Eric K. Clemons is a Professor at the Wharton School, University of Pennsylvania, where he has served since 1976. His visiting appointments include Harvard University, Cornell University, Hong Kong University of Science and Technology, and the Indian School of Business. He serves on the editorial boards of Journal of Management Information Systems and International Journal of Electronic Commerce. His research specialties are in the areas of IT and business strategy, IT and financial markets, making the decision to invest in strategic IT ventures, managing the risk of strategic IT implementations, and strategic implications of e-commerce for channel power and profitability. He is the Director of the Wharton School’s Sponsored Research Program in Information, Strategy, and Economics; the Area Head for Information, Strategy, and Economics; and program coordinator for the school’s major in e-commerce. He also is the founder of the Hawaii International Conference on System Sciences’ (HICSS) annual Competitive Strategy, Economics, and Information Systems mini-track, which had its twentieth anniversary meeting in January 2007, and the winner of two HICSS "Best Paper" awards.
Rajiv M. Dewan is an Associate Professor at the University of Rochester’s William E. Simon Graduate School of Business Administration, where he is involved in research in electronic commerce, organizational issues in management and information systems, the information technology industry, and financial information systems. He currently serves as the chair of the schoolwide doctoral program. His papers have been published in Management Science, Journal of Management Information Systems, Information Systems Research, INFORMS Journal of Computing, Decision Support Systems, IEEE Transactions on Computers, and other journals. Prior to joining the Simon School, he was a faculty member at Northwestern University’s Kellogg Graduate School of Management. He is a member of the Association for Computing Machinery, IEEE Computer Society, INFORMS, Association for Information Systems, and Beta Gamma Sigma. Dr. Dewan and two other colleagues from the University of Rochester won the "Best Paper" award in the Internet and Digital Economy Track at HICSS-35 in January 2002. He has been organizing HICSS mini-tracks on strategy, economics, IS, and e-commerce since 1999.
Robert J. Kauffman is the W.P. Carey Chair in Information Systems at the W.P. Carey School of Business, Arizona State University. He previously worked in international banking, and served on the faculty of the University of Minnesota, New York University, and the University of Rochester. His graduate degrees are from Cornell University and Carnegie Mellon University. His research focuses on senior management issues in IS strategy and business value, IT investments and financial evaluation, technology adoption, e-commerce and e-markets, and supply-chain management. His research has been published in Organization Science, Journal of Management Information Systems, Communications of the ACM, Management Science, MIS Quarterly, Managerial Decisions and Economics, Information Systems Research, Decision Sciences, and other leading journals and conference proceedings. Dr. Kauffman won best research paper awards at INFORMS CIST in 2003, 2004, and 2005; HICSS in 2004; ICEC in 2005; and the Eighth Information Management Conference in Taiwan in 2006. He is also a 2006 recipient of the IEEE International Society for Engineering Management’s "Outstanding Research Contribution."
This fall’s Special Section of the Journal of Management Information Systems explores the nexus of competitive strategy, economics, and information systems (IS). Seven papers are included that show the continuing interest of IS researchers in the digital economy, the business value of information technology (IT), and IT services outsourcing and services science. Moreover, the perspective of users is explored through papers on the role of trust in selecting an online seller and on the role of privacy concerns in selecting an online merchant. The papers were drawn from the mini-track on "Competitive Strategy, Economics, and Information Systems" and the related twentieth anniversary research symposium at the annual Hawaii International Conference on System Sciences (HICSS), held on the island of Hawaii in early January 2007. The papers were presented at HICSS 2007, and there received comments from the mini-track participants and coeditors. They have all been modified and expanded, based on comments from the mini-track and during the subsequent refereeing process for JMIS.
The Special Section begins with a paper by Il-Horn Hann, Kai-Lung Hui, Sang-Yong Tom Lee, and Ivan P.L. Png, entitled "Overcoming Online Information Privacy Concerns: An Information-Processing Theory Approach." Information privacy on the Internet has reached a high level of personal concern for consumers and citizens, and has been receiving increasingly high corresponding degrees of interest from public policy makers and government officials. Today, the loss of control of social security numbers, financial accounts information, credit records, driver’s license information, and even house occupancy-related records make it increasing possibly for motivated individuals to create false identities that support crime, the theft of money and other personal assets, and other disconcerting actions. Businesses, in particular, may misuse and exploit information that they collect from the Internet. In this paper, the authors apply information-processing theory to support a greater understanding about the efficacy of what businesses can do to minimize the problems they face, in order to effectively obtain customer information, in the presence of customers’ concerns. Specifically, they explore the privacy policies firms offer related to the acquisition and use of personal information, and how they can share the benefits of such information with customers, by offering financial incentives and convenience. The central theoretical perspective of this work characterizes customers as having an understanding of the likely outcomes, so their willingness to share private and personal information will be conditioned by their knowledge and experience. The authors use experimental methods with U.S.- and Singapore-based subjects to explore their privacy concerns in the context of a research design that asked upper-division university students enrolled in e-commerce courses to rank 18 Web sites based on the information privacy concerns that arose. The authors manipulated the extent of the personal information requested by the experimental Web sites, the stimuli in their experiments. They report that firms that offer incomplete privacy protection and some benefits to consumers increase the motivation to share private information, especially financial incentives and convenience. Although the results of this research are experimental, and involve university students and mocked-up Web sites, we nevertheless felt that the importance of this work was such that it deserved our nomination for "best research paper" in the mini-track at HICSS 2007, and so we chose to position it as the lead-off paper of this Special Section.
