has a powerful platform for customers to communicate independently, and the non-publishing platform Twitter also serves as a medium for readers to discuss and review books. Our empirical analysis is based on downloaded sales statistics for Amazon Ebooks, matched with Amazon reviews of the same books and tweets that refer to the book or the author. We analyze how Ebook sales are a function of publisher, Amazon reviews, and tweets, and we are able to assess the importance of each factor in the sale of book titles. The main finding is that Amazon reviews are powerful drivers of book sales, and have greater effect on the sales of books that are not backed by publishers. Twitter also affects book sales, but less strongly than Amazon reviews.

Theories of platform strategy and adoption have been largely derived from studies of their application in the information and communications technology (ICT) sector. These platforms vary in openness, with the model of open source software providing the best-known exemplar for open platforms.

This exploratory field study examines the degree to which nine attributes of ICT platforms are applicable to open platforms in biotechnology. Using a combination of interview and secondary data, it identifies three patterns of such biotechnology platforms – IP commons, hackerspaces, and crowdsourced patient registries – and the degree to which these nine attributes apply. It shows the impact of ICT platforms and open source software on open source approaches to biotechnology, and how the latter are affected by the technical, legal, and institutional differences between information technology and biotechnology.

Instead of open source software platforms organized around modular interfaces, complements, ecosystems, and two-sided markets, this study instead suggests a model of open source knowledge platforms which benefits from economies of scale but not indirect network effects. From this, it discusses the generalizability of the ICT-derived models of open source platforms and offers suggestions for future research.