Web Appendix
Survival in Markets with Network Effects:
Product Compatibility and Order-of-Entry Effects
Qi Wang
Yubo Chen
Jinhong Xie
WEB APPENDIX A
DESCRIPTION OF PIONEERS AND EARLY FOLLOWERS IN MARKETS WITH NETWORK EFFECTS
Product Previous Market Pioneers and Current Market Cross- Within-
Network Product Compatibility
Category Product Early Followers Status Generation Generation
Effectsa Classification Rationale
(N= 45) Generationa (Year of Entry) (Year of Exit)b Compatibility Compatibility
• The product category without previous
Symantec (1982) Survived Incompatible Incompatible generation is coded as cross-generation
Antivirus incompatible.
6.8 No
Software • Two software applications cannot
McAfee (1988) Survived Incompatible Incompatible process each other’s files (e.g., virus
database).
Philips (1962) Survived Incompatible Compatible • Audio cassette player cannot play
Audiocassette Spool Audio spool audio tapes.
9.3
Player Player Walkman By Sony (1979) Survived Incompatible Compatible • Audio cassettes are playable in both
Philips’ and Sony’s players.
• ATM customers can utilize the service
Docutel (1967) Failed (1986) Compatiblec Incompatible
and knowledge from bank tellers
Automatic
(Saloner and Shepard 1995).
Teller 8.9 Bank Teller
• ATM cards from Docutel and IBM
Machine IBM 2984 (1971) Survived Compatiblec Incompatible
cannot be used in each other’s machine
at the time of introduction.
Uni-Graphics By UNIAPT
Failed (1976) Compatiblec Incompatible • CAD users can utilize the design
Computer-
Manual (1969) knowledge of manual drafting.
Aided Design 6.8
Drafting • Two software applications cannot
Software CDAM by MCS (1972) Survived Compatiblec Incompatible
process each other’s file.
Betacam by Sony (1982) Survived Incompatible Incompatible • Films of movie cameras are not
16mm Movie playable by camcorders.
Camcorder 6.1 Kodak (1984) Failed (1987) Incompatible Incompatible
Camera • Videotapes from Sony, Kodak, or JVC
JVC (1984) Survived Incompatible Incompatible cannot be played by each other.
• CD player cannot play audiocassette.
Audiocassette Sony (1982) Survived Incompatible Compatible
CD player 9.3 • CDs are playable in both Sony’s and
player Philips (1983) Survived Incompatible Compatible Philips’ CD-ROM players.
Sony (1984) Survived Incompatible Compatible • CD-ROM drives cannot read floppy
3.5 Inch
CD-ROM disks.
9.3 Floppy Disk
Drive Philips Subsystem (1985) Survived Incompatible Compatible • CDs are playable in both Sony’s and
Drive
Philips’ CD-ROM drives.
WEB APPENDIX A (Continued)
Product Previous Market Pioneers and Current Market Cross- Within-
Network Product Compatibility
Category Product Early Followers Status Generation Generation
Effectsa Classification Rationale
(N= 45) Generationa (Year of Entry) (Year of Exit)b Compatibility Compatibility
AT&T (1979) Survived Compatible Incompatible • Cellular phone user can communicate
Cellular with telephone users.
Telephone 10 Telephone • Communication costs between AT&T
Service GTE (1984) Survived Compatible Incompatible and GTE networks are significantly
higher than within-network.
• CBS color TV cannot receive
Black and AirKing (1950) by CBS Failed (1951) Incompatible Incompatible
programs for B/W or RCA color TV.
Color TV 8.4 White (B/W)
TV • RCA color TV can receive programs
RCA (1954) Survived Compatible Incompatible
for B/W but not for CBS color TV.
Cordless Corded Keytronics (1975) Failed (1979) Compatible Compatible • All corded and cordless phones can
4.3
Telephone Telephone Dynascan (1979) Survived Compatible Compatible communicate with each other.
Ashton-Tate (1981) Failed (1991) Incompatible Incompatible • Neither Ashton-Tate nor Paradox can
Database process documents created (1) by
9.6 Programming
Software Paradox by Boland (1985) Survived Incompatible Incompatible existing programming language or (2)
by each other.
