Updated: Apr 12

✓ Technological innovation within the infrastructure is abundant and helps to overcome the difficulties of securing and optimizing data transfers

✓ It is also a barrier to entry because it causes interoperability problems - linked to the particular technology of the protocols and security needs

✓ Inter-firm cooperation in R&D, facilitates interoperability: open innovation with firms in horizontal relations makes it possible to provide interoperable multi-clouds: this generates transaction costs, in particular for access to intellectual property.

✓ Open source is a way to bypass technological barriers imposed by firms: this is the case with the IPFS protocol with the decentralized web.

Literature paper :

According to Yongmin Chen (May 2020) highlights that the digital economy is bringing about changes in how R&D and innovations are organized. Firms have the choice to pursue their innovation strategies both internally and externally.

Internal innovation maximizes the use of the firm's internal resources and the coordination between R&D and production. But it limits the opportunities for success.

External Innovation through acquisition, partnership, joint venture and licensing mechanisms covers a broad spectrum of innovation opportunities. However, these opportunities generate high transaction costs.

Yongmin Chen analyzes the proliferation of innovations, the decrease in research tensions, and the strengthening of the legal tool of IP as factors favorable to innovation and technology transfer within the digital economy. According to him, it marks a major turning point towards external innovation.

Other aspects are highlighted as the risk that the acquisition of innovation from a potential rival has a negative impact on competition. In February 2020, the competition authorities in the US called on GAFAM to provide details on the recent acquisitions of start-ups not listed by antitrust agencies.

The cloud industry is emerging and the technology recent. This poses the difficulty of harmonizing standards between agents. Indeed, cloud providers use a lockdown strategy linked to the lack of interoperability between the different cloud providers with their own technology. This constitutes a barrier to the entry of competitive potential by increasing the costs of changes (Ambrust et al, 2010).

According to the analysis of Mehmet Bilal Unver (2018), the problem of interoperability between firms poses another difficulty, that of securing the information goods transported. Indeed, cloud providers justify the problem of interoperability by the need to secure customer data, which involves complex innovation of proprietary protocol layers.

Theoretical frame :

According to G.B Richardson, inter-company cooperation is a form of coordination required for the exploitation of a technological trajectory. He talks about the fact that technology cannot always be transferred simply by selling the right to use a process. It is rarely reducible to simple information to be transmitted but consists of experience and know-how.

Inter-company cooperation in the field of R&D even results in a form of reciprocity. Cooperation not only aims to slow down the diminishing returns of the technological trajectory, but it can also relaunch the innovation process by creating a new form of organization endowed with the overall capacity to innovate.

Inter-company cooperation for R&D purposes thus takes the form of a new source of technology environment for the firms involved (M.Amendola and JL Gaffard 1988).

Technological innovation within this industry, particularly at the level of the different layers of the OSI model, are as complex as the protocols. And it would be interesting to characterize it and study its impact on inter-firm interactions. Many cloud providers innovate with their client based on specific needs. To what extent are they brakes or catalysts for growth?

Indeed, according to Richardson, cooperation between firms in the same value chain would slow down the diminishing returns of the technological trajectory. This means transaction costs between firms and probably non-disclosure and therefore market inefficiency.

The model of Chen and Shappington (2018) highlights the fact that the intellectual property protection system must be strengthened because the costs of imitations are lower, especially for software (code sources) with short innovation cycles in the digital economy. It causes loss of profit and an unfair enrichment of the innovators who follow. Exploring this model is an interesting avenue in order to rebalance profits and therefore promote the dissemination of knowledge. It will be about presenting a new model in the case of cloud technologies.

Also, An approach to the theory of technological parasitism, Mario Coccia, Joshua Watts (2019) will help to assess the impact of new digital technologies, particularly in the cloud, in the interactions between economic agents and economic consequences such as foreclosure or cloud provider lock-in (high changeover cost for the customer due to new and proprietary technology).

It would be interesting to identify the different forms of innovation identified within cloud players, open innovation, inside in, inside out or cooperation (partnership). How are they linked based on transaction theory and Richardson's theory? And measure the economic impact. This approach will help to understand open innovation within this infrastructure industry.

By relying on the "neo open innovation" system inspired by the R & D model within Amazon, the transformative model of R & D by the absorption of external innovation, in particular by innovation inspired by customers or users is the generator of technological innovation, a new business model. It will explain the growth of the cloud, Transformative direction of R&D (2019).

Ouarda BOUZIANE, Innovation Consultant, CEO Founder, EUROBREATH.IT

November 27, 2020

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