Complements

A complement to one product or service
is any other product or service that
makes the first one more attractive
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Classic Example:
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Computer hardware and software

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Window 95 is far more valuable on a
Pentium-powered machine than on a 486
machine
Pentium chip is far more valuable to
someone who has Window 95 than to
someone who doesn’t
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Other Examples
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Hot dogs and mustard
Cars and auto loans
TVs and Videocassette recorders
TV shows and TV Guide
Fax machines and phone lines
Digital Cameras and color printers
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Complements to Cars



Paved roads
 In 1913 General Motors, Hudson, Packard, and
Willys-lights, set up the Lincoln Highway
Association to catalyze development of America’s
first coast-to-coast highway
Auto loans
 Automobile credit companies provide better and
cheaper access to car financing
 General Motors created General Motors
Acceptance Corporation in 1919
 Ford Motors formed Ford Motor Credit in 1959
Auto insurances
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Missing Complements
– Failure of some businesses

Alfa Romeo and Fiat

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Lack of spare parts and qualified
mechanics
Sony Betamax videocasette recorder

Lack of rental movies in the Betamax
format
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Intel

According to Andy Grove: "Microsoft doesn't
share the same sense of urgency (to come up
with an improved PC). The typical PC doesn't
push the limits of our microprocessors. . . .
It's simply not as good as it should be, and
that's not good for our customers."
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
If software applications don't push the limits of
existing microprocessor chips, then Grove has to
find something else that will. Otherwise, his
customers won't feel the continued need to
upgrade. If they don't keep upgrading, not only
will the market become saturated but the other
chip
manufacturersAMD,
Cyrix,
and
NexGenwill be able to catch up.
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Intel

This is not a new problem for Intel; processing
capabilities have always led the software
applications. For example, although 32-bit
processing has been a technological reality since
1985, Microsoft's first 32-bit processing
systemWindows NTdidn't appear until 1993.
Intel has always been on the lookout for
applications requiring massive processing
capabilities.
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New Modes of Competition

Grove (1996) contrasts the “vertical
structure” of the “old” computer
industry to the “horizontal structure of
the “new” one
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New Modes of Competition
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Vertical structure means vertically
integrated suppliers
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e.g. IBM’s mainframe business
Customers face full-service, all products
vendor
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New Modes of Competition

Horizontal structure is characterized by
specialized firms
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e.g. PC business
Customers may mix and match from a
wide variety of vendors
A computer platform is a shared, stable
set of hardware, software, and
networking technologies on which users
build and run computer applications
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New Modes of Competition
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A number of firms supply, in the short run,
and invent, in the long run, platform
components
Strategically, firms in different layers share
common customers, they have strong
reasons to cooperate. At the same time,
they have incentive to grab the rents of
firms in another layer.
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With the popular usage of the Internet (in particular
emails and the WWW) and the emergence of new
Internet-based applications, the vertically related
components and layers quickly expanded. The main
layers and structures of the computing industry as of
the end of the 1990s are given in Figure 3 (taken
from a paper written by Timothy Bresnahan of
Stanford University).
Notice the presence of
Microsoft in many different layers.
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Client Applications
Client OS
Browser
Clinet System
Client Microprocessor
Distributed Technologies
Distribution & Fulfillment
Network Access
Internetworking OS
LAN OS
Server OS
Server DBMS
Server System
Groupware
Custom Software
Enterprise Systems
Serivce & Support
MS Office
Windows
IE, Navigator
Dell, IBM, Compaq
Intel
DCOM, Corba, JAVA-RMI
Dell, Compaq
AOL, ISPs, MSN
CISCO
Novell, Windows NT
UNIX, 3090, Windows NT
Oracle 8, DB2, MS SQL- Server
HP, SUN, IBM, Windows NT
Notes, Many
EDS, Perot Systems, Andersen
SAP, Bann, Peoplesoft
IBM (ISSC), Compaq, HP
Figure 3. Major Horizontal Layers in Networked Computing.
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New Modes of Competition
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Divided technical leadership
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the supply of key platform components by
multiple firms
No single vertically integrated firm with
control over direction of a platform
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New Modes of Competition
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Divided technical leadership enhances
competition for control of a platform
(Vertical Competition)

Technically, there are no given and exogenous
boundaries between the layers. Similar
technical capabilities enable firms to take over
functions performed by others.
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New Modes of Competition
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Divided technical leadership offers two
kinds of vertical competition:
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Within an era, there are constant border
wars at the boundaries between layers
The other suppliers in a platform provide a
stock of ready and able entrants to trigger
epochal competition
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