Accepted Manuscript

The transformative direction of innovation toward an IoT-based society - Increasing

dependency on uncaptured GDP in global ICT firms

Kashif Naveed, Chihiro Watanabe, Pekka Neittaanmäki

PII: S0160-791X(17)30201-4
DOI: 10.1016/j.techsoc.2017.11.003
Reference: TIS 1023

To appear in: Technology in Society

Received Date: 20 August 2017

Revised Date: 8 November 2017
Accepted Date: 18 November 2017

Please cite this article as: Naveed K, Watanabe C, Neittaanmäki P, The transformative direction of
innovation toward an IoT-based society - Increasing dependency on uncaptured GDP in global ICT
firms, Technology in Society (2017), doi: 10.1016/j.techsoc.2017.11.003.

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ACCEPTED MANUSCRIPT
Some figures were improved.

The Transformative Direction of Innovation Toward an IoT-based Society

- Increasing Dependency on Uncaptured GDP in Global ICT Firms
Kashif Naveed a, Chihiro Watanabe a, b, Pekka Neittaanmäki a
a
Faculty of Information Technology, University of Jyväskylä, Finland
b
International Institute for Applied Systems Analysis (IIASA), Austria

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Abstract

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Driven by the possibilities of the Internet of Things (IoT), global information and
communication technology (ICT) firms have taken significant steps forward in recent
years.

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The Internet provides extraordinary services to people while promoting a free culture.
However, such services cannot be captured through gross domestic product (GDP) data
that measure revenue. Consequently, advancement of the Internet leads to increasing

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dependency on uncaptured GDP (added value providing people utility and happiness
beyond economic value) and ICT price decreases.
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Against such circumstances, global ICT firms are quickly embracing digital solutions
for new competitiveness that urge them to restructure their business model toward
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digital business strategies. Aiming at demonstrating this hypothetical view, this paper
attempts to explore new approach for analyzing such dynamism and examines some
optimal solutions that are co-evolving with it.
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An empirical analysis of digital business solutions in 500 global ICT firms over the
period 2005–2016 was conducted with special attention to their specific features.
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It was identified that research and development–intensive firms have fallen into a trap in
ICT advancement, resulting in a decline in their marginal productivity of ICT that could
be due to increasing dependency on uncaptured GDP. As a result, these firms are
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endeavoring to harness soft innovation resources and activate a self-propagating

function that induces functionality development sublimating sophisticated digital
business strategies, such as:
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• Shifting from software to network (e.g., Apple and Google),

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• Merging network and real (e.g., Amazon’s merging of e-commerce and brick-and-mortal retail),
• Shifting from commodity to culture (e.g., Facebook and Samsung).
All can be considered as soft value addition in response to uncaptured GDP.
This analysis explores new insights for ICT firms in their transformative strategies
toward an IoT-based society.
Keywords: IoT, global ICT firms, uncaptured GDP, digital business solutions,
transformative strategy

Corresponding author
Chihiro Watanabe ([email protected])

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1 Introduction
1.1 IoT and the New Productivity Paradox
Driven by the Internet of Things (IoT)1, the physical world is becoming an ecosystem
composed of physical objects embedded with sensors and actuators connected to
applications and services through a wide range of networks. The IoT has the potential to
drive the next steps toward the digitization of our society and economy (EU, 2017). It

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promises several benefits to its customers, varying from faster and more accurate
sensing of our environment to more cost-effective tracking of industrial processes. The
wide adoption of the IoT is expected to generate significant revenues to the providers of

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its applications and services (Mazhelis et al., 2012).
The IoT will change the bases of competition and drive new business models for users

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and suppliers. Firms that use the IoT in novel ways to develop new business models or
discover new ways to monetize the IoT data are likely to enjoy more sustainable
benefits (McKinsey Global Institute, 2015). McKinsey (2015) report also discussed that
the challenges in capturing the full potential of the IoT require innovation in

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technologies, business models, investment capabilities, and talent, together with policy
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actions to encourage interoperability, security, and protection of privacy and property
rights. It was also noted the possibility of a new “productivity paradox” in the context of
the IoT—a possible lag between technology investments and productivity gains at
macroeconomic level.
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1.2 From “Computer Paradox” to “Productivity Paradox” in the IoT

1.2.1 Computer-Initiated Productivity Paradox
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There have been long-lasting debates on the information and communication

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technology (ICT)–driven “productivity paradox.”

Significant numbers of analyses demonstrated the impact of ICT advancement on the
socio-economy triggered by Nobel Laureate Solow’s “Productivity Paradox” (Solow,
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1987) and reaction to it by Brynjolfsson (1993). This reaction was followed by more
sophisticated models to tease out the relationship between ICT and productivity
(Kraemer and Dedrick, 1994; Lichtenberg, 1995; Brynjolfsson and Hitt, 1996).
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By the late 1990s, there were some signs that productivity in the workplace had been
improved by the introduction of ICT, especially in the US. Brynjolfsson et al. found a
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significant positive relationship between ICT investments and productivity

(Brynjolfsson and Hitt, 1998; Brynjolfsson and Yang, 1999) encouraging popular
consideration that there was no paradox (Triplett, 1999).
1.2.2 Internet-Initiated New Productivity Paradox
Late in the first decade of this century, a new paradox appeared to have emerged. This
can largely be attributed to the third industrial revolution initiated by the dramatic

1 Internet Society (2015) defines IoT as scenarios where network connectivity and computing capability
extend to objects, sensors, and everyday items not normally considered computers, allowing these devices
to generate exchanges and consume data with minimal human intervention.

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advancement of the Internet (Rifkin, 2011). The Internet has transformed how people
live, work, socialize, and meet, and how countries develop and grow. It has changed
from a network for researchers to a day-to-day reality for billions of people in two
decades (McKinsey, 2011). Consequently, the computer-initiated ICT world has
changed significantly. The entire system has become interactive, integrated, and
seamless. This interconnectedness is creating new opportunities for cross-industry
relationships.

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Cowen (2011) argued that, “Contrary to the dramatic advancement of the Internet and
subsequent ICT advancement, we were living through the consequence of a dramatic

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decrease in the rate of innovation.” He argued that the consequence of slowing
innovation was fewer new industries and less creative destruction, hence fewer new jobs.
He stressed that, while the technological progress brought a big and predictable stream

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of growth across most of the economy, those assumptions were turning out to be wrong
or misleading when it came to the Internet. He then suggested the possibility of the
consequence of the two-faced nature of ICT.

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From the dramatic advancement of the Internet and subsequent third industrial
revolution inevitably emerged a new paradox of the advancement of ICT. Brynjolfsson,
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who first reacted to Solow’s production paradox in 1993, raised the question, “Could
technology be destroying jobs?” (Brynjolfsson and McAfee, 2011). He argued by giving
an example of the music industry: "Because you and I stopped buying CDs, the music
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industry has shrunk, according to revenues and GDP. But we're not listening to less
music. There's more music consumed than before." He further mentioned that maybe
it’s not the growth that is deficient but the yardstick that is deficient and postulated the
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limit of GDP (Brynjolfsson et al., 2014).

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Inspired by these arguments, Lowrey (2011) postulated that the Internet promotes more
free culture, the consumption of which provides utility and happiness to people but
cannot be captured through the GDP data that measure revenue.
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1.3 Uncaptured GDP and Its Source

1.3.1 Sources of Free Culture
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Considering the evolutional services that the Internet provides under free culture,
several analyses and debates were initiated on the sources of its free culture.
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1.3.1.1 Unique function stemmed from online intermediaries

Copenhagen Economics (2013) studied the impact of online intermediaries2 (that play a
core role in the Internet function) on GDP of EU27 countries in 2012 by identifying: (i)
direct contribution through consumption increase, (ii) indirect contribution through
productivity increase, and (iii) beyond measurement. The report estimated that, contrary
to direct and indirect GDP contributions of EUR 220 billion (1.7% of GDP) and EUR
210 billion (1.65% of GDP), respectively, EUR 640 billion (5.0% of GDP) derived from
B2B platforms by e-commerce, online advertising, and consumer benefits of free

2 Online intermediaries provide platforms for the exchange of goods, services, or information over the Internet.

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services like Google search was beyond measurement by the GDP statistics. The report
also pointed out that these estimates were understated, as they didn’t include the direct
contribution by investments, which are hard to measure, and the sociocultural value
created by social network development.
1.3.1.2 Consumer surplus
The research by Brynjolfsson et al. (Revised 2017) analyzing online booksellers found

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that significant consumer surplus gains were created by the increased product variety
available through electronic markets and that efficiency gains resulted from increased
competition leading to lower average prices. Their analysis indicates that the increased

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product variety of online bookstores enhanced consumer welfare by US$731 million to
US$1.03 billion in the year 2000, which is seven to 10 times larger than the consumer
welfare gain from increased competition and lower prices in this market.

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Brynjolfsson et al. (Revised 2017) also mentioned the possibility of large welfare gains
in other SKU-intensive consumer goods, such as music, movies, consumer electronics,

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and computers. Similar results were demonstrated by the white paper of Japan’s ICT,
analyzing consumer surplus in music and audio-visual services (Japan’s Ministry of
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Internal Affairs and Communication, 2016).
Analyzing the big economic opportunities and challenges in capturing the maximum
value of IoT, McKinsey (2015) estimated that consumer surplus derived from the IoT
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could be more than 10 percent of the global economy by 2025.

