Professor Charles Fine

1
Value Chain Dynamics And the OIPs
Professor Charles Fine Co-Chair, Value Chain
Dynamics Working Group Communications Futures
Program http//cfp.mit.edu Massachusetts
Institute of Technology October
2009 charley_at_mit.edu
2
What is Value Chain Dynamics?
3
Wireless Value Network Structure
What is Value Chain Dynamics?
4
What is Value Chain Dynamics?
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
5
What is Value Chain Dynamics?
THE DYNAMICS OF PRODUCT ARCHITECTURE,
STANDARDS,AND VALUE CHAIN STRUCTURE THE DOUBLE
HELIX
INTEGRAL PRODUCT VERTICAL INDUSTRY PROPRIETARY
STANDARDS
MODULAR PRODUCT HORIZONTAL INDUSTRY OPEN STANDARDS
NICHE COMPETITORS
INNOVATION TECHNICAL ADVANCES
HIGH- DIMENSIONAL COMPLEXITY
SUPPLIER MARKET POWER
PRESSURE TO DIS-INTEGRATE
INCENTIVE TO INTEGRATE
ORGANIZATIONAL RIGIDITIES
PROPRIETARY SYSTEM PROFITABILITY
Examples IBM, Autos, Embraer/Boeing, Nokia,
Small Firms
Fine Whitney, Is the Make/Buy Decision
Process a Core Competence?
6
What is Value Chain Dynamics?
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
7
What is Value Chain Dynamics?
Inductive System Diagram
8
THE CASE OF APPLE iPod/iPhone
Creative Artists
Content
Networks
Applications
Music closed to non-MP3, non-Apple formats
Closed to non- Apple apps then explosive App
Store Growth
Closed to all but one carrier per region slowly
opening
Content Publishers
Content Marketing
iTunes homepage
App Store
Content Sales
iTunes
Retail Stores
iTunes
Content Distrib.
Listening accessories
Content HW Consumption
iPod/ iPhone
Open, then license
9
Media Value Chains Sports Over the Air, On
Cable, and On the Internet
But first 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.

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
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 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,)

12
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 Trying not to follow music.
• 4. NoIP In USA, newspapers declining rapidly
• Can bloggers and an army of volunteers fill
• the gap?

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 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, . . . ?

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?
• 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 . . .

15
Sports/Video Dynamics Model (work in progress,
w/Emmanuel Blain, MIT MS student)

• 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 oIPs 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?

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