Transcript Information Society

TMitTI 1
Timetable
16.9. Introduction, Sakari Luukkainen
23.9. Technology Marketing, Jari Haggren
30.9. Market Dynamics of Telecom Industry, Sakari Luukkainen
7.10. Standardization, Sakari Luukkainen
14.10. Case GSM, Sakari Luukkainen
21.10. Product Strategy, Eino Kivisaari
28.10. Product Strategy, Eino Kivisaari
4.11. R & D Management, Sakari Luukkainen
11.11. R & D Management, Case TeliaSonera, Jyrki Härkki
18.11. Corporate Venturing, Case Nokia, Taina Tukiainen
25.11 Technology Foresight, Sakari Luukkainen
9.12. Examination
© Sakari Luukkainen
TMitTI 2
Determinants of technology strategy
Technical
Capabilities
G
E
N
E
R
A
T
I
V
E
M
E
C
H
A
N
I
S
M
S
Internal Environment
Strategic
Behaviour
Organizational
Context
Technology
Strategy
Technology
Evolution
Industry
Context
External Environment
I
N
T
E
G
R
A
T
I
V
E
Experience
M
E
C
H
A
N
I
S
M
S
Source: Burgelman & Rosenbloom
© Sakari Luukkainen
TMitTI 3
Content
• Market uncertainty (Gaynor)
• Recognizing lock-in (Varian chapter 5)
• Managing lock-in (Varian chapter 6)
• Networks and positive feedback (Varian chapter 7)
• Current mobile market situation in Finland
© Sakari Luukkainen
TMitTI 4
What is market uncertainty
• Market uncertainty relates to the inability of vendors and
service providers offering new communications solutions to
predict what are the end users needs
• The uncertainty exists partly also because users do not
know what they want until they see and use it
• When users are first introduced to new technology they tend
to view it in the context of the older technology
• Users needs evolve hiearchically along with the technology
evolution as they become more educated about the benefits
it provides
© Sakari Luukkainen
TMitTI 5
Market uncertainty and Internet
• A similar phenomen is occuring with the Internet
• Nobody predicted in the early 90´s what Web is today and
its impact to society
• Understanding market uncertainty affects directly to R&D
• When Netscape started its development there was extreme
uncertainty, it altered the traditional sw development
process in a way that allowed taking into account early
feedback from users
© Sakari Luukkainen
TMitTI 6
Managing market uncertainty
• The only way to meet uncertain markets is to experiment
several ideas and hope at least one will work
• When market uncertainty is high, being lucky with correct
guess about the market is likely to produce more revenue
than being right in markets with low uncertainty
• In high uncertainty competition is feature based and low
price based
© Sakari Luukkainen
TMitTI 7
Recognizing Lock-in
• Investments in varying complementary assets
related to the actual ICT investment influence
switching costs
• When the switching costs from one brand to
another are substantial, customers face lock-in
• Sonera & Radiolinja example: low number of
moving customers before portability of telephone
number
• iki.fi e-mail solution to reduce switching cost
• Proprietary interfaces vs. open system
© Sakari Luukkainen
TMitTI 8
Recognizing Lock-in
• Existing installed customer base with high
switching cost is significantly valuable asset
•
Collective switching costs, group pricing of
mobile calls
• Total switching cost = costs the customer bears +
costs the new supplier bears
• The present discounted value to a supplier of
locked-in customer is equal to that customer´s
total switching costs, plus the quality or cost
advantage of current supplier’s product
© Sakari Luukkainen
TMitTI 9
Type of Lock-in
Switching Costs
Contractual commitments
Compensatory or
liquidated damages
Durable purchases
Replacement of equipment
Brand-specific training
Learning new system
Information and db
Converting data to new format
Specialized suppliers
Finding of new supplier
Search costs
Learning about quality of altern.
