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Network Economies

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  1. Network Economies • Generic Strategies • Openness Vs Control • Standards

  2. Generic Strategies

  3. Controlled Migration • New and improved Technology that is compatible with existing technology • Useful strategy if you have domination in your market- Really this is a dynamic form of versioning • Means competitors have to keep playing catch-up • Examples-Intel (Chips), Windows and Most Software

  4. Open Migration • New Product is offered by many vendors and requires little switching costs • Makes sense when your advantage is based on manufacturing • E.g. Fax machines, Televisions, Computers, Printers, etc.

  5. Discontinuity & Performance Play • Introduction of new technology that is incompatible with existing technologies • Difference • Performance Play occurs when the vendor retains strong propriety control • E.g. Iomega and the Zip drive • Does it make sense for Sony to introduce PSII that is incompatible with PSI • Discontinuity occurs when there are multiple suppliers of the same technology. • E.g. Digital cameras, CD audio systems

  6. Openness • Under full openness anybody has the right to make a product complying with the standard (regardless of whether they contributed to the development the standard) • Strategy is critical when no one firm is strong enough to dictate standards • Cautious Strategy • Forsake control of technology to get the “bandwagon” rolling

  7. Openness Examples:- • Unix/open consortium • Netscape • Sun and Java • Morpheus/Napstar • Counterexample- Apple and Mac

  8. Thought • Is openness a viable strategy? • Can you become the standard setter by pursuing an “open strategy”? • Can you make money? • Can you survive?

  9. Standards & the Role of The Government • Typically in America the Government does not pick the standard – railroad gauges, cell phones • Europe has a long history of standard setting

  10. Standards & the Role of The Government • Cell phones as an example* • GSM adopted in Europe since it was technologically superior • Frequencies were given for free to companies that could build networks quickly *source-Santeri Leijola

  11. Current Cell Phone Situation • Apparently Europe is far “ahead” of the US in the cell phone industry • E.g. Per 100 inhabitants Finland, UK, Sweden all have over 70 subscribers, Germany has almost 60. Compare that to the US with 40 subscribers per 100* • In Europe 3G systems have already been employed, and preliminary testing of handsets has began. Basically, 3G will lead to much faster downloads • The US has not set a date for auctioning the 3G spectrum • Asia and Africa have followed Europe’s Lead and deployed GSM Source:http://www.itu.int/ITU-D/ict/statistics/at_glance/cellular00.pdf

  12. Thought • Should governments set standards? • When should they set them? • Do consumers benefit if Standards are set?