1.3.1.3 New goods and services derived from disruptive innovations
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The US Council on Competitiveness (2016) pointed out that the apparent slowdown in
productivity in the industrialized countries could be simply due to the lack of capacity
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in statistical offices to properly measure the massive quality gains and hard-to-measure
benefits of relatively new goods and services (e.g., Google, Facebook, Twitter) that are
radical breaks with previous products or, in some cases, are provided for free to the
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users.
The report also discussed that, despite tremendous previous problems in accurately
measuring the benefits of new goods and services, there is some evidence that statistical
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agencies are now better at capturing this value. But adjustment issues related to
previous gains still remain to accurately measure productivity growth.
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It also pointed out that current estimates for the non-market benefits of free goods and
services like Google, Wikipedia, and Facebook do not make up for the shortfall in
productivity growth. It may turn out that those estimates understate the non-market
benefits, but it would be very hard to know.
Similar points were also made by The Economist (2016) claiming that “GDP is a bad
gauge of material well-being and it is a time for fresh approach.”
1.3.1.4 Online piracy
In addition to the foregoing beyond-measurement difficulties inherent to disruptive
innovations caused by the dramatic advancement of the Internet, it was generally

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pointed out that a corresponding increase in online piracy is another difficult issue
beyond GDP measurement.
1.3.2 Uncaptured GDP
Following these analyses and debates, Watanabe et al. (2015a) discussed the two-faced
nature of ICT and the emergence of uncaptured GDP as fatal to the advancement of the
Internet (Watanabe et al., 2015a, 2015b, 2016a, 2016b). They pointed out that, while

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advancement of ICT generally contributes to enhanced prices of technology by new
functionality development, the dramatic advancement of the Internet contributes to
decreased prices of technology due to its unique, inherent characteristics of freebies,

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easy copying, and mass standardization. With this understanding, they supported
Lowrey’s (2011) postulate that the Internet promotes free culture, the consumption of
which provides utility and happiness to people but cannot be captured through GDP data

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that measure revenue. The authors defined these added values that provide people utility
and happiness beyond economic value under free culture as an uncaptured GDP.
1.4 Consequence of IoT

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The Internet continues to grow rapidly and changes every aspect of our lives by
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introducing new ways of communication, learning, socialization, and doing business,
further transforming our world into an IoT-based society (Bharadwaj et al., 2013;
Internet Society, 2016). The IoT has also changed the traditional meaning of the word
“product” introduced in the era of “Product of Things (PoT).” In the era of the IoT, the
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product can be a technology, device, service powered by software, a flow of data, a

software application for monitoring, automation, and analysis, or any combination of the
above.
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The transformation of the traditional Internet, where data are “created by people,” to the
IoT, where data are “created by things” (Madakam et al., 2015) will generate data at a
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much larger scale that requires more advanced technological capabilities, as most of the
data collected today are not fully exploited. To be competitive and to capitalize on the
highly promising business opportunities of the IoT, global ICT firms need to embrace
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sophisticated digital solutions and restructure their business models (Bharadwaj et al., 2013).
Due to the challenges and huge interest in the IoT, the importance of business models and
digital business strategies cannot be over-emphasized. Bharadwaj et al. (2013) and Kahre
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et al. (2017) stressed the significance of digital business strategies (DBS) and discussed
the fundamental role of digital technologies in transforming business strategies,
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business processes, firm capabilities, and the nature of products and services.
They also highlighted the significance of digital business strategy as: (i) the significant
role of ICT pervading digital resources in other functional areas such as operations,
purchasing, supply chain, and marketing; (ii) going beyond systems and technologies;
and (iii) explicitly linking digital business strategy to creating differential business value,
thereby elevating the performance implications of ICT strategy beyond efficiency and
productivity.
Bharadwaj et al. (2013) also pointed out that it is clearly time to rethink the role of ICT
strategy from that of a functional-level strategy subordinating business strategy to the
digital business strategy that fuses ICT strategy and business strategy.

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1.5 New Business Strategies Spinning Off From a PoT Society to an IoT Society
The authors, in their previous research, analyzed the business strategies of 500 global
ICT firms in 2007 and 2010 (before and after the Lehman shock in 2008) and identified
the following strategy for resilient market value creation in the digital economy 3
(Watanabe et al., 2014).
• Dependency on high R&D profitability while restraining its elasticity

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• Effective utilization of external resources in innovation
• Hybrid management of technology between indigenous R&D and assimilation
of spillover technology

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In their sequel studies, the authors tried to compare the spinning-off dynamisms from
traditional computer-initiated ICT innovation in the era of the PoT to Internet-initiated

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ICT innovations by using their developed co-evolutional framework between the
advancement of ICT, a paradigm change, and a shift in people’s preferences (Fig. 1).
The authors have found that, corresponding to a shift from computer-initiated

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innovation toward the new stream of Internet-initiated innovations, social preferences
have shifted from economic functionality to supra-functionality. The economic impact
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of innovation has shifted from captured GDP (monetized revenues) to increasingly
uncaptured GDP (un-monetized revenues) due to the digital nature, free availability of
the products, and new business models (Watanabe et al., 2015a, b, 2016a, b; 2017a).
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In their further studies (Watanabe et al., 2016b, 2017a; Naveed et al., 2017) the authors
recognized the consolidated challenges in social demand and the importance of trust
between stakeholders in introducing successful disruptive innovations. Copenhagen
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Economics (2015) in its sequel report also pointed out the significant contribution of
online intermediaries in building trust.
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Advancement of ICT
Driven by R&D and
soft innovation resources
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Fig. 1. Scheme of Spin-Off Dynamism.

3
As shown by Tapscott in his best-seller “The Digital Economy” (1995), the Internet has changed the
way of business and daily life dramatically. The digital economy is also known as the Internet economy,
the new economy, or the web economy.

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The authors suggested that the digital business strategy corresponding to the new stream
of innovations should be supported by a trust-based, ICT-driven disruptive business
model (IDBM) with consolidated challenge to social demand (CCSD) incorporating the
inherent self-propagating function.
The significance of the above suggestions should be recognized in the foregoing
transformation of traditional ICT-driven functionality development strategy toward
digital business strategy (Ahmad et al., 2016).

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1.6 Dynamism Transforming into Digital Business Strategy
None of the previous research has elucidated the dynamism of this transformation

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leading global ICT firms to create digital business strategy corresponding to an
IoT-based society.
This paper attempts to explore new approach to demonstrate the above hypothetical

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views by explaining the transformation dynamism, in shifting from the PoT toward the
IoT and give constructive insights to global ICT firms for their digital business
strategies.

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Based on the findings obtained from the following preceding analyses illustrating the
spin-off from traditional to new co-evolution, an empirical analysis was conducted by
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evaluating the new survival strategy of top 500 global ICT firms over the period of
2005–2016, with a focus toward the following new business models and also paying
special attention to their specific features similar to:
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• Similarity and disparity of world ICT leaders (Watanabe et al., 2015b, 2016a),
• Uber’s ridesharing revolution (Watanabe et al., 2016b, 2017a),
•
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Trust-based digital education (Watanabe et al., 2017b),

• Commodification of past experiences (Watanabe et al., 2012),
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• Co-evolution of streaming and live music (Naveed et al., 2017), and

• Harnessing the vigor of untapped resources by activating women’s potential
(Watanabe et al., 2017c).
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It was identified that high R&D-intensive firms have fallen into a trap in ICT
advancement resulting in declining their marginal productivity of ICT that, which can
be considered a consequence of two-faced nature of GDP. Consequently, these firms are
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endeavoring to increase self-propagating functionality development by sublimating

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sophisticated digital business strategies, which can be considered a soft value addition
to deal with the issue of uncaptured GDP. Fig. 2 illustrates dynamism spinning-off to
increasing dependency on uncaptured GDP.
This analysis thus explores a new insight for ICT firms for their transformative strategy
toward an IoT-based society.
Section 2 of this paper reviews the shift of global ICT firms toward the IoT. Section 3
analyzes increasing dependency on uncaptured GDP in the global ICT firms. The
sources inducing high self-propagating function are analyzed in Section 4. Section 5
briefly summarizes noteworthy findings, policy suggestions, and future research.

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Advancement of the Internet

Freebies, easy copying, standardization Unique inherent characteristics

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Two-faced nature of ICT
ICT price down (trap in ICT advancement)

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Marginal productivity of ICT decline Bi-polarization of ICT firms

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Enhance functionality development Reaction against productivity decline
by R&D and
Harnessing the vigor of free, non-economic resources Construction of self-propagating dynamism

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(soft innovation resources) AN
(authors’ preceding analyses )

1. Supra-functionality beyond economic value [Happiness welfare]

2. Sleeping resources [Uber]

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3. Trust by overdrawing past information [Digital education] Sublimating sophisticated digital

business strategies
4. Utmost gratification ever experienced [Commodification of experiences]
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5. Memory and dream [Live concert streaming music]

6. Untapped resources and vision [Women’s potential]

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Create super services (without investment) Soft value addition

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Spin-off from captured GDP dependent

Emerge uncaptured GDP cycle
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Satisfy people preferences shift to supra-functionality

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Fig. 2. Dynamism Spinning-Off to Increasing Dependency on Uncaptured GDP.

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2 Shift of Global Firms Toward IoT

2.1 Influence of R&D-Driven Growth in Global ICT Firms
Given that sales (S) of global ICT firms are governed by ICT stock, their sales can be
depicted as follows (see Appendix A):
ln S = a + b ln R (1)
where R: R&D investments; and a, b: coefficients.

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The top 500 global ICT firms were divided into three groups by using cluster analysis4
based on their R&D and sales levels in year 2016 as illustrated in Fig. 3.

