Competition in the Absence of Standards in Enterprise Software Industries: A Social Network Perspective

Whether developed by a firm (de-facto) or set by a committee (de-jure), interface standards are an important element of competition in software industries. While adopting the right set of technology standards for their products is crucial for firms in the enterprise software industry, the absence of a single set of open standards or leading standards from a dominant firm makes this choice difficult for firms. Despite the absence of standards seamless interaction between products of different firms is a requisite for organizational end-users. Therefore, firms maintain alliances to render their products technical compatible. While prior research identifies primarily access to user bases as the network externality benefits arising from technical compatibility, we argue that in addition alliances also enhance social compatibility. We view this dimension of compatibility as the market’s perception of compatibility resulting from reputation transfer and knowledge spillovers through alliances. We also argue that benefits from such compatibility are transmitted through both direct and indirect partners in the alliance network. We use the social network perspective to understand how resources are transferred in this alliance network and aggregate these resources into a construct that we call Sociotechnical capital. We then propose that in the absence of uniform industry-wide leading standards the relative prominence of a firm in this network is a valid surrogate for market power and is correlated with its performance. To address the limitations of extant social network measures we develop an alternative theoretically grounded metric for firm prominence that is based on the Sociotechnical resource transfer. An analysis of 65 enterprise system firms empirically supports our proposition. Our study offers insights into the behavior of firms in the enterprise systems software industry.