TMitTI 1 © Sakari Luukkainen Timetable 16.9. Introduction, Sakari Luukkainen 23.9. Technology...

© Sakari Luukkainen

TMitTI 1

Timetable

16.9. Introduction, Sakari Luukkainen23.9. Technology Marketing, Jari Haggren30.9. Market Dynamics of Telecom Industry, Sakari Luukkainen7.10. Standardization, Sakari Luukkainen14.10. Case GSM, Sakari Luukkainen21.10. Product Strategy, Eino Kivisaari28.10. Product Strategy, Eino Kivisaari4.11. R & D Management, Sakari Luukkainen11.11. R & D Management, Case TeliaSonera, Jyrki Härkki18.11. Corporate Venturing, Case Nokia, Taina Tukiainen25.11 Technology Foresight, Sakari Luukkainen

9.12. Examination


TMitTI 2

Determinants of technology strategy

TechnologyStrategy

TechnicalCapabilities Experience

INTEGRATIVE

MECHANISMS

GENERATIVE

MECHANISMS

StrategicBehaviour

Internal Environment

External Environment

OrganizationalContext

TechnologyEvolution

IndustryContext

Source: Burgelman & Rosenbloom


TMitTI 3

• Market uncertainty (Gaynor)

• Recognizing lock-in (Varian chapter 5)

• Managing lock-in (Varian chapter 6)

• Networks and positive feedback (Varian chapter 7)

• Current mobile market situation in Finland

Content


TMitTI 4

What is market uncertainty

• Market uncertainty relates to the inability of vendors and service providers offering new communications solutions to predict what are the end users needs

• The uncertainty exists partly also because users do not know what they want until they see and use it

• When users are first introduced to new technology they tend to view it in the context of the older technology

• Users needs evolve hiearchically along with the technology evolution as they become more educated about the benefits it provides


TMitTI 5

Market uncertainty and Internet

• A similar phenomen is occuring with the Internet

• Nobody predicted in the early 90´s what Web is today and its impact to society

• Understanding market uncertainty affects directly to R&D

• When Netscape started its development there was extreme uncertainty, it altered the traditional sw development process in a way that allowed taking into account early feedback from users


TMitTI 6

Managing market uncertainty

• The only way to meet uncertain markets is to experiment several ideas and hope at least one will work

• When market uncertainty is high, being lucky with correct guess about the market is likely to produce more revenue than being right in markets with low uncertainty

• In high uncertainty competition is feature based and low price based


TMitTI 7

Recognizing Lock-in

• Investments in varying complementary assets related to the actual ICT investment influence switching costs

• When the switching costs from one brand to another are substantial, customers face lock-in

• Sonera & Radiolinja example: low number of moving customers before portability of telephone number

• iki.fi e-mail solution to reduce switching cost

• Proprietary interfaces vs. open system


TMitTI 8

Recognizing Lock-in

• Existing installed customer base with high switching cost is significantly valuable asset

• Collective switching costs, group pricing of mobile calls

• Total switching cost = costs the customer bears + costs the new supplier bears

• The present discounted value to a supplier of locked-in customer is equal to that customer´s total switching costs, plus the quality or cost advantage of current supplier’s product


TMitTI 9

Contractual commitments Compensatory orliquidated damages

Durable purchases Replacement of equipment

Brand-specific training Learning new system

Information and db Converting data to new format

Specialized suppliers Finding of new supplier

Search costs Learning about quality of altern.

Loyalty programs Lost benefits from existing supplier

Type of Lock-in Switching Costs


TMitTI 10

Managing Lock-in – Customer view

• Bargaining before lock-in taking into account life-cycle cost

• Being aware about whole cost structure before investment decision, e.g. maintenance contracts are typically offered afterwards

• Second sourcing and open systems

• Long view to the next supplier choice situation

• Keeping record about perceived cost structure through life-cycle


TMitTI 11

Managing Lock-in – Supplier view• Investments to build large installed base

• Concentrating on influential customers with high switching costs

• Differential pricing

• Being aware of customer`s timing in brand selection points

• Reselling and bundling of complementary products and long maintenance contracts

• Usage of purchase history of existing customers in the marketing of new products


TMitTI 12

Positive FeedbackM

arke

t S

hare

(%

)

Time

100

50

Winner

Loser

Battle zone


TMitTI 13

Adoption Dynamics

Num

ber

of U

sers

Time

Saturation

Launch

Takeoff

Criticalmass


TMitTI 14

Internet Servers

1991 1993 1995 1997 1999 20010

40

80

120

Source: Koski, H., Rouvinen, P., & Ylä-Anttila, P. (2001)


TMitTI 15

Case: Fax-service

Source: Varian)


TMitTI 16

Demand-side Economies of Scale

Val

ue t

o U

ser

Number of Compatible Users

Virtuouscycle

Viciouscycle


TMitTI 17

Networks and Positive Feedback

• Increasing returns to scale (economies of scale) exist when the cost per unit decreases as more units of the good are produced.

• Recently, the term "increasing returns to scale" has been used to describe more generally a situation where the net value of the last produced unit [= (€ amount consumers are willing to pay for the last unit) - (average per unit cost of production)] increases with the number of units produced. This effect can be called also demand side of economies of scale.


TMitTI 18


• A network exhibits network externalities when the value of a subscription to the network is higher when the network has more subscribers.

