Professor Charles FineCo-Chair, Value Chain Dynamics Working

GroupCommunications Futures Program

http://cfp.mit.eduMassachusetts Institute of Technology

October 2009charley@mit.edu

Value Chain Dynamics And the OIPs

What is Value Chain Dynamics?

Voice and/or data

consumer

Device Manufacturers

Portals and Access

Providers

Application Developer

Content Provider

Wireless network operator

Mobile PhonesPDAsSmart PhonesSIM PadsControls LANs

Network

Network equipment

Sw. gamesmessaging

Voice,browsing, WAPThird party content

Software application developer

Hardware application developer

Photo cameraMP3 player, DVDGame consoles

Non-Circuit Component

Manufacturers

Circuit BoardComponent

Manufacturers

PSTN/Internet component manufacturers

Cell switching component manufacturers

Base Station component manufacturers

Content Aggregator

Wireless infrastructure

operator

Wireless service provider

Device value chain

InfrastructureValue chain

ApplicationValue chain

ContentValue chain

Network value chain

Platform infrastructure service

Service provisioning Billing Support

User content

Wireless Value Network StructureWhat is Value Chain Dynamics?

4

BusinessCycle

Dynamics

Regulatory Policy

Dynamics

Corporate Strategy

DynamicsIndustryStructureDynamics

CustomerPreferenceDynamics

CapitalMarket

DynamicsGears differ by size/speedEach has an engine & clutch

Technology& Innovation

Dynamics

What is Value Chain Dynamics?

5

THE DYNAMICS OF PRODUCT ARCHITECTURE, STANDARDS,AND VALUE CHAIN STRUCTURE:

“THE DOUBLE HELIX”

MODULAR PRODUCTHORIZONTAL INDUSTRY

OPEN STANDARDS

INTEGRAL PRODUCTVERTICAL INDUSTRY

PROPRIETARY STANDARDS

Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”

INCENTIVE TO INTEGRATE

PRESSURE TO DIS-INTEGRATEORGANIZATIONAL

RIGIDITIES

HIGH-DIMENSIONALCOMPLEXITY

NICHE COMPETITORS

PROPRIETARY SYSTEM

PROFITABILITY

SUPPLIERMARKET POWER

INNOVATION & TECHNICAL ADVANCES

Examples: IBM, Autos, Embraer/Boeing, Nokia, Small Firms

What is Value Chain Dynamics?

6

ALL COMPETITIVE ADVANTAGE IS TEMPORARY

Autos: Ford in 1920, GM in 1955, Toyota in 2000Computing: IBM in 1970, DEC in 1980, Wintel in 1990World Dominion: Greece in 500 BC, Rome in 100AD, G.B. in 1800Sports: Bruins in 1972, Celtics in 2008, Yankees not lately :-)

The faster the clockspeed, the shorter the reign

What is Value Chain Dynamics?

-

ContentConsumption

+

ContentProfit

Opportunities

ContentProvided

+

++

R5For-profit Content

GenerationLoopPiracy

Innovations

+

-

B3

PiracyInnovation

Loop

R6Free-Content Generation

Loop

+

+

TerminalVolumes

TerminalPrices

+ -

-+ Component

Standardization& Outsourcing

TerminalCosts

-R4

TerminalScale

EconomiesLoop

Customer Adoption

New Entrant& Incumbent Innovation in Services

& Applications

Network &Technology& InnovationInvestment

NetworkRevenuePer user

NetworkUsage

Service &Application

Profits

+

+

+

+

+

+

+

Service &ApplicationInvestment

& InnovationLoop

Service &ApplicationRevenues

+

NetworkCapacity

+ + PriceCompetition +

-

PriceCompetition

LoopB2

R2

NetworkRevenue

+

+

Networkinvestment

Loop

R3

+

+User

Population

+Value/User due

To network effects

Willingness to payBy marginal adopter

+

Market Saturation

Loop

B1

R1Network

ExternalitiesLoop +

+Total expected

Benefit toNew adopters

SocialExternalities

Inductive System DiagramWhat is Value Chain Dynamics?

Creative Artists

ContentMarketing

ContentDistrib.

