weiss@scerleton

1. TTMG 5101Integrated Product DevelopmentSession 10: August 7Summer 2008 weiss@sce.carleton.ca 1

2. Objective • Upon completion of this class, you will know about: • Product and technology evolution • Selective revealing • And you will be able to: • Suggest ways to escape commoditization of products • Analyze the evolution of technologies weiss@sce.carleton.ca 2

3. Agenda • Assignments • Escaping commoditization • Technology evolution • From products to services • Selective revealing weiss@sce.carleton.ca 3

4. 1. Assignments • Final presentation of assignment 1 on August 11: slides due on August 10, 6 pm • Report is due on August 11, 6 pm • Final presentation of assignment 2 on August 13: present on how you addressed comments • Paper is due on August 13, 6 pm weiss@sce.carleton.ca 4

5. Readings • Matthyssens, P., and Vandenbempt, K. (2008), Moving from basic offerings to value-added solutions: Strategies, barriers and alignment, Industrial Marketing Management, 37, 312-328 • Adomavicus, G., Brockstedt, J., Gupta, A., and Kauffman, R. (2007), Technology role and paths of influence in ecosystem model of technology evolution, Information Technology and Management, 8(2), 185-202 • Cusumano, M., The Changing Software Business: Moving from Products to Services, IEEE Computer, 20-28, January, 2008 • Henkel, J. (2006), Selective revealing in open innovation processes: The case of embedded Linux, Research Policy, 35, 953-969 weiss@sce.carleton.ca 5

6. 2. Escaping commoditization • Commoditization erodes competitive differentiation and deteriorates financial performance • Escape commoditization by moving from commodity product offers to non-price-based value offers • Commoditization drivers: standardization, growing customer experience, and imitation by rivals • Industry challenge: companies in the value chain need to align their (antagonistic) approaches weiss@sce.carleton.ca 6

7. Value-added solutions High Technical application integration Low Low High Business process integration weiss@sce.carleton.ca 7

8. Key processes • External and internal alignment • Value creating network view instead of focusing on price: initiating supplier to shape its network • Incremental change and incremental alignment (giving partners time to learn and grow) weiss@sce.carleton.ca 8

9. 3. Technology evolution • We cannot consider technologies in isolation in the analysis of innovation and technology evolution • Technology evolution best viewed as an ecosystem around focal technology and context of use • Roles technologies play: components, products/applications, support/infrastructure • Need to examine interactions between technology roles over time: paths of influence weiss@sce.carleton.ca 9

10. Technology ecosystem weiss@sce.carleton.ca 10

11. Paths of influence weiss@sce.carleton.ca 11

12. 4. From products to services • Shift of revenue from products to services (eg maintenance payments): service revenues exceed product revenues in some cases (eg Oracle) • New business models: eg web-based enterprise software, with new pricing models: eg subscription fees, advertising, transactions, open source • New delivery models: remote, local server, appliance • Equilibrium: more service revenues from existing customers, but products still significant weiss@sce.carleton.ca 12

13. Profiting from services • While profit margins for services is lower than that for products, they can contribute positively to profit Maintenance contracts up to 20% of product price Revenue from services Dedicated IT services weiss@sce.carleton.ca 13

14. Challenges • Identify best mix of product and service revenues • “Servitize” products (create services that add value and differentiation to products) • Services make products less commodity-like, and provide sources of new revenue and profits (see earlier) • “Productize” services (deliver them more efficiently): reuse, tools, processes, and automate services • Insight: fully automated services like products: should be able to generate same level of gross margins (remember that main difference between products and services was labor intensity) weiss@sce.carleton.ca 14

15. 5. Selective revealing • Case study of embedded Linux development • Companies contribute many of their developments back in exchange for informal collaboration • Such openness entails challenge of protecting IP, which is addressed by selective revealing • On average, companies reveal 1/2 of the code they develop for Linux, but strongly heterogeneous across companies (sigma of 35%, min 1%, max 100%) weiss@sce.carleton.ca 15

16. Findings • Share of code a firm reveals is larger ... • H1 ... the smaller the firm • H2 ... if firm policy encourages revealing (NOT) • H3 ... if firm policy does not restrict sharing (PARTIAL) • H4 ... if firm has proprietary complements (PARTIAL) • H5 ... the longer the firm has been developing Linux • H6 ... the more important a) development support, b) marketing (NOT), c) reputation, and d) GPL (NOT) weiss@sce.carleton.ca 16

17. Protecting IP • GPL requires that code derived from GPL-ed software must be made available to all receivers of the software, ie any buyer of a devices with embedded Linux is entitled to obtain the source code • Companies can decide to reveal code only to their customers, if work is commissioned • Even when selling to mass market, companies can delay and restrict diffusion by revealing code only on demand, and without active support • GPL by itself not explanation of voluntary revealing weiss@sce.carleton.ca 17

18. Background: Licenses weiss@sce.carleton.ca 18