Yan's

BT 372B: Discovery and Commercialization of Technical Business OpportunitiesYan Chen, Ph.D.Assistant ProfessorStevens Institute of Technology1Summary: Standards Battles and Design DominanceWhy do dominant designs emerge (rather than a variety of technological options)? One primary reason is that many industries exhibit increasing returns to adoption.Two primary sources of increasing returns to adoption are the learning-curve effect and the network externality effect.Increasing returns to adoption can lead to winner-take-all dynamics.In such markets, one or a few companies will capture the majority of the market share.22Summary: Standards Battles and Design DominanceThe value of a technology is multidimensional. The stand-alone value of a technology is influenced by the 6 utility levers. Customer productivity Simplicity Convenience Risk Fun and image Environmental friendlinessNetwork externality value includes the value created by the size of the installed base and the availability of complementary goods.33Summary: Standards Battles and Design DominanceA product strategy is different from a platform strategy. A product is largely proprietary, and it is primarily under one companys control.An industry platform often combines core components made by one company with complements made by a variety of companies.Many platforms have two sides.A two-sided platform provides goods or services to two distinct but interdependent groups of customers.The value of the platform to one side depends on the installed base of the other side.They rely on the platform to facilitate transactions between them.

44Outline1. Chapter 5: Timing of EntryThe Rise of Social Networking SitesFirst-Mover Advantages and DisadvantagesFactors Influencing Optimal Timing of EntryStrategies to Improve Timing Options2. Article: Perfect Timing? Dominant Category, Dominant Design, and the Window of Opportunity for Firm Entry55Outline1. Chapter 5: Timing of EntryThe Rise of Social Networking SitesFirst-Mover Advantages and DisadvantagesFactors Influencing Optimal Timing of EntryStrategies to Improve Timing Options2. Article: Perfect Timing? Dominant Category, Dominant Design, and the Window of Opportunity for Firm Entry66The Rise of Social Networking SitesSixDegrees.comIt was started in 1997.It was one of the first social networking sites.It built on the concept of "six degrees of separation." That theory holds that every person on earth is connected to everyone else through a path of six people or less. SixDegrees.com asks members to form their personal communities by listing six friends or relatives, each of whom then can add their friends and build connected communities.It attracted three million members, but users felt that not enough of their friends were members and there was little to do on the site.

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http://www.washingtonpost.com/wp-srv/business/talk/transcripts/walker/walker032599.htm7The Rise of Social Networking SitesFriendster was launched in 2003, and rapidly attracted seven million users, but its servers could not handle the traffic, causing many delays.MySpace was also started in 2003, and leveraged the 20million users of eUniverse to jumpstart membership, but heavy advertising annoyed users.8

8The Rise of Social Networking SitesFacebookIt was founded on February 4, 2004, by Mark Zuckerberg with his college roommates and fellow students.It was initially limited to Harvard students. In 2006, Facebook was made available to the public.It used a more open platform that enabled a rapid proliferation of games, product review sites, and user-created groups. It was also easier for users to restrict who viewed their profile. According to Professor Mikolaj Jan Piskorski, Facebooks success is not due to sharing, but due to the habit of anonymously viewing other peoples pagescolloquially known as stalking.The site attracted 901 million users by 2012.

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http://www.businessweek.com/articles/2014-05-23/the-secret-of-facebooks-success-it-made-stalking-easy9The Rise of Social Networking SitesOther popular sites (e.g., Twitter, LinkedIn, etc.) offered different functionality that did not compete directly against Facebook.

In 2011, Google introduced a site to compete directly against Facebook called Google+, which attracted 100 million users by 2012. By far, it is clear that it is not able to overtake Facebook.

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10The Rise of Social Networking Sites1. Why did the first social networking sites fail? Is there anything they could have done to survive?2. Are there significant switching costs that lock users into a particular social networking site?3. Do you think Snapchat can overtake Facebook? Why or why not?1111

What is your main purpose of using social media?https://www.polleverywhere.com/multiple_choice_polls/A4x6rwQc2O1XGn912

Which one do you prefer, Snapchat or Facebook?https://www.polleverywhere.com/multiple_choice_polls/sD6bQkD6vv4fvgM13

Do you think Snapchat can overtake Facebook? https://www.polleverywhere.com/multiple_choice_polls/g2ArwL9HabwHm4c14Outline1. Chapter 5: Timing of EntryThe Rise of Social Networking SitesFirst-Mover Advantages and DisadvantagesFactors Influencing Optimal Timing of EntryStrategies to Improve Timing Options2. Article: Perfect Timing? Dominant Category, Dominant Design, and the Window of Opportunity for Firm Entry1515Overview: Timing of EntryEntrants are often divided into three categories: first mover, early follower, or late entrant. First movers are the first entrants to sell in a new product or service category (pioneers).Early followers are early to market but not first.Late entrants do not enter the market until the product begins to penetrate the mass market or later.

