First Look

First Look summarizes new working papers, case studies, and publications produced by Harvard Business School faculty. Readers receive early knowledge of cutting-edge ideas before they enter the mainstream of business practice. For complete details on faculty research, see our Working Papers section.

July 17, 2007

"Established platform providers can be difficult to displace," observes HBS professor Tom Eisenmann and colleagues. But that doesn't mean the barriers to would-be competitors are insurmountable. In a new working paper available for download, Eisenmann et al. describe how "platform envelopment"—basically one platform provider adding another platform's functionality to its own to form a multiplatform bundle—can be a good strategy when groundbreaking innovation is not feasible. Their paper outlines the concept and a variety of envelopment attacks using examples from Apple, Blockbuster, and Microsoft.

Also for download this week: A paper exploring how the stage of a platform's life cycle makes a proprietary or a shared model more advantageous, and another on how chronic dillydallying around online DVD rentals may have wider implications for both companies and consumers (and see our story).

 

Working Papers

Platform Envelopment

Abstract

Due to network effects and switching costs, platform providers often become entrenched. To dislodge them, entrants generally must offer revolutionary products. We explore a second path to platform leadership change that does not rely on Schumpeterian creative destruction: platform envelopment. By leveraging common components and shared user relationships, one platform provider can move into another's market, combining its own functionality with the target's in a multi-platform bundle. Dominant firms otherwise sheltered from entry by standalone rivals may be vulnerable to an adjacent platform provider's envelopment attack. We analyze conditions under which envelopment strategies are likely to succeed.

Download the paper: http://www.hbs.edu/research/pdf/07-104.pdf

Managing Proprietary and Shared Platforms: A Life-Cycle View

Abstract

In a platform-mediated network, users rely on a common platform, provided by one or more intermediaries, that encompasses infrastructure and rules required by users to transact with each other. A fundamental design decision for firms that aspire to develop platform-mediated networks is whether to preserve proprietary control or share their platform with rivals. A proprietary platform has a single provider that solely controls its technology, for example, Federal Express, Apple Macintosh, or Google. With a shared platform, such as Visa, DVD, or Linux, multiple firms collaborate in developing the platform's technology then compete in offering users different but compatible versions of the platform. This article examines factors that favor proprietary versus shared models when designing new platforms then explains how management challenges differ for proprietary and shared platform during subsequent life-cycle stages: network mobilization and platform maturity.

Download the paper: http://www.hbs.edu/research/pdf/07-105.pdf

Film Rentals and Procrastination: A Study of Intertemporal Reversals in Preferences and Intrapersonal Conflict

Abstract

We report on a field study demonstrating systematic differences between the preferences people anticipate they will have in the future and their subsequent revealed preferences. We examine the film rental and return patterns of a sample of online DVD rental customers over a period of four months. We predict and find that people are more likely to rent DVDs in one order and return them in the reverse order when should DVDs (e.g., documentaries) are rented before want DVDs (e.g., action films). Similarly, we also predict and find that should DVDs are held longer than want DVDs.

Download the paper: http://www.hbs.edu/research/pdf/07-099.pdf

 

Cases & Course Materials

None this week

 

Publications

Does Employment Protection Reduce Productivity? Evidence from U.S. States

Abstract

Theory predicts that mandated employment protections may reduce productivity by distorting production choices. Firms facing (non-Coasean) worker dismissal costs will curtail hiring below efficient levels and retain unproductive workers, both of which should affect productivity. These theoretical predictions have rarely been tested. We use the adoption of wrongful-discharge protections by U.S. state courts over the last three decades to evaluate the link between dismissal costs and productivity. Drawing on establishment-level data from the Annual Survey of Manufacturers and the Longitudinal Business Database, our estimates suggest that wrongful-discharge protections reduce employment flows and firm entry rates. Moreover, analysis of plant-level data provides evidence of capital deepening and a decline in total factor productivity following the introduction of wrongful-discharge protections. This last result is potentially quite important, suggesting that mandated employment protections reduce productive efficiency as theory would suggest. However, our analysis also presents some puzzles including, most significantly, evidence of strong employment growth following adoption of dismissal protections. In light of these puzzles, we read our findings as suggestive but tentative.

Ethnic Scientific Communities and International Technology Diffusion

Abstract

This study explores the importance of knowledge transfer for international technology diffusion by examining ethnic scientific and entrepreneurial communities in the U.S. and their ties to their home countries. U.S. ethnic research communities are quantified by applying an ethnic-name database to individual patent records. International patent citations confirm knowledge diffuses through ethnic networks, and manufacturing output in foreign countries increases with an elasticity of 0.1-0.3 to stronger scientific integration with the U.S. frontier. To address reverse-causality concerns, reduced-form specifications exploit exogenous changes in U.S. immigration quotas. Consistent with a model of sector reallocation, output growth in less developed economies is facilitated by employment gains, while more advanced economies experience sharper increases in labor productivity. The ethnic transfer mechanism is especially strong in high-tech industries and among Chinese economies. The findings suggest channels for transferring codified and tacit knowledge partly shape the effective technology frontiers of developing and emerging economies.

The Industry R&D Survey—Patent Database Link Project

Abstract

This paper details the construction of a firm-year panel dataset combining the NBER Patent Dataset with the Industry R&D Survey conducted by the Census Bureau and National Science Foundation. The developed platform offers an unprecedented view of the R&D-to-patenting innovation process and a close analysis of the strengths and limitations of the Industry R&D Survey. The files are linked through a name-matching algorithm customized for uniting the firm names to which patents are assigned with the firm names in Census Bureau's SSEL business registry. Through the Census Bureau's file structure, this R&D platform can be linked to the operating performances of each firm's establishments, further facilitating innovation-to-productivity studies.

Business Groups in Emerging Markets: Paragons or Parasites?

Abstract

Diversified business groups, consisting of legally independent firms operating across diverse industries, are ubiquitous in emerging markets. Groups around the world share certain attributes but also vary substantially in structure, ownership, and other dimensions. This paper proposes a business group taxonomy, which is used to formulate hypotheses and present evidence about the reasons for the formation, prevalence, and evolution of groups in different environments. In interpreting the evidence, the authors pay particular attention to two aspects neglected in much of the literature: the circumstances under which groups emerge and the historical evidence on some of the questions addressed by recent studies. They argue that business groups are responses to different economic conditions and that, from a welfare standpoint, they can sometimes be "paragons" and, at other times, "parasites." The authors conclude with an agenda for future research.