DISRUPTIVE NATURE OF IT

WHAT IS THE PROBLEM? In 2002, over a billion files where available for sharing

on the internet At its highest there were 50 million hits on Napster a

day! Several artist created their own websites that allowed

customers to download directly from thereby bypassing music companies

Music industry claims that digital file sharing is a clear & present danger to the future of the music industry as we know it.

Declining Revenues over the past 6 years High Employee Turnover and high artist defections to

other companies Only one record sold over 10 million the last 5 years But the problem is not new since there are billions of

illegal CDs being produced in 3rd world companies and other places. The Internet is hitting home because the 14-24 yr old in a developed market is the industry’s target audience and they are the current computer user.

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WHY HAS THE INDUSTRY BEEN SO SLOW TO EMBRACE THE NEW TECHNOLOGIES?

At the beginning they thought it will go away

It was too small to affect their business They thought they can crush it There was conflict of interest with other

units in the organization (Sony & AOL) It was not their core competency so they

allowed others to take the lead (Apple) Government anti-trust regualtions

HOW DO COMPANIES USUALLY RESPOND TO DISRUPTIVE TECHNOLOGIES?

Ignore – RIAA early response Fight – RIAA (Recording Industry

Association of America) lawsuits Straddle (do both separately) –

Bertelsman, B & N Recombine (Try to integrate) – Sony,

Netflix Switching (dropping the old in favor of

new) - Schwab Harvest (new business model) – Apple

WHAT ARE THE TECHNOLOGICAL DEVELOPMENTS THAT DISRUPTED THE RECORDING INDUSTRY

mp3 compression technology Broadband P2P (Person-to-Person) transfer A repository of where the music exists Social Networks & other sites where artists

can reach the consumer directly

WHAT ARE THE CURRENT BUSINESS MODELS ENABLED BY THE INTERNET?

Pay for download (iTunes) Subscription (Napster 2.0) Advertising (Pandora)

VOIP – THE DISMANTLING OF THE TELEPHONE BUSINESS MODEL

Phone

Company

Circuit

Switch

Handling calls using POTS (Plain Old Telephone Service)

CopperLocalLoop

FiberOpticTrunk

CopperLocalLoop

Analog AnalogDigital

Phone

Company

Circuit

Switch

WHAT TECHNOLOGY ENABLED VOIP?

PACKET SWITCHING TECHNOLOGY Change Analog message to Digital Divide digital message into packets of about

1500 characters each Add to each packet a destination and

origination addresses Add to each packet the total number of

packets that the message consists of Add to each packet its sequence number

(important to know the order of the packets to rebuild the message)

Rebuild the message once all packets arrive at destination

Convert Digital message to Analog

Handling calls using VOIP

Gateway A

PBX

Gateway B

PBX

R1R2

R3R4PacketSwitch

PacketSwitch

ADVANTAGES OF VOIP Higher quality sound More efficient use of assets (packet switching

vs. circuit switching) Faster transfer of voice messages Cost Freedom from dependence on location Ability to provide local numbers at any

location Ability to use a single number for all

communication devices Ability to hear emails and read voice

messages Ability to consolidate everything on one bill Ability to consolidate voice & data

communications on one network

DISADVANTAGES OF VOIP

dropped packets (jittery delivery) security support out of business if electricity is out no 911 calling Difficulty to make money off. No barriers to entry

BUSINESS MODELS ENABLED BY VOIP Skype (P2P) – where you do not pay for

calling other Skype users and pay local charges for calling other phone users (Utility Model)

Vonage, Net2Phone, SBC: phone service providers – functions like a regular telephone company – usually has a subscription based fee to handle your monthly telephone needs

LATEST DISRUPTIVE TECHNOLOGY

Siri