Winning the Hardware-Software Game: Using Game Theory to Optimize the Pace of New Technology Adoption [NOOK Book]


“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


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

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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.

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Product Details

  • ISBN-13: 9780131364424
  • Publisher: Pearson Education
  • Publication date: 3/18/2009
  • Sold by: Barnes & Noble
  • Format: eBook
  • Edition number: 1
  • Pages: 272
  • File size: 4 MB

Meet the Author

Ruth Fisher, Ph.D., is founder and principal of QuantAA (, an economic consulting firm that applies advanced quantitative assessment and analysis to help clients make better decisions. She has had a lifelong fascination with the discovery, development, and commercialization of new ideas.

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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

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  • Posted April 14, 2009

    more from this reviewer

    game theory for non-economists

    The author is perhaps the first person to broadly describe to an audience of non-economists the use of game theory to model a 3 party game of hardware and software vendors and the end user. Accordingly, while the book uses equations from game theory, these are relegated to the appendix and you don't have to sit through how they are derived. If you are not an economist and have no inclination or time to study that field, then having derivations in the book, even in the appendix, would likely be a waste of paper.

    Rather, the book's merit is in extensively describing in words different scenarios, where hardware and software vendors each try to optimise its profits, in a game where there is feedback. Another factor which figures prominently is where the gadget has some amount of network effect, be this direct or indirect. These network effects can crucially affect the uptake of the device in the marketplace, as different types of users will be attracted to it at different times.

    The outcomes of several scenarios are graphed and the implications described.

    The appendix is useful if you want to start tweaking the scenarios for your situation, where you could be either a hardware or software provider. While the equations might look formidable, they are explicitly given and converting these to code shouldn't be too hard. Basically, you take a black box approach, since you don't know how they are derived.

    Keep in mind these caveats, which apply to the numerical results and graphs in the text and to any that you might get if you run the equations. There are two possible sources of error. One is the parameters that you put into this engine. The author chooses some plausible values for her narrative. But as to the accuracy of your values, that depends on your expert knowledge. Though varying these can let you estimate the sensitivity.

    More importantly, how accurate are those equations as a model of the multiplayer phenomena? Since they are not derived in situ, and the book says little or nothing about the assumptions that were made, this is a much harder problem. To go into this, you'd have to chase down some of the game theory references in the text and learn something more about the field. Perhaps a pragmatic approach is to regard the simulations you get as advisory, as qualitative predictions and not quantitative.

    Note that the book's focus is on cases where a hardware vendor makes a piece of hardware that has a significant software component. Where in general the latter comes from another vendor. The book does not concern itself with the case of negligible third party software.

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