Understanding the Antecedents of Lock-In, Switching Costs and Network Externalities in the Context of Digital Innovation

Abstract

Digital innovation radically changes the appearance of established industries and alters the way firms do business. Digital technology permeates products and services and structures the relationship between firms and their customers. This chapter specifically 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, we demonstrate how digital innovation will shift attention toward the exploitation of network externalities and how the role of switching costs will diminish in the digital era. We developed a conceptual framework that maps the characteristics of digital innovation and digital technology, depicts their impacts on the antecedents of switching costs and network externalities, and ultimately points out how switching costs and network externalities will affect lock-in. We 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.