MGMT 376
Follow-up on adobe case
Hardware Improving and technological ecology Market has grown slowly Adobe e-Book reader 2.0 via Glassbook acquisition Partnered with Barnes & Nobel to jointly release e-Books in PDF only
Factors affecting market entry strategy for start-ups
Market Strategy Tied to Market Structure Technology Shapes Market Structure Others Factors as Well—other cases Network effects, Competition, Legitimation Best Start-up Market Entry Opportunities Punctuated Equilibrium Theory Explains How Does it Work?
Disruptive technology trends have impact
Mobile Applications (GPS in car?) Voice Based Virtual Assistants (libraries) Blockchain (banks) Gene Editing CRISPR (pharmaceuticals) Commercial Drones (delivery trucks) Which Enhance Existing Technology—Which Destroy Incumbent?
open standard
A standard that is publicly available and has various rights to use associated with it, and may also have various properties of how it was designed
What role will hardware devices play in the adoption of e-books?
how e-books could be used, downloaded, printed.
The evolution of technology
increasing return and standard technology
What Lessons from Wikipedia growth pattern were applied?
"Come one come all" philosophy to trust users are good to create the content they want Initially emphasizing content credibility through qualified experts was too slow to develop user base Initial slow growth beneficial as it removed Wikipedia from media scrutiny, allowing room for experimentation & error Needed crowd sourcing & content quantity to achieve first mover advantage in "winner-takes-all" markets (increasing returns theory) Network value grows exponentially with a linear increase in nodes (Granovetter)
Founding of Wikia
2004 founded by Jimmy Wales & Angela Beesley of Wikimedia Foundation Commercial venture focused in web-hosting user-created content known as "wikis." For-profit design with revenue from advertisement New approach to monetization from non-profit sector $4 million venture capital investment, $10 million in series B from Amazon.com Follow-on funding despite high burn rate $10.8 million series C funding in 2012
Epilogue on Wikia
2011 CEO Gil Penchina leaves, Wales remains president: Failure of Wikia Search Insurrection of Wikia communities threatening to take their content to sites without obnoxious advertising 2014 370,000 wikias across verticals of Gaming, Entertainment, & Lifestyle remain three most popular verticals Consistent growth, 30% year over year on web, 347% year over year on mobile 2016 Wikia platform rebranded FANDOM online entertainment media website uses volunteer contributors to produce articles with editorial team on pop culture (300 employees)
Why AMAZON as partner? Was this a good strategy?
Access to Wikia's superior review technology "cracked the code for user generated content" Amazon's core advantage is user created reviews-> consumer trust Popular Wikia gaming verticals correspond to Amazon's inventory—benefits from shared user base, target customers with discretionary income Start-ups are corporate R&D, eye & ears on market, corporate espionage Ward off competitors Great strategic fit on popular verticals, but.... Access to know-how on reviews Could Amazon have gained same by buying advertising? Less risky & capital intensive Wikia's own management had difficulty justifying the sizable investment
How did Wikia approach building user base?
Adopted open source philosophy--assumes people are good; leadership trusted contributors to edit & change contents Had to create content that appealed to content contributors & users & advertisers for brand or sales Broad strategy of thousands of Wikis at finger tips-each time Google spiders, exponential growth
Liability of Newness Decreases with Legitimation
As organizations in a population evolve their products & markets become institutionalized & taken for granted Increasing legitimation increases founding rates & decreases failure rates Question: When will the market emerge? Is start-up/product ahead or behind the market?
Resources to expand verticals
Avoid expanding into areas that require professional knowledge (Average users don't have credibility in these verticals; i.e. WebMD: The Conversation) Avoid areas with potentially negative societal consequences Seed new verticals, then invest only in promising ones on upswing Build on existing verticals that have demonstrated growth and strong performance, e.g., gaming, then entertainment Build on verticals that offer opportunities with corporate partners
Technological standard war (Operating System)
CP/M and DOS (IBM PC) vs. Macintosh Mac-based vs. Linux vs. Windows PC Android vs. iOS
Competition
Competition increases as the number of organizations in a population increases & resources become scarce. Increasing competition decreases founding rates & increases failure rates. Question: Alternative product/services (substitutes)? Alternative ways of organizing (Tesla)?
