Deriving Value from Platforms in IDM

Deriving Value from Platforms in IDM

Sze Wei (Nanyang Technological University, Singapore), Niazi Babar Zaman Khan (Nanyang Technological University, Singapore) and Satish Kumar Sarraf (Nanyang Technological University, Singapore)
DOI: 10.4018/978-1-61350-147-4.ch010

Abstract

In this chapter, we will discuss what value is and how a firm in the Interactive Digital Marketplace may garner it with a fundamental technology option. Firms often come to a crossroad, choosing whether to keep a platform open or closed. This decision is never direct or ever simple. We explore the various value propositions that a firm may derive by keeping the platform open versus closed and see how the firm has to look both ways, inwards and outwards, to arrive at a solution. Market forces, though invisible, are strongly felt by the firm. This chapter also investigates how these forces affect this decision. Lastly, we propose an overarching framework that we hope may prove useful in aiding the reader with this difficult decision.
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Interactive Digital Marketplace

For the purpose of this chapter, we define the Interactive Digital Marketplace (IDM) as a landscape in which high technology digital products are traded, sold or exchanged. We continue this assertion with a notion that the landscape is based on the Internet and its underlying networking infrastructure. According to Mohr et al. (2005), several definitions of “high technology” exist and for the purpose of our discussion, we define high technology products in IDM in terms of their common characteristics. This is summarized in Table 1 below:

Table 1.
A high technology product (Mohr et al., 2005)
TermDefinitionExamples
Market uncertaintyAmbiguity about the type and extent of customers needs that can be satisfied by any particular technologyToshiba’s HD DVD and Sony’s Blu-ray disc
Technological uncertaintyNot knowing whether the technology can deliver on its promise to meet specific needsMars Exploration Rover, Hubble Space Telescope.
Competitive volatilityChanges in the competitive landscape, the products delivered and tools used to make these productsAmazon.com and Expedia.com versus traditional bookstores like Barnes & Noble.
Unit-one costsSituation when the costs of producing the first unit are high relative to the costs of re-production.Software creation are expensive but relatively inexpensive to duplicate and re-produce
Tradability problemsUnderlying know-how represents portion of the value of the product or service.Latitudes and longitudes coordinates of a particular location.
Knowledge spilloversSynergies in creation and distribution of know-how further enrich the pool of existing knowledge.Human Genome Project helps pharmaceutical companies to develop ace-inhibitors.

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