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Network Economies

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

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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?

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