Professor Charles Fine

1
Communications Industry Report Card A Value
Chain Dynamics Perspective
Professor Charles Fine Emmanuel Blain Value Chain
Dynamics Working Group Communications Futures
Program Massachusetts Institute of
Technology May 2009 Telecom Italia Future
Centre, Venice charley_at_mit.edu eblain_at_MIT.EDU
2
A Simple Value Chain
Sales/Marketing /Distribution
Core Technology Suppliers
Production
Consumers/ Users
Subsystem Suppliers
Product Concept
3
Innovation along the Value Chain How ( why) do
Autos Electronics Differ?
Sales/Marketing /Distribution
Core Technology Suppliers
Production
Consumers/ Users
Subsystem Suppliers
Product Concept
Hybrid Engine, Active Suspension
Aluminum Bonding, Carbon Fiber, CAD tools
Lean Production
Minivan, SUV, Crossover
Add-ons
Internet
AUTOS
iPod, X-Box, Palm, Office, Digital Photog. Mobile
Phone
Java, Html, C
Contract Manufacturing
Microprocessor, Hard disk drive, Photolithography
ELEC- TRONICS
Napster, Apple I
Amazon, Dell
4
Innovation Dynamics can be RADICAL (disruptive)
or INCREMENTAL (sustaining)Technological
perspective vs Industry perspective
How to measure performance? How to know
where you are on the S? Where in the
value chain? Worse before better?
Performance
Time
5
Disruptive Process Innovation in Autos vs.
Disruptive Product Innovation in Electronics
In Electronics Vacuum tubes to ICs Mainframes
to PCs Chemical to Digital Photography Wire-line
to Wireless Telephony
Performance
Lean Production
Mass Production
Automotive
Craft Production
Time
6
What makes an innovation disruptive?
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)
7
Drivers of Value Chain Dynamics Gear Model
for Roadmapping the VC
Corporate Strategy Dynamics
Regulatory Policy Dynamics
Industry Structure Dynamics
Technology Innovation Dynamics
Customer Preference Dynamics
Business Cycle Dynamics
Capital Market Dynamics
Gears differ by size/speed Each has an engine
clutch
8
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
9
A Review of the oIPs

• VoIP Voice communication is alive and well.
  VoIP is part of the landscape.
• VoIP, so far, is a sustaining innovation
• eBay overpaid for Skype.

10
A Brief Review of the oIPs

• 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.

11
THE CASE OF APPLE iPod/iPhone
Creative Artists
Content
Networks
Applications
Closed then open to non-Apple apps, VOIP over
WiFi, IM, etc.
Closed to non-MP3, non-Apple formats
Closed to non-ATT ( partner) networks
Music Publishers
Music Marketing
iTunes homepage
Music Player Retailing
Music Sales
iTunes
Music Distribution
iTunes
Listening accessories
Music Consumption
iPod/ iPhone
Open
12
THE CASE OF APPLE iPod/iPhone
Creative Artists
Content
Networks
Applications
Closed then open to non-Apple apps, VOIP over
WiFi, IM, etc.
Closed to non-MP3, non-Apple formats
Closed to non-ATT ( partner) networks
Music Publishers
Music Marketing
iTunes homepage
APP STORE!
Music Player Retailing
Music Sales
iTunes
Music Distribution
iTunes
Listening accessories
Music Consumption
iPod/ iPhone
Open
13
A Brief Review of the oIPs

• 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?

14
A Brief Review of the oIPs

• 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?

15
A Brief Review of the oIPs

• 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. FoIP On-line banking a sustaining innovation?

16
A Brief Review of the oIPs

• 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. FoIP On-line banking a sustaining innovation?
• 6. AoIP Is consumption of the arts different?
• Important distinctions among the arts?
• Classical, Contemporary, Performing, . . . ?

17
A Brief Review of the oIPs

• 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. FoIP On-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 . . .

18
Sports over IP A Dynamic Modeling Perspective
Rabid Fans (Live)
Casual Fans (Video)
Potential Fans
19


Fan Creation Rate
Rabid Fan Creation Rate
Potential Fans

Casual Fans (Video)
Rabid Fans (Live)


Team Popularity

Success Ratio

Number Of Stars
20


Fan Creation Rate
Potential Fans
Rabid Fan Creation Rate

Casual Fans (Video)
Rabid Fans (Live)


Team Popularity




Demand For Live Performances
Demand For Video Content
Success Ratio


Number Of Stars



Un-Licensed Internet
Over The Air
Cable TV
Licensed Internet
21


Fan Creation Rate
Potential Fans
Rabid Fan Creation Rate

Casual Fans (Video)
Rabid Fans (Live)


Team Popularity




Demand For Live Performances
Demand For Video Content
Success Ratio


Number Of Stars



Un-Licensed Internet
Over The Air
Cable TV

Licensed Internet


Stadium Prices and Attendance


Team Revenue

22


Fan Creation Rate
Potential Fans
Rabid Fan Creation Rate

Casual Fans (Video)
Rabid Fans (Live)






Team Popularity




Demand For Live Performances
Demand For Video Content
Success Ratio


Number Of Stars



Un-Licensed Internet
Over The Air
Cable TV

Licensed Internet


Stadium Prices and Attendance


Team Revenue

23


Fan Creation Rate
Potential Fans
Rabid Fan Creation Rate

Casual Fans (Video)
Rabid Fans (Live)






Team Popularity

(Local Sports Blackouts)


-

Demand For Live Performances
Demand For Video Content
-
-
-
Success Ratio


Number Of Stars



Un-Licensed Internet
Over The Air
Cable TV

Licensed Internet


Stadium Prices and Attendance


Team Revenue

24


Fan Creation Rate
Potential Fans
Rabid Fan Creation Rate

Casual Fans (Video)
Rabid Fans (Live)






Team Popularity



-

Demand For Live Performances
Demand For Video Content
-
-
-
Success Ratio


Number Of Stars



Un-Licensed Internet
Over The Air
Cable TV

Licensed Internet
-
-
-


Stadium Prices and Attendance


Team Revenue

25


Fan Creation Rate
Potential Fans
Rabid Fan Creation Rate

Casual Fans (Video)
Rabid Fans (Live)






Team Popularity

Internet Innovation


-

Demand For Live Performances
Demand For Video Content
-

-
-
Internet Users
Success Ratio



Number Of Stars



Un-Licensed Internet
Over The Air
Cable TV


Licensed Internet
-
-
-
-



Broadband Demand



Stadium Prices and Attendance


Team Revenue

26
Conclusions/Observations/Questions

• 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 oIPs 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.