MIS
Quarterly
Special Issue on Standards
(2006 August, Vol. 30, p. 515-539)
Migration
to Open-Standard Interorganizational Systems:
Network
Effects, Switching Costs, and Path Dependency
Kevin Zhu,� Ken Kraemer,� Vijay Gurbaxani,� and Sean Xu
Abstract
As firms seek to improve coordination
through the use of electronic interorganizational
systems (IOS), open standards are becoming increasingly important. To better
understand the process of standards diffusion, we investigate firms� migration
from proprietary or less open IOS (i.e., electronic data interchange or EDI) to
open-standard IOS (i.e., the Internet). Theoretical work in economics suggests
that network effects are a determinant of network adoption, yet the extant
literature falls short of empirical testing of the theory. We develop a
conceptual model that features network effects, expected benefits, and adoption
costs as prominent antecedents. We examine the model on a large dataset of
1,394 firms. The empirical results demonstrate the significant impacts of
network effects on open-standard IOS adoption. We find that adoption costs are
a significant barrier to open-standard IOS adoption, but EDI users and
non-users treat this very differently: EDI users are much more sensitive to the
costs of switching to the new standard. This finding illustrates that
experience with older standards may create switching costs and make it
difficult to shift to open and potentially better standards, a phenomenon
called �excess inertia� in technology change. Further testing the underlying
factors that contribute to network effects and adoption costs, we find that
trading community influence is a key driver of network effects, while
managerial complexity, as opposed to financial costs, is a key determinant of
adoption costs. Overall we believe that this study, based on a rigorous
empirical analysis of a unique international dataset, provides valuable
insights into a set of key factors that influence standards diffusion.
Keywords
Open Standards, Standards Diffusion,
Network Effects, Path Dependency, Interorganizational
Systems, Internet, Electronic Data Interchange, Economics of Standards