NEWS RELEASE: RESEARCH IN DIGITAL PRODUCT COMPANIES
Austin, Texas, September 22, 1997
How should companies in the Digital Age be organized and managed? To gain insights into this question, the Center for Research in Electronic Commerce (CREC) at the University of Texas at Austin has launched an experimental program that combines research with teaching. The program creates an electronic marketplace where actual digital products are produced and exchanged among students in networked electronic commerce courses in several universities. As students are trained for the 21st century business by building digital companies from ground up and engaging in production and marketing, researchers acquire valuable data to assess financial performance of digital companies with different design configurations, providing a valuable opportunity to test various technologies and business models.
These real companies are created by students to sell information goods to students in other classes who use them to enhance their group projects. Each buyer group is endowed with $10,000 electronic budget. Unspent money are converted into bonus grade points, representing opportunity costs of buying contents for their course projects. Student-producers operate digital companies for a full semester to allow for the evolution of market dynamics such as reputation and trust building, price adjustments, and the adaptation of technology platforms and applications. 50% of their grades depend on revenues.
For example, an advanced technology group in a class may need information on some evolving networking technology including market data on the diffusion and acceptance of the technology. They can buy such content from one or more of the companies operated by students in the product company class. While some students have an interest in developing a successful EC enterprise, others try to become smart shoppers in the electronic marketplace.
With right incentives, this multi-class simulation exercise successfully duplicates an economic system, according to Professors Andrew B. Whinston, Anitesh Barua in the Department of MSIS, University of Texas, and Professor Ramnath Chellappa of the Marshall School of Business, University of Southern California, who began a limited experiment a year ago.
"We experienced a high level of realism which parallels events in the real world," says Professor Barua. These incidents include digital warehouse break-ins by competing companies, electronic accounting errors and company reactions, and customer dissatisfaction over purchased content.
While the class exercise was exploratory in nature, they obtained valuable insights on how such an experiment should be designed. The result is the multi-class, multi-campus electronic market with market incentives, a longer time frame, and a quasi-naturally occurring economic system that allows students and researchers to consider a vector of complementary strategies relating technology, product, and processes in tandem. From fall of 1997, this experiment was extended to include students from the University of Southern California as buyers. "Digital products are unique in many ways, in particular their ability to be mass-customized with minimal costs," says CREC's Assistant Director Professor Chellappa. "However, there exists no commercial system that takes into account these unique needs and hence it was imperative that we build a infrastructure to support this economic system." Thus an Electronic Mall Environment was designed by Dr. Chellappa (then a doctoral student of Professors Whinston and Barua) to enable these transactions.
"No firm chooses its strategy in isolation from the market in which it operates," says CREC's Director Professor Whinston. "Our aim is to analyze how different combinations of strategy, technology and other factors affect the financial performance of a digital product company in an environment where both firms and their customers must operate within a realistic market setting."
The CREC's commercial system provides essential market infrastructure including a digital payment system, a content refinement system to increase product quality and ensure match with customer requirements, and a customer interaction interface. Researchers at the Center also act as electronic intermediaries providing electronic malls and other value-added services such as electronic accounting and product integration services at various prices. Student sellers can opt for these services or set up their own technologies and storefronts.
From a methodological standpoint, the Center's experiment will establish a clear basis to test the design of digital product companies as well as the role that can be played by electronic intermediaries. "Building theories in these areas must be accompanied by empirical testing, and we believe that experimentation with real or quasi-real markets is critical to obtaining a better understanding of the complex issues involved," says Professor Barua, who is Associate Director of the Center.
Going beyond the happy marriage between research and teaching, the CREC hopes to dramatically increase the validity and usefulness of its experiments by including industry partners in the Center's electronic commerce operations as well as student exercises. In addition to required heavy investments, the key question facing managers and researchers alike is whether many of the theories regarding traditional markets, products and services can be used in the new world of electronic commerce, says Professor Whinston. "By combining academia and industry, both students and business professionals gain valuable resources to cope with the Digital Age." A rare example of a happy menage a trois in this age of individualism.
The Center for Research in Electronic Commerce at the University of Texas at Austin is the leading center in the world for research and education in the areas of electronic commerce and digital products. The Center's research agenda focuses on developing an integrated framework for understanding the electronic marketplace and evaluating developments in EC technology and business models.
The Center's collaborative research effort is headed by Professors Barua, Chellappa and Whinston with an interdisciplinary body of faculty and researchers in Business Adminstration, Computer Science, Law, Economics, Communication and Library Science. Contact email addresses and phone numbers:
Anitesh Barua (barua@mail.utexas.edu; (512) 471-7895), Ramnath Chellappa (chellapp@rcf.usc.edu; (213) 740-3920) & Andrew B. Whinston (abw@uts.cc.utexas.edu; (512) 471-8879)
Copyright © 1994-1997, CREC, the University of Texas at Austin.