In the high-tech sector, helping your rivals may prove beneficial!

New study by Tanaka Business School lecturer examines Intel’s relationship with third-party developers and demonstrates techniques for continued third-party innovation

The high-tech world is dominated by platforms, which are systems of technologies that combine core components (such as microprocessors or operating systems) with complementary products and services (such as software applications or media content) made by a variety of firms or third parties. A major concern in these industrial "ecosystems" is that when powerful platform owners enter the market for complementary products, their dominating presence may drive down third-party innovation. A new study by Dr. Annabelle Gawer of Tanaka Business School and published in Journal of Economics & Management Strategy examines how platform owners, specifically Intel, interact with third-party developers to maintain innovation and achieve platform leadership. Rebecca Henderson of the Massachusetts Institute of Technology was also a co-author of the study.

The study includes over seventy interviews with Intel staff and covers fourteen years of strategy decisions. It finds that Intel realises both the great appeal of entering complementary markets, and the potential damage that a loss of third-party innovation could have on the sale of its microprocessors.

To ensure its continued financial success, Intel works to convince competitors in complementary markets that it will not use its superior financial capacity to drive down prices, signalling that it expects profit both for itself and other entrants, and further encourages innovation by indirectly subsidising entry into complementary markets for all potential developers, often by sharing intellectual property on "connectors" or interfaces.

To ensure the health of the "ecosystem" as a whole, Intel has also established the Intel Architecture Lab (IAL) for the purposes of stimulating demand for processors in general, essentially playing a coordinating role to help cross-industry initiatives and innovations to take off.

This examination of the Intel model has wide-reaching implications for the understanding of competition in complementary markets and the role of organisational form in structuring competition. "This study suggests that, while the entry of firms with market power in complementary markets can be beneficial under some conditions, in other cases it can be hurtful to innovation," say the two co-authors. The study also suggests ways by which firms can mitigate the risks of diminished external innovation incentives.

Annabelle Gawer, Ph.D. is a lecturer in Strategy and Innovation at Imperial College London's Tanaka Business School. Dr. Gawer has written extensively on platform leadership, industrial ecosystems, and the orchestration of industrial innovation.