Desktop
Aldus (1985)
Survived as
Incompatible Incompatible • Neither Aldus nor Ventura can process
Print
Publishing 8.7 Adobe documents created (1) by print
Typesetting
Software Ventura Publisher (1986) Survived Incompatible Incompatible typesetting or (2) by each other.
• Digital camera cannot use films.
Logitech (1991) Survived Incompatible Compatible
Digital • Digital photos made by either Logitech
6.2 35mm Camera
Camera or Fuji photo have similar file formats
Fuji Photo (1992) Survived Incompatible Compatible
(e.g., JPEG).
Seikosha (1964) Failed (1979) Incompatible Compatible • The product category without previous
generation is coded as cross-generation
Dot matrix
6.0 No Digital Equipment (1970) Survived Incompatible Compatible incompatible.
printer
• Dot matrix ink ribbons can be used by
Centronics (1970) Failed (1987) Incompatible Compatible any brands of dot matrix printers.
Toshiba (1996) Survived Incompatible Compatible
Hitachi (1997) Survived Incompatible Compatible
Digital • DVD players cannot play VCR tapes.
Pioneer (1997) Survived Incompatible Compatible
Videodisc 9.4 VCR • DVDs are playable by players from all
player Sony (1997) Survived Incompatible Compatible these six brands.
Philips (1997) Survived Incompatible Compatible
JVC (1997) Survived Incompatible Compatible
WEB APPENDIX A (Continued)
Product Previous Market Pioneers and Current Market Cross- Within-
Network Product Compatibility
Category Product Early Followers Status Generation Generation
Effectsa Classification Rationale
(N= 45) Generationa (Year of Entry) (Year of Exit)b Compatibility Compatibility
Squibb (1960) Failed (1968) Incompatible Incompatible • Electric toothbrush cannot use manual
Electric Manual toothbrush heads.
3.4
Toothbrush Toothbrush GE (1961) Survived Incompatible Incompatible • Electric toothbrush heads from two
brands cannot be used by each other.
Magnavox (1960) Failed (1965) Incompatible Incompatible • Fax machine cannot process telegraph.
Fax Machine 10.6 Telegraph • Fax from Magnavox or Xerox cannot
Xerox (1966) Survived Incompatible Incompatible communicate with each other.
Taken over by • The product category without previous
Kurzweil Technologies (1978) Incompatible Compatible generation is coded as cross-generation
Flat-Bed Xerox (1979)
6.6 no incompatible.
Scanner
MicroTek (1984) Survived Incompatible Compatible • Kurzweil Technology and MicroTek
can scan the same documents.
Cuisinart (1972) Survived Incompatible Compatible • Food processors cannot use the main
Food component of mixers.
4.1 Mixer
Processor General Food Co. (1973) Failed (1985) Incompatible Compatible • Food processors components can
exchange with each other.
Zenith (1998) Survived Compatible Compatible • High definition TV can receive
High-
Color programs for color TV.
Definition 8.4
Television Hitachi (1999) Survived Compatible Compatible • Programs for high definition TVs are
Television
playable for both brands.
• Microwave ovens cannot use the
Home Tappan (1955) Failed (1985) Incompatible Compatible
Electric/Gas cookware for electric/gas range.
Microwave 5.8
Range • Both microwave ovens can use any
Ovens Litton (1967) Survived Incompatible Compatible
microwavable cookware.
• Films from 16mm home projection
16mm Home Sony (1975) Failed (1988) Incompatible Incompatible
system are not playable by VCR.
Home VCR 9.4 Projection
System • Sony’s Betamax and JVC’s VHS
JVC (1976) Survived Incompatible Incompatible
cannot play videotapes for each other.
Hewlett-Packard (1984) Survived Incompatible Incompatible • Ink-jet printers cannot use dot matrix
Dot Matrix ink ribbon.
Ink-Jet Printer 6.2
Printer Cannon BJ80 (1985) Survived Incompatible Incompatible • HP and Cannon printers cannot use
cartridges made for each other.
Instant • Films for 35mm camera cannot be
5.4 35mm camera Polaroid (1948) Survived Incompatible Compatible
Photography used by instant photography cameras.
