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Technology Strategy

Competition for sustainability in

the era of information economy

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Align (menyelaraskan)

technology with business The price-quality tradeoff

The profit-share tradeoff

The growth-position tradeoff

The pioneer-harvest tradeoff

The consistency-diversity tradeoff The enactment-response tradeoff

(pemberlakuan- tanggapan)

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Clarify the core competence Distinguished, non-imitable, substantial,

marketable

Complementary technology

Critical technology

Externally acquired technology

Fundamental needed technology

Mature technology

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Integration considerations Integration for technology exploitation

Integration for order fulfillment

Integration

relevance vs. difficulty

Investment vs. controllability

Generic vs. specific

Modular design vs. integral design

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Competitive advantageAbsolute advantage

Relative advantage

Critical to technology exploitation &integration arrangement

Clustering the position

Relative market power vs. absoluteadvantage vs. technology maturity

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The strategic guide to

information economy System products

Standard competition

Rights management

Policy

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System products Complementary products

Different manufacturers

Strategy for complementors as well as competitors

Compatibility as strategic choice Standards and interconnection

Hardware/software

Client/server

Viewer/content

Product lines High fixed cost, low incremental cost

Leaders to value based pricing

Lower quality may be more expensive

Proliferation strategy

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How Standards Change the

Game Expanded network externalities

Make network larger, increase value

Share info with larger network Attracts more users

Reduced uncertainty

No need to wait

In war, neither side may win

Reduced consumer lock-in

Netscapes Open Standards Guarantee

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Change Game Competition forthe market v. competition in

the market

Buy into an open standard, that becomes closed? Competition on price v features

Commoditized products?

Competition to offer proprietary extensions

Extending a standard Component v systems competition

With interconnection, can compete on components

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Who wins? Who loses? Consumers

Generally better off But variety may decrease

Complementors Generally better off May serve the brokering role (DVD)

Incumbents May be a threat Strategies

Deny backward compatibility Introduce its own standard Ally itself with new technology

Innovators Technology innovators collectively welcome standards If the group benefits, there should be some way to make members benefit Negotiation costs, opportunistic behavior

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Formal Standard Setting

Essentialpatents must be licensed on fair,reasonable and non-discriminatory terms

ITU, ANSI and ISO

What is your goal?

National or international?

Protecting your interests?

What are others goals?

Do they really want a standard?

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Tactics in

Formal Standard Setting Dont automatically participate

If you do, you have to license

Keep up momentum Continue R&D while negotiating

Look for logrolling Trading technologies and votes

Be creative about deals Second sourcing, licensing, hybrids, etc.

Beware of vague promises Definition of reasonable

Search carefully for blocking patents Patents held by non-participants

Preemptively build installed base

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Building Alliances Assembling allies

Pivotal customers should get special deals

But dont give your first customers too big an

advantage Offer temporary price break

Who bears risk of failure?

Usually ends up with large firms But bankruptcy favors small firms

Government is even better! Smart cards in Europe

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Managing Open Standards Standard is in danger if it lacks a sponsor

Lessons of Unix

Interconnectionsearching a migration

route

Extension of TLC

Negotiating a truce

Do the benefit cost calculation

How to divide a larger pie?

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The standards game

Play in the

backyard

Willing

to fight

Wants

standard

Willing

to fight War

Attempt to

blockWants

standard

Attempt to

block

Voluntary

standard

Player

A

Player B

openness

openness

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Rights Management

The characteristics of information

The structure of cost

Low reproduction cost is two-edged sword Cheap for owners (high profit margin)

But also cheap for copiers

Maximize valueof IP, not protection Examples

Library industry

Video industry

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Information & cost

Anything that can be digitized Text, images, videos, music, etc.

Unique demand characteristics Expensive to produce, cheap to reproduce High fixed cost, low marginal cost

Not only fixed, but sunk

No significant capacity constraints Particular market structures

Monopoly Cost leadership Product differentiation (versioning)

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Policy

Understand environment IP regime

Price discrimination Illegal if it effectively lessens competition Legal arguments that work

Can set lower prices resulting from lower costs Set differential prices to meet competition Pricing only questionable if it lessens competition

Competition policy Regulation Antitrust

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Tactics for Lock-In andSwitching Costs

Systems lock-in: durable complements Hardware, software, and wetware Individual, organizational, and societal

Example: Stereos and LPs, Costly switch to CDs

Deeply digging the Network Effects Value depends on number of users Positive feedback

Indirect network effects Expectations management, preemption

Compatibility Backwards & forwards

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Classification of Lock-In

Durable purchases and replacement:declines with time

Brand-specific training: rises with time Information and data: rises with time

Specialized suppliers: may rise

Search costs: learn about alternatives Loyalty programs: rebuild cumulative usage

Contractual commitments: damages

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Follow the Lock-in cycle

Brand Selection

SamplingLock-In

Entrenchment

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Implications for strategy

Protects competition as a process

Monopoly isnt illegal, but attempt to

monopolize is Monopoly may be inhibited from using

strategies that are legal for other firms

But even small firms may be accused ofantitrust violations

Role of treble damages

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Information economy isdifferent, but not so different!

Key concepts

Versioning

Lock-in

Systems competition

Network effects

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Beyond technologycompetitionexperience

Activeparticipation

Passiveparticipation

Absorption

Immersion

Entertainment Education

Aesthetics Escapism

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Upgrading the technologyvalue

Differentiatio

n

Pricing

Relevanceofd

emand

low

high

low high

Raw materials

Fabrication

Add-on service

Demonstration

of experience

low

high

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Extended readings

Porter, Michael (1996), What is Strategy?HarvardBusiness Review, Nov.-Dec.

Iansiti, Marco and Jonathan West (1997),Technology Integration: Turning Great Researchinto Great Products,Harvard Business Review,May-June.

Shapiro, Carl and Hal R. Varian (1998), Information

Rule, Harvard Business School Press, Boston.Pine II, B. Joseph, James h. Gilmore (1999), TheExperience Economy, Harvard Business School Press,Boston.