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Winning the Hardware-Software Game: Using Game Theory to Optimize the Pace of New Technology Adoption, Safari

By Ruth D. Fisher

Published by Prentice Hall

Published Date: Feb 26, 2009

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 “Many books discuss high-tech decision making, but this is the only book I know of that provides a systematic approach based on objective analysis.”

–Matthew Scarpino, author of Programming the Cell Processor


“This book offers a unique approach to analyzing business strategy that changes the focus and attitude to a lively and fun exercise of treating business strategy as a game.”

–Dave Hendricksen, Architect, Thomson-Reuters




Too many advanced technologies fail the test of adoption, at immense cost to their creators and investors. Why? Many new technologies are launched into complex ecosystems where hardware, software, and/or connectivity components must work together–for instance, next-generation gaming and video platforms that can only succeed if they offer attractive, compatible content. Often, users aren’t ready to give up existing systems, and content or connectivity providers aren’t ready to move away from existing markets. In either case, the real issue is a lack of coordination. Fortunately, coordination problems have specific, proven solutions, and Winning the Hardware—Software Game shows you exactly how to find them.


Drawing on advanced ideas from game theory, economics, sociology, and business strategy, author Ruth D. Fisher presents a systematic framework for identifying, assessing, and resolving coordination problems among all the participants in a product ecosystem. Writing in plain, nontechnical, nonmathematical English, Dr. Fisher helps you discover specific steps that will prepare your customers and partners for successful adoption. Using these techniques, you can shape strategy, systematically reduce risk, and dramatically increase profitability.


Topics covered in this book include:

  • Discovering the forces that drive or delay adoption by users and content providers
  • Understanding networks, network effects, switching costs, technology compatibility, and other crucial issues
  • Speeding the pace of adoption, and getting to the “tipping point” sooner
  • Clarifying and restructuring the incentives that motivate users and software providers
  • Engineering new systems to maximize the likelihood of adoption
  • Creating expectations of adoption and decreasing the relative value of older systems
  • Learning from Apple Newton versus Palm Pilot, HD DVD versus Blu-Ray, and other
    significant technology battles
  • Leveraging lock-in, path dependence, standardization, and first-mover advantage

With so much at stake, Winning the Hardware—Software Game is a required resource for everyone concerned with new technology adoption–executives, strategists, R&D leaders, marketers, product managers, industry analysts, and investors alike.

Table of Contents

Preface xi

Acknowledgments xv

About the Author xvii

Introduction xix


Chapter 1: Network Effects 1

1.1 Definition and Sources of Network Effects 2

1.2 Switching Costs 7

1.3 Compatibility 11

1.4 Network Effects and the Hardware—Software Game 15


Chapter 2: Technology Adoption Lifecycles 17

2.1 Production and Consumption Lifecycles 18

2.2 Lifecycles of Network Effects 21

2.3 Technology Replacement Lifecycles 28

2.4 Critical Mass 33

2.5 Technology Adoption Lifecycles and the Hardware—Software Game 39


Chapter 3: Technology System Users 41

3.1 User Demand for New Technology Hardware 42

3.2 User Demand for New Technology Content 61

3.3 Summary of User Demand for New Systems Hardware and Content 66


Chapter 4: Technology System Suppliers 71

4.1 Provision of Hardware 72

4.2 Provision of Content 82


Chapter 5: The Hardware—Software Game 87

5.1 Introduction to Game Theory 87

5.2 Definition of the Hardware—Software Game 92

5.3 Assumptions about Market Dynamics 95

5.4 Overview of the Game 101

5.5 Simulation Categories and Scenarios 104

5.6 Profit Frontiers by Category of Network Effects 109

5.7 Impact of Speed of Adoption on Profitability 135

5.8 Sensitivity of Profits to Changes in Market Drivers 139

5.9 General Implications 145


Chapter 6: Addressing the Chicken-and-Egg Problem 151

6.1 Statement of the Problem 152

6.2 General Responses to the Chicken-and-Egg Problem 156

6.3 Scenario-Specific Responses to the Chicken-and-Egg Problem 181


Chapter 7: Summary, Applications, and Extensions 189

7.1 Key Points from the Analysis 189

7.2 Tools for Applying the Model 192

7.3 Extensions of the Analysis 196


Appendix A: Model of the Hardware—Software Game 199

A.1 Definition of Key Terms 199

A.2 User Demand Functions 200

A.3 Provision of Hardware 203

A.4 Provision of Content 205

A.5 Three-Period Model 207


Appendix B: Further Information 217

B.1 Adoption of VHS versus Betamax 217

B.2 Adoption of Next-Generation DVD 218

B.3 Adoption of HDTV 218

B.4 Adoption of Consumer Durables 220

B.5 Networks and Network Effects 220

B.6 Lock-in and Path Dependence 222

B.7 Standardization and Compatibility 223

B.8 Innovation and Adoption of New Technologies 223

B.9 Product Lifecycles 225

B.10 Critical Mass 225

B.11 First-Mover Advantages in Adoption of New Technologies 226

B.12 Social Networks and Technology Adoption 227


References 229

Index 233