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D
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Fig. 3. Correlation Between R&D Investment and Sales in 500 Global ICT Firms (2016).
Note: The figures in parentheses indicate number of ICT firms. 16 outliners scattered in D2 and D3 were not presented.
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Based on the above findings, and utilizing equation (1), correlation between (S) and (R)
in the top 500 global ICT firms by R&D level in 2016 was analyzed.

= 2.319 + 0.997 1 ln + 1.013 2 ln + 1.023 3 ln + 2.903 adj. R2 0.632

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(4.43) (15.18) (12.40) (9.65) (13.22)

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S: Net sales, R: R&D investment, D1, D2, D3, and D are dummy variables.
D1: High R&D-intensive firms, D2: R&D-increasing firms, D3: Low-R&D firms, D: Outliers.
The figures in parentheses indicate t-statistics: All are significant at the 1% level.

The result of the correlation analysis is statistically significant. This demonstrates that
sales of the global ICT firms are governed by their ICT stock as cumulative stock of
R&D investment constructs ICT stock5.

4
K-means clustering analysis was used.
5 ∂ ln S ∂S R ∂S S
This result leads to = ⋅ = b therefore, = b⋅ (b: elasticity). This suggests that marginal productivity
∂ ln R ∂R S ∂R R
of R is proportional to R productivity in R-driven growth trajectory, typical for the digital innovation.

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2.2 Business Structure Comparison of Top 70 Global ICT Firms

With the foregoing understanding, Table 1 lists the top 70 R&D-intensive global ICT
firms in 2016 and compares their business performance by R&D (R), sales (S),
operating income (OI), R&D intensity (R/S), profitability (OI/S), and R&D profitability
(OI/R).

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Table 1 Digital Business Structure in Global ICT Firms in 2016 (Top 70 R&D-intensive ICT
firms by R&D level)
R&D Operating Operating
R&D Net sales R&D R&D Net Sales

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level Firm income R/S OI/S OI/R Firm income R/S OI/S OI/R
(R) (S) level (R) (S)
(OI) (OI)
EUR mil EUR mil EUR mil % % % EUR mil EUR mil EUR mil % % %

1 Samsung 12528 157190 20692 8.0 13.2 165.2 36 Lenovo 1285 41253 -20 3.1 -0.05 -1.6

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2 Intel 11140 50845 13016 21.9 25.6 116.8 37 Fujifilm 1243 18993 1457 6.5 7.7 117.3
3 Google 11054 68879 17783 16.0 25.8 160.9 38 NVidia 1223 4602 806 26.6 17.5 66.0
4 Microsoft 11011 78369 18683 14.1 23.8 169.7 39 Tencent 1177 14555 5717 8.1 39.3 485.5
5 Huawei 8358 55893 6479 15.0 11.6 77.5 40 Texas Inst 1176 11941 3946 9.8 33.0 335.6

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6 Apple 7410 214674 65427 3.5 30.5 883.0 41 STM 1149 6335 121 18.1 1.9 10.6
7 Cisco 5701 45235 11875 12.6 26.3 208.3 42 Danaher 1138 18888 3298 6.0 17.5 289.8
8 Oracle 5316 34029 12036 15.6 35.4 226.4 43 Seagate 1136 10251 409 11.1 4.0 36.0
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9 Qualcomm 5043 23221 5451 21.7 23.5 108.1 44 Yahoo! 1110 4564 -4266 24.3 -93.5 -384.2
10 Siemens 4820 75636 5809 6.4 7.7 120.5 45 ASML 1046 6287 1861 16.6 29.6 177.8
11 IBM 4515 75081 14586 6.0 19.4 323.1 46 Elec Arts 1019 4038 825 25.2 20.4 81.0
12 Facebook 4424 16467 5718 26.9 34.7 129.3 47 Sharp 992 18764 -1423 5.3 -7.6 -143.5
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13 Ericsson 3806 26870 2356 14.2 8.8 61.9 48 eBay 973 7892 2018 12.3 25.6 207.5
14 Sony 3569 61787 2243 5.8 3.6 62.8 49 Marvell 968 2504 -750 38.7 -30.0 -77.5
15 Panasonic 3429 57559 2797 6.0 4.9 81.6 50 Broadcom 964 6268 1534 15.4 24.5 159.2
16 HP 3217 94934 7353 3.4 7.7 228.6 51 NEC 945 21505 743 4.4 3.5 78.6
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17 LG 2718 44269 934 6.1 2.1 34.4 52 Schneider 937 26640 2220 3.5 8.3 236.9
18 SAP 2689 20793 4252 12.9 20.4 158.1 53 Juniper 913 4462 837 20.5 18.8 91.6
19 Hitachi 2544 76461 4597 3.3 0.1 180.7 54 Salesforce 875 6124 102 14.3 1.7 11.7
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20 Canon 2504 28968 2708 8.6 9.3 108.1 55 Cerner 870 4065 717 21.4 17.7 82.4
21 Nokia 2502 13574 1842 18.4 13.6 73.6 56 Adv. Micro 870 3666 -308 23.7 -8.4 -35.4
22 EMC 2437 22691 3023 10.7 13.3 124.0 57 Sumitomo 845 22358 999 3.8 4.5 118.2
23 Alcatel 2409 14280 890 16.9 6.2 36.9 58 Twitter 826 2037 -413 40.6 -20.3 -50.0
24 Medtronic 2043 26484 4860 7.7 18.4 237.9 59 Freescale 817 4108 694 19.9 0.2 84.9
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25 ZTE 1954 14176 955 13.8 6.7 48.9 60 Infineon 817 5795 557 14.1 9.6 68.2
26 Taiwan SEM 1827 23508 9104 7.8 38.7 498.4 61 Boston Sci 805 6868 944 11.7 13.7 117.4
27 SK Hynix 1543 14726 4180 10.5 28.4 270.9 62 LinkedIn 802 2747 -139 29.2 -5.0 -17.3
28 West Digital 1494 11935 754 12.5 6.3 50.5 63 Adobe 792 4405 831 18.0 18.9 104.9
29 Hon Hai 1463 124916 5219 1.2 4.2 356.7 64 NetApp 791 5094 426 15.5 8.4 53.9
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30 Baidu 1444 9393 1651 15.4 17.6 114.3 65 Ricoh 778 15357 960 5.1 0.1 123.4
31 Mitsubishi 1426 33497 2296 4.3 6.9 161.0 66 SanDisk 768 5112 698 15.0 13.7 90.9
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32 Micron Tec 1415 14873 2756 9.5 18.5 194.9 67 LAM 753 5406 987 13.9 18.3 131.0
33 MediaTek 1380 5943 727 23.2 12.2 52.6 68 Midea 745 18063 1845 4.1 10.2 247.7
34 Fujitsu 1371 36126 1113 3.8 3.1 81.1 69 Renesas 742 5285 788 14.0 14.9 106.2
35 Applied Mat 1332 8872 1387 15.0 15.6 104.1 70 NXP 734 5604 691 13.1 12.3 94.1

Note: Amazon is not presented because it did not meet the criteria of top 70 R&D-intensive firms in 2016,
as its position was 95th. The same applies to GE, Toshiba and Alibaba.

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Fig. 4 compares the performance of the top 70 R&D-intensive global ICT firms in 2005
and 2016.

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D
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Fig. 4. Digital Business Structure in Global ICT Firms (Top 70 R&D intensive ICT firms in 2016).

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2.3 Activation of Global ICT Firms

Over the last decade, dramatic advancement of the Internet worldwide paved the way to
the acceleration of the IoT. This advancement was conspicuous after 2010, as initiated
by global ICT firms as demonstrated in Fig. 3 and Table 2.

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Fig. 5a. Trend in Growth of the IoT Worldwide (1990-2020).
Source: The Connectivist (2014).
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D
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C EP
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Fig. 5b. Leading Firms of the IoT (2015).

Size of Firm (by number of all employees worldwide).
a
Measured by estimated number of employees performing IoT-related operations.
b
Measured by number of news appearances and related search engine inquiries.
Source: IoT Analytics (2015).
Fig. 5. Advancement of IoT Initiated by Global ICT Firms (2015).

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Table 2 IoT Endeavor of Top 25 Global ICT Firms

1 Samsung ARTIK platform, smart home, and digital health devices
IoT hardware, new-generation low-power chips for connected IoT devices, Intel IoT platform for
2 Intel connecting the data from your things to the cloud, Intel Galileo developer kit
3 Google Self-driving cars, home automation, IoT beacons, work on IoT standards, IoT cloud
4 Microsoft Windows 10 IoT Core operating system, Microsoft IoT Central, Azure IoT suite

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Huawei IoT management platform and smart solutions (e.g., Smart water, smart parking, smart logistics,
5 Huawei
smart energy, internet of vehicles)
6 Apple HomeKit smart home and HealthKit health tracking platforms

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7 Cisco Cloud-based IoT software platform, connectivity hardware, IoT-related services and consulting
8 Oracle IoT cloud service platform
9 Qualcomm IoT development platform, chips, security services, acquisition of connected assets from NXP

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10 Siemens IoT industrial platforms, IoT security services, connected industrial machines
11 IBM IBM Watson IoT, cloud services
12 Facebook Learning about different cultures, beliefs, histories and technologies

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13 Ericsson IoT accelerator
Acquisition of Altair Semiconductor for M2M and IoT, Sony Smart Home Automation, mixed-reality
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14 Sony
hardware, image sensing chips
15 Panasonic Supportive technologies for IoT/robotics, smart electronics using IoT
Edge computing technology, acquisition of Aruba Networks, HP’s Helion cloud platform (an
16 HP
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open-source dev-ready cloud platform aimed at connecting devices)

17 LG LG CNS IoT platform, Smart Green Platform
18 SAP SAP HANA Cloud Platform for the IoT
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19 Hitachi Lumada intelligent IoT platform

20 Canon Fusing optical technologies with digital health-care
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21 Nokia Open innovation challenge to leverage IoT technologies enabling a smart, safe and sustainable world
22 EMC New services framework including management of devices, connectivity, data and storage
23 Alcatel-Lucent Network application challenge with new access switch added analytics and SDN (software defined networking) capabilities
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24 Toshiba Imbedding of sensors in data-collection devices, the real time processing of big data
25 Amazon Amazon Web Services (AWS) IoT cloud, Amazon Echo home automation device, Amazon dash buttons

R&D investment level in 2016 order.