Obstacles to profitability for Wikia
Content dictated by user market Vertical versus horizontal expansion How to monetize ad space & e-commerce sales Acquisition of content Manage conflicting institutional logics as free encyclopedia user-run community for sharing information versus commercial website
Winner-take all Market, Multiple Standards, Large Enough to Share?
Depends on ... Can publishers & online book sellers supply & support multiple formats cheaply & reliably? Storage inexpensive, but Can give preference, e.g., Amazon/MS deal Will book sellers push for conversion to eliminate confusion to boost sales, e.g., BN.com site Q&A Focus on multimedia & interactive eBooks Relates to Web Publishing division Add more value around PDF Digital right management site to sell eBooks Make PDF creation free
Resource Partitioning Theory
Distinction on width of niche occupied. Symbiosis—Generalists create the market conditions that promote Specialists. Generalist firms feed off of mass markets and free resources for Specialist firms to feed off of niche markets. The higher the concentration, an indication of the presence of Generalists, the better the chances for Specialists. Specialist concentrate their resources in a narrow band & do well when the environment does not change. Generalists concentrate their resources in a wider band & do well when the environment changes Subunit diversification (M-form)
Munificence
Extent to which the industry can support growth Higher munificence places fewer constraints on risk taking, experimentation—mistakes less likely to be fatal E.g., Growth of MS following Windows created flurry of computer purchases as new users found it easier to be productive & to network E.g., Growth of Red Hat following Linux
How to get people to create content for free?
Motivating people to give free content Wikia's ability to tap altruistic & community-based motives conflicts with its profit-focus Need Sensitivity to placement of advertisements—like Military.com & Affinity Labs Incentivize around career concerns & ego gratification (Lerner & Tirole, 2002) Create tools for contributors to construct & reaffirm altruistic, expert, or social identities Highlight the visibility of contribution, impact of effort on performance, correspondence of performance with contributor's talents Reward system to benefit frequent contributors, such as creation of leadership & administrator roles
DISRUPTIVE TECHNOLOGY
Origin: Schumpeter's defense of capitalism Entrepreneur creates new consumers, goods, production methods, markets, organization methods Distinguish invention from innovation Entrepreneur's innovations lead to "gales of *creative destruction" that cause old inventories, ideas, technologies, skills, equipment to become obsolete.*
What about Penchina's management style?
Path dependent: See Wikia through Wikipedia & E-Bay experience E.g., Non-profit vs. profit-making models: broad vs. narrow Business strategy not based on market targets Does not recognize real innovation of tribal community of producers & consumers, therefore does not ideate ways to govern opening content up to the market Trapped in past knowledge corridor Opposite effect when shifting from ideation to managing new venture growth Recall 54% of CEOs are replaced in venture backed companies Penchina's ego & hubris limits absorptive capacity Research shows greater success in management under conditions of conflicting institutional logics when start with clean slate mentality (Batillana & Dorado, 2010)
Technological ferment
Period of uncertainty in which firms experiment with new technologies and try to forecast which technology will be the standard in the industry. Making incorrect prediction has negative consequences.
Fundamentals of Density Dependence: Proxy for legitimation & competition
Predict how density affects founding & disbanding rates of organizations Increases in density decrease carrying capacity of market/industry. Increases in density increase legitimation at decreasing rate. Increases in density increase competition at an increasing rate.
Can you define the key concepts of punctuated equilibrium theory?
Punctuated equilibrium theory Technology evolves incrementally, but is punctuated with fundamental breakthroughs or discontinuities that change market structure. Universal theory from historical observation of technology innovation in 2 manufacturing (cement & computers) and 1 service industry (airline).
6 Arguments for disruptive technology
Technology evolves by interplay of history, entrepreneurs, market demand, chance events. Alternative technologies compete for dominance. Once a dominant design emerges, technological progress is driven by incremental innovations. Early investors in dominant design have larger market shares & benefit from incremental innovation. Technological breakthroughs alter the competitive environment & trigger a period of technological ferment as new technologies are tried & established price/performance ratios are upset & new markets are open. These breakthroughs are competence destroying as disrupt the power structure of incumbent firms in the market. Skills that brought product class leaders to preeminence are rendered obsolete. New firms that are founded to exploit the new technology will gain market share at the expense of incumbent organizations that are bound by tradition, sunk costs, & political commitment to outmoded technology.
