Incumbent business ecosystems in the face of new entry: An event study of Google's autonomous car announcement

This study investigates the value implications for an incumbent business ecosystem when an innovation is newly introduced. We theorize the different entrance modes and pathways through which the innovation can join the value co-creation structure of an incumbent ecosystem. We further theorize how the innovation entrance can affect the value appropriation arrangements among innovators and various incumbent ecosystem actors. The automobile ecosystems and Google's initial announcement of its autonomous cars serve as our empirical context. Applying our theories, we first qualitatively prescribe Google's potential actions and predict their value implications on the incumbent automobile ecosystem. Then, through an event study, we empirically validate the predictions. We observe that, on average, the incumbent actors of the automobile ecosystem benefited from Google's announcement. Moreover, car manufacturers particularly benefited from Google's attempted entry, arguably because they held critical gatekeeping positions along Google's entrance pathway. Car component manufacturers, but not other incumbent actors, were also able to benefit because of their tight integration with the gatekeepers. Our theoretical development and empirical exploration contribute to the emerging literature on ecosystem strategies by highlighting the dynamics and value implications when innovations are introduced into incumbent business ecosystems.