WEB APPENDIX A (Continued)
Product Previous Market Pioneers and Current Market Cross- Within-
Network Product Compatibility
Category Product Early Followers Status Generation Generation
Effectsa Classification Rationale
(N= 45) Generationa (Year of Entry) (Year of Exit)b Compatibility Compatibility
• The product category without previous
Netscape/Mosaic (1994) Failed (1998) Incompatible Compatible
generation is coded as cross-generation
Internet
7.6 No incompatible.
Browser
Microsoft Explorer (1995) Survived Incompatible Compatible • Netscape and IE can open the same
content files.
• The product category without previous
Compuserve (1980) Failed (1997) Incompatible Incompatible
Internet generation is coded as cross-generation
Service 10.1 No incompatible.
Provider Delphi (1982) Failed (1993) Incompatible Incompatible • Neither Compuserve nor Delphi can
display contents written for each other.
IBM (1975) Survived Incompatible Incompatible • Laser printer cannot use dot matrix ink
Dot Matrix ribbon.
Laser Printer 6.2
Printer Star 80 by Xerox (1981) Survived Incompatible Incompatible • Neither IBM nor Xerox can use each
other’s cartridge.
• Mainframe computer cannot process
Univac (1946) Failed (1986) Incompatible Incompatible
Mainframe Punched Car files from punched car machine.
9.3
Computer Machine • Neither Univac nor IBM can run files
IBM 701 (1952) Survived Incompatible Incompatible
created by each other.
Teleram Communications (1980) Failed (1985) Compatible Compatible • The same operating system (CPM) was
Notebook Desktop used for 1) desktop computers, and 2)
8.7
Computer Computer Osborne (1981) Failed (1983) Compatible Compatible both Telegram Communications and
Osborne.
• The product category without previous
Operating Digital Research (1976) Failed (1996) Incompatible Incompatible generation is coded as cross-generation
system for incompatible.
12.1 No
personal • Neither Digital Research nor Apple
computer Apple DOS (1978) Failed (1983) Incompatible Incompatible DOS can run applications written for
each other.
Amstrad (3/1993) Failed (1995) Incompatible Incompatible
AT&T's EO Communicator • PDAs cannot read data from electronic
Personal Data Electronic Failed (1994) Incompatible Incompatible organizers.
10.7 (1994)
Assistant Organizer • Documents from these four PDA
Apple's Newton (8/1993) Failed (1998) Incompatible Incompatible
brands are not readable by each other.
Sharp ExpertPad (10/1993) Survived Incompatible Incompatible
WEB APPENDIX A (Continued)
Product Previous Market Pioneers and Current Market Cross- Within-
Network Product Compatibility
Category Product Early Followers Status Generation Generation
Effectsa Classification Rationale
(N= 45) Generationa (Year of Entry) (Year of Exit)b Compatibility Compatibility
Motorola (1974) Survived Compatible Compatible • Both Motorola and Bell and Howell’s
Pager 7.4 Telephone pagers can (1) communicate with
Bell and Howell (1976) Survived Compatible Compatible telephone; and (2) communicate with
each other via telephone.
Personal MITS (1975) Failed (1979) Compatible Compatible • Both MITS and Apple I used BASIC
9.0 Minicomputer programming language, which can be
Computer Apple I (1976) Survived Compatible Compatible
run on minicomputer.
Dollars and Sense (1982) Failed (1986) Compatiblec Incompatible • Personal finance software shares the
same accounting rules with manual
Personal
Manual accounting.
Finance 6.8
Accounting Quicken (1984) Survived Compatiblec Incompatible • Neither Dollars and Senses nor
Software
Quicken can process each other’s
documents.
3M Thermofax (1950) Failed (1962) Incompatible Incompatible • Neither Thermofax nor Xerox can
Photocopier 4.7 Cyclostyling process the copy papers for 1)
Xerox (1959) Survived Incompatible Incompatible cyclostyling machines, or 2) each
other.
Pocket Manual Bowmer (1971) Failed (1975) Compatiblec Compatible • Calculation knowledge is
3.4 interchangeable for pocket calculators
Calculator Calculation HP (1972) Survived Compatible c
Compatible
and manual calculation.
Harvard Presentation Graphics • Neither Harvard Presentation Graphic
Survived Incompatible Incompatible
Presentation Overhead 35 (1986) nor Powerpoint can process (1)
7.1
software MM Slides Powerpoint 1.0 by Forethought overhead slides or (2) each other’s
Survived Incompatible Incompatible
(1987) documents.
