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CHAPTER 5 DYNAMICS OF INTERNET BUSINESS MODEL Business is not constant, so as its business model, it has a direct impact This chapter examines the dynamics of business models Who profits from technological change Examine several technological change models Its implication towards Internet business model
WHO PROFITS FROM TECHNOLOGICAL CHANGE Business model = strategy for making money Understand what it takes to make money from technological change Complementary assets model examine.
Complementary Assets Model Complementary assets = capability/ability/ qualification, that the firm needs to exploit the technology (includes brand name, manufacturing, marketing, distribution channel, service, reputation, installed base of products, relationships with clients /suppliers & complementary technologies) Imitability = the extent to which the technology can be copied, substituted by competitors.
Pg 79. complementary assets model table figure 5.2 Imitability = the extent to which the technology can be copied, substituted by competitors. E.g. Internet I II High Imitability III IV Low Freely available/unimportant Tightly held & important Complementary assets
How to use table 5.2 Implications of the internet Internet;easy to imitate, so imitability is high Strategic Implications of Complementary Assets Model Determining One’s Complementary Assets
Strategic Implications of Complementary Assets Model(figure 5.3 pg 81) I II High Imitability III IV Low Freely available/unimportant Tightly held & important Complementary assets
Determining One’s Complementary Assets To determine its complementary assets it must follow these steps: Understand the product-market position it occupies or wants to occupies Understand its value configuration & determine what capabilities other than technology that are critical
Positioning (firm attains /wants to attain)
DEVELOPING THE TECHNOLOGY Developing technology is not easy, the inability of a firm to develop products or services using a new technology is often reason why such firm fail to exploit new technology Models of technological change provide guidance for developing successful technology
MODEL OF TECHNOLOGICAL CHANGE 5 models of technological change provide guidance for developing successful technology Radical versus incremental change Architectural innovation Disruptive change Innovation, value added change Technology life cycle
1. Radical versus incremental change Type of firm that is likely to exploit a technological change is a function of the type of change The change impacts the firm’s product-market position & capabilities
2. Architectural innovation A new design that wants to take advantage of the speed of a much faster processor is an architectural innovation & must consider the changes in the linkages between new processor & other components of the computer architectural innovation model can help explore the potential impact of the Internet on some industries
3. Disruptive change Has 4 characteristics: Create new markets by introducing new kind of product or services New products/services from new technology cost less than existing products/services from old technology Product perform worst at the beginning but catches up & improve itself by fulfilling the needs of consumer Technology are difficult to protect using patents
Disruptive change model e.g. pg 90 figure 5.5 Measure of key performance Attributes A Cost Improvement over the years Meets key performance attributes Meets key performance attributes C B product D demand 0 6 1 2 3 4 5
4. Innovation, value added change The value that a firm offers its customers is a function of the firm’s capabilities & collaboration of its suppliers, customers & complementor DELL VALUE ADDED CHAIN MICROSOFT INTEL SOFTWARE BUNDLE
5. Technology life cycle Used as a framework for understanding the evolving competitive landscape following a technological change According to the model, technology undergone 3 phase.1.fluid2.transitional 3. stable
Figure 5.7 pg 94, Internet Technology Life Cycle GROWTH/ TRANSITIONAL MATURE/ STABLE EMERGING/ FLUID Stable Phase (mature)
Product highly define
Firm’s strategy is to defend its position in the market, & look for next technology
Product & market uncertainty
Confusion among producer & customers on products
Product quality is low & cost/prices high
E.g. auto industry
Standardization took place, common standard for producing product emerge
Reduce the phase of uncertainty for the product
Customer base increase->mass market
SALES Where in the Internet value Network do you want to be
THE “dotcom” BOOM & BURST Should the dotcom bubble & burst have been expected? Who wins in a dotcom vs. Brick-and mortar battle?