Effects of Components on Ecosystem Value: The Case of the iPhone and Mobile Broadband

We examine how changes in components affect the value of a network ecosystem. Using a panel of 56 countries from 2003 to 2017 and the country-level timing of the official iPhone introduction as our directly observed treatment, we find that iPhone introduction is associated with a substantially higher growth rate in active mobile broadband penetration. Using the log of lagged historical exchange-rate volatility as an instrument for the timing of iPhone introduction in a two-stage least-squares regression, we estimate that iPhone introduction accounts for approximately 50%–72% of the average post-introduction rise in active mobile broadband growth. Because we do not directly observe Android entry by country, we interpret the iPhone introduction variable as a proxy for the broader iPhone/Android smartphone (iASP) ecosystem shift rather than as the isolated effect of Apple alone. We also develop a theoretical model that extends Katz and Shapiro (1985) to show how an innovation in network-compatible devices can stimulate demand for network access by raising the net consumer surplus of marginal network customers.