Creating Value with Homogeneous Technology: Electronic Business Service Providers*

We study the determinants of market pricing for vendors providing “hosting and related services.” We propose a novel typology linking firm features and firm behavior to pricing. We test between two views about the creation of value in technology commodity markets, one affiliated with mobility of assets from old to new, and the other affiliated with business acumen and efficiency. We labeled these as origins and strategic behavior, respectively. Our analysis finds that both of these factors contribute to the variance of prices between contracts. However, the variance in prices between firms with different origins is much smaller than the variance in prices for firms pursuing different strategies. Overall, our findings stress that this market is far from homogeneous, because firms find a myriad of ways to differentiate themselves. * We thank Chris Forman, Avi Goldfarb and Aviv Nevo for comments. All errors are our responsibility. ** Shane Greenstein is the Elinor and Wendell Hobbs Professor, Kellogg School of Management, Northwestern University, Evanston, IL 60208-2013. E-mail: [email protected] *** Sarit Markovich is an Assistant Professor, The Leon Recanati Graduate School of Business Administration, Tel Aviv University, Tel Aviv 69978 E-mail: [email protected].