Research method
Technology: Identified discontinuities/initiators using real market data in undiversified industries—clear analysis Uncertainty: Ability of industry analysts to predict industry outcome Munificence: Examined mean demand growth Entry and Exit: Flow of market participants around discontinuities Early Adopters: Growth rates of 1st 4 adopters of new technologies
Carrying Capacity of Market/Industry
The number of organizations in a population can sustain in relation to the level of resources in the population, i.e. customers, investors, employees, etc. e.g., unmet demand? Or saturation? Some competitors may be good—to legitimate & if market large can be shared
Which technologies in future are disruptive?
Use feedback from the start-up community & internal venturing units Identify entrepreneurial leaders in domain Comparison is not with old technology because old market Ask right people right questions Not mainstream lead customers, wrong place for testing new ideas Look for disagreements on development of new products and technologies No incentives for finance & marketing people—read minds of technical people
Founders' prior background: John Warnock
* computer science * cofounder of adobe * PHD in electrical engineering *prior work: evans and sutherland, Xerox
Founders' prior background: charles Geschke
* former imaging science laboratory at xerox * phd in computer science * worked for xerox
Key is to distinguish type of technological innovations
*Competence Enhancing* - Builds on existing competencies - Increases the performance of existing products, processes, & services *Competence Destroying* - Requires new competencies - Creates new product classes - Renders existing products & services obsolete
Implications for Entrepreneurs
*Competence Enhancing* - Increases entry barriers - Decreases Munificence - Increase consolidation *Competence Destroying* - Creates new markets - Increases munificence - Lowers barriers of entry - Increases new entrants - Opportunity to alter power structure & competitive advantage of existing firms
To win the standards war should Adobe have focused on eDocs or eBooks? E books. they are trying to disrupt not add
*eDocs* Already strong user base Acrobat extensively used for electronic document creation (most sales) Market is larger $59B VS $30B If separate markets no imperative to fight, as won't be affected by MS Reader format dominating e-Books *E-Books* High potential overlap in markets of content creation, users, reader devices MS office, publishers, authors Users professionals & students read documents & books on same device Reader device software PC, PDAs If overlap eDocs & eBooks tip to the same standard
Where does open source come from?
1. 60-80: programs from universities and research 2. 80- 90: richard stallman: free software foundation 3. 90-today: internet access: more contributors: more alternatives to licensing growth is due to 2 challenges: 1. forking of projects 2. focus on highend users
How did Adobe make money from Postscript, despite it being an open standard?
1. Licensing fees and upgrades - royalty fees 2. developed application software that uses postscript - adobe knew how to make the software 3. sales on fonts - supplied fonts in postscript format
S shaped curve of technology : startup entry and timing
1. Slow Growth 2. Exponential Growth Breakthroughs Dramatic Improvement 3. Slow Growth Opportunity for new firms to emerge * if you enter too early the firm will run out of money before market traction, * if you enter too late another company will capture the market & become the standard
motivates contributors
1. career incentive 2. psychological traits 3. intellectual challenge
how to increase returns in a knowledge-based industries
1. high upfront costs: high R&D * light on resources = low marginal unit cost 2. create network effects from network of users * value increases as volume increases * create complementary technologies and partner 3. customer lockin from the network is important * financial switching costs *intellectual switching costs 4. first-mover advantage * customer acquisition * no loss of opportunity
How to solve the early adopter dilemma
1. target lead users 2. encourage developers of the third party applications 3. developed in house applications, invested in development 4. invested in developing a postscript font library 5. made it easier for print manufacturers to incorporate postscript 6. targeted lead users
Corporate pawning of the adobe case
1. the creation of interpress-language to bring screen image to print 2. Warnock and Geschke founded adobe in 1982 and fustration with Xerox 3. launched postscript in 1984 - device independent anybody could write software 4. adobe partners with apple in 1985 and goes public in 1986
What is OPEN SOURCE?
