Date post: | 21-Oct-2014 |
Category: |
Technology |
View: | 1,478 times |
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KNOWLEDGE FOR ACTION
COMPETING AGAINST
FREE
David J. Bryce Wharton EMBA Competitive Strategy
KNOWLEDGE FOR ACTION
Free Competition Can Threaten Survival of
Established Companies
David J. Bryce 2
• Share of international long-distance now >25%
• Banned by state telecoms across the world
• Record profits last year • Air France with
declining share, losses; now cutting workforce
KNOWLEDGE FOR ACTION
1. Up-Sell (“Freemium”)
David J. Bryce 3
Offer a free version to gain attention and widespread use; then offer a premium product with advanced features for customers willing to pay.
Requirements:
A free product that appeals to a very large user base so that even a low conversion rate of free users to paying customers will generate substantial revenues
or A high percentage of users willing to pay for the premium version
KNOWLEDGE FOR ACTION
2. Cross-Sell
David J. Bryce 4
Offer a free version to gain attention and widespread use; then offer other products for which customers are willing to pay.
Requirements:
A broad product line (preferably products that complement the free product)
or
The ability through partnerships to sell a broad line of products to users of the free product
KNOWLEDGE FOR ACTION
3. Third-Party Pay
David J. Bryce 5
Make the product/service free to generate a community for which you get paid by a third party company who desires access to that community.
Requirements:
A free offering that attracts either many users who can be segmented for advertisers or a targeted group that comprises a customer segment
and
Third parties willing to pay to reach those customers
KNOWLEDGE FOR ACTION
4. Bundle
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Bundle the free product with non-free products and derive revenues from non-free products. Requirements:
Products or services that can be bundled with the free offering or A free product that needs regular maintenance or a complementary offering (helpful but not essential)
KNOWLEDGE FOR ACTION
How to Respond? About Two-Thirds of Incumbents
Get it Wrong
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1. Ignore
2. Launch Free too Early
3. Launch Free too Late
KNOWLEDGE FOR ACTION
Responding to Free
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Business Model Threat
(change business model)
Delayed Threat
(co-exist or delay launch of free
product)
Immediate Threat
(launch free product
immediately)
Minor Threat (monitor situation)
Growth rate (of number of users of the free offering)
Defection rate (of paying
customers to the free offering)
High (5% per year or more)
Low (less than
5% per year)
Low (less than 40%
per year)
High (more than
40% per year)
KNOWLEDGE FOR ACTION
Change Business Model: Deseret Media Response to
Craigslist
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• Salt Lake City one of 50 markets where Craigslist not dominant
• KSL.com Classifieds
• Integrate KSL Television, KSL Radio, and Print (Deseret News)
• Restructure reporter staff – use citizen voices, columnists, and
nationally syndicate content
KNOWLEDGE FOR ACTION
The Challenge of Launching Free
David J. Bryce 10
Obstacle 1:
– The P&L Structure
• Must separate revenue from cost
• Different managers over each
• Take profit responsibility to the top
Obstacle 2:
– The Cost Accounting System
• Must think of marginal not average costs
• Must understand the long-term cost of losing
market share to free competitors
• Beat them back while you can!
P&L
KNOWLEDGE FOR ACTION
Question and Answer
Name of Presenter 11
KNOWLEDGE FOR ACTION