Professor Charles Fine Co-Chair, Value Chain Dynamics Working Group Communications Futures Program Massachusetts Institute of Technology October 2009 Value Chain Dynamics And the OIPs

What is Value Chain Dynamics?

Voice and/or data consumer Device Manufacturers Portals and Access Providers Application Developer Content Provider Wireless network operator Mobile Phones PDAs Smart Phones SIM Pads Controls LANs Network Network equipment Sw. games messaging Voice,browsing, WAP Third party content Software application developer Hardware application developer Photo camera MP3 player, DVD Game consoles Non-Circuit Component Manufacturers Non-Circuit Component Manufacturers Circuit Board Component Manufacturers Circuit Board Component Manufacturers PSTN/Internet component manufacturers Cell switching component manufacturers Base Station component manufacturers Content Aggregator Wireless infrastructure operator Wireless service provider Device value chain Infrastructure Value chain Application Value chain Content Value chain Network value chain Platform infrastructure service Service provisioning Billing Support User content Wireless Value Network Structure What is Value Chain Dynamics?

4 Business Cycle Dynamics Regulatory Policy Dynamics Corporate Strategy Dynamics Industry Structure Dynamics Customer Preference Dynamics Capital Market Dynamics Gears differ by size/speed Each has an engine & clutch Technology & Innovation Dynamics What is Value Chain Dynamics?

5 THE DYNAMICS OF PRODUCT ARCHITECTURE, STANDARDS,AND VALUE CHAIN STRUCTURE: “THE DOUBLE HELIX” MODULAR PRODUCT HORIZONTAL INDUSTRY OPEN STANDARDS INTEGRAL PRODUCT VERTICAL INDUSTRY PROPRIETARY STANDARDS Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?” INCENTIVE TO INTEGRATE PRESSURE TO DIS-INTEGRATE ORGANIZATIONAL RIGIDITIES HIGH- DIMENSIONAL COMPLEXITY NICHE COMPETITORS PROPRIETARY SYSTEM PROFITABILITY SUPPLIER MARKET POWER INNOVATION & TECHNICAL ADVANCES Examples: IBM, Autos, Embraer/Boeing, Nokia, Small Firms What is Value Chain Dynamics?

6 ALL COMPETITIVE ADVANTAGE IS TEMPORARY Autos: Ford in 1920, GM in 1955, Toyota in 2000 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 2008, Yankees not lately :-) The faster the clockspeed, the shorter the reign What is Value Chain Dynamics?

Inductive System Diagram What is Value Chain Dynamics?

Creative Artists Content Marketing Content Distrib. Content & HW Consumption Content Publishers Content Sales iPod/ iPhone iTunes iTunes homepage Listening accessories Open, then license ContentNetworks Closed to all but one carrier per region; slowly opening Applications Closed to non- Apple apps; then explosive App Store Growth THE CASE OF APPLE iPod/iPhone Retail Stores App Store Music closed to non-MP3, non-Apple formats

Media Value Chains: Sports Over the Air, On Cable, and On the Internet But first: 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.

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.

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 significantly (?) disrupted. Big win for Apple & Users. 3. TVoIP:Trying not to follow music? Disney keychest; Hulu by NewsCorp, Disney & NBC; Comcast w/ TV Everywhere; Sony w/DECE (Digital Entertainment Content Ecosystem,)

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:Trying not 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:LoTrying not to follow music. 4. NoIP:In USA, newspapers declining rapidly; Can bloggers and an army of “volunteers” fill the gap? 5. 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. AoIP:Is “consumption” of the arts different? Classical, Contemporary, Performing,... ? Museums vs Websites; Venues vs Streaming 6. SPoiP:Sports as a fast-clockspeed performing art; Time shifting reduces value...

1.Research: Modeling value dynamics is feasible for the media/communications value chain We seek to quantify the effects of Internet channels on overall system performance (e.g., value dynamics in the sports/media value chain) 2. Hypotheses: Internet viewing can grow the size of the viewer base,but may also reduce revenue opportunities for some value chain members. All the oIP’s grow the pie for communications service providers. Innovative business model design is big opportunity. Regulations could play a crucial role 3. Questions: Will the advertisement revenue model change with WebTV? Will new sources of revenue be created? Who will capture most of the revenue flow: Traditional broadcasters, service providers, Google, Apple, MLB, Players ??? What are the best strategic plays for network operators? Sports/Video Dynamics Model (work in progress, w/Emmanuel Blain, MIT MS student)

16 All Conclusions are Temporary Clockspeeds are increasing almost everywhere Value Chains are changing rapidly Assessment of value chain dynamics Build Strategies and Roadmaps