Technology & Strategy. GEST-D-484 Manuel Hensmans

Transcription

1 Technology & Strategy GEST-D-484 Manuel Hensmans 1

2 Group 1 (Marcin D, Arnaud L, Magali D) Pedestrian Detection & Car Brakes (safety - Volvo) Group 2 (Kannan R, Miguel vd B) Solar panels / Company? Group 3 (Ludovic B, Kah Weng S, Lorenzo P) Videogaming (Sony Playstation) Group 4 (Helena de B, Philippe M, Florian P) Cropsciences (Bayer) Group 5 (Anaïs F, Gilles X, Jehin M) Group 6 (Douglas E, Julie C) 2 Digital tablets (Apple ipad)

3 Last week Part II: Industry dynamics techn innov Class 4: Types & patterns of innovation # dimensions to categorize innovations Product vs process innovation Radical vs incremental Competence-enhancing vs destroying Architectural vs component Technology trajectory S-curves of improvement and adoption» Prescriptive tool? Tech cycles» Why individuals/firms adopt tech quickly or not?

4 Today Part II: Industry dynamics techn innov Class 5: Standard Wars Why do dominant design(s)/standard(s) emerge in industries Increasing returns to adoption» Learning-curve effects» Network externalities» Path dependency Government regulation

5 Today What are the multiple dimensions shaping which technology rises to the position of the dominant design/standard? Firm strategies can influence several of these dimensions, enhancing the likelihood of their technologies rising to dominance Different types of outcomes of standard wars Discuss desirability

6 Definitions Dominant design? Single product or process architecture that dominates a product category Usually, but not always 50 percent or more of the market De facto standard for the industry Increasing returns? When the rate of return (not just gross returns) from a product or process increases with the size of its installed base 6

7 Importance of technical standards COMPANY PRODUCT CATEGORY STANDARD Microsoft PC operating systems Windows Intel PC microprocessors x86 series Matsushita Videocassette recorders VHS system Sony/Philips Compact disks CD-ROM format ARM (Holdings) Sun Microsystems Rockwell and 3Com Adobe Systems Bosch Google Microprocessors for mobile devices Programming language for web apps 56K modems Common file format for creating and viewing documents Antilock braking systems Operating systems for mobile phones ARM architecture Java V90 Acrobat Portable Document Format ABS and TCS (Traction Control System) Android Sony High definition DVD Blu-ray 7 19

8 Why Dominant Designs Are Selected Learning curve As a technology is used, producers learn to make it more efficient and effective. TWO POSSIBILITIES!

9 Contexts where learning-curve effects apply... Aircraft production, ships, automobiles, semiconductors, pharmaceuticals, heart surgery techniques, pizza franchises... Variety of performance measures Productivity, total costs per unit, accidents per unit, waste per unit... Your cases? 9

10 Network externalities (positive consumption externalities) Installed base #User linkages Telephone systems only value of telephone is connection to other users Video game consoles same platform allows users to exchange games and play interactively On-line auction value of auction depends on number of buyers and sellers participating Also, social identification listening to same music, watching same TV shows, wearing same clothes in order to conform Compatibility / switching costs E.g. office software (Microsoft Office vs. Lotus SmartSuite)

11 Network externalities (positive consumption externalities) Availability of complementary products Most PC applications software written for Windows, not Mac. In economy autos, easier to get parts and repair for a Ford Focus or Honda Accord than a Kia, Proton, or Lamborghini

12 Path-dependency End results depend greatly on the events that took place leading up to the outcome Path-dependence can have far-reaching influence; it shapes future technological inquiry in the area. Technologically superior products do not always win E.g. Qwerty standard vs more advanced Dvorak Investment in training!

13 Path-dependency Small changes or strokes of luck can make an incredible difference! Winner-take-all markets require different firm strategies for success than markets with less pressure for a single dominant design. Poker, not chess E.g. Microsoft s operating system! 13

14 Small changes / poker! The Rise of Microsoft In 1980, Microsoft didn t even have a personal computer (PC) operating system the dominant operating system was CP/M. - IBM worked with Digital Research, but Gary Kildall not available for a few days In IBM s rush to bring a PC to market, they turned to Microsoft for an operating system and Microsoft produced a clone of CP/M called MS DOS. The success of the IBM PCs (and clones of IBM PCs) resulted in the rapid spread of MS DOS, and an even more rapid proliferation of software applications designed to run on MS DOS. Microsoft s Windows was later bundled with (and eventually replaced) MS DOS. Had Gary Kildall from Digital signed with IBM, or had other companies not been able to clone the IBM PC, the software industry might look very different today!

15 Government regulation Sometimes the consumer welfare benefits of having a single dominant design prompts government organizations to intervene, imposing a standard. EXAMPLES? the NTSC color standard in television broadcasting in the U.S.; the general standard for mobile communications (GSM) in the European Union IN YOUR CASES? When is government regulation appropriate? When are winner-take-it-all markets appropriate? Firms supporting winning technologies earn huge rewards; others may be locked out.

16 Are Winner-Take-All Markets Good for Consumers? Network externality benefits to customers rise with cumulative market share Potential for monopoly costs to customers (e.g., prices charged,restricted product variety, etc.) also rise with cumulative market share Curve shapes are different; Network externality benefits likely to grow logistically, while potential monopoly costs likely to grow exponentially. Where monopoly costs exceed network externality benefits, intervention may be warranted. Optimal market share is at point where lines cross.

