Systemic Efficiencies in ICT: Evidence from Recent Cases

Posted by Social Science Research Network

Systemic Efficiencies in ICT: Evidence from Recent Cases

Konstantinos Stylianou (University of Leeds)

Abstract:     This paper introduces the concept of systemic efficiencies and applies it to three case studies: the ongoing Google Android investigation in the US and EU, the recent IBM mainframe cases in the US and EU, and the i-mode mobile Internet access architecture in Japan and the US and EU.

Systemic efficiencies are enhancements in the production process or operation of large complex systems, commonly found in the information and communication sector. They involve and affect multiple and dispersed parts of large complex systems whose components are intricately interconnected in a way that changes in one part may trigger readjustments in other parts. Because they draw from multiple parts, they require a holistic overview of the system in which they are interwoven, which makes them harder to identify and appreciate, as evidenced by the lack of adequate consideration in antitrust and regulatory proceedings, including the Google Android and IBM cases this paper will discuss.

Systemic efficiencies can attract regulatory and antitrust scrutiny because they usually emerge through and because of pervasive control over the system and the production process in the industry. Systems organization scholarship, notably from Sanchez & Mahoney, Baldwin & Clark, Langlois, Richardson, and Schilling, suggest that control is necessary as the focusing mechanism that brings together the various parts implicated in the systemic efficiency, without which the attempted combination, novelty, innovation, readjustment or other efficiency might collapse under its own complexity.

At the same time, the fact that systemic efficiencies are so integrative and extensive means that they can bring about dramatic innovations in the industry, such that would not occur at a smaller scale or insular environments. This paper highlights two main benefits: a) the morphing of systemic efficiencies into systemic innovations, which are characterized as “game changers” and can result in new technologies, products, services or even new markets; b) the raising of total welfare through ecosystem value creation and maintenance, a result that is obtained through the synthesis of Baldwin & Woodard’s platform architecture theory and Iansiti & Levien’s keystone firms theory and insights from leveraging (in)compatibility.

Three case studies — i-mode in Japan, US and EU, Google Android in the US and EU, and IBM mainframes in US and EU — will be used to demonstrate how systemic efficiencies manifest themselves and the value they contribute: a) i-mode, a pre- and early-3G Internet access architecture, was a monumental success in Japan, but a failure in Europe and the US, largely because NTT DoCoMo was the only telecom operator who coordinated the multiple parts of the i-mode system (app developers, protocols, payment system, hardware requirements etc) in a coherent way to allow an efficient cooperation among them to emerge; b) a systemic efficiencies analysis of the ongoing Google investigations would suggest that Google’s Android strategy can also be explained by its aim to prevent the extensive fragmentation that plagues the Android ecosystem in at least three regards: the update process, security, and user experience; c) in a series of recent cases against IBM’s mainframes tying and refusal to supply practices, antitrust courts missed an opportunity to identify and appreciate one of the main benefits of IBM’s strategy, namely the maintenance and advancement of the mainframe industry’s dynamism over the course of four decades, through the evolution of the system of IBM mainframes that spawned various clones and complementary actors.