The second paper is a case study, addressing the role of trust in electronic markets and the role of information asymmetries in undermining trust. This case examines the limitations of eBay’s highly visible, highly flawed, consumer feedback rating system and the prospects for a business aimed specifically at addressing these limitations. Eric K. Clemons’s contribution to the Special Section is entitled "An Empirical Investigation of Third-Party Seller Rating Systems in E-Commerce: The Case of buySAFE." It provides a basis for ongoing theory development related to organizational strategies that recognize the importance of information asymmetries in the digital marketplace, but it also supports MBA and executive teaching. The paper’s theoretical perspective is founded on the Nobel Memorial Prize in economic sciences--winning analysis of markets in which the buyers’ information deficit reduces their individual willingness to pay for the goods and services that they would like to purchase. In extreme cases, the theory argues, the problems created by buyers’ information asymmetries can lead to market collapse. The case provides a detailed examination of buySAFE’s certification of eBay sellers. buySAFE’s business model involves bonding sellers’ transactions for as much as $25,000. This has a number of beneficial effects on the online auction process: it improves the information endowments of the buyers, it increases their willingness to pay for the goods and services offered, and it increases the margins and total revenues of the sellers. Clemons reports on the difficulties that the company has had with its business model and acceptance in the marketplace by examining the senior executives’ decisions to adjust their approach to the market and find a way to achieve higher profitability.
Ashish Arora and Chris Forman are the authors of the third paper of this Special Section. Their contribution is "Proximity and Information Technology Outsourcing: How Local Are IT Services Markets?" Using a sample of nearly 100,000 firms in the United States from 2002 and 2004, the authors evaluate the supply and demand relationship for IT outsourcing services that are offered in regional locations of the firms. They focus on two kinds of services--programming services and design and hosting services. When these services are primarily offered locally to firms, the authors argue that increases in local supply and lower outsourcing costs should result. By the same token, their theoretical argument states that when the IT outsourcing markets are not local (though they need not be international, they could simply be more distant), then the local supply of IT outsourcing services, and the related prices, will not greatly affect demand for these services. The authors’ logic as it relates to the two different types of outsourced IT services is compelling: programming and design projects require communication about detailed user requirements between the contracting user and the vendor. Hosting, on the other hand, costs less in terms of coordination between the user and the vendor. The authors report that the probability of outsourcing programming and design increases with the local supply of outsourcing, and there is a timewise trend in this direction. The outsourcing of hosting decisions, however, is more sensitive to local demand--supply dynamics, especially when the user firm requires very low network downtime and strong security safeguards.
The fourth paper is by Michel Benaroch, Mark Jeffery, Robert J. Kauffman, and Sandeep Shah, entitled "Option-Based Risk Management: A Field Study of Sequential Information Technology Investment Decisions." The authors study the actual application of an option-based risk management (OBRiM) framework, and its accompanying theoretical perspective and methodology, in a large IT investment problem. These problems involve alternative investment structures, each of which offers different financial returns, and each of which may impose a different risk profile for the firm. The authors evaluate the application of the OBRiM methodology to surface the costs, benefits, and risks associated with a complex sequential investment setting, both with and without real options. The methodology combines traditional, purchased real options, which subsequently create strategic flexibility for the decision maker, with implicit or embedded real options, those that are available with no specific investment required provided the decision maker recognizes them. This combination helps the decision maker both (1) explicitly surface all of his strategic choices and (2) accurately value those choices, including those that require prior enabling investments. The authors argue that their approach helps managerial decision makers to determine which real options ought to be embedded in an IT investment to manage risk effectively for the future. The authors further state that in view of IT investment-specific risks, expected levels of business value can be enhanced by embedding carefully chosen real options to make contingent investments to build desirable flexibility, so that it is possible to avoid the worst predicted outcomes associated with unavoidable risks. The authors report that the main benefits for IT investment decision makers are the simplification of real options analysis, better accuracy in analyzing the risks, and more effective support for forward-looking planning.
