Where there's a way, is there a will? Installed base and product quality in a network industry

In industries influenced by network effects, firms with an established installed base of users experience dueling forces with regard to the quality of their product releases. On one hand, a network effects perspective suggests that such firms have limited incentive to produce higher quality products, as their entrenched installed base represents a significant barrier to competitors. However, a cumulative learning perspective suggests that such firms have the ability to produce higher-quality products than competitors. Grounded in these competing theoretical perspectives, this study examines the relationship between a firm's installed base size and the quality of its product releases in the packaged software industry. Installed base is found to have a positive and significant relationship with product quality, consistent with the cumulative learning perspective. Implications for theory and practice of strategy in network industries are offered and discussed.