Professor Charles Fine Emmanuel Blain Value Chain Dynamics Working Group Communications Futures Program Massachusetts Institute of Technology May 2009 Telecom Italia Future Centre, Venice Communications Industry Report Card: A Value Chain Dynamics Perspective

A Simple Value Chain: Consumers/ Users Sales/Marketing /Distribution Product Concept Subsystem Suppliers Core Technology Suppliers Production

Innovation along the Value Chain: How (& why) do Autos & Electronics Differ? Consumers/ Users Sales/Marketing /Distribution Product Concept Subsystem Suppliers Core Technology Suppliers Add-onsInternet Minivan, SUV, Crossover Hybrid Engine, Active Suspension Aluminum Bonding, Carbon Fiber, CAD tools Production Lean Production AUTOS Napster, Apple I Amazon, Dell iPod, X-Box, Palm, Office, Digital Photog. Mobile Phone Java, Html, C++ Microprocessor, Hard disk drive, Photolithography Contract Manufacturing ELEC- TRONICS

Innovation Dynamics can be RADICAL (disruptive) or INCREMENTAL (sustaining); Technological perspective vs Industry perspective Performance Time How to measure performance? How to know where you are on the “S”? Where in the value chain? Worse before better?

Disruptive Process Innovation in Autos vs. Disruptive Product Innovation in Electronics Performance Time Craft Production Mass Production Lean Production In Electronics: Vacuum tubes to IC’s Mainframes to PC’s Chemical to Digital Photography Wire-line to Wireless Telephony Automotive

Performance Push an overwhelmingly superior technology/process (mass production, penicillin) Customer Pull new customers care about different measures of performance (wireless phones, personal computers) Organizational Competencies incumbents cannot do what the innovators can (Dell supply chain, Southwest Air) What makes an innovation disruptive?

Business Cycle Dynamics Regulatory Policy Dynamics Corporate Strategy Dynamics Industry Structure Dynamics Customer Preference Dynamics Drivers of Value Chain Dynamics : “Gear Model” for Roadmapping the VC Capital Market Dynamics Gears differ by size/speed Each has an engine & clutch Technology & Innovation Dynamics

ALL COMPETITIVE ADVANTAGE IS TEMPORARY Autos: Ford in 1920, GM in 1955, Toyota in 1990 Computing: IBM in 1970, DEC in 1980, Wintel in 1990 World Dominion: Greece in 500 BC, Rome in 100AD, G.B. in 1800 Sports: Bruins in 1972, Celtics in 1986, Yankees not lately :-) The faster the clockspeed, the shorter the reign

A 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’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. 2. MoIP:Music consumers seem pretty happy. Traditional music companies mildly(?) disrupted, or, perhaps disrupted in slow motion. Big opportunity for Apple.

Creative Artists Music Marketing Music Distribution Music Consumption Music Publishers Music Sales iPod/ iPhone iTunes iTunes homepage Listening accessories Open Content Closed to non-MP3, non-Apple formats Networks Closed to non-AT&T (& partner) networks Applications Closed then open to non- Apple apps, VOIP over WiFi, IM, etc. THE CASE OF APPLE iPod/iPhone Music Player Retailing

Creative Artists Music Marketing Music Distribution Music Consumption Music Publishers Music Sales iPod/ iPhone iTunes iTunes homepage Listening accessories Open Content Closed to non-MP3, non-Apple formats Networks Closed to non-AT&T (& partner) networks Applications Closed then open to non- Apple apps, VOIP over WiFi, IM, etc. THE CASE OF APPLE iPod/iPhone Music Player Retailing APP STORE!

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. 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?

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. 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?

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. 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. FoIPOn-line banking: a sustaining innovation?

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. 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. FoIPOn-line banking: a sustaining innovation? 6. AoIP:Is “consumption” of the arts different? Important distinctions among the arts? Classical, Contemporary, Performing,... ?

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. 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. FoIPOn-line banking: a sustaining innovation? 6. AoIP:Is “consumption” of the arts different? Important distinctions among the arts? Classical, Contempary, Performing,... ? 7. SPoiP:Sports as a fast-clockspeed performing art; Time shifting reduces value...

Potential Fans Casual Fans (Video) Rabid Fans (Live) Sports over IP: A Dynamic Modeling Perspective

Potential Fans Casual Fans (Video) Rabid Fans (Live) Fan Creation Rate Rabid Fan Creation Rate Team Popularity Success Ratio Number Of Stars

Potential Fans Casual Fans (Video) Rabid Fans (Live) Fan Creation Rate Rabid Fan Creation Rate Team Popularity Success Ratio Number Of Stars Demand For Video Content Demand For Live Performances Over The Air Cable TV Licensed Internet Un-Licensed Internet

Potential Fans Casual Fans (Video) Rabid Fans (Live) Fan Creation Rate Rabid Fan Creation Rate Team Popularity Success Ratio Number Of Stars Demand For Video Content Demand For Live Performances Over The Air Cable TV Licensed Internet Un-Licensed Internet Team Revenue Stadium Prices and Attendance + +

Potential Fans Casual Fans (Video) Rabid Fans (Live) Fan Creation Rate Rabid Fan Creation Rate Team Popularity Success Ratio Number Of Stars Demand For Video Content Demand For Live Performances Over The Air Cable TV Licensed Internet Un-Licensed Internet Team Revenue Stadium Prices and Attendance

Potential Fans Casual Fans (Video) Rabid Fans (Live) Fan Creation Rate Rabid Fan Creation Rate Team Popularity Success Ratio Number Of Stars Demand For Video Content Demand For Live Performances Over The Air Cable TV Licensed Internet Un-Licensed Internet Team Revenue Stadium Prices and Attendance (Local Sports Blackouts)

Potential Fans Casual Fans (Video) Rabid Fans (Live) Fan Creation Rate Rabid Fan Creation Rate Team Popularity Success Ratio Number Of Stars Demand For Video Content Demand For Live Performances Over The Air Cable TV Licensed Internet Un-Licensed Internet Team Revenue Stadium Prices and Attendance

Potential Fans Casual Fans (Video) Rabid Fans (Live) Fan Creation Rate Rabid Fan Creation Rate Team Popularity Success Ratio Number Of Stars Demand For Video Content Demand For Live Performances Over The Air Cable TV Licensed Internet Un-Licensed Internet Team Revenue Stadium Prices and Attendance Internet Innovation Internet Users Broadband Demand

1.Research: Modeling value dynamics is feasible for the performing arts (more to come) 2. Observations: Internet viewing can potentially grow the overall market for the arts, but may also reduce revenue opportunities for art distributors. All the oIP’s grow the pie for Broadband providers. 3. Questions: Can Broadband providers get their “fair share” (e.g, versus Apple, Google)? What is fair? Innovative business model design is big opportunity. Conclusions/Observations/Questions