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@mit.edu
What is Value Chain Dynamics?
WhatValue
is Value
Chain
Wireless
Network Structure
Mobile Phones
PDAs
Smart Phones
SIM Pads
Controls
LANs
Non-Circuit
Component
Manufacturers
Platform
infrastructure service
Circuit Board
Component
Manufacturers
Service provisioning
Billing Support
Wireless
infrastructure
operator
PSTN/Internet component
manufacturers
Cell switching component
manufacturers
Base Station component
manufacturers
Sw. games
messaging
Voice,browsing, WAP
Photo camera
MP3 player, DVD
Game consoles
Device
Manufacturers
Wireless
network
operator
Device value chain
Network
value chain
Wireless service
provider
Network
Portals and
Access
Providers
Infrastructure
Value chain
Application
Value chain
Network
equipment
Software
application
developer
Dynamics?
Application
Developer
Content
Value chain
Content Provider
Hardware
application
developer
Third party content
Content
Aggregator
User content
Voice and/or
data
consumer
What is Value Chain Dynamics?
Corporate
Strategy
Dynamics
Customer
Preference
Dynamics
Regulatory
Policy
Technology Dynamics Industry
Structure
& Innovation
Dynamics
Dynamics
Gears differ by size/speed
Each has an engine & clutch
Capital
Market
Dynamics
Business
Cycle
Dynamics
4
What is Value Chain Dynamics?
THE DYNAMICS OF PRODUCT ARCHITECTURE,
STANDARDS,AND VALUE CHAIN STRUCTURE:
“THE DOUBLE HELIX”
NICHE
COMPETITORS
INTEGRAL PRODUCT
VERTICAL INDUSTRY
PROPRIETARY STANDARDS
MODULAR PRODUCT
HORIZONTAL INDUSTRY
OPEN STANDARDS
INNOVATION &
TECHNICAL
ADVANCES
HIGHDIMENSIONAL
COMPLEXITY
ORGANIZATIONAL
RIGIDITIES
SUPPLIER
MARKET
POWER
PRESSURE TO
DIS-INTEGRATE
INCENTIVE TO
INTEGRATE
PROPRIETARY
SYSTEM
PROFITABILITY
Examples: IBM, Autos, Embraer/Boeing, Nokia, Small Firms
Fine & Whitney, “Is the Make/Buy Decision Process a Core
5
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
6
Inductive
Diagram Chain
WhatSystem
is Value
+
+
R2
Network
Capacity
+
Price
Competition
Service &
Application
Investment
& Innovation
Network &
Loop
+
+
Technology
& Innovation
Investment
B2
Price
Competition
Loop
Network
Usage
+
Network
Revenue
+
Profits
+
Value/User due
To network effects
User
Population
-
+
Total expected
Benefit to
New adopters
Component
Standardization
& Outsourcing
Terminal
Scale
Economies
Loop
+
Terminal
+ VolumesR4
+
Service &
+
Application Content
Revenues Consumption
R5
Terminal
+
Prices
Content
Provided
For-profit
Content +
Generation
Piracy
Loop
+ Content
InnovationsPiracy
Innovation
Profit
Loop
Opportunities
+
Service &
Application
-
Willingness to pay
By marginal adopter
B1 +
Network
+ + R1 Externalities
Loop
+
Social
+ Customer+
Externalities
Adoption
+
Network Revenue
Per user +
Network
investment
Loop
Market
Saturation
Loop
+
+
R3
New Entrant
& Incumbent
Innovation
in Services
& Applications
Dynamics?
B3
-
R6
Free-Content
Generation
Loop
+
Terminal
Costs
Creative
Artists
THE CASE OF APPLE iPod/iPhone
Applications
Content
Publishers
Closed to nonApple apps;
then explosive
App Store
Growth
Content
Marketing
Networks
Closed to all
but one
carrier per
region; slowly
opening
Open, then
license
Music
closed to
non-MP3,
non-Apple
formats
iTunes
homepage
Content
iTunes
Sales
Listening
accessories
Content
App
Store
iTunes
Content
Distrib.
Retail
Stores
Content & HW iPod/
Consumption iPhone
Media Value Chains:
Sports Over the Air,
On Cable, and On the Internet
But first:
A Brief Review of the oIP’s
1. 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’s
1. VoIP:
2. MoIP:
Voice communication is alive and well.
VoIP is part of the landscape.
VoIP, so far, is a sustaining innovation;
eBay overpaid for Skype.
Music consumers seem pretty happy.
Traditional music companies mildly(?) disrupted,
or, perhaps disrupted in slow motion.
Big opportunity for Apple.
A Brief Review of the oIP’s
1. 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,)
A Brief Review of the oIP’s
1. VoIP:
2. MoIP:
3. TVoIP:
4. NoIP:
Voice communication is alive and well.
VoIP is part of the landscape.
VoIP, so far, is a sustaining innovation;
eBay overpaid for Skype.
Music consumers seem pretty happy.
Traditional music companies mildly(?) disrupted,
or, perhaps disrupted in slow motion.
Big opportunity for Apple.
Trying not to follow music.
In USA, newspapers declining rapidly;
Can bloggers and an army of “volunteers” fill
the gap?
A Brief Review of the oIP’s
1. VoIP:
2. MoIP:
3. TVoIP:
4. NoIP:
5. AoIP:
Voice communication is alive and well.
VoIP is part of the landscape.
VoIP, so far, is a sustaining innovation;
eBay overpaid for Skype.
Music consumers seem pretty happy.
Traditional music companies mildly(?) disrupted,
or, perhaps disrupted in slow motion.
Big opportunity for Apple.
LoTrying not to follow music.
In USA, newspapers declining rapidly;
Can bloggers and an army of “volunteers” fill
the gap?
Is “consumption” of the arts different?
Important distinctions among the arts?
Classical, Contemporary, Performing, . . . ?
A Brief Review of the oIP’s
1. VoIP:
2. MoIP:
3. TVoIP:
4. NoIP:
5. AoIP:
6. SPoiP:
Voice communication is alive and well.
VoIP is part of the landscape.
VoIP, so far, is a sustaining innovation;
eBay overpaid for Skype.
Music consumers seem pretty happy.
Traditional music companies mildly(?) disrupted,
or, perhaps disrupted in slow motion.
Big opportunity for Apple.
Looks to follow music?
In USA, newspapers declining rapidly;
Can bloggers and an army of “volunteers” fill
the gap?
Is “consumption” of the arts different?
Classical, Contemporary, Performing, . . . ?
Museums vs Websites; Venues vs Streaming
Sports as a fast-clockspeed performing art;
Sports/Video Dynamics Model
(work in progress, w/Emmanuel Blain, MIT MS student)
1. 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 oIP’s 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?
All Conclusions are Temporary
Clockspeeds are increasing almost everywhere
Value Chains are changing rapidly
Assessment of
value chain dynamics
Build Strategies
and Roadmaps
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