Advent (1973) Failed (1981) Incompatible Compatible • Projection TV sets cannot display
Projection Overhead 35 overhead slides.
5.6
Television MM Slides Sony (1976) Survived Incompatible Compatible • Both Advent and Sony’s projection TV
can play the same program.
Fuji (1986) Survived Incompatible Incompatible • Single-use cameras cannot use 35mm
camera films.
Single-Use
4.4 35mm Camera • Films of single-use cameras from Fuji
Camera Kodak (1987) Survived Incompatible Incompatible
or Kodak are not usable in each other’s
camera.
WEB APPENDIX A (Continued)
Product Previous Market Pioneers and Current Market Cross- Within-
Network Product Compatibility
Category Product Early Followers Status Generation Generation
Effectsa Classification Rationale
(N= 45) Generationa (Year of Entry) (Year of Exit)b Compatibility Compatibility
Software Arts (1979) Failed (1983) Compatible Incompatible • Spreadsheet software can read the raw
Spreadsheet data files from minicomputers.
10.2 Minicomputers
Software Lotus 1-2-3 (1982) Failed (1995) Compatible Incompatible • Neither Software Arts nor Lotus 1-2-3
can process each other’s documents.
Telephone Manually Code-A-Phone (1958) Failed (1993) Compatible Compatible • All telephone and manually answering
Answering 4.3 Answering machines can operate with
Machine Machine PhoneMate (1971) Survived Compatible Compatible telephones.
Sony (1981) Survived Incompatible Compatible
Shugart (1983) Failed (1985) Incompatible Compatible • Floppy disks from 5.25" drive or 3.5"
3.5 Inch 5.25 Inch
cannot be used in each other’s drive.
Floppy Disk 9.1 Floppy Disk Mitsubishi (1983) Survived Incompatible Compatible
Drive Drive • The 3.5" floppy disks are usable in all
Epson (1983) Failed (1997) Incompatible Compatible
3.5" floppy disk drives.
Tandon (1983) Failed (1986) Incompatible Compatible
Magnavox (1971) Failed (1980) Incompatible Incompatible • Arcade games are not playable by
video game consoles.
Videogame 9.4 Arcade game • Game cartridges from Magnavox or
Atari Cop. (1972) Survived Incompatible Incompatible
Atari cannot be played by each other’s
console.
Word MicroPro Intl (1979) Failed (1995) Incompatible Incompatible • Neither MicroPro nor WordPerfect can
Processing 10.4 Typewriter process documents created (1) by
Software WordPerfect (1980) Survived Incompatible Incompatible typewriter or (2) by each other.
• Workstations run different operation
Three River (1980) Failed (1983) Incompatible Incompatible systems from Minicomputer.
Workstation 9.6 Minicomputer • Neither Three River nor Apollo
Apollo (1981) Failed (1989) Incompatible Incompatible workstations can run each other’s
operating system.
Note: a: Adopted from Srinivasan, Lilien and Rangaswamy (2004). For products without previous generation, we classify them as cross-
generation incompatible because new products have no installed-user base from previous generation.
b: Censored in 2007
c: For these products with manual operations as the previous generation products, the classification of cross-generation compatibility might
not be perfectly clear cut. Our results remain robust when these observations are excluded from the sample.
WEB APPENDIX B
DETAILS ON AFT MODELS
Based on the assumption of the AFT model that independent variables (or covariates)
K
affect the baseline survival duration multiplicatively, we assume ti=t0iexp( ∑ X ik β k ), where ti
k =1
denotes the survival duration of firm i, Xik (k=1, ,K) denotes the k-th independent variable that
might affect product i’s survival duration with its coefficient of βk, and t0i is the baseline
survival duration without the impacts of independent variables. We assume t0i to be
independently and identically distributed with the Weibull distribution (i.e., its survival
probability is S(t0i)=exp{-[ t0i]1/σ}), a well-adopted distribution in survival analysis (Cox and
Oakes 1984).
