1 ECONOMICS chapter 4 & 5 Chapter 4- Understanding Demand Chapter 5- Understanding Supply.
Chapter 5
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Transcript of Chapter 5
CHAPTER 5
DYNAMICS OF INTERNET BUSINESS MODEL
• Business is not constant, so as its business model, it has a direct impact
• This chapter examines the dynamics of business models
• Who profits from technological change• Examine several technological change models• Its implication towards Internet business model
WHO PROFITS FROM TECHNOLOGICAL CHANGE
• Business model = strategy for making money• Understand what it takes to make money from
technological change• Complementary assets model examine.
Complementary Assets Model
Complementary assets = capability/ability/ qualification, that the firm needs to exploit the technology
(includes brand name, manufacturing, marketing, distribution channel, service, reputation, installed base of products, relationships with clients /suppliers & complementary technologies)
Imitability = the extent to which the technology can be copied, substituted by competitors.
Difficult to make money
Holder of complementary assets makes money
InventoryMakes money
Party with both technology & assets or with bargaining power makes money
Pg 79. complementary assets model table figure 5.2
Imitability = the extent to which the technology can be copied, substituted by competitors. E.g. Internet
Imita
bilit
yLo
wH
igh
Freely available/unimportant Tightly held & important
I II
IV III
Complementary assets
How to use table 5.2
• Implications of the internet– Internet;easy to imitate, so imitability is high
• Strategic Implications of Complementary Assets Model
• Determining One’s Complementary Assets
Strategic Implications of Complementary Assets Model(figure 5.3 pg 81)
RunTeam-UpJoint ventureStrategic alliancesAcquisition
Internal development
Block Block Team-UpJoint ventureStrategic alliancesAcquisition
Imita
bilit
yLo
wH
igh
Freely available/unimportant Tightly held & important
I II
IV III
Complementary assets
Determining One’s Complementary Assets
• To determine its complementary assets it must follow these steps:
1. Understand the product-market position it occupies or wants to occupies
2. Understand its value configuration & determine what capabilities other than technology that are critical
•Customer value•Scope•Positioning (firm attains /wants to attain)
DEVELOPING THE TECHNOLOGY
• Developing technology is not easy, the inability of a firm to develop products or services using a new technology is often reason why such firm fail to exploit new technology
• Models of technological change provide guidance for developing successful technology
MODEL OF TECHNOLOGICAL CHANGE
• 5 models of technological change provide guidance for developing successful technology1.Radical versus incremental change2.Architectural innovation3.Disruptive change4.Innovation, value added change5.Technology life cycle
1. Radical versus incremental change
• Type of firm that is likely to exploit a technological change is a function of the type of change
• The change impacts the firm’s product-market position & capabilities
2. Architectural innovation
• A new design that wants to take advantage of the speed of a much faster processor is an architectural innovation & must consider the changes in the linkages between new processor & other components of the computer
• architectural innovation model can help explore the potential impact of the Internet on some industries
3. Disruptive change
• Has 4 characteristics:1. Create new markets by introducing new kind of
product or services2. New products/services from new technology
cost less than existing products/services from old technology
3. Product perform worst at the beginning but catches up & improve itself by fulfilling the needs of consumer
4. Technology are difficult to protect using patents
Disruptive change model e.g. pg 90 figure 5.5 Measure of key
performance Attributes
Cost
0 1 2 3 4 5 6
A
B
C
Dproduct
demand
Meets key performance attributes
Improvement over the yearsMeets key performance attributes
4. Innovation, value added change
• The value that a firm offers its customers is a function of the firm’s capabilities & collaboration of its suppliers, customers & complementor
DELL VALUE ADDEDCHAIN
MICROSOFTINTELSOFTWAREBUNDLE
5. Technology life cycle
• Used as a framework for understanding the evolving competitive landscape following a technological change
• According to the model, technology undergone 3 phase.1.fluid 2.transitional
3. stable
Figure 5.7 pg 94, Internet Technology Life Cycle
EMERGING/FLUID
GROWTH/TRANSITIONAL
MATURE/STABLE
SALES
Where in the Internet valueNetwork do you want to be
Fluid Phase•Product & market uncertainty•Confusion among producer & customers on products•Product quality is low & cost/prices high•E.g. auto industry
Transitional Phase•Standardization took place, common standard for producing product emerge•Reduce the phase of uncertainty for the product•Customer base increase->mass market
Stable Phase (mature)•Product highly define•Demand growth•Fewer competitors•Firm’s strategy is to defend its position in the market, & look for next technology
THE “dotcom” BOOM & BURST
• Should the dotcom bubble & burst have been expected?
• Who wins in a dotcom vs. Brick-and mortar battle?