Loyalty programs
Lost benefits from existing supplier
© Sakari Luukkainen
TMitTI 10
Managing Lock-in – Customer view
• Bargaining before lock-in taking into account lifecycle cost
• Being aware about whole cost structure before
investment decision, e.g. maintenance contracts
are typically offered afterwards
• Second sourcing and open systems
• Long view to the next supplier choice situation
• Keeping record about perceived cost structure
through life-cycle
© Sakari Luukkainen
TMitTI 11
Managing Lock-in – Supplier view
• Investments to build large installed base
• Concentrating on influential customers with high
switching costs
• Differential pricing
• Being aware of customer`s timing in brand
selection points
• Reselling and bundling of complementary
products and long maintenance contracts
• Usage of purchase history of existing customers
in the marketing of new products
© Sakari Luukkainen
TMitTI 12
Market Share (%)
Positive Feedback
100
Winner
50
Battle zone
Loser
Time
© Sakari Luukkainen
TMitTI 13
Adoption Dynamics
Number of Users
Saturation
Critical
mass
Takeoff
Launch
Time
© Sakari Luukkainen
TMitTI 14
Internet Servers
120
80
40
0
1991
1993
1995
© Sakari Luukkainen
1997
1999
2001
Source: Koski, H., Rouvinen, P., & Ylä-Anttila, P. (2001)
TMitTI 15
Case: Fax-service
Source: Varian)
© Sakari Luukkainen
TMitTI 16
Demand-side Economies of Scale
Value to User
Virtuous
cycle
Vicious
cycle
Number of Compatible Users
© Sakari Luukkainen
TMitTI 17
Networks and Positive Feedback
• Increasing returns to scale (economies of scale) exist
when the cost per unit decreases as more units of the
good are produced.
• Recently, the term "increasing returns to scale" has
been used to describe more generally a situation
where the net value of the last produced unit [= (€
amount consumers are willing to pay for the last unit) (average per unit cost of production)] increases with
the number of units produced. This effect can be
called also demand side of economies of scale.
© Sakari Luukkainen
TMitTI 18
Networks and Positive Feedback
• A network exhibits network externalities when the
value of a subscription to the network is higher
when the network has more subscribers.
• Metcalfe´s law: n * (n-1) = n2 – n
• Dominant design is a technology that wins the
allegiance of the market place, it usually takes the
form of a new product (or a set of features)
synthesized from individual technological
innovations introduced independently in prior
product variants
© Sakari Luukkainen
TMitTI 19
Networks and Positive Feedback
• Virtual Network is a collection of compatible goods (that
share a common technical platform).
• In a virtual network network externalities arise because
larger sales of component A induce larger availability of
complementary components B1, ..., Bn, thereby increasing
the value of component A. The increased value of
component A results in further positive feedback.
• For example, all VHS video players, cassettes and
accessories make up a virtual network. Similarly, all
computers running Windows or mobile phones and their
accessories can be thought of as a virtual network.
