February 6th, 2018 edition

MKTG.GB.2124 Digital disruption: Creating and Capturing Consumer Value

The digital economy has grown rapidly since the 90s, but until the last few years, its major impact
was focused on a few verticals (e.g., media, retail, travel). Now, digital is disrupting most industries
led by “Born of the Web” companies (e.g., Facebook, Amazon, Netflix, and Google), venture
capitalists, and entrepreneurs creating new businesses and disrupting many existing business
models. This disruption, whether from Amazon buying Whole Foods, ESPN launching a full
direct-to-consumer product, or venture backed companies, is likely to expand quickly as financing
and consumer demand are readily available for these businesses to invest in new markets

This class will focus on: (1) factors driving digital disruption: the current market structure,
successful (and unsuccessful) digital business models, and where digital may head next and
(2) How you win once you are in the marker: winning digital and omni-channel consumers,
maximizing long-term profitability.

Grading: Class participation: 33%, Final project: 67%.

Instructor:

Kyle Keogh is a Managing Director at Google, leading Google’s Media Sales efforts to the
Automotive industry. During his 10 years at Google he has held senior Media Sales Strategy and
Operations, Media Sales, and Fiber Sales leadership roles. Prior to Google, Kyle worked at IBM,
McKinsey, and JPMorgan. He earned an MBA at Dartmouth’s Tuck School, BA at Hamilton
College, and CFA designation.

INSTRUCTOR POLICIES

Attendance/Lateness:
● Students are expected to attend each class and actively participate in discussion of key
issues. Absences/Tardiness will lower your class participation grade.
● Missing class, being late, or leaving early will adversely affect your grade.
● Class will start promptly at 6:00pm and late students disrupt the learning environment for
those who arrive on time.
● Late assignments will be downgraded.

Cheating/Plagiarism:

The Stern School of Business Honor Code governs conduct in the course.

“I will not lie, cheat, or steal to gain an academic advantage, or tolerate those who do.”

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Class Participation:
● It is essential that everyone contributes to class discussion. You are expected to have read
all the assignments for the day's class.
● Class participation will be graded on the quality of the interaction and will be measured
against these criteria:
○ Are you prepared
○ Extent of knowledge
○ Ability to get to the heart of the matter
○ New insights
○ Building on statements of others

Exam:

There is no exam, but there is a final paper that should incorporate class materials. Details are at
the end of the syllabus.

Final project:

Select one of the companies list below and explain how you would maintain your market position as
the industry undergoes digital disruption in the next 3-5 years.

Team project/presentation:

This project is a central to integrating your learnings to address a significant digital disruption
currently taking place, or expected to take place soon.

● Team of four +/- 1 students for a company of the students’ choice (with approval of the
instructor), target a total of 6-7 teams/projects for the class.
● Each team is required to select a company currently (or soon expected) to have digital
significantly disrupt their company/industry.
● The deliverable is a 15 minute in-class presentation, followed by a 10 min Q&A, on how
they would recommend the company respond to the digital disruption. The presentation
materials and speaker notes are the only required hand-in document. There is no need for a
written report.

● The following provides a rough outline of the presentation:

a. How you expect the consumer experience to change, driven by the intersection of
how consumers want the experience and what new technologies make possible.
b. Anticipated competitor/disruptor moves - who will make them and what moves will
they make.
c. Proposed strategies to meet consumer needs ahead of the competition/disruptor

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 d. Expected financial results (i.e., increased investments, cuts to fund to investment,
3-5 year revenue and gross margin forecast)
e. Organizational recommendations (i.e. metric based reward and compensation
system, process changes).

● Potential Companies to consider:

○ Media: ESPN, New York Times
○ Travel: Starwood, Delta
○ Technology: IBM, SAP
○ Consulting: McKinsey, Accenture
○ Auto: GM, Ford

Frameworks:

Throughout this course, we will use 3 main frameworks:

1. Value Development and Delivery: The Tech Value Chain has broken into 4 main areas:

(1) Content (e.g., movie, hotel room, car ride),

(2) Curation (e.g., ratings, proximity, data capacity),
(3) Device (e.g., phone, computer, thermostat, camera),
(4) Distribution (e.g., app, online auction, streaming).