C

While firms 1–23 correspond to Table 1, 24 and 25 are not included in Table 1 (see footnote of Table 1).
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2.4 Noteworthy Shift of Global Firms from 2010 to 2016

Foregoing strong initiatives toward the IoT led by global ICT firms, particularly after
2010, resulted in a structural change of market value in leading firms. Table 3 traces the
trend in the ranking of market value of the leading firms in 2005, 2010, and 2016.
Table 3 Trend in Market Capitalization of Global ICT Firms

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Table 3a Ranking of Global ICT Firms within Top 100 Firms
2005 2010 2016
1 General Electric (2) Microsoft (3) Apple (1)

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2 Microsoft (3) Apple (10) Google (2)
3 IBM (13) General Electric (16) Microsoft (3)

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4 Intel (15) Google (17) Amazon (4)
5 Cisco (25) IBM (21) Facebook (6)
6 Dell (34) Cisco (30) Tencent Holdings (10)

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7 Samsung (47) Oracle (36) Alibaba (12)
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8 Nokia (50) HP (38) General Electric (13)
9 Siemens (55) Intel (42) Samsung (14)
10 HP (72) Samsung (50) Oracle (34)
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11 eBay (82) Siemens (63) Intel (40)

12 Google (93) Qualcomm (87) Cisco (41)
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13 Canon (98) IBM (44)

14 Amazon (101)* SAP (56)
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15 Siemens (64)
16 Broadcom (93)
* While Amazon was ranked 101 in 2010, it is listed for reference, as it conspicuously jumped to rank 4 in 2016.
EP

Firms marked in bold are newly ranked-in firms.

Table 3b Ranking of Global ICT Firms within Top 15 Firms
2005 2010 2016
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1 General Electric (2) Microsoft (3) Apple (1)

2 Microsoft (3) Apple (10) Google (2)
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3 IBM (13) Microsoft (3)

4 Intel (15) Amazon (4)
5 Facebook (6)
6 Tencent Holdings (10)
7 Alibaba (12)
8 General Electric (13)
9 Samsung (14)
Figures in parentheses indicate market capitalization rank computed based on Forbes Global 2000 statistics.
Telecom firms are not included.
Source: Forbes Global 2000.

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The above review highlights the following noteworthy shift of global firms from 2010
to 2016 toward the IoT. First, leading global firms in the market, with respect to their
market capitalization, have been shifted from those in the finance and energy sectors to
ICT firms. Table 2b demonstrates that ICT firms comprise nine of the top 15 firms with
respect to market value in 2016. The top three firms were all ICT firms.
Second, within ICT firms, the following shifts in their business focus have been

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evidently observed:
• From mechatronics to software (e.g., General Electric, IBM, and Siemens have
decreased their status)

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• From software to network (e.g., Apple and Google have exceeded their status,
while Microsoft has decreased its status)
• From Network to a merging of network and physical (e.g., Amazon has

SC
dramatically raised its status by merging e-commerce and brick-and-mortal
retail)
• From commodity to culture (e.g., noting increase in status of Facebook and

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Samsung) AN
These noteworthy shifts can be considered a consequence of endeavoring to increase a
self-propagating functionality development by sublimating sophisticated digital
business strategies against a trap in ICT advancement resulting in declining marginal
M

productivity of high R&D-intensive ICT firms. This accomplishment can be considered

a soft value addition to deal with the issue of increasing dependency on uncaptured
GDP.
D

The next section demonstrates this hypothetical view.

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C EP
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3. Increasing Dependency on Uncaptured GDP in Global ICT Firms

3.1 Development Trajectory of Global ICT Firms
(1) Analytical Framework
As reviewed in the preceding section, sales (S) of the global ICT firms are governed by
their ICT stock (T). With this situation, their development trajectory can be depicted as
follows (Watanabe et al., 2015a):

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S = F (X, T) = F (X (T)) ≈ F (T) (2)
where X: production factors other than T.

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In long run, T can be treated proportional to R&D investment (R) and time trend (t)6
(Watanabe, 2009).

SC
Given the logistic growth nature of ICT, increasing trajectory of S in global ICT firms
can be depicted by the following R-driven logistic growth function:

= aS (1- ) (3)

U
where a: velocity of diffusion, and N: carrying capacity (upper limit of diffusion).
AN
Given the global ICT firms, equation (3) can be approximated as follows (Watanabe et al.,
2009):

= (1 − ) ≈
M

(4)

Equation (3) is developed to the following simple logistic growth (SLG) function which
D

incorporates special advantage in assessing the state and prospect of productivity and
development trajectory objectively:
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= !" (5)
where b: coefficient indicating the initial state of the diffusion.
Given that #$ %& ≡ ( , marginal productivity of ICT can be depicted as follows:
EP

& ∙(
= )1 − * = + ∙ /1 − 0= (
C

- - (6)
()1
. .
AC

(2) Empirical Analysis

Based on this analytical framework, development trajectory of global ICT firms over
the period 2005 and 2016 was analyzed.

6
ICT stock at time t can be measured by the following equation:
23 = 3%4 + (1 − 5)23% 6 27 = %4 /(5 + 9) , Then, 23 = 3 %4 / (ρ + g)
When t >> m – 1, 23 ≈ 3 /(5 + 9). 3 is generally proportional to time trend t in ICT firms.
m: time-lag between R&D and commercialization,
ρ: rate of obsolescence of ICT, and g: growth rate of R&D at the initial period.

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1) Specific features of global ICT firms

In conducting the analysis, following specific features of development trajectory

identical to global ICT firms were carefully considered.

While digital innovation accelerates logistic growth of global ICT firms induced by
logistic growth nature of ICT, this innovation emerges “mutation” firms with outlying

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behavior. They are generally newly founded young firms but expand at tremendous pace
as demonstrated in Table 4 and Fig. 6.

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Table 4 Outlining Features of Top 5 Global ICT Firms

R&D Sales Operating income

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1 Samsung 1969 Apple 1976 Apple 1976
Year of foundation

2 Intel 1968 Samsung 1969 Samsung 1969

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3 Google 1998 Hon Hai 1974 Microsoft 1975
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4 Microsoft 1975 HP 1939 Google 1998
5 Huawei 1987 Microsoft 1975 IBM 1911
Ratio of
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Top 1 and 10 2.6 3.5 8.9

D
TE
C EP
AC

Fig. 6. Correlational Development between R&D and Sales in 500 Global ICT
Firms (2016).
16 outliers scattered in D2 and D3 were not presented.

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In order to explore a new insight for ICT firms for their transformative strategy toward
an IoT-based society, objective state and prospect of productivity and development
trajectory of global ICT firms general (not certain particular noting firms) should be
analyzed not biased by particular gigantic “mutation” firms. However, since SLG
function depends on fixed carrying capacity common to all firms analyzed resulting in
biased estimate by highest development state in gigantic firms.

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Fig. 6 allows us to imagine SLG estimation of R-driven development trajectory of 500
global ICT firms is biased by several gigantic firms with extraordinary high level of
sales such as Apple, Samsung and Hon Hai while majority of 500 global ICT firms

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belong to the sales level below Euro 60 billion.
Aiming at avoiding such bias by certain gigantic firms, comparative assessment of the

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bias of gigantic firms in distorting R-driven development of the majority of 500 global
ICT firms was conducted by treating gigantic firms that may distort such behavior as
dummy variable in the SLG function. This comparative assessment identifies such
gigantic ICT firms which have high variance from the general behavior of global ICT

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firms, and measures the magnitude of that variance, without which the highest
AN
representation of R-driven development trajectory can be analyzed by using SLG
function (see the details of this treatment in Appendix B).
Table 5 summarizes the result of the comparative assessment.
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Table 5 Comparison of Bias of Gigantic Firms in Distorting R-driven SLG

in Majority of 500 Global ICT Firms (2016)
+
= +R
D

1 + #e%&
TE

where S: sales, R: R&D investment, N: carrying capacity, a, b, c: coefficients, D: dummy variable (D

= 1 for designated outlier firms, D = 0 for other firms).

N a b c adj. R2 D (outlier firms treated by dummy variable)

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68.72 1.21 16.36 96.87

A 0.695 Apple
(17.92) (10.70) (20.02) (22.07)
58.24 1.44 15.55 97.82
B 0.734 Apple, Samsung
(18.04) (10.31) (18.75) (25.09)
C

59.62 1.32 15.91 99.09

C 0.784 Apple, Samsung, Hon Hai
(17.39) (10.98) (21.87) (29.74)
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61.23 1.01 13.30 99.69

D 0.780 Apple, Samsung, Hon Hai, HP
(16.77) (10.72) (21.63) (29.22)
50.38 1.33 12.71 90.72
E 0.766 Apple, Samsung, Hon Hai, HP, Microsoft
(15.95) (9.41) (17.93) (27.83)
53.91 1.03 11.99 87.80
F 0.766 Apple, Samsung, Hon Hai, HP, Microsoft, Hitachi
(14.63) (9.27) (18.87) (27.79)
*
In addition to the above firms, Amazon and McKesson are included as outliers.
The figures in parentheses indicate t-statistics: All are significant at the 1% level.
Table 5 suggests that Case C (sales top 3 gigantic firms, Apple, Samsung and Hon Hai distort
500 global ICT firms’ SLG trajectory most significantly) demonstrates statistically most
significant.