Access to & refinement of source code by many developers in different locations & organizations. Key components: 1) Free, 2) Collaborative, and 3) Non-restrictive licensing Major Implications: 1) Trust in contributor and 2) Trust in consumer
At the time the case was written, which firm (Adobe or Microsoft) was in a stronger position to control de facto standards in the eBook space? It seems like adobe but Microsoft had brand recognition and MS office. So I'm not sure.
Adobe: - had public content available in PDF format - Stephan King was the first novel to use PDF - partnerships established - PDF is open and MS is not - PDF is superior technology. 70% of publishers archives - acrobat has the first movers advantage: huge installed user base. PDF reader is free. allowed printing of ebooks Microsoft - can bundle reader with operating system - exclusive deals with amazon and others - greater resources and publicity - as second-mover it can imitate and avoids mistakes - can bundle creation of the MS format with office applications - adopted OEB standard
Contents areas to expand pros & cons of narrow wide, which ones?
Broad pro: higher potential profit, brand expansion potential con: high seed cost, may spread too thin Narrow: pro: become the standard and low maintenance costs con: lower potential profits and stagnation
Competence enhancing
Builds on existing know-how & products Older technologies not obsolete Builds position of existing firms in the market
What type of technology discontinuity is likely to lower market entry barriers for start-ups? Why?
Competence-destroying discontinuities break the existing order. Barriers to entry are lowered; new firms enter previously impenetrable markets by *exploiting the new technology* New entrants take advantage of fundamentally different skills and expertise and gain sales at the expense of formerly dominant firms burdened with the legacy
Competence destroying
Creates new product classes with fundamentally different skills and knowledge than existing technology Disrupts incumbent firms' market share Lowers entry barriers
Uncertainty
Extent to which future states can be anticipated (e.g. competitors, production schedules)
A key reason Start-ups Fail
Poor Market Strategy
Liability of Newness
Start-ups have a decreased probability of survival because lack legitimacy, e.g., EV! because routines not institutionalized creates hurdles to adoption higher learning curve (new design) networks not in place (distributors, charging station) technologies not proven (batteries, range anxiety) So less able to compete
How was Postscript established as a de facto standard?
They made it an open standard with the goal of reaching mass adoptors
Technological standard evolution
` CP/M and DOS (IBM PC) vs. Macintosh Mac-based vs. Linux vs. Windows PC Android vs. iOS
Early Adoption Dilemma
derives from the clash between their need to flaunt the innovation they adopted and their desire to preserve their uniqueness by preventing imitation by others * for postscript: they had a lot of developers utilizing the software
Will the eBook market tip toward a common standard or will there be multiple standards?
it seems that there are multiple standards.
Dominant design as market standard
open design - low entry barriers - multiple competing small firms - focus on consumer acquisition and design validation emerging - small number of large firms - development of compatible - lock-in occurs as switching costs occur dominant - convergence on a standard of technology - control of the marketplace - created by 4 factors: 1. chance 2. social trends 3. politics 4. organization
How to identify competence enhancing & destroying entrepreneurial ideas, e.g., technology, service, organization?
present a unique opportunity or threat for individual organizations The superiority of a new technology presents organizations with a stark choice: adapt or face decline
Why AMAZON as partner? Was this a good strategy? pro and cons
see doc there is a pro and con list
Transition to S-curve is almost always by
start-ups An increasing returns industry requires achieving a first mover advantage, partnering with producers of complementary products, & betting aggressively Start-ups tend to perform better before a dominant design has been established Technical standards are created by firm agreement, government action, the technology, & entrepreneurs' strategic action. Establishing a firm's product as the technical standard generates large financial returns to entrepreneurs
Technology
tools, devices, and knowledge that create new products or services
Technology change as a source of entrepreneurial opportunity
¡Diminishing returns - Resource based ¡Increasing returns - knowledge based
Technology Change
—Two types—incremental and discontinuous
Power of scale in fully connected networks: Collective Knowledge
• Open Source Movement • Wikipedia and Network Theory • Node Theory • With each new node exponential growth • Wikipedia's network value. * mapping corona virus ex.) Linux, firefox, java, chrome