Complementarity‐based hypercompetition in the software industry: Theory and empirical test, 1990–2002

Abstract

AbstractThis study examines the hypercompetition phenomenon within the prepackaged software industry. It theoretically develops and empirically validates the idea that dynamically changing complementarity relationships among software product markets increase industry hypercompetition. The study also explains how dynamic capabilities for the management of complementary product markets can enable an independent software vendor (ISV) to create and renew temporary advantages. Specifically, an ISV can maintain or increase its performance rank in its product markets in three ways: (1) by competing with a portfolio of strongly complementary products; (2) by forming a product market portfolio that has strong complementarity relationships with other product markets in the industry; and (3) by dynamically and purposefully responding to the changing product market complementarities: (a) reconfiguring resource allocations of its products to strengthen the complementarities of its product portfolio and (b) undertaking entry and exit moves that reposition the portfolio in a stronger complementarity position. These dynamic capabilities enable the ISV to coevolve with the changing complementarities, change and improve its performance rank, and trigger new competitive moves by rivals; and accordingly, contribute to the escalation of rivalry in the industry. The study finds support for these ideas in a study of 1,200 ISVs from 1990 to 2002. Copyright © 2010 John Wiley & Sons, Ltd.