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2) Results of the analysis

By conducting the similar assessment, Table 6 tabulates results of the estimation of SLG
function over the period of 2005 and 2016. All results are statistically significant.

Table 6 Estimation of Development Trajectory of the 500 Global ICT Firms

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(2005–2016)
+
= +R
1 + #e%&

RI
where S: sales, R: R&D investment, N: carrying capacity, a, b, c: coefficients, D: dummy variable (D
= 1 for designated outliers, D = 0 for other firms).

SC
N a b c adj. R2 D (outlier firms treated by dummy variable)
53.80 1.55 22.02 42.63
2005 0.734 Dell
(21.18) (16.96) (29.44) (18.13)

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57.62 1.47 18.97 51.13
2006 0.757 General Electric, Dell
(22.19) (16.30) (30.62) (20.52)
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52.67 1.73 18.51 53.86
2007 0.735 Metro, General Electric
(22.11) (15.05) (27.09) (22.08)
45.55 1.81 15.06 54.97
2008 0.741 Metro, General Electric, Siemens
(20.81) (13.43) (25.10) (23.72)
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54.96 1.58 15.49 58.68

2009 0.724 Metro, General Electric
(20.07) (12.91) (25.34) (22.20)
55.46 1.35 14.70 58.53
2010 0.742 Metro, HP, General Electric
(17.26) (13.84) (27.25) (24.34)
D

58.59 1.46 14.57 61.07

2011 0.738 Hon Hai, Metro, HP, General Electric
(20.32) (13.88) (26.74) (22.58)
55.55 1.14 12.56 65.44
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2012 0.727 Samsung, Apple, Hon Hai, Metro, HP

(16.31) (11.73) (24.50) (23.38)
49.11 1.53 12.56 74.38
2013 0.730 Samsung, Apple, Hon Hai, Amazon, McKesson, Tesco
(17.90) (10.52) (21.04) (25.86)
44.14 1.69 12.42 73.88
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2014 0.725 Samsung, Apple, NTT, AT&T, Hon Hai, Amazon, Tesco
(17.18) (9.46) (19.45) (26.29)
53.22 1.53 14.37 82.98
2015 0.739 Samsung, Apple, Hon Hai, Amazon, McKesson, Metro, Tesco
(17.81) (10.94) (20.82) (27.32)
59.61 1.32 15.94 99.09
2016 0.784 Samsung, Apple, Hon Hai, Amazon, McKesson
C

(19.45) (11.40) (21.04) (29.68)

The figures in parentheses indicate t-statistics: All are significant at the 1% level.
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3.2 Trend in Marginal Productivity of ICT in Global ICT Firms

3.2.1 Declining Trend in the Marginal Productivity of ICT
Utilizing equation (6) in Section 3.1, Fig. 7 demonstrates a trend in the marginal
productivity of ICT in global ICT firms over the period 2005–2016. Fig. 7 demonstrates
explicit bi-polarization between high R&D-intensive firms (HRIF: D1 in Fig. 6) out of
500 global ICT firms and remaining low R&D-intensive firms (LRIF: D2 and D3 in Fig.

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6). HRIFs have fallen into a vicious cycle between R&D investment centered by ICT
and its marginal productivity, as the former increase results in declining the latter. On

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the contrary, LRIFs have been enjoying a virtuous cycle between them, as R&D
increase leads to marginal productivity increase.

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25
2008 2009
2007 2010
2006 2011
Marginal Productivity of ICT

20

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2012
2013
2014
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2015
15

2016
M

10

2005
D

5
TE

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
EP

R&D (bil. EUR)

Fig. 7. Trend in Marginal Productivity of ICT in Global ICT Firms (2005–2016).
C

Fig. 8 compares this bipolarization between 2005 and 2016. Looking at Fig. 8, we note
AC

that the inflection point shifted slightly higher from EUR 2.0 billion in 2005 to EUR 2.1
billion in 2016, corresponding to the increase in R&D investment during this period.
However, the maximum level of marginal productivity of ICT at the inflection point
decreased during this period, reflecting the declining trend in this productivity in global
ICT firms.
Table 7 compares HRIFs that have fallen into a vicious cycle between R&D investment
and marginal functionality of ICT between 2005 and 2016. Numbers of HRIFs that have
fallen into a vicious cycle have increased significantly from 16 in 2005 to 25 in 2016.

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Marginal productivity of ICT 2005 2016

Declining firms (HRIF) 16 25

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Increasing firms (LRIF) 484 475

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U SC
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(bil. EUR)
Fig. 8. Comparison of Marginal Productivity of ICT in 500 Global ICT Firms
(2005, 2016).
M

Table 7 Comparison of HRIFs with R&D Investment in 2005 and 2016

2005 2016
R&D R&D
D

Firm Firm
(bil. EUR) (bil. EUR)
1 Siemens 5.06 Samsung Electronics 12.53
2 Microsoft 4.55 Intel 11.14
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3 Panasonic 4.42 Google 11.05

4 IBM 4.17 Microsoft 11.01
5 Nokia 3.83 Huawei 8.36
6 Sony 3.60 Apple 7.41
7 Intel 3.52 Cisco Systems 5.70
EP

8 Samsung Electronics 3.48 Oracle 5.32

9 Hitachi 2.79 Qualcomm 5.04
10 Hewlett-Packard 2.58 Siemens 4.82
11 Philips Electronics 2.53 IBM 4.51
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12 Ericsson 2.44 Facebook 4.42

13 Toshiba 2.42 Ericsson 3.81
14 Cisco Systems 2.35 Sony 3.57
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15 NTT 2.28 Panasonic 3.43

16 Motorola 2.25 Hewlett-Packard 3.22
17 LG Electronics 2.72
18 SAP 2.69
19 Hitachi 2.54
20 Canon 2.50
21 Nokia 2.50
22 EMC 2.44
23 Alcatel-Lucent 2.41
24 Toshiba 2.40
25 Amazon 0.59*
Order by level of R&D investment.
* Amazon is included in top 25 list as its market capitalization is conspicuous while its R&D investment
is small and ranked 95th in 2016.

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3.2.2 Structural Source of Decline in Marginal Productivity of ICT

Decline in marginal productivity of ICT can be attributed to the dependency on the
Internet and its subsequent two-faced nature (Watanabe et al., 2015). Advances in ICT
can largely be attributed to the dramatic advancement of the Internet (McKinsey Global
Institute, 2011; ITU, 2013), which has changed the computer-initiated world significantly.
Advancement of ICT generally contributes to enhanced prices of technology by
increasing new functionality development7. However, the dramatic advancement of the

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Internet actually causes a decrease in the price of technology due to its nature of
freebies, easy copying, and mass standardization (Cowen, 2011; Watanabe et al., 2015).
Consequently, prices of technology in highly ICT-advanced firms change to a declining

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trend, as illustrated in Fig. 9.
Maintain technology prices

SC
– marginal productivity of technology

Uncaptured GDP
Prices of technology

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Internet
Decline by freebies, Utilization of external and
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easy copying, and soft innovation resources
standardization

Increase by new By outsourcing price

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functionality development decreasing factors

ICT stock
D

Fig. 9. Two-Faced Nature of ICT and Uncaptured GDP Emergence.

Note: At the initial stage of Internet commercialization, its price is extremely higher than that of ICT.
TE

3.2.3 ICT Leaders Endeavor Against Marginal Productivity of ICT Decline

Given that the firms seek maximum profit in the competitive market, marginal
EP

productivity of technology corresponds to relative price of technology (ratio of

technology prices and prices of product). Therefore, the Internet-driven price decrease
corresponds to marginal productivity decline.
C

This can be the structural source of marginal productivity decline in ICT leaders. Given
AC

such circumstances, ICT leaders endeavor to accelerate price increase by means of

successive, efficient, new functionality development by minimum expenditures and
minimizing price-decrease factors by outsourcing them to other parties (Watanabe et al.,
2015). Activating the ICT-inherent self-propagating function can lead to increasing
uncaptured GDP8 (Watanabe et al., 2016, 2017) as explained in Fig. 9.

7
Functionality development is generally defined as the ability to dramatically improve performance of
production process, goods, and services by means of innovation (Watanabe et al., 2005).
8
Uncaptured GDP can be defined as added value providing utility (satisfaction of consumption) and
happiness beyond economic value to people but cannot be measured by traditional GDP accounting
(captured GDP) that measures economic value.

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3.3 Trend in Dependency on Uncaptured GDP in the Global ICT Leaders

3.3.1 Self-Propagating Dynamism
As reviewed in 3.1, the development trajectory of the global ICT leaders can be traced
by the R&D-driven simple logistic growth function, as depicted by equations (4) and (5).
While the level of carrying capacity (N) is assumed constant through the development

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process in this function, in particular innovations, the correlation of the interaction
between innovation and institutions displays a systematic change in the process of growth
and maturity. This leads to the creation of a new carrying capacity in the process of its

RI
development, similar to equation (7) as follows:
( ) ( )
= aS(R) (1- ) (7)
( )

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This equation leads to the following logistic growth within a dynamic carrying capacity
(LGDCC) function, which demonstrates the level of carrying capacity enhancement as

U
the development proceeds (Meyer et al., 1999):
AN
(8)
M

where Nk: ultimate carrying capacity, and ak and bk: coefficients similar to a and b.

