Profiting in the info-coms industry in the age of broadband: Lessons and new considerations

Abstract

Who profits in the info-coms industry in the broadband age, and how? This paper looks at this question by considering broadband as quite a broad phenomenon, including both the most important focus in the current evolution of the Internet, high speed access, and the new services created. We focus on two key stylized facts: SF1: “R&D and patent licensing are increasingly high in this industry, but the initiators of innovations have greatly changed over time”, and SF2: “Small, facilities-less companies contributed to the development of the Internet industry, but have generally performed badly as the industry has matured and broadband use has become widespread”. The paper uses the approach developed by Teece (1986) which analyses strategies of integration, collaboration, licensing and public policy in the presence of technological innovation. These organizational strategies, in practice, are not all profitable and, as Teece correctly stressed as a general principle, their success appears to depend to a great extent on whether they are initiated by innovators or imitators, and how they are articulated within a) regimes of appropriability, b) dominant design issues, and c) complementary assets access. The paper analyses the robustness of Teece (1986), which over the last twenty years has greatly influenced research in economic organization and business strategy on the issue of profiting from innovation, in its ability to provide a framework appropriate to the changes that have occurred in the broadband industry. The paper draws some lessons, and provides some new considerations related to the robustness of Teece's framework. The framework appears robust on SF1: innovators globally have won, though some of them (the best innovators) were acquired by imitators. On SF2, again the innovators have won, but the only success strategy (vertical integration) was only attainable for the largest ISPs/IAPs. We conclude, therefore, that there are many lessons that can be drawn from Teece's framework, though further work should be done on two essential topics: deeper analysis of the sources of technology provision, and investigation of the role of firm heterogeneity.