Unbundling of Industrial Systems.

This paper examines the bundling strategy for a firm which sells an industrial system. Such a system is comprised of several distinct components which must be used together in order for the overall system to be operational. Examples include computer, communications, and printed-circuit board assembly systems. In many cases a `turnkey' system can be acquired. However, since most industrial systems are also technologically divisible, the system can be unbundled and the constituent components sold separately. To the degree that open standards exist for the interfaces between the various components, the system components can be sold by multiple vendors. This creates a dilemma for a firm which sells a turnkey system. While appealing to customers who desire the enhanced integration of turnkey systems may be a profitable strategy for the firm, it may derive even more profits by unbundling and letting customers mix and match its components with those of competitors.