Equation (8) demonstrates that the third term of the denomination governs the dynamic
D

carrying capacity and, without this term, results in SLG with a constant carrying capacity.
From equation (7), dynamic carrying capacity can be expressed as follows:
TE

 1 
N ( R) = S ( R) 1 dS ( R )  (9)
1 −
 a dR⋅ / S ( R ) 
EP

This demonstrates that N(R) increases together with that of S(R) and its R&D-driven
growth rate. This implies that the LGDCC function demonstrates functionality
C

development in the context of the self-propagating behavior (Watanabe et al., 2004:

Watanabe et al., 2009).
AC

This self-propagating function plays a vital role of the engine in spinning-off from the
traditional co-evolutional of three mega-trends in the world of the PoT9 to the new
co-evolution toward the IoT, as illustrated in Fig. 1. This spin-off plays a significant role
in inducing ICT-driven innovation (Watanabe et al., 2015, 2016). Here, spin-off is defined
as jumping to more sophisticated co-evolutional dynamism from traditional
co-evolutional dynamism in inducing innovation (Watanabe et al., 2011).
Since the potential of functionality development can be traced by the ratio of

9 Under the PoT, computer- and semiconductor-initiated mass production played a vital role.

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development state and its upper limit (carrying capacity) (Watanabe et al., 2009),
functionality development in the LGDCC function can be depicted from equation (9) as
follows:

N ( R) 1
Functionality development = FD = = 1 dS ( R) (10)
S (R) 1 − a ⋅ dR / S ( R)

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This equation demonstrates that functionality development can be accelerated as its
growth rate increases. This explains functionality development in the context of
self-propagating behavior. Since functionality development plays a locomotive role in

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leveraging spin-off (Watanabe et al., 2011), equation (10) indicates that the
self-propagating function leverages spin-off by inducing functionality development (see

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Appendix C dynamism in developing self-propagating function).
With the understanding that this self-propagating function can be attributed to its
adaptability to ICT-driven logistic growth within a dynamic carrying capacity (LGDCC)

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function that increases functionality as it grows rather than a simple logistic growth
(SLG) function that fades out functionality as it grows (Watanabe et al., 2004), Table 8
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estimates the LGDCC function of 500 global ICT firms in 2005 and 201610 and results
are statistically significant.
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Table 8 LGDCC Function in 500 Global ICT Firms in 2005 and 2016
+U
( )=
#U
D

LGDCC 1+ #$ %& +
1− $
U %&V

6S. T
TE

Nk a b ak bk
75.28 1.27 26.65 0.35 0.34
2005 0.999
(30.37) (177.19) (25.42) (2.50) (6.71)
EP

102.23 0.77 15.84 0.43 1.32

2016 0.999
(178.83) (26.13) (9.72) (7.06) (2.53)
C

S(R): sales; Nk: carrying capacity; R: R&D investment; a, b, ak, bk: coefficients.
Results are based on the third step approximation.
AC

The figures in parentheses indicate t-statistics: All are significant at the 1% level.

The self-propagating function can be attributed to dynamism of functionality

development (FD) increase as growth proceeds (S increase) (Watanabe et al., 2004). FD
can be estimated by the ratio of N (carrying capacity) and S (Watanabe et al., 2009).
Therefore, the magnitude of the self-propagation function can be estimated by the ratio
of Nk(R) (dynamic carrying capacity that leads development trajectory after

10
Estimation of LGDCC depended on the three-step approximation approach (see Appendix D).

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incorporating the self-propagating function) and Ss(R) (development trajectory

estimated by SLG that demonstrates development level when no self-propagating
function incorporates) (Watanabe et al., 2017c).

Fig. 10 demonstrates trends in marginal productivity of ICT and magnitude of the

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self-propagating function in global ICT firms in 2016. This figure shows that, in
repulsion to marginal productivity of ICT decline, self-propagating function increase in
high R&D-intensive global ICT firms such as Samsung, Intel, Google, Microsoft,

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Huawei and Apple. Thereby these firms correspond to peoples’ preference shift to
supra-functionality beyond economic value as demonstrated in Fig. 1. This survival
strategy can be called the long tail of the global ICT leaders (Anderson, 2006).

SC
The above analyses demonstrate the following noteworthy structural changes in global
ICT firms toward the IoT acceleration after 2010:

U
• Dramatic decrease in ICT prices
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• Subsequent decline in marginal productivity of ICT
• Intensive efforts in increasing functionality development by activating the
self-propagating function.
M

It is postulated that this activation can be attained by harnessing the vigor of soft
D

innovation resources, including sleeping/untapped resources, thus leading to increasing

dependency on uncaptured GDP.
TE

The next section demonstrates this hypothetical view.

C EP
AC

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+U ( )
WX ( ) 1.80

propagating function (MSPF)

Magnitude of self-
1.75
Facebook
IBM Google Samsung
Siemens Microsoft Intel
1.70 Oualcomm Huawei
Oracle Apple
Cisco
1.65
YW

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20 Alcatel 4 5 6 7 8 9 10 11 12 13
Y
EMC
Nokia R&D (bil. EUR)
18 Canon
Hitachi
Marginal productivity

16
of ICT (ICT prices)

SAP

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LG
14
12 HP

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10 Panasonic
Sony
8
Ericsson
6

U
Facebook
4 IBM
Siemens
Qualcomm
2 Oracle
AN
Cisco Google
Apple Huawei Microsoft Intel Samsung
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13
R&D (bil. EUR)
M
D
TE
C EP
AC

Fig. 10. Dynamism in Transforming Productivity Decline into Supra-functionality (2016)

– New Open Innovation by Harnessing Soft Innovation Resources.

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4. Functionality Development and the Transformative Direction of Innovation

4.1 Scheme of Functionality Development

propagating function (MSPF)
Magnitude of self-

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Soft Innovation Resources
Supra-functionality 1. Preferences shift to

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beyond supra-functionality
economic value 2. Sleeping resources
Marginal productivity
of ICT (ICT prices)

3. Trust by overdrawing past

information

SC
Functionality development
Prices decline 4. Utmost gratification ever
induced by
Self-propagating function experienced
activated by 5. Memory and dream
Harnessing soft value innovation
6. Untapped resources and vision

U
AN
M

Fig. 11. Scheme of Functionality Development by Harnessing Soft Innovation Resources

- High R&D Intensive Global ICT Firms (2016).
D

Fig. 11 demonstrates the dynamism of functionality development (which presents

TE

supra-functionality beyond economic value) induced by the self-propagating function

which can be activated by harnessing the vigor of the following soft innovation
resources:
EP

• People’s preferences shift to supra-functionality beyond economic value

•
C

Sleeping resources (similar to ridesharing revolution by Uber)

• Trust by overdrawing past information
AC

• Utmost gratification ever experienced

• Memory and dream
• Untapped resources and vision

This can be attained in reaction to marginal productivity of ICT decline due to the high
dependency on ICT that incorporates a two-faced nature.

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4.2 Transformative Direction of Leading Global ICT Firms

With the understanding of such dynamism aiming at demonstrating that high
R&D-intensive global ICT firms succeeded in harnessing the vigor of soft innovation
resources, Table 9 reviews the transformative direction of seven leading global ICT
firms in harnessing such innovation resources over the period 1970–202011.
Table 9 Transformation Direction of Seven Leading Global ICT Firms

PT
1970–1980 1981–1990 1991–2000 2001–2010 2011–2020
Mechatronics Computers Mobile Phones, Digital TVs Smartphones, Smart TVs Tablets, Wearables, VR, IoT

RI
1992: Mobile phones
1. Samsung 1938: Samsung founded 1980: Air conditioner
HDD, DRAMs
2004: World largest LCD TV (46”) 2011: Galaxy tablets
Hard disk biz sold to Seagate
1969: Samsung-Sanyo electronics 1983: Personal computers (PCs) Smartphones
established 1984: Export of VCRs Industrial robots 2008: World’s 1st dual-color bezel TV 2012: Samsung and Apple patent
China expansion infringement controversy
1970: Black-and-white TV 1986: Smallest video tape recorder 2009: World’s slimmest LED TV
1993: Digital video recorder (DVD-R) Samsung shares on the KOSPI
1972: Washing machine 1987: SAIT established 2010: World’s 1st TV app store

SC
1994: Electric car (SEV-III) index fell 7.7%
Refrigerator 1995: MPEG-3 technology World’s 1st FHD 3D TV 2013: World’s 1st curved TV
1977: Color television 1996: Fastest CPU (alpha chip) 2014: Gear VR devices
1979: Microwave ovens 33” double-screen TV Galaxy Note 4
1997: World lightest TVs World’s 1st bendable UHD TV
30” TFT-LCD display Stopped music streaming
1998: Digital TV, flat-screen TV business, Music Hub app

U
1999: Smartphone, wireless internet 2015: Granted world’s most patents
phone, multi-function phone World’s largest curved UHD TV
2000: 50-millionth mobile phone 2016: IoT, partnership with Microsoft
Smartwatch (Gear Fit 2, etc.)
AN
Icon-X, Galaxy Note 7
Supporting Technologies for
Integrated Electronics Computer Boards, Chips Processors Cell Phone Microchips
IoT and Wearables
1982: PC industry takes off 1992: Largest semiconductor 2002: Hyper-threading technology, 2011: Intel Ultrabook
2. Intel 1968: Co-founded by Gordon 1983: US$1 billion annual revenue supplier in the world more power at lower cost 2012: 450-nm manufacturing technology
Moore and Robert Noyce 1984: One of the 100 best companies 1993: Intel Pentium processor 2003: Cellular phone microchips 2013: New generation of processors
M

