Modularity and Product Innovation in Digital Markets

Most digital goods have a modular design; that is, they consist of complementary and distinct building blocks, called modules. Modular product design, in contrast to integrated (or integral) design, enables alteration of a specific module that is usually assigned for a specific function without necessarily requiring an entire redesign of the product. This feature facilitates product innovation. The possibility of having common modules embedded in a range of products is likely to affect firms' product innovation strategies and post-innovation competition both in traditional and digital markets. In this paper, we explore such effects with a focus on digital markets.