The reports from the Techtel survey, called ‘PCMarket Opinion
TM
,’ are widely used in industry and quoted frequently in business and trade publications. A
confidentiality agreement requires that all data provided by Techtel be disguised with respect to: 1 the identity of the firms; and 2 the exact values reported.
Examples of the types of products in the Techtel data set includes: spreadsheet software, personal computers, communications software, modems, video cards,
word processing software, and the like. The data also includes multiple product classes e.g. PCs, CD-ROMS, Modems, product forms e.g. laptops, notebooks,
and brands e.g. IBM, Microsoft, Lotus, Novell.
A random sample of 128 firms who had adopted Freelance over 25 quarters of the study period from 1988 to 1994 were used. These firms all adopted the products
and participated in the survey for the complete time frame. Other firms that did not conform to the foregoing were not used. This eliminates problems associated with
firms who dropped out of the survey or joined later in the time period.
The study reported below focuses on the diffusion of competing technology standards rather than the products that are aligned with a given standard. A subset
of the Techtel data containing firms who used or adopted the DOS versus Windows versions of the Lotus Freelance Presentation package was drawn. Hence, the
competition is between DOS and Windows Operating Systems for Freelance adopters. We note that at the beginning of the study period DOS was the operating
system in ascendance and Windows was struggling in the market. In fact, it was not until version 3.1 that Windows dominated the market. The product was held
constant because of our focus on the diffusion of competing technology standards PC operating systems rather than competing products e.g. Microsoft PowerPoint
versus Lotus Freelance. Finally, we did not want adopter preferences for individual brands e.g. Microsoft over Lotus and vice versa to influence the diffusion process
in any large measure.
5. Operationalization of variables
Seven indicator measures were developed from the Techtel database based on those found in the literature e.g. Tornatzky and Klein, 1982 Norton and Bass,
1987, 1992; Brynjolfsson and Kemerer, 1996. These are described below and represent what we believe are the best initial set of measures available for this type
of study. Our approach was to start with the maximum information possible within this database, then eliminate indicators as warranted based on the statistical
analysis.
5
.
1
. Dependent 6ariable Z Adoptions
Techtel’s database provided two variables to measure firm adoption of the new standard Windows relative to DOS: 1 the relative percentage of firms who
bought Freelance for Windows; and 2 the relative percentage of firms that tried Freelance for Windows during the current quarter. Relative rather than absolute
percentages were used so that the dependent variable could serve to track the adoption of both the DOS and Windows operating system. Trial was included in
addition to purchase to provide a more complete measure of actual adoption. The marketing literature e.g. Kotler, 1997 provides numerous rationales of why trial is
a reasonable surrogate. Furthermore, adoption is the key measure found in Tornatzky and Klein 1982review of innovation papers. Our operationalization of
the two dependent indicator measures is as follows:
Z
1
relative adoption bought Freelance for Windows− who bought Freelance for DOS
relative trial tried Freelance for Windows− tried Freelance for DOS Z
2
5
.
2
. Independent X-6ariable Net benefits
Three measures were selected to get at net adoption benefits from choosing the new standard. While the basic model shown in Fig. 1 in the earlier section
represents the X-variable in terms of costbenefits, we assume that costs are implicitly accounted for in the development of the following measures. That is, the
data is derived from panel data in which firms evaluate the adoption of the new operating system version relative to the old operating system version. Hence,
positive evaluations imply that there are greater benefits to costs in acquiring the new operating system version. A decision to stick with the old operating system
implies the costs of switching are greater than the benefits.
Based on an examination of the literature Tornatzky and Klein, 1982; Norton and Bass, 1987, 1992; Brynjolfsson and Kemerer, 1996, we chose the following
proxies: 1 relative awareness; 2 relative consideration; and 3 relative opinion. In particular, we refer readers to the meta-analysis performed by Tornatzky and
Klein 1982. Each of these indicators rationale is described below.