The survival probability and hazard function for ti are then given by
⎧ 1 ⎫ 1
−1
⎪ ⎡
⎪ ⎛ K ⎞⎤ σ ⎪
⎪ 1⎡ ⎛ K ⎞⎤ ⎡ ⎛ K ⎞⎤ σ
S (ti ) = exp ⎨ − ⎢ti exp ⎜ −
⎪ ⎢
⎜ ∑ X ik β k ⎟ ⎥
⎟⎥ ⎬
⎪
and h(ti ) = ⎢ exp ⎜ −
σ⎢ ⎜ ∑ X ik β k ⎟ ⎥ ⎢ ti exp ⎜ − X ik β k ⎟ ⎥
⎟⎥ ⎢ ⎜∑ ⎟⎥
⎣ ⎝ k =1 ⎠⎦ ⎣ ⎝ k =1 ⎠⎦ ⎣ ⎝ k =1 ⎠⎦
⎪
⎩ ⎪
⎭
where the scale parameter σ determines if the hazard function is monotonically decreasing (σ>1),
increasing (σ<1) or constant (σ=1). Given the survival probability function and the hazard
n
function, the likelihood function can be written as L = ∏ h(ti )δi S (ti ) , where the δi indicates
i =1
whether observations for product i is right censored. Specifically, δi=0 when the observation for
firm i is right censored; otherwise δi=1. To examine the impact of two types of product
compatibility, the survival time is empirically specified as Equation (1) in the paper.
WEB APPENDIX C
ROBUSTNESS OF RESULTS
AFT Model AFT Model Proportional Frailty Model
Variable
(Log-Normal) (Log-logistic) Hazard Model Pioneer Follower
-1.936* -1.920* 1.888 - -
PIONEER
(1.219) (1.340) (1.597)
-1.945** -1.712* 1.680 -0.740* 0.389*
CGIC
(1.123) (1.261) (1.508) (0.467) (0.247)
.892* 1.244** -1.491* 1.065** -0.282
WGIC
(.637) (.820) (1.036) (0.515) (0.257)
-1.172* -1.164* 1.176* 0.025 0.018
NE
(.744) (.746) (.834) (0.065) (0.023)
** **
1.247 1.192 -1.319** 0.060 -0.041*
NE*CGIC
(.704) (.701) (.783) (0.056) (0.033)
-.464* -.584* .788** -0.125** 0.031
NE*WGIC
(.338) (.375) (.467) (0.065) (0.034)
1.301** 1.258** -1.219*
NE*PIONEER
(.769) (.764) (.844)
2.350** 2.161* -2.391*
CGIC*PIONEER
(1.216) (1.322) (1.560)
-1.430** -1.298** 1.471**
NE*CGIC*PIONEER
(.756) (.749) (.812)
-1.232* -1.620** 2.054**
WGIC*PIONEER
(.830) (.986) (1.155)
.371 .445 -.826*
NE*WGIC*PIONEER
(.428) (.457) (.516)
.211** .245** -.214** 0.009 0.005
RDC
(.119) (.123) (.125) (0.032) (0.021)
.613 .480 -.387 -0.075 -0.003
INCUM
(.505) (.488) (.513) (0.106) (0.061)
.139 .117 .015 -0.157 0.118*
HTECH
(.600) (.551) (.652) (0.128) (0.069)
1.234*** 1.211*** -1.305*** -0.294** -0.069
Size
(.437) (.434) (.473) (0.153) (0.061)
43.541 59.817 -64.956 -0.160 0.107
Intro. Year
(45.701) (46.773) (46.805) (0.362) (0.161)
-.840 -.598 .641 0.021
Lead
(.633) (.624) (.639) (0.058)
.734** .688** -.634** -0.004
Lead*Lead
(.405) (.400) (.388) (0.004)
-1.262* -.994 1.069 -0.059**
Delay
(.781) (.830) (.844) (0.024)
2.534*** 2.205** -2.501** 0.003*
Delay*Delay
(.893) (0.964) (1.079) (0.002)
Frailty variance -0.043 19.46
parameter (0.551) (42.55)
Correlated hazard 10.45
parameter (31.55)
Log-Likelihood Value -86.90 -86.48 -140.02 -337.28
χ2 (d.f.=19) 58.86*** 62.86*** 58.80*** 8.88 (d.f.=24)
***
: p<0.01; **: p<0.05; *: p<0.1. Sample size: N=100.