Battle on the Wrong Field? Entrant Type, Dominant Designs, and Technology Exit

• Date: 01 December 2017
• DOI: http://doi.org/10.1002/smj.2669
• Published date: 01 December 2017

Strategic Management Journal

Strat. Mgmt. J.,38: 2579–2598 (2017)

Published online EarlyView 4 July 2017 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2669

Received 13 October 2015;Final revision received4 April 2017

Battle on the Wrong Field? Entrant Type, Dominant

Designs, and Technology Exit

Tianxu Chen,1,†Lihong Qian,1,*†and Vadake Narayanan2

1School of Business Administration, Portland State University, Portland, Oregon

2Department of Management, Bennett S. LeBow College of Business, Drexel

University, Philadelphia, Pennsylvania

Research summary: Startups often compete with diversifying entrants in the technology

race to dene dominant designs, which can be platform technology-based or non-platform

technology-based. However, little research has examined the relativerisk of technological exits for

startups vs. diversifying entrants in such “dominance battles.” We develop a contingency frame-

work that links a rm’s technology exit to its pre-entry experience and the characteristics of the

dominance battle. Witha sample of 134 technologies involved in 31 dominance battles in the infor-

mation technology industry from 1979 to 2007, we show that technologies of startups were more

likely than those of diversifying entrants to exit from platform technology-based dominance bat-

tles; however,this relationship did not exist in non-platform technology-based dominance battles,

or after the emergence of dominant designs.

Managerial summary: How can a startup that tries to create a dominant design strategize to

survive the erce technology race? This study demonstrates that choosing the right battleeld is

of paramount importance. Two aspects of a battleeld are shown as relevant: the type of tech-

nology and the stage of industrial evolution. Our results show that technologies sponsored by

startups tend to have higher exit rates than those sponsored by diversifying entrants in domi-

nance battles characterized by platform technologies, but this penalty is not evident in dominance

battles characterized by non-platform technologies or after the emergence of dominant designs.

Furthermore, our study suggests that lack of organizational legitimacy, complementary assets,

and integrative capabilities may explain why startups have a higher risk of technology exit than

diversifying entrants. Copyright © 2017 John Wiley & Sons, Ltd.

Many technology industries are characterized

by the presence of dominant designs (DDs) that

emerge as the result of intense competition among

rivaling technologies (Anderson & Tushman,

1990; Narayanan & Chen, 2012; Suarez, 2004;

Suarez, Grodal, & Gotsopoulos, 2015). This form

of competition, referred to as a “dominance battle”

Keywords: dominance design; platform technology;

pre-entry experience; integrative capabilities; entrant type

*Correspondence to: Lihong Qian, School of Business Admin-

istration, 631 SW Harrison St, Portland, OR 97201. E-mail:

lihongqian@pdx.edu

†The rst two authors contribute equally.

Copyright © 2017 John Wiley & Sons, Ltd.

(Suarez, 2004) or a “standards war” (Cusumano &

Gawer, 2002), often involves tremendous uncer-

tainty (Anderson & Tushman, 1990), high rates

of technological shakeouts (Schilling, 2002), and

organizational failure (Agarwal, Sarkar, & Echam-

badi, 2002). Despite such challenges, rms still

actively participate in dominance battles because

these technology races well reect Schumpeter’s

(1950) notion of “creative destruction,” in which

new markets emerge and rms enjoy unprece-

dented opportunities for wealth creation (Anderson

& Tushman, 1990).

Dominance battles are particularly meaning-

ful for startups because the technological chaos

2580 T. Chen, L. Qian, and V. Narayanan

associated with DDs lowers entry barriers and

opens a window of opportunity for startups to

compete head-on with established rivals (Anderson

& Tushman, 1990). As Tushman and Anderson

(1986, p. 444) stated, “new rms founded to

exploit the new technology will gain market share

at the expense of organizations that …remain

committed to outmoded technology.” However,

established rms participating in dominance battles

as diversifying entrants are generally considered to

have advantages over startups because of the for-

mer’s pre-entry experience1(Barnett & Freeman,

2001; Bayus & Agarwal, 2007; Carroll, Bigelow,

Seidel, & Tsai, 1996; Helfat & Lieberman, 2002;

