Influences on standards adoption in de facto standardization

Authors:
Angsana A. Techatassanasoontorn;Shuguang Suo
Affiliations:
College of Information Sciences and Technology, Pennsylvania State University, University Park, PA;College of Information Sciences and Technology, Pennsylvania State University, University Park, PA
Venue:
Information Technology and Management - Special issue on New Theories and Methods for Technology Adoption Research
Year:
2011

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Abstract

In the IT industry, de facto standards emerge from standards competition as firms offer incompatible technologies, and user choices determine the outcome of the competition. The standards literature suggests that strong network effects create a bias toward a standard with a large installed base, leading to a winner-take-all outcome. More recently, several researchers have revealed that the dynamics of standardization are much more complex than the explanation offered by the economic theory of networks. Markets do not always exhibit tipping behavior so there is not always a single winner in de facto standardization; and the size of an overall installed base does not always exert a strong influence on adoption decisions. In contrast, network effects drawn from local social influence may be more salient to user adoption decisions. We ask: (1) Do we always observe a winner-take-all outcome in de facto standards competition? (2) What are the different technology adoption patterns observed in de facto standards competition? (3) What are the implications of network effects, switching costs, pricing, and functionality enhancement strategies on the outcome of de facto standards competition in different user network structures? Drawing on the economic theory of networks, the complex network theory, and previous work in the standards literature, we examine the influence of network effects, switching costs, price, and technology functionality on user adoption decisions using agent-based simulation. We incorporate underlying user network structures frequently observed in the real world as an important determining factor of user adoption decisions. Our results suggest that de facto standardization process does not always follow a three-phased S-shaped pattern. Winner-take-all is not a necessary outcome of standards competition. User network structures have a significant impact on the dynamics and outcomes of standards competition.