The fifth paper, "Comparison of Software Quality Under Perpetual Licensing and Software as a Service," is by Vidyanand Choudhary. The author reports that software as a service (SaaS) is a rapidly growing model for software licensing that involves the user’s purchasing a subscription from the software publisher, instead of buying a perpetual use license. The interesting difference with this new approach is that the incentives for the software producer change so that we are more likely to see new features of the software being released as the innovations occur. This is in contrast to the more well-known business models of Microsoft and Apple, which release significant new products that often are indistinguishable from the upgrades of different aspects of the functionality of their existing software. The author develops a two-period analytical model of software producer investment that is applicable to software products that can be continuously upgraded over time. He shows that SaaS licensing leads to greater investment in product development under most conditions and that, as a result, we should expect to see higher-quality SaaS software products offered in equilibrium in comparison to perpetually licensed software products. The outcome should be well appreciated in the marketplace, because it seems like "all boats rise." Even though the producers of SaaS software may be able to obtain high profitability, it is also likely to be the case that consumers will benefit from higher social welfare associated with continuously updated software products.
The sixth paper of the Special Section is by Rajiv M. Dewan, Marshall L. Freimer, and Yabing Jiang. The authors present "A Temporary Monopolist: Taking Advantage of Information Transparency on the Web." In the past several years, this journal has published several influential papers that have dealt with issues involving information exploitation, poaching of strategic knowledge and intellectual property, and related developments that create unique economic dynamics around competitive information in the digital marketplace of the Internet. The present paper extends that research stream by considering the possibility that information that is shared publicly on an e-commerce Web site is not only available for use by the firm’s customers but is also available for use by competitors who have the technical capacity and strategic acumen to exploit it. In the context of a duopoly game-theoretic model of competition involving e-tailers and consumers, the authors study what happens when the e-tailers set prices for a commodity product with limited supply, but simultaneously try to enhance the quality of their services to customers by identifying inventory stockouts online. We have all seen this with cameras and other consumer electronics ("On backorder"), airline tickets ("Only two seats left!"), and other goods sold on the Internet. The authors distinguish between firms with higher and lower fill rates for orders, and explain why their model predicts that more consumers will tend to visit the high fill rate e-tailer first when dynamic pricing is used than when static pricing is used. They also report results to suggest that consumer welfare is greater under dynamic pricing in the presence of software agent strategies that mine competitor information about inventory levels, due to consumers’ lower search costs.
The seventh paper, "Digital Consumer Networks and Producer--Consumer Collaboration: Innovation and Product Development in the Video Game Industry," is by Reina Y. Arakji and Karl R. Lang. This research examines the role of user-generated content in the competitive strategy of firms, in the tradition of Eric von Hippel and the authors’ previous work in HICSS mini-tracks. They note that modders’ extensions to computer games can make the original game more attractive to buyers and can serve as a complement, or they can compete with the game or with the original game developers’ planned extensions. The authors note that modders can be encouraged through incentives--principally royalties. The job of modders can be made easier through the division of the original game into a core engine and the game libraries; providing the modders with a development kit to create their own game libraries enables modders to develop their own games more easily while still requiring that users purchase the core engine from the original developers. The authors examine alternative strategies for game developers to encourage complementarity with modders and to provide financial incentives and support tools, while simultaneously protecting their intellectual property. They develop optimal strategies for game developers, within the context of existing intellectual property regimes. The authors use economic models to determine how much systems openness to provide to modders and the size of financial incentives and royalties sharing to offer.
The reviewers of early versions of these papers for the 2007 Hawaii International Conference on System Sciences and the JMIS reviewers deserve our generous thanks for providing critical and insightful developmental reviewing. We also thank the participants at HICSS for their useful input. Dongwon Lee of Korea University, Ajay Kumar of the Government of India, and Ryan Sougstad of the University of Minnesota offered special support through helpful debriefing notes on the authors’ HICSS presentations. These led the coeditors to request additional changes to the post-HICSS revised papers. We also appreciate the help of our colleagues at the Carlson School of Management of the University of Minnesota, the W.P. Carey School of Business of Arizona State University, the Simon Graduate School of Management of the University of Rochester, and the Wharton School of the University of Pennsylvania. Finally, we acknowledge the long-term support of Ralph Sprague (HICSS Conference Chair), Hugh Watson (HICSS Track Chair, Organizational Systems and Technology), and Vladimir Zwass (Editor-in-Chief, JMIS), without whom neither this Special Section nor the sessions on which it is based would have been possible.