1969: Worlds 1st MOS to work for in America 1995: Became a chipset leader 2004: 46th in Fortune 100 Best i3, i5, i7
1970: First property, first board 1985: Super computer, 1998: Intel strong ARM processor Companies to work for 2014: Intel Quark chip powering IoT
1971: New era in integrated Intel 386 processor 1999: Intel Pentium III, Xeon 2005: 40th anniversary of Moore’s law and wearable devices
electronics 1987: Second-generation super Processor 2006: World’s 1st quad-core processor 2016: Announces withdrawal from
1972: First international factory in computer 2000: Intel Pentium 4 processor 2008: 45-nm transistor smartphone market
Malaysia 1988: Intel foundation established 2009: Intel atom processor
D

1975: Computers get personal 1990: Robert Noyce died Going Green
1979: 486th position in Fortune 500 Paid US$1.25 billion to AMD in
lawsuit settlement
2010: Buys McAfee
TE

i7 Processor, Intel App-Up store

Gmail, Earth, YouTube, Google (Play store, Glass,
Information Search
Smartphones, OS, Apps Balloons), Cloud, IoT
1998: Google founded 2001: Image Search 2011: Google Panda, acquired Motorola,
2000: World’s largest search engine 2002: Google News Google +
2004: Gmail 2012: Google Play store
EP

2005: Google Earth, Maps, Talk, 2013: Google Nexus 7 tablet

3. Google Video, Google Hangouts, Google Balloons
Books, Mobile Search, Scholar 2014:
2006: Android, Google Trends 2015:
2007: YouTube 2016
2008: Google Chrome, Street View
2009: Google Translate
C

2010: Google Nexus phone

Software Cloud, Platforms, Analytics,

Software, Play Stations IoT
AC

1981: Microsoft incorporates 1995: Microsoft launches Windows 95 2001: Windows XP, Office XP 2011: Windows Phone, Xbox Kinect
4. Microsoft 1975: Microsoft founded IBM 1st PC with MS-DOS 1.0 Bill Gates outlines Microsoft’s Xbox play station Office 365
1979: Shifted from New 1986: Moves to Redmond, Washington commitment to the Internet
2002: Tablet PC 2012: Surface tablets
Mexico to Washington Microsoft stock goes public 1998: Microsoft launches Windows 98
1989: Earliest version of Office suite 2000: Steve Ballmer named president and 2003: Windows Server 2003 Windows 8, Windows phone 8,
1990: Microsoft launches Windows 3.0 CEO for Windows 2000 MS Office System Windows Server
2004: Xbox 360 next generation 2013: Surface 2, Pro 2, Xbox one
2006: Zune music player Office 2013
2007: Windows Vista 2014: Buys Nokia devices & services
MS Office 2007 Buys Minecraft, Office iPad,
2008: Windows server, SQL server Android, Surface Pro 3
Visual Studio 2015: Windows 10, Office 2016,
2010: Windows phone OS Lumia 950, Lumia 95 XL
MS Office 2010 Surface 3, Pro 4
2016: LinkedIn, Surface Studio, Dial,
Book, Visual Studio 2017

11
Seven selected ICT firms include the top six high R&D-intensive firms in 2016 as demonstrated in Fig.
10 and Amazon. Amazon was included in this review due to its conspicuously high market value in 2016
(ranked fourth, see Table 2) while R&D investment was limited.

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Fixed-Line and Digital

Distributor Mobile Networks Smartphones, Cloud, IoT
Network Products
1988: Huawei founded as distributor 1993: Digital telephone switch with 2003: Joint venture with 3Com 2011
of imported PBX products capacity over 10,000 circuits Cisco Systems sues for 2012
1996: Wins first big overseas contract copyright violations 2013
2004: Overseas sales surpass 2014
for fixed-line network products
5. Huawei domestic sales for first time
from Hong Kong’s 2008: Contract orders rose 46% to 2015: Smartphones, Huawei P8
Hutchison-Whampoa US$23.3 billion Huawei P8 Max
World’s 3rd largest mobile
network gear maker
2009: World’s top patent seeker
Head the UN WIPO list

PT
iPod, iTunes, Smartphones, Smart Devices, Platforms,
Computers, Printers Computers Laptop Computers
Tablets IoT
1976: Apple I 1981: Apple ProFile 2000: PowerBook Prismo 2001: iPod 1st gen 2011: iPad 2 (16, 32, 64 GB)
1977: Apple II 1982: Apple printers (dot matrix, Cinema Display 22” 2002: iPod 2nd gen, iBook 14”, iMac iPhone 4S
1978: Apple (Writer, file type) letter quality) 2003: iPod 3rd gen, PowerBook G4 2012: iPad, iPad Mini, iPhone 5

RI
1979: 2004: iPod Mini (1st gen) 2013: iPhone 6, iPhone 6 Plus
1980: Apple III iPod (4th gen) iPad Air 2, iPad Mini 3
2005: iPod Mini, (2nd gen) 2014: Apple Watch, iPhone 6S
iPod Nano (1st gen) iPad Mini 4, iPad Pro
6. Apple iPod (4th gen) 2015: iPhone 7, iPhone 7 Plus
iPod Shuffle iPad Pro

SC
2006: MacBook Pro (15”, 17”)
iPod Hi-Fi, iPod Nano (2nd gen)
iPod Shuffle (2nd gen)
2007: Apple TV (1st gen)
iPhone (4, 8 GB)
2008: iPhone 3G (8, 16 GB)
iPhone (16 GB)

U
2009: iPhone 3GS
2010: iPad (WiFi + 3G), iPhone 4

Book Store Top Online Retail Store Fusing Physical and Digital
AN
1995: Amazon launched 2000: Marketplace, 2011: Kindle Fire tablet
1997: Amazon on NYSE, Nasdaq Amazon’s third-party business 2012: Buys Kiva, a robotics
Buys bookpages.co.uk A to the Z in Amazon launches company, for US$775 million to
Launches Amazon UK 2001: Takeover Borders.com contain technology just for itself
1998: CDs and DVDs Borders collapses 10 years later 2013: Big cloud systems contract of
1999: Toys and electronics Amazon makes its first profit US$600 million for 17 US
M

2002: Amazon Web Services intelligence agencies

cloud computing platform Prime Air drone delivery plans
2003: Selling jewelry 2014: Amazon Echo voice device
7. Amazon 2004: Selling shoes 8th generation fulfillment centers
2005: Amazon Prime membership 2015: Amazon brick-and-mortar store
2006: Amazon Fresh (food online) Amazon Flex a-piece-rate delivery
D

2007: Kindle e-reader (Uber model)

2008: Games Amazon passes Walmart
2009: Buys Zappos in market capitalization
2010: Logistics infrastructure scaling 2016: Amazon captures 50% of online
TE

Amazon Studios to create spending in US

original television content Amazon doubles its distribution
facilities
2017: Amazon buys Whole Foods
EP

Based on the preceding review, Fig. 12 summarizes the noteworthy transformative

C

direction of ICT-driven disruptive business models accomplished by seven leading

global ICT firms in response to marginal productivity decline. Such accomplishments
AC

are correlated with soft innovation resources identified as a soft value addition
corresponding to uncaptured GDP and essential for the spin-off from traditional
PoT-driven innovation to new IoT-oriented co-evolutional innovation as reviewed in
section 1.6.

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Soft value addition essential for spin-off to

Transformative direction of ICT-driven Disruptive Business Models IoT-oriented co-evolutional innovation
“User experiences through smart design and technology” Soft value innovation
Samsung Inspire the world, create future design and technology innovation (Authors’ preceding case analyses)
(smartphones, art-frame TV, smart appliances)
1. Preferences shift to Similarity and disparity of
“Empowering the technologies of the future dream” world ICT leading nations
supra-functionality
Intel

PT
Makes possible the most amazing experiences of the future
(Transforming businesses and accelerating the use of artificial intelligence)
2. Sleeping resources Uber’s
“Enabling overdrawing of information through search” ridesharing revolution
Google “One-click” access to the world’s information
(Internet search, advertising, OS and platforms, Google apps)

RI
3. Trust by overdrawing Trust-based digital
“Harnessing the utmost gratification of consumer delight” past information education
Microsoft
(Productivity and platform company for mobile-first and cloud-first world)
4. Utmost gratification Commodification of past
ever experienced experiences

SC
“Building a better connected world”
Huawei
Driving ICT transformation through innovation and transformation
5. Memory and Co-evolution of streaming
and live music
“Personalized user experiences through top-quality products Future dream
Apple To be the face of the earth to make great products
6. Untapped resources Harnessing the vigor of

U
(Simple, user-friendly and better design; focus on innovation, collaboration, excellence)
and vision untapped resources of
“Fusing physical and digital” women’s potential
Amazon
AN
Merging physical and digital
“Brick and mortar”

Fig. 12. Noteworthy Direction of ICT-Driven Disruptive Business Models.

