MD 815 Session #3 Technology Forecasting 1. Introduction 2. Quantitative forecasting techniques 3. Predicting Diffusion Case

Introduction l Why forecasting is crucial –Will there be a market for your product? –How fast will it mature? –What will be happening to competing and complementary technologies? –What hazards lie on the horizon for your established products?

Why are we so bad at forecasting? "This ‘telephone' has too many shortcomings to be seriously considered as a means of communication." ---Western Union memo, 1876 "While theoretically and technically television may be feasible, commercially and financially it is an impossibility.” ---Lee DeForest, inventor "I think there is a world market for maybe five computers. ---Thomas Watson, chairman of IBM, 1943 "There is no reason anyone would want a computer in their home." ---Ken Olson, president of DEC 1977 "640K ought to be enough for anybody”. ---Bill Gates, 1981

The key is to forecast wisely... l Understanding the circumstances under which forecasting is most feasible l Knowing when you most need it/how much you should spend –Fast changing environments –Long planning horizons –Large stakes involved –Aggressive (rather than defensive) R&D strategies l Matching technique to need

Example: FedEx ZapMail l About ZapMail –Two hour high quality facsimile service –$25 for a 30 page fax –Conceived in 1979; delivered in 1984 –Cost: $400 million l Was this a good idea? –What tools could have been used to decide?

Example: FedEx ZapMail l About ZapMail –Two hour high quality facsimile service –$25 for a 30 page fax –Conceived in 1979; delivered in 1984 –Cost: $400 million l Was this a good idea? –What tools could have been used to decide? l Lesson: –Every major business decision contains an implicit forecast –Better make sure yours is not way, way off

The Technology Improvement S-Curve

Technological Discontinuities

Moore’s Law

The Diffusion S-Curve

Example: Networked PDA adoption in 1994 l Problem: –Large technology service firm needs to know whether to invest heavily in infrastructure for wireless PDAs –How can we estimate potential size of the market?

Example: Networked PDA adoption in 1994 l Problem: –Large technology service firm needs to know whether to invest heavily in infrastructure for wireless PDAs –How can we estimate potential size of the market? l Use data on 8 comparables to develop a range of possibilities –Cellular telephones –Pagers –Facsimile machines –Modems –Desktop PCs –Laptop PCs –On-line services –ISDN (narrow band)

Were Wireless PDAs circa 1994 more like Cellular or ISDN?

Rogers’ Innovation Attributes l Relative advantage l Compatibility l Complexity l Trialability l Observability

Mapping to Rogers Attributes l Relative Advantage –High Fixed Costs ($1000+) –Restricted Market (Mobile Professional) –Low Penetration of Companion Technology –Direct Competition From Entrenched Technologies (RA) l Complexity –High Knowledge Barriers l ?? –Important externalities in Use (??) –Lack of Infrastructure Support