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20.9. Introduction, Sakari Luukkainen 27.9. Solution Business, Case Sun Microsystems, Topi Talonen 4.10. Market Dynamics of Telecom Industry, Sakari Luukkainen 11.10. Standardization Strategy, Sakari Luukkainen 18.10. Case GSM, Sakari Luukkainen 25.10. R & D Management, Sakari Luukkainen 1.11. Linking Business Thinking with Research, Teppo Paavola 8.11. Product Strategy, Sakari Luukkainen 15.11. Platform Leadership, Sakari Luukkainen 22.11. Case Nokia Symbian Product Platforms, Lea Lahti 29.11 Technology Foresight, Sakari Luukkainen
• Market uncertainty relates to the inability of vendors and service providers offering new communications solutions to predict what are the latent 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 from basic features to more sophisticated ones along with the technology evolution as they become more educated about the benefits it provides
• A similar phenomen has happened 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
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
• The use of distributed architecture in the introduction phase of new communications platform when the market uncertainty is high
• Centralized management structure should then be used in later phases of the cycle when the technology and market is mature
• 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 total switching costs, plus the quality or cost advantage of current supplier’s product
• 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.
• 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
• 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.
• Traditional mobile telecommunications operators operate based on walled garden business model, where applications available to endusers are fully controlled by them
• Voice based walled garden model was extended into data services using WAP protocol
• The reason of failure were low level of relevant applications to endusers parallel with high pricing – low experimentation possibility
• The content providers get in walled garden model less than 50% of revenue compared to i-mode´s semi walled garden model where they get 91%
• Separation of service (MVNO) and network provision will drive service innovation in Europe
• The most significant development (25.7.2003): the introduction of the number portability arrangement by regulator 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%
• Aggressive discounts in the form of free calls have been offered to new subscribers
• Increasing traffic, price elasticy
• 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, still high switching cost, only small churn
• 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, terminal and subscription bundling – high switching cost
• 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 – less expensive• Customers that value the image and reliability of their
provider• Customers that use more services and also new
services
• However scarce competition through differentiation of content services, terminal renewing cycle affects, also mobile service needs develop hierarchically, mainly entertainment applications