McCombs TODAY

Edward Anderson Jr., associate professor in the Department of Information, Risk, and Operations Management (IROM), is one of the leaders in a research group that received more than $700,000 in federal stimulus money from the National Science Foundation to study how innovation unfolds in platforms such as the iPhone. Researchers from Tulane and Boston University will also be taking part in the work. (Read the story in the Austin American Statesman.)

Anderson reports the following regarding the research:

The grant itself was awarded for “Innovation in Platform-Driven Supply Chains.” Platforms are things like iPhones or Windows or Adobe Acrobat in which there are a number of content consumers, but also a number of content providers. The economics governing platforms are often counter- or just plain non-intuitive because of the network externalities between content providers, between content consumers, and between consumers and providers. Even developing price models for these products is difficult. For example, the iPod charges content consumers, but Adobe Acrobat charges content providers. When innovation comes into play, things become even more complex.

Videogame platforms like the Nintendo Wii of Microsoft Xbox illustrate some of these issues nicely. Part of what goes into a consumer’s decision as to which platform to buy are not only the video and sound quality of the system, but more importantly how many of their friends have that platform (so they can play with them online) and how many games are available for that system? Nintendo gambled that these second two factors were more important than video or sound quality. So they sacrificed them to keep development costs for third-party game developers such as Electronic Arts down and, in some cases, encourage them to take advantage of the Wii’s innovative motion-detection input device. And it seems to have worked out for Nintendo as they now have the leading number of third-party games developed for them on the market. So they improved sales by reducing the quality of their product in some respects.

With this grant, we are trying to understand how innovation unfolds in these environments, which are ubiquitous, but poorly understood. One of the more exciting examples is the role of energy providers like Austin Energy as they move from a centralized system in which they produce and distribute power to customers into one in which they distribute renewable energy from numerous third-party sources such as wind farms and solar installations to customers, who also might be providers as well. Other exciting applications include knowledge management systems and virtual worlds.