Opening the Platform vs. Opening the Complementary Good? The Effect on Product Innovation in Handheld Computing

Abstract

Some open strategies involve giving up control of a core platform technology. Others involve encouraging outsiders to build complementary innovations on top of the core technology. While these approaches often go hand in hand, I argue they should relate to different objectives, instruments and economic mechanisms. This paper presents evidence from a panel of handheld computing systems (1990-2004) to reveal different relationships between rates of new handheld device introductions and different open strategies. The core of the analysis deals with addressing endogeneity concerns and assuring that econometric comparisons between policy switchers and non-switchers are meaningful. I find that opening the complement (in terms of licensing and IP policies) was related to up to five-times acceleration in the development of new devices. The degree of openness mattered, too; intermediate levels of opening the complement were associated with fastest rates. Opening the platform (in terms of ownership, vertical scope and outside contributions) was associated with a smaller effect, a roughly 20% acceleration in development rates. I interpret these results in the light of emerging theories of openness and innovation.

Keywords: technical change, systems, open strategies, platforms, complementors, distributed innovation, information technology

JEL Classification: O3, L1, L2, L63