Switching costs: who decides, who pays?

This weekend at a conference I ran into an iPhone-carrying CIO of a local tech company. Since he runs Microsoft Exchange servers but hates Windows (refuses to run it on his MacBook Pro), I imagine he doesn’t want to be identified. Let me call him “LT”.

LT made a very important point about the switching costs that the iPhone faces in hoping to get adopted by American enterprises. Because RIM has been providing a good solution for years, the most savvy companies have long since installed BlackBerry push e-mail. I speculated that the switching costs for the entrenched BlackBerry users could prove an insurmountable barrier for Apple.

LT was carrying an iPhone running a beta of the iPhone 2.0 software, and it will go live at his firm once the final 2.0 software is released July 11. Employees will then have a choice of using a BlackBerry or an iPhone — so employees will vote with their feet.

Why go to all the trouble? Two words: top management. In most small- to-medium sized companies, if the top executives want a new toy, the IS department has to support it, and that’s what happened to LT.

It reminds me of the pilot study I did for my dissertation: I was studying switching costs, and had to decide whether to study standards adoption by individuals or organizations. I ended up doing my diss on consumers, but I made a conference paper out of what I learned about organizational standards adoption and switching.

What I found — consistent with my later dissertation findings on consumers — is that for customer-facing technology, the psychic switching costs were more important than the costs of the software or the deployment labor. The reason people don’t switch is that it’s a pain (or you can’t make them), not that the actual cost of switching is a deal-killer.

So if top execs want the iPhone, the IS department can support an iPhone. One of the things my study (and subsequent academic work experience) has shown is that, in some environments, staff doesn’t have much say because powerful users make their own decisions. Law firms and legal partners are one example; universities and faculty are another. I could imagine at some tech companies, spoiled geeks would be a third. (Or, worse yet, if you don’t support something, engineers will spend all their time trying to make it work rather than shipping product).

So I want to thank LT for reminding me of this reality that CIOs face for switching costs: whether or not it's a good idea (i.e., economically rational), if your bosss(es) wants it, you have to do it. Thus far, the iPhone wannabes have not caught up to Apple’s software quality (particularly ease of use).