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16Overview: Timing of EntryAn Important DistinctionMarket entry as a strategic decisionHere, we focus on the timing when a firm enters an industry for the very first time.Market entry as a marketing decisionOnce a firm is in a market, the firm needs to decide when it is going to introduce a new product to the market.In this lecture, we focus on the first rather than the second.1717First-Mover AdvantagesFirst movers enjoy certain advantages:Brand loyalty and technological leadershipPreemption of scarce assetsExploiting buyer switching costsReaping increasing returns advantages

1818First-Mover AdvantagesBrand Loyalty and Technological Leadership First movers can affect a new technologys evolution to make it hard to imitate.By affecting a technologys evolution, first movers can shape a technology to suit their unique unique capabilities (Ricardian rent).If the new technology is protected by patents, first movers can enjoy sustained monopoly rents (Schumpeterian rent). Even if a technology is imitable, first movers have an opportunity to build brand loyalty before the entry of other competitors.First movers can earn a long-lasting reputation as a technological leader in that technology domain. Such a reputation can help sustain the companys image, brand loyalty, and market share.1919First-Mover AdvantagesPreemption of Scarce Assets They can preempt scarce resources such as key locations, government permits, access to distribution channels, and relationships with suppliers. By so doing, they can block other companies from accessing these resources.If the market takes off, the value of these scarce assets may also increase dramatically.2020First-Mover Advantages

2121First-Mover AdvantagesExploiting Buyer Switching Costs Once buyers have adopted a technology, they often face costs to switch to another technology. The costs of switching include: the initial cost of the good, the cost of complements, and especially the cost of learning. If a product is complex, buyers must spend time to become familiar with the product; this time investment becomes a switching cost.If buyers face switching costs, they may stick with the technology, even when superior technologies are introduced later. Have you ever wondered why the keyboard is the way it is?QWERTY versus Dvorak22

QWERTY vs Dvorak As Fast as Possiblehttps://www.youtube.com/watch?v=tIJNusYZXMA

Why the Dvorak keyboard didn't take over the worldhttps://www.youtube.com/watch?v=ZnUBl90tayI

Steve Jobs: Secrets of Lifehttps://www.youtube.com/watch?v=kYfNvmF0Bqw

22First-Mover AdvantagesReaping Increasing Returns to AdoptionFirst movers can build up their installed base, making the technology more valuable to potential adopters.First movers can also attract other companies to build complementary products for them.The rise of Wintel is an example of increasing returns. Intels Ted Hoff invented the first microprocessor in 1971.In 1975, Bill Gates and Paul Allen showed that it could run a version of BASIC that Gates had written. BASIC became widely circulated among computer enthusiasts, who then developed applications that were optimized for Intels architecture. IBMs adoption of Intels 8088 microprocessor in its PC introduction secured Intels dominant position.23

23First-Mover DisadvantagesAccording to a historical study of 50 product categories,The mean market share of first movers is 10 percent. The mean market share of early followers is 30 percent. Early followers enjoy three times the market share of first movers.People may often perceive first movers to have advantages because they misperceive who first movers really are.Is Facebook the first social networking site? No.Is Microsoft Office the first word processing software? No.Is Google the first search engine? No.Is iPhone the first smartphone? No.2424First-Mover DisadvantagesFirst movers often bear the following disadvantages:High research and development expensesUndeveloped supply and distribution channelsImmature enabling technologies and complementsUncertainty of customer requirements

2525First-Mover DisadvantagesResearch and Development Expenses Developing a completely new technology is very costly.First movers have to bear the costs of trial-and-error learning. They bearnot only the expense of developing the new technology but also the expense of developing failed technologies; that is, the costs exploring technologies that do not yield a commercially viable product. First movers also bear the costs of developing necessary production processes.First movers may also need to develop complementary goods that are not available on the market.2626First-Mover DisadvantagesUndeveloped Supply and Distribution Channels When a firm introduces a new technology, there may be no appropriate suppliers or distributors. The firm may need to become its own suppliers and distributors, or it may need to help develop suppliers and distributors. When DEKA developed its self-balancing IBOT wheelchair, It needed a type of ball bearing for which there were no suppliers.DEKA was forced to develop a machine to mold the bearings. According to the companys founder, Nobody here planned to invent new ball bearings, but in order to make this engine practical we have to develop a bearing technology that doesnt exist.27

