Digital Innovation, Switching Costs and Network Externalities: An Examination of Lock-In

Abstract

Digital innovation radically changes the appearance of established industries and alters the way of how firms do business. Digital technology permeates products and services and structures the relationship between providing firms and their customers. Specifically, this paper examines how firms engage their customers in repeat business, thus locking customers in further transactions with their incumbent providers. Building on the antecedents of lock- in, I demonstrate how digital innovation will shift the attention towards the exploitation of network externalities and how the role of switching costs will diminish in the era of digital. I develop a conceptual framework that maps the characteristics of digital innovation and digital technology, depicts their impact on the antecedents of switching costs and network externalities, and, ultimately, points out how switching costs and network externalities will affect lock-in. I contribute to the strategic management and information systems literature by outlining the emerging disequilibrium of relevance between the antecedents of lock-in, facing a world of continuous digital innovation.