This framework explores how to (a) determine where to play, (b) how new offerings can fit
in the existing market, and (c) the increasing returns to scale for each sub-market.

2. Consumer Journey: We will use the 4 phase model: Interest, Engagement, Purchase,
Retention/Upsell. We will explore the consumer journey and how to maximize total
profitability (# of customers and profit per customer) over their full lifecycle vs. just looking
at point transactions ROI.

3. Marketing measurement: We will explore 3 major models: Online micro measurement

(e.g., last click conversions), Total Media Mix Measurement (e.g., media mix modeling),
Online/Offline micro attribution (e.g., online-to-offline conversions). Going beyond current
media mix models to understand how to measure and manage marketing’s impact on sales
and profitability.

Weekly Syllabus

Week 1 (February 6th): The Evolution of Digital Platforms. Focus on the last 10 years, what led
to tipping points (e.g., when mobile went mainstream, music to streaming, stock trading to the
internet, video from TV to YouTube, Newspapers to Bloggers).

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Required reading: Innosight: HBR: Why Spotify Will Kill ITunes ; The Jobs to be Done
Organization: Enabling Customer-Centricity , WSJ, The Inside Story of How the Iphone Crippled
Blackberry
Recommended reading: Search Engine People, Why Google Won Search,

First 90 minutes: Explore the digital value chain to understand how:

Key questions:
● How does the digital ecosystem (Device, Content, Curation, Distribution) fit together?
● How does each segment make money?
● Why is scale so important to profitability in each segment (except for content)?
● How is one segment dependent on the other segments?

Second 90 minutes - How and when do new tech segments emerge

Key questions:
● How do new technologies get adopted?
● How do you know when a new segment is ready to develop?
● What new segments do you expect to develop?
● Once a company wins in a segment, how does another company overtake them?
● What new changes do we expect that will either (1) make developing a start-up easier, (2)
help the incumbents

Frameworks:
(1) Value chain: Content, Curation, Devic, Distribution
(2) Increasing returns to scale vs. standard unit economics
(3) Digital vs. analog cost and market structures

Frameworks::
(1) Jobs-to-be-done
(2) Economic models: Own, Subscription, Advertising

Week 2 (February 13): Developing Innovative Value Delivery Systems. New

technology/applications and how they are developed, adopted and monetized. Deep dives into
different economic models:

Required reading: HBR, Apple, Spotify, and the Battle for Fremium , Mic, 7 Things You Didn't
Realize Are Happening Every Time You Stream a Song on Spotify

● Subscription and Advertising: Spotify,

● Advertising Only: Google/YouTube, Yahoo!, Oath

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 ● Subscription Only: Netflix.
● SAAS: SAP, AWS

Key questions:
● How do you make money in either subscription, SAAS or advertising business model?
● How are subscription and advertising models shifting?
● How do you determine which model works best for an industry/business?

Frameworks:
(1) Revenue models: consumer - subscriptions, advertising, pay-per-use, fee per transaction.
B2B - subscription, software as a service

2nd 90 minutes: Spotify Case Study.

● Why was Spotify so successful?

● What is the Job-to-be-done that the Spotified fulfilled?
● Why has Pandora been less successful than Spotify?
● What impact did Spotify have the whole music industry?
● What other markets/industries can learn from Spotify experience?

Week 3 (February 20th): Why do some new technologies fail? Explore mobile payments and
digital health, why they have not yet taken off, and what it will take to succeed.

Required Reading: HBS case study - A Deep Look Inside Apple Pay’s Matchmaker Economics .
Forbes - Why Digital Health Startups Have Yet To Reach Unicorn Status.

Recommended Reading: R.Adner, J. Chen and F. Zhu, “Frenemies in Platform Markets: The case
of Apple’s iPad vs. Amazon’s Kindle”, HBR - Right Tech, Wrong Time

First 90 minutes: Why do some technologies fail and others succeed?

Key questions:
● Why an ecosystem important?
● How do you determine what are the key parts of the ecosystem?
● How do you overcome challenges in a specific part of the ecosystem (i.e., if some segment
loses value)?
● How do you determine the right time for technology?