27First-Mover DisadvantagesImmature Enabling Technologies and Complements When firms develop technologies, they often rely on other companies to supply enabling technologies. Many products also require complementary goods. For first movers, important complements may not yet be fully developed.For example:A high-definition television set is of little value, if networks are incapable of broadcasting in high definition.Smartphones and Tablets would have little value, if small and long-lasting batteries were unavailable. 28IBM Simon Phone - CHI 2011https://www.youtube.com/watch?v=GUG7nwMmoUc28First-Mover DisadvantagesUncertainty of Customer Requirements A first mover may face considerable uncertainty about customer requirements for a product.As a consequence, first movers may need to revise their product offerings as the market begins to reveal customer preferences. Sony introduced a multi-featured game console that would play CDs and DVDs (PlayStation 2). Many industry analysts believed that Sony was wrong. However, it turned out that Sony might have underestimated the desirability of these features. Many consumers bought the system for its DVD capabilities first and game capabilities second. Many of these consumers bought very few games.29

Ballmer Laughs at iPhonehttps://www.youtube.com/watch?v=eywi0h_Y5_U29First-Mover Advantages and DisadvantagesWe often perceive first movers as having advantages because we have misperceived who were first movers.

30ProductFirst MoverNotable Follower(s)The Winner8 mm video cameraKodakSonyFollowerDisposable diaperChuxPampersKimberly ClarkFollowerFloat GlassPilkingtonCorningFirst moverInstant cameraPolaroidKodakFirst moverMicroprocessorsIntelAMDCyrixFirst MoverPersonal computerMITS (Altair 1974)AppleIBMFollowersSmartphonesIBM (Simon 1993)AppleSamsungNokiaFollowersSocial Network SitesSixDegrees.com (1997)MySpaceFacebookFollowersVideo game consoleMagnavoxAtariNintendoFollowersWeb browserNCSA MosaicNetscapeMicrosoft (Internet Explorer)FollowersWord processing softwareMicroPro (Wordstar)Microsoft (MS Word)WordperfectFollowersWorkstationXerox AltoSun MicrosystemsHewlett PackardFollowers30Theory In Action: Obstacles to the Hydrogen EconomyHydrogenIt offers an inexhaustible and environmentally friendly fuel source.It could be used to power automobiles.The only waste products of hydrogen fuel cells are water vapor and carbon dioxide.31

31Theory In Action: Obstacles to the Hydrogen EconomyHowever, there are several serious obstacles.The major obstacle is the development of a new fueling infrastructure.Existing gasoline fuel stations were ubiquitous in almost every corner of the globe.Hydrogen vehicles would require a new fueling infrastructure.Oil companies would use their resources and lobbying power to resist the adoption of hydrogen fuel cells.Is now a good time to start a hydrogen vehicle company?3232