17 Possible strats in standard wars Winner-takes-it-all Wintel, Apple, Google Android? But Truce danger destruction potential network externalities! E.g. AM stereo radio Government-imposed (GSM) On-line video format H264 (Microsoft IE & Apple vs WebM (Firefox & Google) 17

18 Reading: Google Chrome & browser wars Why did Google launch Chrome? Good or bad idea? CEO Schmidt did not want, but founders wanted! Why? Increasing returns? Learning Network externalities Path-dependency Government regulation? 18

19 Blu-Ray versus HD-DVD: A Standards Battle in High-Definition Video Discussion Questions: 1. What factors do you think influence whether a) consumers, b) retailers, or c) movie producers supported Blu-Ray versus HD-DVD? 2. Why do you think Toshiba and Sony would not cooperate to produce a common standard? 3. Does having a single video format standard benefit or hurt consumers? Does it benefit or hurt consumer electronics producers? Does it benefit or hurt movie producers?

20 High-definition video: Standard war strategy? Winner-takes-it-all Potential network externalities delayed Protracted battle Blu-ray vs HD-DVD Blu-Ray only now starting to sell more than DVD Yet on-line downloading & watching! 20

21 Blu-Ray versus HD-DVD: A Standards Battle in High-Definition Video Sony s Blu-Ray technology was backed by a consortium that included Philips, Matsushita, Hitachi, and others. Toshiba s HD-DVD had the backing of the DVD Forum, making it the official successor to the DVD format. Both companies lined up major movie studios and video game consoles to promote their standards (Sony s Playstation 3 and Microsoft s Xbox 360). In January 2008, Time Warner s announcement that it would support Blu-Ray instead of HD DVD triggered a chain reaction that collapsed the support for HD-DVD. Toshiba announced it would cease production of HD-DVD equipment in February of 2008.

22 Multiple Dimensions of Value Dimensions shaping which tech rises to the position of dominant design? Technology s Standalone Value Network Externality Value» Installed base & complementary products Coalitions Absorptive capacity» one standard war may introduce the next Expectations management

23 Tech s Stand-alone Value Buyer Utility Map (Honda Insight):

24 Network Externality Value A new technology that has significantly more standalone functionality than the incumbent technology may offer less overall value because of lesser network externality value Beware Beyond immediate user linkages, complementarites & compatibility Look at cumulative standard wars & cumulative network externalities

25 Network externalities: cumulative standard wars! 25

26 Cumulative externalities! 26

27 Multiple Dimensions of Value Competing for Design Dominance in Markets with Network Externalities We can graph the value a technology offers in both standalone value and network externality value: Value to Users Value accrued from network externalities Value to Users Value accrued from network externalities + Technology utility Tech. Utility Installed Base Installed Base

28 Multiple Dimensions of Value We can compare the graphs of two competing technologies, and identify cumulative market share levels (installed base) that determine which technology yields more value.

29 Multiple Dimensions of Value When customer requirements for network externality value are satiated at lower levels of market share, more than one dominant design may thrive.

30 Overthrowing existing standard To successfully overthrow an existing dominant technology, new technology often must either offer: Dramatic technological improvement (e.g., in videogame consoles, it has taken 3X performance of incumbent) Compatibility with existing installed base and complements

31 Coalitions: lessons from Browser Wars I 31 Too focused on superior standalone tech utility Share value created by technology! To create initial leadership & maximise positive feedback effects customers, competitors, complementors, suppliers Broad alliances needed! Netscape: wrong negotiation strategy Look beyond what s directly on the table or at stake Do not haggle over immediate, but endgame

32 Lessons from browser wars II? Open up network externalities again More open source Open source project Chromium Support Firefox, which supports Google search Best way to break Wintel proprietary standard Give governments reason to intervene! 32

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34 Global Usage Shares Browsers Internet Explorer Firefox Chrome Safari Opera

35 & absorptive capacity Increase role of absorptive capacity 35 A firm s prior experience influences its ability to recognize and utilize new information & gain a pivotal position in standard wars Compete on absorptive capacity! Be in the game! Best browser should win Who can keep innovating best! Standalone tech utility more important Keep new Google Facebook at bay! More time spent on Facebook since 2010 Surround Facebook

36 Expectations management Subjective information (perceptions and expectations) can matter as much as objective information (actual numbers) Value attributed to each dimension may be disproportional

37 Manage expectations Use launch and pre-launch publicity and promotion to convince the market that you will be the winner e.g. Nintendo 64: Project Unreality stop customers from buying competitors products! Pre-empt the market build user base quickly: enter early, attract key customers, adopt penetration pricing - Apple tablets! - But, Toshiba HD-DVD! 37

38 Fighting Standards Wars 1. Determine the potential for standards emergence analyze network externalities 2. Assemble allies enlist partners (customers, complementors, competitors) to build a bandwaggon 3. Pre-empt the market build user base quickly: enter early, attract key customers, adopt penetration pricing 4. Manage expectations use launch and pre-launch publicity and promotion to convince the market that you will be the winner How can the winner sustain the standard? Don t fall behind on technology Ensure backward compatibility Meet threat of disruptive technology by offering customers a migration path Reinforce standard with other resources e.g. brand What if you re a loser? (a) ensure compatibility (b) go for niche 38 21

39 Discussion Questions 1. What are some of the sources of increasing returns to adoption? 2. Do increasing returns to adoption apply to your case? 3. What are some of the ways a firm can try to increase the overall value of its technology, and its likelihood of becoming the dominant design? 4. What determines whether an industry is likely to have one or a few dominant designs? 5. Are dominant designs good for consumers? Competitors? Complementors? Suppliers?