M

With respect to the transformative direction of IDBM, all seven leading global ICT
firms demonstrate their success in harnessing the vigor of the soft innovation resources
D

identified as soft value-addition corresponding to uncaptured GDP and an essential

TE

element for the spin-off from traditional PoT-driven innovation to a new IoT-oriented
co-evolutional innovation.
EP

4.3 Noteworthy Lessons for Harnessing the Soft Innovation Resources

Supported by the success of self-propagating functionality development by harnessing
the soft value innovation resources as demonstrated by seven leading global ICT firms,
C

the transformative direction of trust-based IDBM with CCSD can be envisioned as

illustrated in Fig. 13.
AC

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Soft innovation
Past Current Future
(Authors’ preceding case analyses)

Similarity and PoT IoT Beyond IoT

Captured GDP Uncaptured GDP New concept of GDP
1. disparity of world ICT Economic functionality Supra-functionality Digital supra-functionality
leaders
Effectively utilization of sleeping Driverless cars

PT
Uber’s ridesharing Sleeping resources resources through technology platforms Autonomous electric taxi fleets
2. (cars, drivers) Trust-based tripartism cooperation In-road inductive charging
revolution frameworks
Overdrawing of past information, AI, VR
Knowledge and experiences developing trust Realtime language processing
Trust-based digital

RI
3. Teaching avatar assistants
education Brain computer interfaces
Machines gain statistical intuition
Conceptualization of invisible voice of Commodification of experiences
Commodification of Utmost gratification ever consumers

SC
4. experienced
past experiences
Co-evolution of Invoking memories Collaborative value creation
Past unforgettable memories and Live entertainment Virtual participation
5. streaming and live experiences Participative creativity Augmented reality
Synthesizing future dream Machine-generated art and music

U
music
Untapped resource Harnessing the women’s potential Ambitious vision for harnessing
Domestic responsibilities Giving responsibilities women’s potential together with
Harnessing the vigor of
AN
Limited participation and Gender-balance equality men to generate economic and
un-tapped resources by opportunities social value
6.
activating women’s
potential
M

Accomplishments by Seven Leading ICT Firms

“User experiences through smart design and technology”
Samsung
Noteworthy accomplishments initiated
by the seven leading global ICT firms

Inspire the world, create future design and technology innovation (smartphones, art-frame TV, smart appliances)
D

“Empowering the technologies of the future dream”

Intel Makes possible the most amazing experiences of the future
TE

(Transforming businesses and accelerating the use of artificial intelligence)

“Enabling overdrawing of information through search”
Google “One-click” access to the world’s information
(Internet search, advertising, OS and platforms, Google apps)
“Harnessing the utmost gratification of consumer delight”
Microsoft
EP

(Productivity and platform company for mobile-first and cloud-first world)

“Building a better connected world”
Huawei
Driving ICT transformation through innovation and transformation
“Personalized user experiences through top-quality products
C

Apple To be the face of the earth to make great products

(Simple, user-friendly and better design; focus on innovation, collaboration, excellence)
“Fusing physical and digital”
AC

Amazon Merging physical and digital

“Brick and mortar”

Fig. 13. Transformative Direction of Trust-Based ICT-Driven Disruptive Business

Models with Consolidated Challenge to Social Demand.

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5. Conclusion
This analysis focused on the increasing significance of the restructuring of business
models in the global ICT firms toward an IoT-based society, the dynamism emerging
this transformation, and optimal digital business strategies corresponding to this
dynamism.
An empirical analysis was conducted by evaluating digital business solutions in 500

PT
global ICT firms over the period 2005–2016 with special attention to their specific
features initiated by particular gigantic “mutation” firms.
Noteworthy findings include:

RI
• R&D-intensive firms have fallen into a trap in ICT advancement resulting in
declining their marginal productivity of ICT and suggest a new productivity paradox

SC
in the digital economy.
• This can be considered a consequence of two-faced nature of ICT, which, together
with people’s preference shift to supra-functionality beyond economic value, leads

U
to increasing dependency on uncaptured GDP.
• To counterchallenge such situation these firms endeavor to activate the
AN
self-propagating function that induces functionality development sublimating
sophisticated digital business strategies.
• This activation can be achieved by harness the vigor of soft innovation resources.
M

• This dynamism can be considered the soft value addition corresponding to

uncaptured GDP.
D

• Firms with higher market value increase the self-propagating function efficiently
which, in turn further increase their market value.
TE

• This can generally be attributed to their sophisticated digital business strategies in

increasing the high level of operating income to R&D.
EP

These findings give rise to the following insightful suggestions to global ICT firms for
transformation of their business models toward an IoT-based society:
C

• The significance of the transformation from traditional ICT-driven functionality

development strategy to digital business strategy should be recognized.
AC

• A trap in ICT advancement and subsequent increasing dependency on uncaptured

GDP should be realized.
• High functionality development induced by a sophisticated self-propagating
function should be endeavored by recognizing the consequences of uncaptured GDP.
• It should be noted that higher operating income corresponds to higher market value.
• Trust-based IDBM with CCSD should be realized corresponding to a business
model inducing a sophisticated self-propagating function.
• Every effort should be focused on effective utilization of soft-innovation resources

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to correspond to the effects of uncaptured GDP.

This analysis explores a new insight for ICT firms for their transformative strategy
toward an IoT-based society. Future work should focus on detailed case analyses on
further exploring the soft-innovation resources beyond anticipation suggested by the
success and failure of other firms in addition to the seven ICT firms examined in this
paper. In this context, Amazon’s unique business model which accomplishes

PT
extraordinary digital value notwithstanding limited R&D investment should be further
elucidated.
The further identification of similar novel business concepts as suggested by the seven

RI
leading global ICT firms (e.g., “overdrawing information through search”, “merging
net and real”, and “fusing art and technology”) should be made a priority.

SC
The development of road maps toward the envisioned future would be another
important responsibility and subject for future research. Challenge to the limitation of
GDP in the digital economy would correspond to the current worldwide concerns.

U
AN
M
D
TE
C EP
AC

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Appendix A. Influence of R&D-Driven Growth in Global ICT Firms

Given that sales (S) of the global ICT firms are governed by their ICT stock (T), their
sales can be depicted as follows:
S = F (X, T) (A.1)

PT
where X: production factors other than T.

This equation can be approximated as follows by conducting Taylor expansion to the

first term.

RI
ln S = a + b ln X + c ln T (A.2)
where a, b, c: coefficients

SC
Since X is governed by T in global ICT firms, it can be developed as follows:
X = F (T) ln X = ax + bx ln T (A.3)

U
where ax, bx: coefficients AN
By substituting equation (A3) for ln X in equation (A2),
ln S = a + b (ax + bx ln T) + c ln T
= (a + b∙ ( ) + (b∙ #( + R) ln 2
≡ α + β ln 2
M

(A.4)
where α = a + b∙ ( , β = b∙ #( + R
D

Since (T) can be approximated by R&D investment (R) as follows (see footnote 5):

2≈
TE

\ ]
(A.5)

where 5: rate of obsolescence of technology and g: increased rate of R&D

investment at the initial stage
EP

Therefore, equation (A4) can be described as follows:

ln = α + β ln (A.6)
\ ]
C

= α + β ln − βln ( 5 + 9)
AC

= ^α − β ln(5 + 9)_ + β ln
≡ α` + β ln
where α` = α − β ln(5 + 9)

With such understanding, correlation between (R) and (S) in 500 global ICT firms was
analyzed in section 2.1.

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Appendix B. SLG (Simple Logistic Growth) Estimate with Dummy Variables

– Avoidance of Bias by Gigantic Firms in SLG Estimation

PT
RI
U SC
AN
M
D
TE
C EP
AC

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Appendix C. Dynamism in Developing Self-Propagating Function

PT
RI
U SC
AN
M
D
TE
C EP
AC

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Appendix D. Three-Step Approximation Approach of Logistic Growth

Within a Dynamic Carrying Capacity

= !"
V
aV
!V ! "
- b V
!

PT
≈ c !c "

RI
′ = )1 − V

*< ,

# ` = # /1 + ∙ ! 0 >#

SC
V
% V
!

Source: Watanabe et al., 2009

Step 1. Estimate simple logistic growth (SLG)

U
AN
±k
(fg3h&i) = c !c "
M

,# by using plausible + ± l
′ ′
Step 2. Estimate
D

Estimate S in logistic growth with dynamic carrying capacity (LGDCC)

±k
TE

= c !cb "
b
EP

Step 3. Estimate LGDCC by using

= V
aV
C

!" !V ! "
- b V
!
AC

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Funding
The research leading to these results is the part of a project: Platform Value Now: Value
capturing in the fast emerging platform ecosystems, supported by the Strategic Research
Council at the Academy of Finland [grant number 293446].

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Authors’ Curriculum Vitae

Kashif Naveed is currently pursuing his Ph.D. in Economics and Business

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Administration from the University of Jyväskylä, Finland, and he has completed his
Master of Science degree in Economics and Business Administration from the same

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university. ([email protected])

Chihiro Watanabe graduated from the University of Tokyo, Japan, and is currently

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Professor Emeritus at the Tokyo Institute of Technology, Research Professor at the
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University of Jyväskylä, Finland, and a Research Scholar at the International Institute for
Applied Systems Analysis (IIASA). ([email protected])
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Pekka Neittaanmäki graduated from the University of Jyväskylä in Mathematics and is

currently Professor and Dean of the Faculty of Information Technology, University of
Jyväskylä, Finland. ([email protected])
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TIS_2017_157_Highlights

Highlights
Transformative direction of innovation toward an IoT-based society was teased out..

Digital business solutions in 500 global ICT firms over 2005-2016 were analyzed.

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Increasing dependency on uncaptured GDP in the global ICT leaders was identified.

Transformative direction of leading global ICT firms against uncaptured GDP was revealed.

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Noteworthy lessons for harnessing the soft innovation resources were extracted.

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