Is now a good time to start a hydrogen vehicle company?https://www.polleverywhere.com/multiple_choice_polls/VzaXReT504fPgt133Outline1. Chapter 5: Timing of EntryThe Rise of Social Networking SitesFirst-Mover Advantages and DisadvantagesFactors Influencing Optimal Timing of EntryStrategies to Improve Timing Options2. Article: Perfect Timing? Dominant Category, Dominant Design, and the Window of Opportunity for Firm Entry3434Factors Influencing Optimal Timing of EntryHow does a firm determine the optimal timing of entry?In very early market stages, a technology may be underdeveloped and its fit with customer needs unknown. In late market stages, a technology may be well understood, but competitors may have already captured a controlling share of the market.The optimal timing of entry will depend on several factors.3535Factors Influencing Optimal Timing of Entry1. How certain are customer preferences?More certain, earlier entryLess certain, later entryWhen a new technology is first developed, some features that initially seem compelling may turn out to be unnecessary, and features that seem unimportant may turn out to be crucial. 3636Factors Influencing Optimal Timing of Entry2. Does the innovation require enabling technologies? Are these technologies sufficiently mature?More mature, earlier entry.Less mature, later entry.If the innovation requires enabling technologies (such as long-lasting batteries for cell phones), the maturity of these technologies will influence optimal timing of entry.3737Factors Influencing Optimal Timing of Entry3. Is the technology imitable?If only your firm can produce an inimitable technology, it can enter if it wants and whenever it wants. If several firms can produce a inimitable technology, they race to capture the market.If a technology is highly imitable, firms prefer to wait. 3838Factors Influencing Optimal Timing of Entry4. Do complementary goods influence the value of the innovation? Are they sufficiently available?Sufficiently available, earlier entry.Insufficiently available, later entry.If complementary products are needed, then a pioneer must find a way to ensure their availability. Some firms have the resources and capabilities to develop complementary products. Some firms are unable to develop those complements, and they need to rely on others to offer those complements.3939Factors Influencing Optimal Timing of Entry5. Are there increasing returns to adoption?Increasing returns, earlier entry.No increasing returns, later entry.If a competitors offering builds a significant installed base, the cycle of self-reinforcing advantages could make it difficult for the firm to ever catch up. Furthermore, if there are forces encouraging adoption of a single dominant design, a competitors technology may be selected. If protection mechanisms such as patents prevent the firm from offering a compatible technology, the firm may be locked out.4040Outline1. Chapter 5: Timing of EntryThe Rise of Social Networking SitesFirst-Mover Advantages and DisadvantagesFactors Influencing Optimal Timing of EntryStrategies to Improve Timing Options2. Article: Perfect Timing? Dominant Category, Dominant Design, and the Window of Opportunity for Firm Entry4141Strategies to Improve Timing OptionsWe have assumed that timing of entry is a matter of choice for a firm. We have assumed that the firm is capable of producing the technology. For one thing, the firm must possess the capabilities to produce the technology.For another, the firm also need to be able to develop them quickly. 4242Strategies to Improve Timing OptionsTo have more choices in entry timing, a firm needs to be able to develop the innovation early or quickly.

43Firm 1Firm 2TimeFast Cycle DevelopmentSlower Cycle Development43Strategies to Improve Timing OptionsIf a firm has a very fast cycle, The firm can choose its optimal entry timing.The firm can choose to become an early entrant.The firm is better able to learn from customer feedback. It can refine its technology to better meet customer requirements. 4444Strategies to Improve Timing OptionsDevelopment cycle time can be greatly shortened by using cross-functional new product development teamsparallel development processesagile developmentstrategic alliancesChapter 11 will deal specifically with the new product development process.4545Discussion Questions1. What are first mover advantages?2. What are first mover disadvantages?3. What factors may affect the optimal timing of entry?4646

47Outline1. Chapter 5: Timing of EntryThe Rise of Social Networking SitesFirst-Mover Advantages and DisadvantagesFactors Influencing Optimal Timing of EntryStrategies to Improve Timing Options2. Article: Perfect Timing? Dominant Category, Dominant Design, and the Window of Opportunity for Firm Entry4848Overview: Timing of EntryAn Important DistinctionMarket entry as a strategic decisionHere, the firm hasnt entered the industry yet.The firm is deciding whether it should enter an industry for the very first time.For example, it may involve new venture creation and related or unrelated diversification.Market entry as a marketing decisionOnce a firm is in a market, the firm needs to decide when it is going to introduce a new product to the market.4949Perfect Timing? The guiding question: When is the optimal timing for entering a new market?50

50Perfect Timing?

5151Perfect Timing? Dominant DesignA dominant design is the product architecture that becomes the industry standard within the product category For examplesmartphone: touchscreen, apps, Wi-Fi, cameras5252Perfect Timing? Dominant Design and Technology CyclesIn the era of ferment (or the fluid phase)there is considerable uncertainty about the technology and its market firms experiment with different product designsThen, a dominant design emergesIn the era of incremental change (or the specific phase) firms focus on incremental improvements to product design and production processes

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53Perfect Timing? The emergence of the dominant design means the end point of the window of opportunity.When the dominant design emerges, a shake-out period begins.A single product architecture captures over 50 percent of the market, and has become the de facto standard. Firms betting on the winning design will dominate the market, and they will enjoy economies of scale and increasing returns to adoption.However, firms that bet on the wrong designs will diminish to insignificance (e.g., BlackBerry) and may have to exit the industry.54

54Perfect Timing?

