Date post: | 17-Jan-2018 |
Category: |
Documents |
Upload: | lesley-carter |
View: | 231 times |
Download: | 0 times |
Entry Timing, Standards Battles and
Design DominanceRajshree Agarwal
Agenda Timing of Entry
Demand and technology uncertainty First and Second mover advantages
Standards Battles and Design Dominance Learning Effects Network externalities
Innovation and uncertainty Technological uncertainty
Uncertainty regarding the technological features of the product
Standards Dominant design
Market/Demand uncertainty Uncertainty regarding the size and growth rates of
the markets for new products Potential uses Substitute products Complementary products
Back to Takeoff timings
Automobile
0
0.2
0.4
0.6
0.8
1
0 10 20 30
Years Since Commercialization
Inde
x
Sales
Firms
Resolution of Technology and Demand Uncertainty
time
InventionInvention CommercializationCommercialization FirmFirmTake-OffTake-Off
SalesSalesTake-OffTake-Off
Technological Uncertainty
Resolved
Demand Uncertainty
Resolved
When should firms enter?
time
InventionInvention CommercializationCommercialization FirmFirmTake-OffTake-Off
SalesSalesTake-OffTake-Off
???
In-Class ActivitySynthes Case Discussion
When to enter Importance of lead time (the degree to
which innovation can be protected) The nature of risk and the ability of the
firm to manage it The importance and availability of
complementary resources The potential to establish a standard
First mover Advantage (?) A first mover is a firm that takes an initial
competitive action. Advantages of first movers
If successful, the firm earns above-average returns until other competitors are able to respond effectively.
Develop customer loyalty. Harley-Davidson has been able to maintain a competitive lead
in large motorcycles due to intense customer loyalty. Disadvantages of first movers
High risk High development costs High demand uncertainty
Second mover Advantage (?)
A second mover is a firm that responds to a first mover’s competitive action often through imitation or a move designed to counter the effects of the initial action. BankOne (Internet banking); New Balance (athletic shoe industry)
Advantages of second movers Reduction in demand uncertainty Market research to improve satisfying customer needs Learn from the first mover’s successes and shortcomings Gaining time for R&D to develop a superior product
Disadvantages of second movers Loss of opportunity to establish brand loyalty If significant learning curve through moving first, then giving up
competitive advantage
When to enter a market: First mover (dis)advantage
Advantages Above-average returns
until other competitors respond effectively
Start down the learning curve earlier
Opportunity to gain customer loyalty
Opportunity to set standards
Disadvantages Uncertainty about demand High development costs Risk of adopting a losing
standard (Beta/VHS)
Moving Second: Imitate and counter
Advantages Reduction in demand
uncertainty Market research to
improve satisfying customer needs
Learn from the first mover’s successes and shortcomings
Gaining time for R&D to develop a superior product
Don’t have to educate consumers
Disadvantages Switching costs may make
taking customers difficult Brand loyalty/customer
familiarity Standards
Initial cost disadvantage: May not survive until learning curve advantages have leveled out
Success of leaders and followersPRODUCT INNOVATOR FOLLOWER WINNERJet Airliners De Havilland (Comet) Boeing (707) FollowerFloat glass Pilkington Corning LeaderX-Ray Scanner EMI General Electric FollowerOffice P.C. Xerox IBM FollowerVCRs Ampex/Sony Matsushita FollowerDiet Cola R.C. Cola Coca Cola FollowerInstant Cameras Polaroid Kodak LeaderPocket Calculator Bowmar Texas Instruments FollowerMicrowave Oven Raytheon Samsung FollowerPlain Paper Copiers Xerox Canon Not clearFiber Optic Cable Corning many companies LeaderVideo Games Players Atari Nintendo/Sega/Sony FollowersDisposable Diapers Proctor & Gamble Kimberly-Clark LeaderWeb browser Netscape Microsoft FollowerPDA Psion, Apple Palm FollowerMP3 music players Diamond Multimedia Sony (&others) Followers
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’s rush to bring a PC to market was a golden opportunity IBM turned to Microsoft for an operating system and Microsoft
produced a clone of CP/M called “MS DOS.” Open architecture standard set by IBM established Microsoft
dominance The success of the IBM PCs (and clones of IBM PCs) resulted in
the rapid spread of MS DOS 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. Software industry might look very different today!
Had Gary Kildall signed with IBM, or had other companies not been able to clone the IBM PC
Discussion Questions on Microsoft
1. What factors led to Microsoft's emergence as the dominant personal computer operating system provider?
Is Microsoft's dominance due to luck, skill, or some combination of both?
2. How might the computing industry look different if Gary Kildall had signed with IBM?
3. Does having a dominant standard in operating systems benefit or hurt consumers?
4. Does it benefit or hurt computer hardware producers?
Why Dominant Designs Are Selected Increasing returns to adoption occurs
when a technology becomes more valuable the more it is adopted.
Primary sources Prior Experience and Technology Base Learning Effects Network Externalities
Prior Experience and Technological Base Most entrants come from related industries
A firm’s prior experience influences its ability to recognize and utilize new information
Their product introductions tend to be similar to their other operations
E.g. digital cameras from Sony resemble camcorders, while Kodak’ s offerings look like traditional cameras
Technological base of new industries Use of a particular technology builds knowledge base about
that technology. The knowledge base helps firms use and improve the technologySuggests that technologies adopted earlier than others are likely
to become better developed, making it difficult for other technologies to catch up.
Learning Effects The Learning Curve: As a technology is
used, producers learn to make it more efficient and effective.
Network Externalities The value of a product to an individual increases
with the number of other users of the same product Linkages between users Complementary products Switching costs
Common in industries that are physically networked E.g., railroads, telecommunications
Also arise when compatibility or complementary goods are important E.g., use of Windows maximizes the number of people their
files are compatible with, and the range of software applications they can use.
Why Dominant Designs Are Selected A technology with a large installed base attracts
developers of complementary goods; a technology with a wide range of complementary goods attracts users, increasing the installed base. A self-reinforcing cycle ensues:
Standards and Dominant Design Standards set by
Government Non-governmental voluntary groups Companies The market place
Standards can be Open, e.g., Linux Closed, e.g., Windows
Competing with standards Open standards decrease profit appropriation
Rival imitate easily Increases buyer power and supplier power due to lower
switching costs Possible loss of control (Java and Microsoft)
They also increase market acceptance Low switching costs for buyers increases demand Less uncertainty for suppliers regarding design elements
leads to more suppliers and lower costs Can encourage innovation in your standards as opposed
to rivals Network externalities (requires critical mass)
Maximize value
appropriation
Maximize market
acceptance
LOOSE TIGHT
VHS
IBM-PC Mac
Betamax
How should companies compete in standards-based industries?
Key Take-aways Timing of Entry
Comparing first and second mover advantages Demand and technological uncertainty is key to decision
making Entering early may give better potential to set standards
in industry Standards and Dominant design
Some markets are “winner takes all” Determined by prior experience, learning effects and
network externalities Tension between open and close standards affected by
market acceptance vs. value appropriation