Principles that Matter: Sustaining Software Innovation from the Client to the Web

Economic analysis often reviews the role of principles—such as respect for intellectual property rights—in driving innovation. Given the interdependent nature of innovation in information technology, three core principles have emerged that work together to ensure that complementary, interconnected products coexist and compete. These core principles are particularly important when applied to platforms, which have played a central role in enabling the development and distribution of the variety of applications and services that drive the popularity of software. The first principle focuses on enabling choice: firms should allow consumers and partners to have a real choice between complementary products and services from otherwise competing firms (e.g., a browser should enable a consumer to choose a home page provided by a competitor). The second principle focuses on opportunity: specifically, opportunity that is facilitated by giving developers platform access and the ability to innovate and build on platform technologies to create new products and services. The third principle focuses on interoperability: vendors should enable products to work together so customers can realize the full benefit of complementary products offered by competing vendors. Following this principle enables products to connect to each other in appropriately defined ways, and ensures that users can port their data between products securely and reliably. This paper reviews the rationale for these principles and examines their impact on competition in the cloud computing ("internet software") environment.