The use of modelling and computer simulations to achieve an increased understanding of competitive dynamics
This research relates to digital software products and the firms that produce them. The approach used to explore these topics is that of modelling and computer simulation within the context of complexity science. A complexity science approach advocates mapping equations from one research area to solve problems in another. In this case, the central features of the models are borrowed from the work of evolutionary biologist Stuart Kauffman. Logical deductions from Kauffman's work leads to the creation of a quantitative product fitness landscape that does not depend upon allocation of random fitness values. Product complexity is defined in terms of the aggregated quantity of embedded information, whilst product fitness relates to maximising synergies and eliminating redundancy. The assumption that fit products are more valuable than unfit products produces the construct of a market value landscape. This explains how market demand grows and offers an explanation of the economic phenomena of increasing returns. The effect of product lifetime is studied, which indicates that fitter products have to be generated at an ever increasing rate in order to produce continuous revenue streams. Empirical evidence is presented that shows a positive correlation between software product complexity and market size. The relationship between the size of a firm and its profitability highlights an interesting anomaly relating to Microsoft Corporation, the worlds current dominant software provider. The evidence suggests that Microsoft is experiencing increasing profitability as it grows, which is at odds with the trend for traditional firms. The research makes contributions to economics, strategic management and complexity science. It does so by creating a product centric model of software firms that provides an explanation of increasing returns and it backs this up with empirical evidence. Computer simulations based upon the models exhibit patterns that give insights into product strategy. A critical feature is that, for digital software programs, increasing returns arise from the integration of features into a single program, not by simply bundling multiple programs together into product package. The success of the Microsoft Windows Product Is that, from a user perspective, it appears to integrate multiple programs in a way that releases their synergies. The models and simulations range from simple conceptual building blocks, through to more complex representations of a marketplace in which software companies are operating. These models provide a basis for further work relating to: exploration versus exploitation and the increasing rate of technological change.