5555Perfect Timing? Product CategoryA product category is a distinct group of products that have certain common features and appeal to the same target market Within an industry, there can be a lot of product categoriesFor example, handheld PDA, handheld computer, smartphoneDominant CategoryIt is a product category that dominates peoples thought when they think about related product categories addressing similar needs For example, smartphone5656Perfect Timing? The emergence of the dominant category means the opening of the window of opportunity.In an initial phase of divergence, a lot of product categories are introduced to the industry.Then a dominant category emerges. Much of the socio-cognitive uncertainty dissipates. The meanings and perceptions the industry become clear.In the ensuing phase of convergence, the dominant category starts to gain dominance, while others decline or disappear.57

57Perfect Timing? The Window of OpportunityBefore the emergence of the dominant category, the industry lacks structure.After the emergence of the dominant design, the industry has already chosen its winners.The window of opportunity for firm entry starts with the emergence of the dominant category and ends with the emergence of the dominant design. 58

58An Example: Minivan59During the early phases of the industry, A number of category labels were used For example, minivan, compact van, and people moverThen the dominant category label emergesPeople converged toward the use of the minivan category labelCompeting category labels gradually disappeared.After the emergence of the dominant category labelThe boundaries of the minivan category were sharpened. A minivan should include such attributes as front-wheel drive, low step-in height, and seven-passenger seating

59An Example: Handheld Devices Smartphone iPhone & Samsung60

60An Example: Wearables Smartwatch Apple Watch61

61Perfect Timing?

6262Perfect Timing? Are Late Entrants Doomed to Failure?63

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Are Late Entrants Doomed to Failure?https://www.polleverywhere.com/multiple_choice_polls/1bAn2Mo5spuEng064Perfect Timing? What Can Late Entrants Do?First, they can build on the dominant design and improve on the dominant design.6565Multiple Dimensions of ValueWhat Can Late Entrants Do?Option (a) represents the existing dominant design.Option (c) represent a new technology that builds on and improves on the dominant design. It is compatible with the existing installed base and complements.

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66Perfect Timing? What Can Late Entrants Do?First, they can build on the dominant design and improve on the dominant design.Second, they can introduce a discontinuous technology to fulfill the existing needs by different means.

6767Multiple Dimensions of ValueWhat Can Late Entrants Do?Option (a) represents the existing dominant design.Option (b) represent a discontinuous technology that is much better than the existing dominant design. 68

68Perfect Timing? What Can Late Entrants Do?First, they can build on the dominant design and improve on the dominant design.Second, they can introduce a discontinuous technology to fulfill the existing needs by different means.Third, they can introduce a disruptive technology that offers a different package of attributes.

6969Disruptive Technologies70PerformanceTimePerformance that customerscan utilize or absorbPace ofTechnologicalProgressSustaining innovationsDisruptive innovationsIncumbents nearly always win Entrants nearly always win70Discussion Questions1. What is a product category? How does the number of product categories evolve in an industry life cycle?2.What is a dominant category? What are the major roles of a dominant category in an emerging industry?3. When does a window of opportunity for market entry open? When does it close? When is the best timing for market entry?7171SummaryFirst movers enjoy certain advantages:Brand loyalty and technological leadershipPreemption of scarce assetsExploiting buyer switching costsReaping increasing returns advantagesFirst movers also bear certain disadvantages:High research and development expensesUndeveloped supply and distribution channelsImmature enabling technologies and complementsUncertainty of customer requirements

7272SummaryThe optimal timing of entry is thus a function of several factors, including the state of customer expectationsthe state of enabling technologies and complementsthe imitability of the new technologythe availability of complementary goods and servicesthe existence of increasing returns to adoptionFirms that have fast-cycle development processes have more options when it comes to timing.7373SummaryThe window of opportunity for entry tends toStart with the emergence of a dominant categoryEnd with the emergence of a dominant design74

74What We Have CoveredPart One: The Industry Dynamics of Technological InnovationSources of innovationTypes and patterns of innovationStandards battles and design dominanceTiming of entry

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75Starting Next ClassPart Two: Formulating Technological Innovation StrategyDefining the organizations strategic directionChoosing innovation projectsCollaboration strategiesProtecting innovation

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Next ClassChapter 6: Defining the Organizations Strategic DirectionAssessing the firms position and defining its strategic direction,Please read:1. TextbookChapter 6 Defining the Organization's Strategic Direction2. Christensen, C.M., Raynor, M. & Verlinden M. 2001. Skate to Where the Money Will Be. Harvard Business Review, 79(10): 72-81.And think about the preparation questions.

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