1. Competition for sustainability in the era of information economy
Technology Strategy
Competition for sustainability in the era of information economy

2. Vision of corporation 3M
Microsoft GE
FedEx
Oracle
Sheseto
Xerox

3. Align technology with business
The price-quality tradeoff
The profit-share tradeoff
The growth-position tradeoff
The pioneer-harvest tradeoff
The consistency-diversity tradeoff
The enactment-response tradeoff

4. Clarify the core competence
Distinguished, non-imitable, substantial, marketable
Complementary technology
Critical technology
Externally acquired technology
Fundamental needed technology
Mature technology

5. Integration considerations
Integration for technology exploitation
Integration for order fulfillment
Integration
relevance vs. difficulty
Investment vs. controllability
Generic vs. specific
Modular design vs. integral design

6. Competitive advantage
Absolute advantage
Relative advantage
Critical to technology exploitation & integration arrangement
Clustering the position
Relative market power vs. absolute advantage vs. technology maturity

7. The strategic guide to information economy
System products
Standard competition
Rights management
Policy

8. System products Complementary products Product lines
Different manufacturers
Strategy for complementors as well as competitors
Compatibility as strategic choice
Standards and interconnection
Hardware/software
Client/server
Viewer/content
Product lines
High fixed cost, low incremental cost
Leaders to value based pricing
Lower quality may be more expensive
Proliferation strategy

9. How Standards Change the Game
Expanded network externalities
Make network larger, increase value
Share info with larger network
Attracts more users
Reduced uncertainty
No need to wait
In war, neither side may win
Reduced consumer lock-in
Netscape’s “Open Standards Guarantee”

10. Change Game Competition for the market v. competition in the market
Buy into an open standard, that becomes closed?
Competition on price v features
Commoditized products?
Competition to offer proprietary extensions
Extending a standard
Component v systems competition
With interconnection, can compete on components

11. Who wins? Who loses? Consumers Complementors Incumbents Innovators
Generally better off
But variety may decrease
Complementors
May serve the brokering role (DVD)
Incumbents
May be a threat
Strategies
Deny backward compatibility
Introduce its own standard
Ally itself with new technology
Innovators
Technology innovators collectively welcome standards
If the group benefits, there should be some way to make members benefit
Negotiation costs, opportunistic behavior

12. Formal Standard Setting
Essential patents must be licensed on “fair, reasonable and non-discriminatory” terms
ITU, ANSI and ISO
What is your goal?
National or international?
Protecting your interests?
What are others goals?
Do they really want a standard?

13. Tactics in Formal Standard Setting
Don’t automatically participate
If you do, you have to license
Keep up momentum
Continue R&D while negotiating
Look for logrolling
Trading technologies and votes
Be creative about deals
Second sourcing, licensing, hybrids, etc.
Beware of vague promises
Definition of reasonable
Search carefully for blocking patents
Patents held by non-participants
Preemptively build installed base

14. Building Alliances Assembling allies Who bears risk of failure?
Pivotal customers should get special deals
But don’t give your first customers too big an advantage
Offer temporary price break
Who bears risk of failure?
Usually ends up with large firms
But bankruptcy favors small firms
Government is even better!
Smart cards in Europe

15. Managing Open Standards
Standard is in danger if it lacks a sponsor
Lessons of Unix
Interconnection—searching a migration route
Extension of TLC
Negotiating a truce
Do the benefit cost calculation
How to divide a larger pie?

16. The standards game
Player B
openness
Player A
openness

17. Lessons from standards competition
Commoditize technology and complements
Competition requires allies
How does your standard affect competition?
Standards benefit consumers and suppliers, at expense of incumbents and sellers
Formal standard setting adds credibility
Find natural allies
Before a battle, try to negotiate a truce
Try to retain control over technology, even when establishing an open standard

18. Rights Management The characteristics of information
The structure of cost
Low reproduction cost is two-edged sword
Cheap for owners (high profit margin)
But also cheap for copiers
Maximize value of IP, not protection
Examples
Library industry
Video industry

19. Information & cost Anything that can be digitized
Text, images, videos, music, etc.
Unique demand characteristics
Expensive to produce, cheap to reproduce
High fixed cost, low marginal cost
Not only fixed, but sunk
No significant capacity constraints
Particular market structures
Monopoly
Cost leadership
Product differentiation (versioning)

20. Policy Understand environment IP regime Price discrimination
Illegal if it “effectively lessens competition”
Legal arguments that work
Can set lower prices resulting from lower costs
Set differential prices to meet competition
Pricing only questionable if it “lessens competition”
Competition policy
Regulation
Antitrust

21. Tactics for Lock-In and Switching Costs
Systems lock-in: durable complements
Hardware, software, and wetware
Individual, organizational, and societal
Example: Stereos and LPs, Costly switch to CDs
Deeply digging the Network Effects
Value depends on number of users
Positive feedback
Indirect network effects
Expectations management, preemption
Compatibility
Backwards & forwards

22. Classification of Lock-In
Durable purchases and replacement: declines with time
Brand-specific training: rises with time
Information and data: rises with time
Specialized suppliers: may rise
Search costs: learn about alternatives
Loyalty programs: rebuild cumulative usage
Contractual commitments: damages

23. Follow the Lock-in cycle
Brand Selection
Lock-In
Sampling
Selects brand: comparison
Sampling phase: try the product
Entrenchment: makes the durable investments
Lock-in: costly to change
Entrenchment

24. Implications for strategy
Protects competition as a process
Monopoly isn’t illegal, but attempt to monopolize is
Monopoly may be inhibited from using strategies that are legal for other firms
But even small firms may be accused of antitrust violations
Role of treble damages

25. Information economy is different, but not so different!
Key concepts
Versioning
Lock-in
Systems competition
Network effects

26. Beyond technology competition—experience
Absorption
Entertainment
Education
Passive
participation
Active
participation
Aesthetics
Escapism
Immersion

27. Upgrading the technology value
high
high
Demonstration of experience
Customization
Relevance of demand
Differentiation
Add-on service
Fabrication
Commoditization
Raw materials
low
low
low
Pricing
high

28. Extended readings
Porter, Michael (1996), “What is Strategy?” Harvard Business Review, Nov.-Dec.
Iansiti, Marco and Jonathan West (1997), Technology Integration: Turning Great Research into Great Products,” Harvard Business Review, May-June.
Shapiro, Carl and Hal R. Varian (1998), Information Rule, Harvard Business School Press, Boston.
Pine II, B. Joseph, James h. Gilmore (1999), The Experience Economy, Harvard Business School Press, Boston.