Content & HWConsumption

ContentPublishers

ContentSales

iPod/ iPhone

iTunes

iTunes

iTunes homepage

Listening accessoriesOpen, then license

ContentNetworksClosed to all but one carrier per region; slowly opening

ApplicationsClosed to non- Apple apps; then explosive App Store Growth

THE CASE OF APPLE iPod/iPhone

Retail Stores

App Store

Music closed to non-MP3, non-Apple formats

Media Value Chains: Sports Over the Air,

On Cable, and On the Internet

But first: A Brief Review of the oIP’s

1. VoIP: Voice communication is alive and well. VoIP is part of the landscape.

VoIP, so far, is a sustaining innovation; eBay overpaid for Skype.

A Brief Review of the oIP’s1. VoIP: Voice communication is alive and well.

VoIP is part of the landscape.VoIP, so far, is a sustaining innovation; eBay overpaid for Skype.

2. MoIP: Music consumers seem pretty happy.Traditional music companies mildly(?)

disrupted,or, perhaps disrupted in slow motion.Big opportunity for Apple.

A Brief Review of the oIP’s1. VoIP: Voice communication is alive and well.

VoIP is part of the landscape.VoIP, so far, is a sustaining innovation; eBay overpaid for Skype.

2. MoIP: Music consumers seem pretty happy.Traditional music companies

significantly (?) disrupted. Big win for Apple & Users.

3. TVoIP: Trying not to follow music? Disney keychest; Hulu by NewsCorp, Disney & NBC; Comcast w/ TV

Everywhere; Sony w/DECE (Digital Entertainment

Content Ecosystem,)

A Brief Review of the oIP’s1. VoIP: Voice communication is alive and well.

VoIP is part of the landscape.VoIP, so far, is a sustaining innovation; eBay overpaid for Skype.

2. MoIP: Music consumers seem pretty happy.Traditional music companies mildly(?)

disrupted,or, perhaps disrupted in slow motion.Big opportunity for Apple.

3. TVoIP: Trying not to follow music.4. NoIP:In USA, newspapers declining rapidly;

Can bloggers and an army of “volunteers” fill

the gap?

A Brief Review of the oIP’s1. VoIP: Voice communication is alive and well.

VoIP is part of the landscape.VoIP, so far, is a sustaining innovation; eBay overpaid for Skype.

2. MoIP: Music consumers seem pretty happy.Traditional music companies mildly(?)

disrupted,or, perhaps disrupted in slow motion.Big opportunity for Apple.

3. TVoIP: LoTrying not to follow music.4. NoIP:In USA, newspapers declining rapidly;

Can bloggers and an army of “volunteers” fill

the gap?5. AoIP:Is “consumption” of the arts different?

Important distinctions among the arts?Classical, Contemporary,

Performing, . . . ?

A Brief Review of the oIP’s1. VoIP: Voice communication is alive and well.

VoIP is part of the landscape.VoIP, so far, is a sustaining innovation; eBay overpaid for Skype.

2. MoIP: Music consumers seem pretty happy.Traditional music companies mildly(?)

disrupted,or, perhaps disrupted in slow motion.Big opportunity for Apple.

3. TVoIP: Looks to follow music?4. NoIP:In USA, newspapers declining rapidly;

Can bloggers and an army of “volunteers” fill

the gap?5. AoIP:Is “consumption” of the arts different?

Classical, Contemporary, Performing, . . . ?

Museums vs Websites; Venues vs Streaming

6. SPoiP: Sports as a fast-clockspeed performing art;

Time shifting reduces value . . .

1. Research: •  Modeling value dynamics is feasible for the media/communications value chain•  We seek to quantify the effects of Internet channels on overall system performance (e.g., value dynamics in the sports/media value chain)

2. Hypotheses:• Internet viewing can grow the size of the viewer base,but may also reduce revenue opportunities for some value chain members.• All the oIP’s grow the pie for communications service providers.• Innovative business model design is big opportunity.• Regulations could play a crucial role

3. Questions:• Will the advertisement revenue model change with WebTV?• Will new sources of revenue be created?• Who will capture most of the revenue flow: Traditional broadcasters, service providers, Google, Apple, MLB, Players ??? • What are the best strategic plays for network operators?

Sports/Video Dynamics Model(work in progress, w/Emmanuel Blain, MIT MS

student)

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All Conclusions are Temporary

Clockspeeds are increasing almost everywhereValue Chains are changing rapidly

Assessment of value chain dynamics

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