• Metcalfe´s law: n * (n-1) = n2 – n

• Dominant design is a technology that wins the allegiance of the market place, it usually takes the form of a new product (or a set of features) synthesized from individual technological innovations introduced independently in prior product variants


TMitTI 19


• Virtual Network is a collection of compatible goods (that share a common technical platform).

• In a virtual network network externalities arise because larger sales of component A induce larger availability of complementary components B1, ..., Bn, thereby increasing the value of component A. The increased value of component A results in further positive feedback.

• For example, all VHS video players, cassettes and accessories make up a virtual network. Similarly, all computers running Windows or mobile phones and their accessories can be thought of as a virtual network.


TMitTI 20

Performance vs Compatibility

Com

patib

ility

Performance

Evolution

Revolution

ImprovedDesign oradapters


TMitTI 21

Openness vs Control

You

r S

hare

of

Indu

stry

Val

ue

Total Value Added to Industry

Proprietary

Open

Your Reward

Optimum


TMitTI 22

Mobile market in Finland

• During the 1990s Finland was the forerunner in mobile voice and SMS

• Saturation of mobile subscriptions was reached quite early on in Finland

• Currently only slow to moderate growth in both fixed and mobile telecommunications

• In new mobile data services not any more clear forerunner position

0

10

20

30

40

50

60

70

80

90

100

1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Per

cen

t o

f h

om

es w

ith

mo

bile

ph

on

es

Source: Ficom 2003


TMitTI 23

Categorization of industry actors

• Network operators• Traditional companies that have gradually built their

infrastructure• All mobile traffic still passes through their infrastructure,

regardless of new service providers

• Service providers• Traditional telecommunications service providers +

diverse competitors

• Branding partners• Outside partners that lend their brand name to service

providers


TMitTI 24

Network Service Brand

TeliaSonera TeliaSonera Hesburger

Saunalahti Passeli

Globetel

ACN Finland

Finnetcom

NetFonet

CDF Mobile

Radiolinja Origo Radiolinja

Cubio

Tele2

MTV3

Song Networks

Kolumbus

Finnet Verkot DNA

Fujitsu Services

PGOne

GoMobile

Wireless

Maingate

Current actors


TMitTI 25

Recent developments

• The most significant development (25.7.2003): the introduction of the number portability arrangement in order to reduce switching cost

• Makes number portability easy for subscribers• Increased competition has resulted in declining user

loyalty and increased customer churn

• Diverse new entrants (MVNO) have emerged (full control over SIM cards, branding, marketing, billing and customer care, might have own CC, MSC, HLR, IN)

• Finnish authorities have intervened to guarantee equal network usage fees to all competitors

• At the beginning of March 2004 network operators cut their fees by approximately 30%


TMitTI 26

Competition

• After introduction phase much of the competition has been and continues to be price-based

• Aggressive discounts in the form of free calls have been offered to new subscribers

• These discounts make it hard or even impossible for service providers to recover initial costs from new subscribers, especially with increased customer churn

• Costs of getting new subscriber is 370 €, with 7 € margin pay back time is 4,4 years (Brummer 2004)

• Corporate customers have been able to renegotiate their contracts

Source: Kohonen 2004


TMitTI 27

Competition

• Campaigns are timed at the end and beginning of the school semester and before Christmas

• Also the launch of the number portability arrangement was followed by aggressive campaigns

• The significant number of portings in February is mostly from ACN

0

20000

40000

60000

80000

100000

120000

140000

160000

8/03 9/03 10/03 11/03 12/03 1/04 2/04

Month

Po

rted

nu

mb

ers

Source: Numpac 2003


TMitTI 28

Competition

• Aggressive campaigns are only effective with a specific customer segment (under 30 age group)

• As this segment is more likely to churn, long term profits from these customers are hard to earn

• More traditional service providers may be able to keep their most profitable customers• Customers that value the image and reliability of their

provider• Customers that use more services and also new services• These customers can be developed further

• However scarce competition through differentiation



TMitTI 29

Service offerings

• Post-paid services have always been dominant in Finland

• Only 5% market share for pre-paid, compare with over 80% in some European countries and 50% in Sweden

• Pre-paid likely to become more popular

• Currently mobile data services create only few procents of operators revenues (disappointment in WAP, low GPRS usage etc.)

• Increasing importance of content services


TMitTI 30

Mobile content economics

Capacity needed

Value/price to enduser

Value for operator (€/MB)

SMS 160 bytes 0,14 € / message 875

MMS 30 kB 0,39 € / message 13

Voice 16 kb/s 0,12 € / min 1

GPRS Internet access 115-348 kb/s

1 € / MB(ADSL 35 € / month) 1

Music streaming 128 kb/s 0,5 € / min 0,5

Video streaming 384 kb/s 1 € / min 0,35


TMitTI 31

Future projections

• Price competition will have to settle down in the long term

• New offerings to target niche customers

• Rationalization of customer service -> move to Internet based customer service

• Rationalization of sales channels -> subscriptions no longer sold through specialized sales points

• Bundling of equipment, subscription and services may be possible

• Bundling could help 3G adoption rates

• 3G will need a boost completely new services


TMitTI 1 © Sakari Luukkainen Timetable 16.9. Introduction, Sakari Luukkainen 23.9. Technology...

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Transcript of TMitTI 1 © Sakari Luukkainen Timetable 16.9. Introduction, Sakari Luukkainen 23.9. Technology...