Klepper & Simons, 2000). Indeed, the research in

entrepreneurship suggests that startups often face

great challenges due to their lack of organizational

legitimacy when entering new markets (Navis

& Glynn, 2010, 2011), whereas the industrial

evolution literature has conceptualized startups’

disadvantages in terms of complementary assets

(Bayus & Agarwal, 2007; Mitchell, 1989) and

integrative capabilities (Chen et al., 2012; Helfat

& Campo-Rembado, 2016; Qian, Agarwal, &

Hoetker, 2012). Linking these ideas to dominance

battles, we ask: Compared with technologies spon-

sored by diversifying entrants, are technologies

sponsored by startups likely to have higher exit

rates in dominance battles?

Moreover, developments in information tech-

nology (IT) in the past few decades have imposed

added complexity on the nature of dominance

battles. In many of today’s technology industries,

DDs may emerge as platform technologies or as

non-platform technologies (Gawer, 2014; Mur-

mann & Frenken, 2006; Narayanan & Chen, 2012).

A platform technology DD, such as Microsoft’s

Windows operating system (OS), is a baseline tech-

nical architecture that allows other technologies

to be developed on it; in contrast, a non-platform

technology DD, such as Adobe’s Postscript printer

language, is an add-on feature that sits on a

platform technology. Platform technologies differ

signicantly from non-platform technologies in

both design features (Baldwin & Clark, 2000;

1Wedene a diversifying entrant as a rm that possesses pre-entry

experience and that has commercial products before it enters the

focal dominance battle (Helfat & Lieberman, 2002). In contrast,

a startup is an entrepreneurial rm that is created within the

industry in which the dominance battle occurs and whose product

introduced to compete for technological dominance is typically its

rst commercial product (Chen, Williams, & Agarwal, 2012).

Murmann & Frenken, 2006) and market mecha-

nisms (Cennamo & Santalo, 2013; Gawer, 2014;

Zhu & Iansiti, 2012), which can be important

boundary conditions for the survival of technolo-

gies in dominance battles. Linking these ideas to

the difference between startups and diversifying

entrants, we ask: Do the disadvantages associated

with startups’ technologies differ in platform vs.

non-platform technology-based dominance battles?

Further, the emergence of a DD shifts the compet-

itive landscape of a dominance battle (Anderson

& Tushman, 1990; Suarez & Utterback, 1995;

Tegarden, Hateld, & Echols, 1999). Thus, we

ask: Do the exit rates of startups’ and diversifying

entrants’ technologies differ before and after the

emergence of DDs?

Unfortunately, although these questions are theo-

retically important, they remain largely unaddressed

in the literature. In this article, we attempt to ll

these gaps by integrating insights from the research

on DD, entrepreneurship, and industry evolution.

We hypothesize that startups are more likely than

diversifying entrants to experience technology exit

in platform technology-based dominance battles,

but this difference is less marked if the technology

race occurs among non-platform technologies or

after a DD has emerged. Empirical evidence derived

from a sample of 134 technologies (sponsored by 99

different rms) involved in 31 dominance battles in

the IT industry from 1979 to 2007 corroborates our

predictions. Furthermore, to unpack the working

mechanisms that differentiate the technology exit of

startups from that of diversifying entrants, we use

additional analysis to explore empirically the role

of organizational legitimacy,complementary assets,

and integrative capabilities in dominance battles.

Our study contributes to the DD literature by offer-

ing a contingency model that links the notion of

entry type to technology exits in dominance battles,

and to the industry evolution literature by unpacking

the distinct elements of rms’ pre-entry experiences

and their role in dominance battles.

Theory and Hypotheses

The study of the DD phenomenon represents a rich

stream in the management literature (e.g., Ander-

son & Tushman, 1990; Narayanan & Chen, 2012;

Schilling, 2002; Suarez, 2004; Suarez et al., 2015),

which has shown that the emergence of a DD

is associated with a dominance battle among a

Copyright © 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 2579–2598 (2017)

DOI: 10.1002/smj