Professor Charles Fine Co-Director, Communications Futures Program Massachusetts Institute of Technology Cambridge, Mass

1. Thoughts on Value Chain Dynamics and P2P Networking Professor Charles Fine Co-Director, Communications Futures Program Massachusetts Institute of Technology Cambridge, Massachusetts 02142 January 2008 charley@mit.edu http://cfp.mit.edu Tel: 1-617-253-3632, Fax: 1-617-253-6720

2. End User “Peers” • Interact • “real time” communication • (or asymmetric or near RT) voice, email, IM, some games • Social networking • Facebook, etc. • Some gaming environments • (e.g., 2nd Life) • Consume content (push vs pull) • Downloads • Broadcast • On Demand • Publish content • Individual end users • For-profit • Advertise • “The Network” provides the “pipes” that enable my utility/consumption. • I want easy-to-use, low cost and probably end-to-end simplicity Transport “Peers” • ISPs • Carriers • Concerned with ROI • “The Network” is my business. • I want to monetize my pipes. P2P: Who are peers? What do they do?

3. Aggregators/platforms/frameworks End User Peers • Interact • “real time” communication • (or asymmetric or near RT) voice, email, IM, some games • Social networking • Facebook, etc. • Some gaming environments • (e.g., 2nd Life) • Consume content (push vs pull) • Downloads • Broadcast • On Demand • Publish content • Advertise • “The Network” provides the “pipes” that enable my utility/consumption. • I want easy-to-use, low cost and probably end-to-end simplicity Transport Peers • ISPs • Carriers • Concerned with ROI • “The Network” is my business. • I want to monetize my pipes? • Provide environments that support end-user utility, usually using Transport networks • Some not for profit • Gnutella, BitTorrent, • Some for profit • Google, eBay, Facebook, Akamai, Skype • Corporations, Universities, etc. What are platforms? What do they do?

4. Aggregators/platforms/frameworks End User Peers • Interact • “real time” communication • (or asymmetric or near RT) voice, email, IM, some games • Social networking • Facebook, etc. • Some gaming environments • (e.g., 2nd Life) • Consume content (push vs pull) • Downloads • Broadcast • On Demand • Publish content • Advertise • “The Network” provides the “pipes” that enable my utility/consumption. • I want easy-to-use, low cost and probably end-to-end simplicity Transport Peers • ISPs • Carriers • Concerned with ROI • “The Network” is my business. • I want to monetize my pipes? • Provide environments that support end-user utility, usually using Transport networks • Some not for profit • Gnutella, BitTorrent, • Some for profit • Google, eBay, Facebook, Akamai, Skype • Corporations, Universities, etc. What are platforms? What do they do? Multi-sided platforms Advertisers buyers sellers Content consumers Content providers eBay google

5. Aggregators/platforms/frameworks End User Peers • Interact • “real time” communication • (or asymmetric or near RT) voice, email, IM, some games • Social networking • Facebook, etc. • Some gaming environments • (e.g., 2nd Life) • Consume content (push vs pull) • Downloads • Broadcast • On Demand • Publish content • Advertise • “The Network” provides the “pipes” that enable my utility/consumption. • I want easy-to-use, low cost and probably end-to-end simplicity Transport Peers • ISPs • Carriers • Concerned with ROI • “The Network” is my business. • I want to monetize my pipes? Who creates value in this chain? Who captures value? Who controls what aspects of the chain? • Provide environments that support end-user utility, usually using Transport networks • Some not for profit • Gnutella, BitTorrent, • Some for profit • Google, eBay, Facebook, Akamai

6. Aggregators/platforms/frameworks End User Peers • Interact • “real time” communication • (or asymmetric or near RT) voice, email, IM, some games • Social networking • Facebook, etc. • Some gaming environments • (e.g., 2nd Life) • Consume content (push vs pull) • Downloads • Broadcast • On Demand • Publish content • Advertise • “The Network” provides the “pipes” that enable my utility/consumption. • I want easy-to-use, low cost and probably end-to-end simplicity Transport Peers • ISPs • Carriers • Concerned with ROI • “The Network” is my business. • I want to monetize my pipes? • Provide environments that support end-user utility, usually using Transport networks • Some not for profit • Gnutella, BitTorrent, • Some for profit • Google, eBay, Facebook, Akamai Corporate Strategy Dynamics What are the dynamic forces that impact his chain? How can we create and assess useful future scenarios? Customer Preference Dynamics Technology & Innovation Dynamics Regulatory Policy Dynamics Industry Structure Dynamics Business Cycle Dynamics Capital Market Dynamics

7. THE DYNAMICS OF PRODUCT ARCHITECTURE, STANDARDS,AND VALUE CHAIN STRUCTURE: “THE DOUBLE HELIX” INTEGRAL PRODUCT VERTICAL INDUSTRY PROPRIETARY STANDARDS MODULAR PRODUCT HORIZONTAL INDUSTRY OPEN STANDARDS NICHE COMPETITORS INNOVATION & TECHNICAL ADVANCES HIGH- DIMENSIONAL COMPLEXITY SUPPLIER MARKET POWER PRESSURE TO DIS-INTEGRATE INCENTIVE TO INTEGRATE ORGANIZATIONAL RIGIDITIES PROPRIETARY SYSTEM PROFITABILITY Examples: IBM, Autos, Embraer/Boeing, Nokia, Small Firms Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”

8. THE DYNAMICS OF CORE & EDGE “THE (third) DOUBLE HELIX” SKYPE NAPSTER I FACEBOOK MSFT VERIZON CENTRALIZED CONTROL VERTICAL INTEGRATION PROPRIETARY STANDARDS OPEN ARCHITECTURES VIBRANT EDGE INCREMENTAL INNOVATION RADICAL INNOVATIONS FRUSTRATION AND SUBTERFUGE AT THE EDGES INNOVATOR MARKET POWER AMAZON YAHOO! GOOGLE APPLE PRESSURE FOR OPENNESS INCENTIVE TO INTEGRATE & LOCK IN ADVANTAGE POLICY TUSSLES PROPRIETARY SYSTEM PROFITABILITY LOBBY WARS (e.g., Net Neutrality) Adapted from Clockspeed by C. Fine, Chapter 4, Perseus Books, 1998.