© Sakari Luukkainen
TMitTI 20
Compatibility
Performance vs Compatibility
Evolution
Improved
Design or
adapters
Revolution
Performance
© Sakari Luukkainen
TMitTI 21
Your Share of Industry Value
Openness vs Control
Proprietary
Optimum
Your Reward
Open
Total Value Added to Industry
© Sakari Luukkainen
TMitTI 22
Mobile market in Finland
• Saturation of mobile
subscriptions was reached
quite early on in Finland
• Currently only slow to
moderate growth in both fixed
and mobile telecommunications
100
90
Percent of homes with mobile phones
• During the 1990s Finland was
the forerunner in mobile voice
and SMS
• In new mobile data services
not any more clear forerunner
position
80
70
60
50
40
30
20
10
0
1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Source: Ficom 2003
© Sakari Luukkainen
TMitTI 23
Categorization of industry actors
• Network operators
• Traditional companies that have gradually built their
infrastructure
• All mobile traffic still passes through their infrastructure,
regardless of new service providers
• Service providers
• Traditional telecommunications service providers +
diverse competitors
• Branding partners
• Outside partners that lend their brand name to service
providers
© Sakari Luukkainen
TMitTI 24
Current actors
Network
Service
Brand
TeliaSonera
TeliaSonera
Hesburger
Saunalahti
Passeli
Globetel
ACN Finland
Finnetcom
NetFonet
CDF Mobile
Radiolinja Origo
Radiolinja
Cubio
Tele2
MTV3
Song Networks
Kolumbus
Finnet Verkot
DNA
Fujitsu Services
PGOne
GoMobile
Wireless
Maingate
© Sakari Luukkainen
TMitTI 25
Recent developments
• The most significant development (25.7.2003): the
introduction of the number portability arrangement in order
to reduce switching cost
• Makes number portability easy for subscribers
• Increased competition has resulted in declining user
loyalty and increased customer churn
• Diverse new entrants (MVNO) have emerged (full control
over SIM cards, branding, marketing, billing and customer
care, might have own CC, MSC, HLR, IN)
• Finnish authorities have intervened to guarantee equal
network usage fees to all competitors
• At the beginning of March 2004 network operators cut their
fees by approximately 30%
© Sakari Luukkainen
TMitTI 26
Competition
• After introduction phase much of the competition has been
and continues to be price-based
• Aggressive discounts in the form of free calls have been
offered to new subscribers
• These discounts make it hard or even impossible for service
providers to recover initial costs from new subscribers,
especially with increased customer churn
• Costs of getting new subscriber is 370 €, with 7 € margin
pay back time is 4,4 years (Brummer 2004)
• Corporate customers have been able to renegotiate their
contracts
Source: Kohonen 2004
© Sakari Luukkainen
TMitTI 27
Competition
• Campaigns are timed at the
end and beginning of the
school semester and before
Christmas
160000
140000
• Also the launch of the
number portability
arrangement was followed by
aggressive campaigns
Ported numbers
120000
100000
80000
60000
40000
• The significant number of
portings in February is mostly
from ACN
20000
0
8/03
9/03
10/03
11/03
12/03
1/04
2/04
Month
Source: Numpac 2003
© Sakari Luukkainen
TMitTI 28
Competition
• Aggressive campaigns are only effective with a specific
customer segment (under 30 age group)
• As this segment is more likely to churn, long term profits
from these customers are hard to earn
• More traditional service providers may be able to keep their
most profitable customers
• Customers that value the image and reliability of their
provider
• Customers that use more services and also new
services
• These customers can be developed further
• However scarce competition through differentiation
Source: Kohonen 2004
© Sakari Luukkainen
TMitTI 29
Service offerings
• Post-paid services have always been dominant in Finland
• Only 5% market share for pre-paid, compare with over 80%
in some European countries and 50% in Sweden
• Pre-paid likely to become more popular
• Currently mobile data services create only few procents of
operators revenues (disappointment in WAP, low GPRS
usage etc.)
• Increasing importance of content services
© Sakari Luukkainen
TMitTI 30
Mobile content economics
Capacity
needed
Value/price to
enduser
Value for operator (€/MB)
SMS
160 bytes
0,14 € / message
875
MMS
30 kB
0,39 € / message
13
Voice
16 kb/s
0,12 € / min
1
115-348 kb/s
1 € / MB
(ADSL 35 € / month)
1
Music
streaming
128 kb/s
0,5 € / min
0,5
Video
streaming
384 kb/s
1 € / min
0,35
GPRS Internet
access
© Sakari Luukkainen
TMitTI 31
Future projections
• Price competition will have to settle down in the long term
• New offerings to target niche customers
• Rationalization of customer service -> move to Internet
based customer service
• Rationalization of sales channels -> subscriptions no longer
sold through specialized sales points
• Bundling of equipment, subscription and services may be
possible
• Bundling could help 3G adoption rates
• 3G will need a boost completely new services
Source: Kohonen 2004
© Sakari Luukkainen