Professor Charles FineEmmanuel Blain

Value Chain Dynamics Working GroupCommunications Futures Program

Massachusetts Institute of Technology

May 2009Telecom Italia Future Centre, Venice

charley@mit.edu eblain@MIT.EDU

Communications Industry Report Card:

A Value Chain Dynamics Perspective

A Simple Value Chain:

Consumers/Users

Sales/Marketing/Distribution

ProductConcept

SubsystemSuppliers

CoreTechnologySuppliers

Production

Innovation along the Value Chain:How (& why) do Autos & Electronics Differ?

Consumers/Users

Sales/Marketing/Distribution

ProductConcept

SubsystemSuppliers

CoreTechnologySuppliers

Add-onsInternetMinivan,SUV,

Crossover

Hybrid Engine,Active

Suspension

Aluminum Bonding,

Carbon Fiber,CAD tools

Production

Lean ProductionAUTOS

Napster,Apple I

Amazon,Dell

iPod, X-Box,Palm,Office,

Digital Photog.Mobile Phone

Java,Html,C++

Microprocessor,Hard disk drive,Photolithography

ContractManufacturingELEC-

TRONICS

Innovation Dynamics can be RADICAL (disruptive) or INCREMENTAL (sustaining);

Technological perspective vs Industry perspective

Per

form

ance

Time

How to measure performance?How to know where you are on the “S”?Where in the value chain?Worse before better?

Disruptive Process Innovation in Autos vs. Disruptive Product Innovation in Electronics

Per

form

ance

Time

Craft Production

Mass Production

Lean Production

In Electronics:

Vacuum tubes to IC’s

Mainframes to PC’s

Chemical to Digital Photography

Wire-line to Wireless Telephony

Automotive

Performance Pushan overwhelmingly superior technology/process(mass production, penicillin)

Customer Pullnew customers care about different measures of performance

(wireless phones, personal computers)

Organizational Competenciesincumbents cannot do what the innovators can

(Dell supply chain, Southwest Air)

What makes an innovation disruptive?

BusinessCycle

Dynamics

Regulatory PolicyDynamics

Corporate StrategyDynamics

IndustryStructureDynamics

CustomerPreferenceDynamics

Drivers of Value Chain Dynamics :“Gear Model” for Roadmapping the VC

CapitalMarketDynamics

Gears differ by size/speedEach has an engine & clutch

Technology& InnovationDynamics

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

A Review of the oIP’s1. VoIP: Voice communication is alive and

well. VoIP is part of the landscape.

VoIP, so far, is a sustaining innovation;

eBay overpaid for Skype.

A Brief Review of the oIP’s1. 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.

Creative Artists

MusicMarketing

MusicDistribution

MusicConsumption

MusicPublishers

MusicSales

iPod/ iPhone

iTunes

iTunes

iTunes homepage

Listening accessories

Open

ContentClosed to non-MP3, non-Apple formats

Networks

Closed to non-AT&T (& partner) networks

ApplicationsClosed then open to non-Apple apps, VOIP over WiFi, IM, etc.

THE CASE OF APPLE iPod/iPhone

MusicPlayer

Retailing

Creative Artists

MusicMarketing

MusicDistribution

MusicConsumption

MusicPublishers

MusicSales

iPod/ iPhone

iTunes

iTunes

iTunes homepage

Listening accessories

Open

ContentClosed to non-MP3, non-Apple formats

Networks

Closed to non-AT&T (& partner) networks

ApplicationsClosed then open to non-Apple apps, VOIP over WiFi, IM, etc.

THE CASE OF APPLE iPod/iPhone

MusicPlayer

Retailing

APP STORE!

A Brief Review of the oIP’s1. 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?

A Brief Review of the oIP’s1. 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?

A Brief Review of the oIP’s1. 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?

A Brief Review of the oIP’s1. 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, . . . ?

A Brief Review of the oIP’s1. 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 . . .

PotentialFans

CasualFans

(Video)

RabidFans(Live)

Sports over IP: A Dynamic Modeling Perspective

PotentialFans

CasualFans(Video

)

RabidFans(Live)

FanCreationRate

Rabid FanCreationRate

TeamPopularity

SuccessRatio

NumberOf Stars

+ +

+

+

+

++

PotentialFans

CasualFans(Video

)

RabidFans(Live)

FanCreationRate

Rabid FanCreationRate

TeamPopularity

SuccessRatio

NumberOf Stars

DemandFor VideoContent

DemandFor Live

Performances

+ +

++++

+

+

++

+ + ++

OverThe Air

CableTV Licensed

Internet

Un-LicensedInternet

PotentialFans

CasualFans(Video

)

RabidFans(Live)

FanCreationRate

Rabid FanCreationRate

TeamPopularity

SuccessRatio

NumberOf Stars

DemandFor VideoContent

DemandFor Live

Performances

+ +

++++

+

+

++

+ + ++

OverThe Air

CableTV Licensed

Internet

Un-LicensedInternet

TeamRevenue

+

+

++

StadiumPrices andAttendance

++

PotentialFans

CasualFans(Video

)

RabidFans(Live)

FanCreationRate

Rabid FanCreationRate

TeamPopularity

SuccessRatio

NumberOf Stars

DemandFor VideoContent

DemandFor Live

Performances

+ +

++++

+

+

++

+ + ++

OverThe Air

CableTV Licensed

Internet

Un-LicensedInternet

TeamRevenue

+

+

++

StadiumPrices andAttendance

++

+ + ++

PotentialFans

CasualFans(Video

)

RabidFans(Live)

FanCreationRate

Rabid FanCreationRate

TeamPopularity

SuccessRatio

NumberOf Stars

DemandFor VideoContent

DemandFor Live

Performances

+ +

++++

+

+

++

+ + ++

OverThe Air

CableTV Licensed

Internet

Un-LicensedInternet

TeamRevenue

+

+

++

StadiumPrices andAttendance

++

+ + ++

-

-- -

(Local Sports

Blackouts)

PotentialFans

CasualFans(Video

)

RabidFans(Live)

FanCreationRate

Rabid FanCreationRate

TeamPopularity

SuccessRatio

NumberOf Stars

DemandFor VideoContent

DemandFor Live

Performances

+ +

++++

+

+

++

+ + ++

OverThe Air

CableTV Licensed

Internet

Un-LicensedInternet

TeamRevenue

+

+

++

StadiumPrices andAttendance

++

+ + ++

-

-- -

- - -

PotentialFans

CasualFans(Video

)

RabidFans(Live)

FanCreationRate

Rabid FanCreationRate

TeamPopularity

SuccessRatio

NumberOf Stars

DemandFor VideoContent

DemandFor Live

Performances

+ +

++++

+

+

++

+ + ++

OverThe Air

CableTV Licensed

Internet

Un-LicensedInternet

TeamRevenue

+

+

++

StadiumPrices andAttendance

++

+ + ++

-

-- -

- - -

InternetInnovation

InternetUsers

BroadbandDemand

+

++

+

+

+-

+

1. Research: Modeling value dynamics is feasible for

theperforming 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 oIP’s 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.

Conclusions/Observations/Questions