Technology Strategy

Competition for sustainability in the era of information economy

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)

Clarify the core competence

Distinguished, non-imitable, substantial, marketable Complementary technology Critical technology Externally acquired technology Fundamental needed technology Mature technology

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

Competitive advantage

Absolute advantage Relative advantage Critical to technology exploitation & integration arrangement Clustering the position

Relative market power vs. absolute advantage vs. technology maturity

The strategic guide to information economy

System products Standard competition Rights management Policy

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

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 Netscapes Open Standards Guarantee

Reduced consumer lock-in

Change Game

Competition for the market v. competition in the market

Buy into an open standard, that becomes closed?

Competition on price v features

Commoditized products?
Extending a standard With interconnection, can compete on components

Competition to offer proprietary extensions

Component v systems competition

Who wins? Who loses?

Consumers

Complementors

Generally better off But variety may decrease

Generally better off May serve the brokering role (DVD) May be a threat Strategies

Incumbents

Innovators

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

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

Formal Standard Setting

Essential patents must be licensed on fair,

reasonable and non-discriminatory terms

ITU, ANSI and ISO

What is your goal?

National or international? Protecting your interests? Do they really want a standard?

What are others goals?

Tactics in Formal Standard Setting

Dont automatically participate

Keep up momentum

If you do, you have to license Continue R&D while negotiating Trading technologies and votes Second sourcing, licensing, hybrids, etc. Definition of reasonable

Look for logrolling

Be creative about deals

Beware of vague promises

Search carefully for blocking patents

Preemptively build installed base

Patents held by non-participants

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

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?

The standards game

Player B
openness

Play in the Willing backyard to fight

Player A
openness

Wants standard Attempt to block

Willing to fight Wants standard

War

Attempt to Voluntary block standard

Lessons from standards competition

Commoditize technology and complements Competition requires allies How does your standard affect competition? Standards benefit consumers and suppliers, at expense of incumbents and sellers Formal standard setting adds credibility Find natural allies Before a battle, try to negotiate a truce Try to retain control over technology, even when establishing an open standard

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 value of IP, not protection Examples Library industry Video industry

Information & cost

Anything that can be digitized

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

Text, images, videos, music, etc.

Not only fixed, but sunk No significant capacity constraints Particular market structures

Monopoly Cost leadership Product differentiation (versioning)

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

Tactics for Lock-In and Switching Costs

Systems lock-in: durable complements

Hardware, software, and wetware Individual, organizational, and societal

Deeply digging the Network Effects

Example: Stereos and LPs, Costly switch to CDs

Compatibility

Value depends on number of users Positive feedback Indirect network effects Expectations management, preemption
Backwards & forwards

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

Follow the Lock-in cycle

Brand Selection Sampling

Lock-In

Entrenchment

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 of antitrust violations Role of treble damages

Information economy is different, but not so different!

Key concepts

Versioning Lock-in Systems competition Network effects

Beyond technology competitionexperience

Absorption

Passive participation

Entertainment

Education

Active participation

Aesthetics

Escapism

Immersion

Upgrading the technology value

high
Demonstration of experience Differentiation Raw materials Add-on service

high
Relevance of demand

Fabrication

low
low

low Pricing high

Extended readings
Porter, Michael (1996), What is Strategy? Harvard Business Review, Nov.-Dec. Iansiti, Marco and Jonathan West (1997), Technology Integration: Turning Great Research into 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), The Experience Economy, Harvard Business School Press, Boston.