2nd 90 minutes: Mobile Payments deep dive

Key questions:
● Who are the critical stakeholders for Mobile payments?

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 ● Who in the ecosystem will profit from mobile payments and who will lose from mobile
payments?
● What lessons should other industries take from mobile payments slow start?
● Who are the critical partners for health applications?
● Who in the ecosystem will profit from mobile payments and who will lose from mobile
payments?
● What lessons should other industries take from mobile payments slow start?

Frameworks:
(1) Ecosystem - engaging all critical stakeholders

Week 4 (February 27th): How will driverless cars disrupt the US?

Readings for self driving cars:

McKinsey - Self-Driving Car Technology: When will the robots hit the road?
McKinsey - Self Driving Cars and the Future of the Auto Sector
Fortune - Here’s When Having a Self-Driving Car Will Be a Normal Thing
Newsweek - YOU MAY NOT LIVE LONG ENOUGH TO RIDE A DRIVERLESS CAR
Wharton - Why AI Is Tipping the Scales in the Development of Self-driving Cars
Wired - Outdated Auto Safety Regulations Threaten the Self-Driving Revolution
Wired - Congress pass self-driving car regulation
Wired - WHAT IS LIDAR, WHY DO SELF-DRIVING CARS NEED IT, AND CAN IT SEE NERF BULLETS?
Recode After two million miles, Google’s robot car now drives better than a 16-year-old

Reading for Impacts of driverless cars:

NBC News - Millions of Professional Drivers Will Be Replaced by Self-Driving Vehicles

Medium - Self-Driving Cars Will Transform the Real Estate Market
Metro - Driverless vehicles and the future of public transit
The Atlantic - How Driverless Cars Will Change the Feel of Cities

Recommended reading:
Mary Meeker 2017 Internet Trends, Union Square Ventures Investment Thesis

First 90 minutes:

Debate: In 2018, will more driverless cars be sold then drivered cars? I ask that everyone pick a
side for this debate.

Class Materials

Key questions:

● What are the potential first “thick” use cases?

● Who are the key stakeholders for the auto industry?
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 ● What will need to change for (for each set of stakeholders) driverless cars to become
universally allowed?
● Considering all the changes needed, what use cases are likely to be the first adopted in the
US?
● What use cases will accelerate growth?

Second 90 minutes:

Discussion: What secondary and tertiary disruptions/opportunities will driverless cars create?

Key questions:
● How will driverless cars impact the automakers and their supply chain?
● How will driverless cars impact the people who drive cars/trucks for a living?
● What other markets will driverless cars disrupt? And, what opportunities will that create?
And, when should people start working on these opportunities?

Week 5 (March 6th): Maximising value across the Consumer Journey from interest to
monetization?

Explore leading companies manage (and measure) their consumers’ experiences.

Required reading: Mary Meeker 2017 Internet Trends , Union Square Ventures Investment Thesis ,
The New Battleground for Marketing-Led Growth; Using Big Data To Create Value for Customers,
Not just Target Them
Recommended reading: MyFeelBack, How Netflix Grew from the Ashes by Becoming
Customer-Centric

Pre-class distribution
Class Materials (with prof perspective)

Key questions:
● What are the unmet consumer needs?
● What new technologies will change the digital landscape?
● Where (and Why) are Venture Capitalists and Hedge Funds placing their bets?
● Where (and Why) are Platform players (e.g., Google, Facebook, Amazon, Netflix) placing
their bets?
● How should existing media players (e.g., Fox, New York Times) plan for this uncertain
future?

Frameworks:
(1) Value chain: Device, Content, Curation, Distribution
(2) Increasing returns to scale vs. standard unit economics
(3) Active Networking: Personal Board of Directors, Youth group

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Key questions:
● How do you attract new customers in the digital age?
● How do you retain, and grow, profitable customers using digital tools?
● How should a company measure success?
● How do you build the culture, processes and systems to market effectively in an analytical,
but rapidly changing market?

Frameworks:
(1) Media: Paid, Owned, Earned
(2) Single View of the User: Connecting all media touch points to an individual consumer

Week 6: Final project presentations and input from fellow students.