Week 8_Huang et al. (2013)_Xinyu

Appropriability Mechanisms and the Platform Partnership Decision: Evidence from Enterprise Software

The efficacy of intellectual property rights (IPR) as a mechanism to appropriate the returns from innovation has been studied with mixed empirical findings. Following prior literature, this research examines whether ownership of IPR and downstream capabilities such as marketing capability is an effective mechanism to encourage the owner of innovation (or so-called ISV) to join proprietary platform and prevent platform owner to expropriate the innovation. The study is conducted in the environment of software industry, and SAP is the software platform investigated.

The paper proposes that both of the two anti-expropriation mechanisms will increase the probability of ISV partnering with the software platform. It also propose that strong downstream capabilities, therefore, will weaken the value of intellectual property protection mechanism. Finally, it posits the value of IP protection will be enhanced if the markets served by the ISV grow rapidly. In this research, partnership with software platform is indicated using a binary data based on ISVs’ decision to become certified by a platform or not. Downstream capabilities is measured by trademarks and consulting services, and market growth is measured by sales growth. The primary model is built upon a survival model. However, for the purpose of robustness check, it also use generalized estimating equation model and linear probability model with fixed effects, as well as alternative measurement for key variables. Three hypotheses are all verified.