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Evaluating Investments in Portability and Interoperability between Software Service Platforms

Author

Listed:
  • Netsanet Haile

    () (Seoul National University, Seoul, Korea)

  • Jörn Altmann

    () (Seoul National University, Seoul, Korea)

Abstract

Within a closed ecosystem, end-users cannot interoperate with other platforms or port their software and data easily without a cost for interface integration or data re-formatting. The customers of these closed software service platforms are locked-in. Potential customers, who are aware of this lock-in issue, are hesitant to adopt a closed software service platform, slowing down the wide deployment of the software service platform. This paper applies an economic perspective to investigate the value creation for providers and users at different levels of interoperability. For the analysis, a value creation model for software service platforms within a software service ecosystem has been developed. Simulations of the value creation model show that, even if investments in interoperability and portability are aimed at addressing user requirements, their impact also drives the providers’ profitability. Furthermore, emerging providers require investing more than market leading providers, as they have less power to set de facto standards. The simulation results also show that there is an optimal level of investments, with respect to profit and return on investments. Overall, from these results, platform providers cannot only obtain an understanding on how investments in interoperability and portability impact cost, enable cost-effective service integration, and create value, but also design new strategies for optimizing investments.

Suggested Citation

  • Netsanet Haile & Jörn Altmann, 2017. "Evaluating Investments in Portability and Interoperability between Software Service Platforms," TEMEP Discussion Papers 2017136, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised May 2017.
  • Handle: RePEc:snv:dp2009:2017136
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    File URL: ftp://147.46.237.98/DP-136.pdf
    File Function: First version, 2017
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    References listed on IDEAS

    as
    1. Netsanet Haile & Jorn Altmann, 2015. "Value Creation in Software Service Platforms," TEMEP Discussion Papers 2015123, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Sep 2015.
    2. Netsanet Haile & Jorn Altmann, 2013. "Estimating the Value Obtained from Using a Software Service Platform," TEMEP Discussion Papers 2013105, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Aug 2013.
    3. Netsanet Haile & Jorn Altmann, 2015. "Risk-Benefit-Mediated Impact of Determinants on the Adoption of Cloud Federation," TEMEP Discussion Papers 2015122, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised May 2015.
    4. Oh, Dong-Hyun & Lööf, Hans & Heshmati, Almas, 2009. "The Icelandic Economy: a victim of the financial crisis or simply inefficient?," Working Paper Series in Economics and Institutions of Innovation 199, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    5. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
    6. Netsanet Haile & Jörn Altmann, 2016. "Structural analysis of value creation in software service platforms," Electronic Markets, Springer;IIM University of St. Gallen, vol. 26(2), pages 129-142, May.
    7. Lee, Sang-Yong Tom & Kim, Hee-Woong & Gupta, Sumeet, 2009. "Measuring open source software success," Omega, Elsevier, vol. 37(2), pages 426-438, April.
    8. Ashish Arora & Farasat A. S. Bokhari, 2007. "OPEN VERSUS CLOSED FIRMS AND THE DYNAMICS OF INDUSTRY EVOLUTION -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(3), pages 499-527, September.
    9. Schiff, Aaron, 2003. "Open and closed systems of two-sided networks," Information Economics and Policy, Elsevier, vol. 15(4), pages 425-442, December.
    10. Ashraf Bany Mohammed & Jorn Altmann & Junseok Hwang, 2010. "Cloud Computing Value Chains Understanding Businesses and Value Creation in the Cloud," TEMEP Discussion Papers 201061, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Jun 2010.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Cloud Computing; Software Service Platform; Interoperability; Portability; Value Creation Model; Computational Economics; Simulation; Value Analysis; Net Present Value; Return On Investments; Investment Assessment.;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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