Professor Charles Fine Emmanuel Blain Value Chain Dynamics Working Group Communications Futures Program Massachusetts In

1. Communications Industry Report Card: A Value Chain Dynamics Perspective Professor Charles Fine Emmanuel Blain Value Chain Dynamics Working Group Communications Futures Program Massachusetts Institute of Technology May 2009 Telecom Italia Future Centre, Venice charley@mit.edu eblain@MIT.EDU

2. A Simple Value Chain: Sales/Marketing /Distribution Core Technology Suppliers Production Consumers/ Users Subsystem Suppliers Product Concept

3. Innovation along the Value Chain: How (& why) do Autos & Electronics Differ? Sales/Marketing /Distribution Core Technology Suppliers Production Consumers/ Users Subsystem Suppliers Product Concept Lean Production Hybrid Engine, Active Suspension Aluminum Bonding, Carbon Fiber, CAD tools Minivan, SUV, Crossover Add-ons Internet AUTOS iPod, X-Box, Palm, Office, Digital Photog. Mobile Phone Contract Manufacturing Java, Html, C++ Microprocessor, Hard disk drive, Photolithography ELEC- TRONICS Napster, Apple I Amazon, Dell

4. Innovation Dynamics can be RADICAL(disruptive) or INCREMENTAL(sustaining);Technologicalperspective vsIndustryperspective How to measure performance? How to know where you are on the “S”? Where in the value chain? Worse before better? Performance Time

5. Disruptive Process Innovation in Autos vs. Disruptive Product Innovation in Electronics In Electronics: Vacuum tubes to IC’s Mainframes to PC’s Chemical to Digital Photography Wire-line to Wireless Telephony Performance Lean Production Mass Production Automotive Craft Production Time

6. What makes an innovation disruptive? Performance Push an overwhelmingly superior technology/process (mass production, penicillin) Customer Pull new customers care about different measures of performance (wireless phones, personal computers) Organizational Competencies incumbents cannot do what the innovators can (Dell supply chain, Southwest Air)

7. Drivers of Value Chain Dynamics :“Gear Model” for Roadmapping the VC Corporate Strategy Dynamics Regulatory Policy Dynamics Industry Structure Dynamics Technology & Innovation Dynamics Customer Preference Dynamics Business Cycle Dynamics Capital Market Dynamics Gears differ by size/speed Each has an engine & clutch

8. 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

9. A Review of the oIP’s VoIP: Voice communication is alive and well. VoIP is part of the landscape. VoIP, so far, is a sustaining innovation; eBay overpaid for Skype.

10. A Brief Review of the oIP’s 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.

11. THE CASE OF APPLE iPod/iPhone Creative Artists Applications Networks Content Closed then open to non-Apple apps, VOIP over WiFi, IM, etc. Closed to non-MP3, non-Apple formats Closed to non-AT&T (& partner) networks Music Publishers Music Marketing iTunes homepage Music Player Retailing Music Sales iTunes Music Distribution iTunes Listening accessories Music Consumption iPod/ iPhone Open

12. THE CASE OF APPLE iPod/iPhone Creative Artists Applications Networks Content Closed then open to non-Apple apps, VOIP over WiFi, IM, etc. Closed to non-MP3, non-Apple formats Closed to non-AT&T (& partner) networks Music Publishers Music Marketing APP STORE! iTunes homepage Music Player Retailing Music Sales iTunes Music Distribution iTunes Listening accessories Music Consumption iPod/ iPhone Open

13. A Brief Review of the oIP’s 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?

14. A Brief Review of the oIP’s 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?

15. A Brief Review of the oIP’s 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?

16. A Brief Review of the oIP’s 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, . . . ?

17. A Brief Review of the oIP’s 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 . . .

18. Sports over IP: A Dynamic Modeling Perspective Rabid Fans (Live) Casual Fans (Video) Potential Fans

19. + + Fan Creation Rate Rabid Fan Creation Rate Potential Fans + Casual Fans (Video) Rabid Fans (Live) + + Team Popularity + Success Ratio + Number Of Stars

20. + + Fan Creation Rate Potential Fans + Rabid Fan Creation Rate Casual Fans (Video) Rabid Fans (Live) + + Team Popularity + + + + Demand For Live Performances Demand For Video Content Success Ratio + + Number Of Stars + + + Un-Licensed Internet Over The Air Cable TV Licensed Internet

21. + + Fan Creation Rate Potential Fans + Rabid Fan Creation Rate Casual Fans (Video) Rabid Fans (Live) + + Team Popularity + + + + Demand For Live Performances Demand For Video Content Success Ratio + + Number Of Stars + + + Un-Licensed Internet + Over The Air Cable TV Licensed Internet + + Stadium Prices and Attendance + + Team Revenue +

22. + + Fan Creation Rate Potential Fans + Rabid Fan Creation Rate Casual Fans (Video) + Rabid Fans (Live) + + + + + Team Popularity + + + + Demand For Live Performances Demand For Video Content Success Ratio + + Number Of Stars + + + Un-Licensed Internet + Over The Air Cable TV Licensed Internet + + Stadium Prices and Attendance + + Team Revenue +

23. + + Fan Creation Rate Potential Fans + Rabid Fan Creation Rate Casual Fans (Video) + Rabid Fans (Live) + + + + + Team Popularity + (Local Sports Blackouts) + + - + Demand For Live Performances Demand For Video Content - - - Success Ratio + + Number Of Stars + + + Un-Licensed Internet + Over The Air Cable TV Licensed Internet + + Stadium Prices and Attendance + + Team Revenue +

24. + + Fan Creation Rate Potential Fans + Rabid Fan Creation Rate Casual Fans (Video) + Rabid Fans (Live) + + + + + Team Popularity + + + - + Demand For Live Performances Demand For Video Content - - - Success Ratio + + Number Of Stars + + + Un-Licensed Internet + Over The Air Cable TV Licensed Internet - - - + + Stadium Prices and Attendance + + Team Revenue +

25. + + Fan Creation Rate Potential Fans + Rabid Fan Creation Rate Casual Fans (Video) + Rabid Fans (Live) + + + + + Team Popularity + Internet Innovation + + - + Demand For Live Performances Demand For Video Content - + - - Internet Users Success Ratio + + + Number Of Stars + + + Un-Licensed Internet + Over The Air Cable TV + Licensed Internet - - - - + + + Broadband Demand + + + Stadium Prices and Attendance + + Team Revenue +

26. Conclusions/Observations/Questions • Research: Modeling value dynamics is feasible for the performing 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.