role of network externalities and technology in creating

Role of Network Externalities and Technology in Creating Profitable Growth

Knowledge Sharing SessionDr. Ir. Asnan Furinto, MBA

October 27, 2010

The Growth of Network and Technology

• Facebook, Twitter, mobile phones, Blackberry

• No network means the end : pager/beeper, telegram, wesel, Atari p g / p , g , ,video game

• Competition is no longer between companies but between p g pnetworks of companies

• Good quality product and and service is no longer sufficient

• Network of producers, complements, and users

News on Video Game Competition

Battle between Standards

Betamax vs. VHSBlu-ray vs. HD DVD eta a s. S

GSM vs. CDMA PAL vs. Secam vs. NTSC

Interrelationships: Technology, Network, Growth

Technology New Design, New Process, New Basis for Competition

Network Externalities, Alliance, Critical Mass of Innovators and Early Adoptersy p

Profitable Growth Acceptance by certain target markets, build stable industry structure meet the growingbuild stable industry structure, meet the growing expectations and investment of investors and shareholders

Technology: The S Curve

Network

t h ltechnology, network, and profitable growth (?)and profitable growth (?)

Three Important Networks

Source: Frels, Shervani and Srivastava, The Integrated Networks Model, Journal of Marketing, January 2003, pg. 32

Interdependence of “Hardware” and “Software”

Direct EffectDirect EffectIndirect Effect

Source: Stremersch, Tellis, Franses and Binken, Indirect Network Effect in New Product Growth, Journal of Marketing, July 2007, pg. 64

Indirect Network Effects

• Supply of software and demand for hardware affect each

otherother

• Demand side indirect network effect: software availability

affects hardware sales

• Supply side indirect network effect: hardware installed base pp y

affects software availability

Take Off Analysis (1)

New launch: 1939 New launch: 1954

Source: Stremersch, Tellis, Franses and Binken, Indirect Network Effect in New Product Growth, Journal of Marketing, July 2007

New launch: 1939Hardware: 1947Software: 1948



New launch: 1983Hardware: 1985

New launch: 1985Hardware: 1990


Hardware: 1985Software: 1988

Hardware: 1990Software: 1988


New launch: 1989 New launch: 1997




Summary of Take Off Analysis


Creating a Secondary Dimension for Competition

Technology opens up new basis of competition.

Plasma, LCD, LED size to compactness to power consumptionD f d b d i h i iData transfer speed to bandwith or connectivityMusic Recording storage capacity to playtime

Wide Area for Innovation : Design, Process

Wide Area for Innovation : Secondary Dimension (?)

Source: WBCSD IEA Cement Technology Roadmap 2009

Market Share and Profitability Growth

Source: Can Uslay, Z. Ayca Altintig, & Robert D.Winsor, An Empirical Examination of the “Rule ofThree”: Strategy Implications for Top Management, Marketers, and Investors, JM, 2010

Industry Structure: The Rule of 3

Source: Can Uslay, Z. Ayca Altintig, & Robert D.Winsor, An Empirical Examination of the “Rule ofThree”: Strategy Implications for Top Management, Marketers, and Investors, JM, 2010

The Rule of 3 in Cement Industry in Indonesia (?)

Source: Asosiasi Semen Indonesia 2008

Lessons Learned from Network and Technology

• We must have good quality product in the first place

• Suppliers customers competitors other companies in theSuppliers, customers, competitors, other companies in the

same industry, or in other industries are all part of networks

d lwe can develop

• “Hardware” and “Software” are interrelated

• Industry structure (Rule of 3) helps determine a company’s

position with regard to investment in developing technology pos t o t ega d to est e t de e op g tec o ogy

and network

role of network externalities and technology in creating

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