Relative awareness is a reasonable proxy for mass media communications that inform organizations about the various product standards. In terms of the promo-
tion mix, most agree that mass media advertising is ideal for creating awareness. As more adopters become aware of a new standard compared to the old standard due
to increased media spending, the benefits of adopting the new standard increase or the costs decrease. As awareness grows in the market, adopters tend to feel more
secure that the new standard will survive the competition. We note that advertising is often used as a safety heuristic for high-technology products because of the rapid
pace of change in the industry Business Week, 1996b. For example, experts suggest that computer buyers purchase from manufactures who have at least a
two-page color advertisement for a minimum of six issues in popular computer magazines such as Computer Shopper Business Week, 1996a. In a sense, relative
awareness captures the coefficient of external influence in macro-level diffusion models found in the marketing literature.
Relative consideration measures the number of adopters who are seriously thinking about adopting or switching, but have not yet done so. As consideration
increases in favor of Windows relative to DOS, it is reflected in the change in benefits of adopting Windows. Consideration may be related to inertia to the degree
that it is the last step before the go-no-go decision is made. High levels of consideration without adoption may indicate that a firm prefers Windows but is not
willing to adopt due to unclear or uncertain benefits. At the same time, continued consideration indicates benefits are sufficient to warrant significant organizational
effort in terms of evaluation and testing.
Relative opinion is the most direct measure of adoption benefits we have. It represents the relative preferences for Windows compared to DOS. The Opinion
measure captures benefits like technical superiority, ease-of-use, or manufacturer reputation. It is consistent with the literature on network externalities as an
indicator of adoption benefits Katz and Shapiro, 1985. The operationalization of the independent X-variable measure is defined by the indicators as follows:
X
1
relative awareness aware of Freelance for Windows− aware Freelance for DOS
X
2
relative consideration considering Freelance for Windows− consider- ing Freelance for DOS
relative opinion positive opinion for Freelance for Windows− posi- X
3
tive opinion Freelance For DOS
5
.
3
. Independent Y-6ariable Externalities
Wade 1995 points out that there have been few attempts to operationalize network externalities. The following are among the more salient published papers
that have attempted to measure the network externalities construct Greenstein, 1993; Gandal, 1994; Saloner and Shepard, 1995; Brynjolfsson and Kemerer, 1996.
Basically three of these studies impute the existence of network externalities as an unobservable construct, while the fourth Brynjolfsson and Kemerer, 1996 uses an
approach similar to ours. In the first two articles externalities were assumed if there was a desire for compatibility. In the third study, number of bank branches is used
as a proxy for externalities for the adoption of ATM technology.
In this paper we are interested in measuring the changes in the degree or level of network externalities as a market evolves over time. Following Saloner and Shepard
1995, we begin by considering the total percentage of adopters who have adopted either Windows or DOS during the previous quarter as a measure of direct network
externalities as a combined installed base. Both are used since the operating systems are competing and users represent the interested market in the longer run. Clearly,
the larger the installed base, the greater the opportunity to communicate directly with other adopters. In addition to the installed base measure, we also consider the
total number of complementary goods adopted for both standards sold during the
current quarter. This provides a measure of an indirect network externality because the larger the total number of complementary goods available, the greater the
opportunity to purchase compatible software. Techtel’s data provides a measure of the percentage of members who adopted complementary goods for Windows or
DOS operating systems. Both of these measures were based on the average percentages for the two standards DOS and Windows. For instance, if 25 and
35 of the panel adopted complementary goods for the DOS and Windows operations systems, respectively, then the total indirect network externality for that
quarter would be at the average of 30.
Keep in mind that we are measuring externalities at the product market not operating system level. By doing this, the variable provides a measure of how
important compatibility is as a whole. The trade-off is that we are not distinguish- ing between the relative degrees of externality for each operating system. However,
this approach is consistent with other research Gandal, 1994; Saloner and Shepard, 1995; Brynjolfsson and Kemerer, 1996. We have operationalized the independent
Y-variable measures as follows:
Complementary goods average of firms who adopted complementary Y
1
goods for either Windows or DOS during the current quarter Installed base average of firms who adopted either Windows or DOS
Y
2
in the previous quarter.
6. Analysis and findings
