Utilizing Use: the Effect of Customer Learning and Evaluation on Technology and Industry Evolution

This paper argues that the way customers use a new technology may differ from what producers intended and thereby influences the evolution of that technology and its industry. Customers may interpret the technology differently or may adapt it to their local conditions and requirements, generating variety in how users actually deploy products. Moreover, as customers use new products, they may learn new ways of using the technology, which affects their future purchasing and deployment decisions. This paper argues that incorporating these aspects of demand evolution provides a better explanation of the shifts in competition within an industry than prevailing evolutionary models do. This paper asserts that an industry’s shift to cost-based competition depends upon customers converging on a more standardized use of the technology and that the competitive significance of a discontinuous technological change is not determined until its use characteristics are established. A brief discussion of the experience of U.S. manufacturers with manufacturing software from 1954 to 1996 demonstrates the workings of the model. Addressing demand evolution also adds theoretical insight into the study of the co-evolution of an industry’s competitive dynamics with firm-level capabilities. By showing how one environmental participant, the customer, evolves in ways that are interrelated to firms innovating, this research argues that the source of competitive advantage lies in the interplay between firms adapting and the environment selecting. Creative and strategic management of how customers understand and use a technology should be an important competitive factor in technology industries.