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New product development . Internet Time. Need for Rapid product development Market changing constantly HP gets 77% of their revenue from products that were developed within the last two years!!. Why the rush?. Speed buys learning from customers Product life cycles are shrinking
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Internet Time • Need for Rapid product development • Market changing constantly • HP gets 77% of their revenue from products that were developed within the last two years!!
Why the rush? • Speed buys learning from customers • Product life cycles are shrinking • Speed allows you to get better alliances • Speed allows development of plug-ins • Speed increases chances of winning the standard wars
Impact on profits • If you are 6 months early, your profits will be double • If you are 6 months late, you profits will be one third
New product development cycle Concept generation Product design Testing Manufacturing Ramp and release Technology Customer needs
How to speed up the process • Market research on internet time • Modularity in design • Flexibility in development
Two approaches Traditional approach Market Introduction Concept development Implementation Flexible approach Concept development Implementation Time
Modularity in designBaldwin and Clark (1997) Rapid feedback Specification Design Testing Integration Stabilization Time
Design rules • Visible design rules – how modules interact with each other, communicate standards, expected performance • Hidden design parameters – Internal workings of each module
Testing • Alpha testing • Beta testing
Rapid release • Leads to formation of alliances
Standards • Open standards – developed by debate, consensus and voting by official standards body • Fast and wider adoption • More competition • De-facto standard – based on market acceptance • Harder to establish, more profitable
Standards Wars • Microsoft and Real audio • VCR – VHS vs Betamax • DVD vs DivX • North (4’8.5”) vs South (5’) in railroad gauges
Lessons • Incompatibilities can arise almost by accident. Yet persist for many years • Network markets tend to tip towards the leader, unless other players coordinate to act quickly and decisively • Seceding from the standard setting process can leave you in a weak position • A large buyer like the government can tip the balance • Those who lose have to find a way to adapt to or adopt the new standard
Edison versus Westinghouse (DC vs AC) • Edison was first mover • Westinghouse was innovator • Lesson: Innovator can beat the early mover if performance advantage is sufficient and users are not overly entrenched
In network economy.. • Standards are very critical as consumers want compatibility Three outcomes of a standards battle • Truce – 56k modems, Fax machines • Duopoly – Sony and Nintendo • Fight to the death – railroad, VCRs, AC/DC In this war cooperation is beneficial
Open profiling standard – Platform for Privacy Preferences (PPP) developed by World Wide Web consortium. • Secure Electronic Transactions (SET) • Virtual reality modeling language for 3-D viewing in browsers • In all the above cases Microsoft cooperated with Netscape
Type of Standard wars • How large are the switching costs? • How compatible is the new technology with the current technology? • Evolution – minimal switching costs- NTSC • Revolution – new tech not compatible – benefits of new tech should be very high for consumers to incur switching costs • Rival evolutions – compatible with old tech but not with each other DVD and DivX
Rival technology Compatible Non compatible Compatible Evolution versus revolution Rival evolutions Your technology Revolution versus evolution Rival revolutions Not compatible