(14-Jan) - Class 1 Notes/Study Guide: Introduction to MIS and Course Terms

Disruption - A disruptive innovation is an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology. Disruptive technology - Same as above (something that comes out and disputes the market; not always beneficial e.g., Amazon. Netflix and the newspaper); something that does a job for customers in a way thats cheaper/better than the previous way Microprocessor (aka Semi-Conductor) - an integrated circuit that contains all the functions of a central processing unit of a computer. (computer chips). It's basically the "brains" of the computer.

Study Exercises and Questions

Is technology only to add efficiency and improvement? Please explain the other side of how technology affects the world and business. - Not necessarily. Sometimes technology acts as a disruptor that may negatively affect other businesses i.e. email affecting USPS

disruption increases as pace of innovation increases

Go Google "Moore's Law" and in your own words describe what it means in lay terms.-Essentially number of transistors on integrated circuits doubles every two years with no additional cost OR that the cost of technology decreases with time. However, we could experience the death of Moore's law in the future due to the power necessary to run a computer chip without it overheating as well as a possible end to the amount that these chips can "shrink"and allow for more room on the chip.

(16-Jan) - Class 2 Notes/Study Guide: Innovators Dilemma & Creative Destruction Terms

Innovators Dilemma-When New Technologies Cause Great Firms to Fail, generally referred to as The Innovator's Dilemma, is the most well-known work of the Harvard professor and businessman Clayton Christensen. (i.e. Kodak and the digital camera) HARVARD PROFESSOR INFORMATION IS NOT NECESSARY TO KNOW FOR THE TEST??
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stuck in thinking one way, scared to innovate and try new things, too much concern on current needs <- I dont think this is part of the definition of Innovators Dilemma. Am I wrong to think this?

deciding whether or not to refocus extensive efforts on a revolutionary product that is not guaranteed to market vs continuing sales of a current, successful product Moore's Law- According to Moores Law, the number of transistors on a chip roughly doubles every two years. As a result the scale gets smaller and smaller. For decades, Intel has met this formidable challenge through investments in technology

and manufacturing resulting in the unparalleled silicon expertise that has made Moores Law a reality. It has been good for businesses to know that although they cannot create some new technology today, in 2 (or more) years it could be possible.

Semi-Conductor- An integrated circuit or other electronic component containing a semiconductor as a base material. Look above to microprocessor. Continuity- When corporations remain essentially the same without adapting to changing markets. Focus is on operations. Discontinuity- when corporations change/adapt and even sometimes scrap ideas, allowing them to innovate and stay on the cutting edge. Focus is on creation, strategy-based, and destruction. Most businesses run on the idea that markets are run on continuity, which is both unrealistic and a good reason why most businesses will fail. However, with the adoption of discontinuity and chaos as the.marketplace, businesses can adapt and have many strategies and be successful. Market Capitalization- The total dollar market value of all of a company's outstanding shares. Cannibalization- When a company creates a new product that hinders (or eats away at) the sales or consumption of the same companys older product which can negatively impact profitability. Example: The iPad cannibalizes against some Macs. Since the release of the iPad, more people are buying that instead of laptop or desktop computers by Apple. Cultural Lock-in- the inability to change the corporate culture even in the face of clear market threats. Also locking in customers to the culture and products of a company so that they don't use the substitute products of another company. Mental Models- A hidden sense of rules predicting cause and effect relationships in a corporation that are difficult to change once formed aka the core concepts of corporation, the beliefs and assumptions, the cause and effect relationships, the guidelines for interpreting language and signals, the stories repeated within the corporate wall.

Study Exercises and Questions

How can you define the Innovator's Dilemma by using an example besides Kodak? What does it mean for companies in terms of how that prepare for their future strategy? Companies should be discontinuous in their approach to change; always creating new ideas while destroying old ones. Its also important sometimes to take risks, creating a market that was never there. Those that are left unchanged, carrying on existing operations, will develop a culture of lock-in and cripple the company. Another example: Nokia was the first company to create a touch screen LCD smart-phone about three years before the first iPhone was released. Because the phone wasnt successful from the beginning, Nokia decided against spending its resources to further develop and market the device. As a result, Nokia isnt associated with the word smartphone and struggled to compete against Apple and Google in the mobile phone industry. Because of this, Nokia had to sell its mobile phone division to Microsoft making their claim to fame someone elses. Blockbuster did not innovate to the changing market that was moving

towards online movies/streaming, Tylenol only doing one thing (making simple medication) and not changing, learning at actual universities when compared to online universities. Companies have to utilize discontinuity and change to remain on the cutting edge i.e. Apple Explain the driving forces behind discontinuity and what that means for long-term survival of a company? How were companies in the earlier part of the 20th century built and manage change? The driving forces of discontinuity are the rapidly changing world and market. This means that companies that dont change, innovate, or adapt will likely not survive for a long period of time. Companies were in business to transform raw materials into final products, to avoid the high cost of interaction. They really werent built for change they were designed to essentially make a pro fit and keep doing what they had been doing for years. Companies in the earlier part of the 20 century had an average turnover rate of 1.5% per year, meaning that a new company could expect to remain on the S&P list for 65 years. Discontinuity is seen by the ever increasingly high turnover rate that by 2020, the average lifetime of a corporation on the S&P will shorten to 10 years. Age of Discontinuity driven by: Increasing efficiency of business Increasing efficiency of capital markets The rise in national liquidity/marketability towards US entities Strengthened fiscal management by the federal government In order to survive, companies must be masters of creative destruction built for discontinuity
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How do cultural lock-in and people's mental models prevent a company from being innovative or moving towards progress? What does this have to do with the fear of cannibalization? In your opinion, could the iPad cannibalize Macbook sales and is that reason to stop making either? Cultural lock in and mental models prevent a company from being innovative by encouraging companies to stay the course and continue just as they had been without change. This often stems from fear of cannibalizing ones profit making product with a new innovative product that may or may not make money. Businesses also tend to think that because they are successful now with a good consumer base, why change? o Mental models manifest themselves in corporate control systems which depend on convergent thinking (focus on clear problems and provides wellknown solutions; discourages creativity) o Discontinuity thrives on divergent thinking (focus on context of decision making) What is Moores Law, what are different ways to state it, and how is it the basis for the increasing pace of innovation over time? Also how does this correlate to the trending of the average life of a company on the SP500? How does this relate to the topic of disruption? How does this relate to where were at in the evolution of our economy (note % breakup of SP500 and how current economy affects past phases of the economy? The number of transistors per square inch on integrated circuits had doubled every two years (~18 months) since the integrated circuit was invented. Most things that use computer chips are essentially becoming cheaper and more available because of the fast pace of innovation and decline in price. This correlates to the average life of an SP500 because the pace of innovation is so fast.

Companies that do not change/adapt fall from grace. The pace on innovative technology and the decreasing prices may double GDP and drastically decrease costs. This relates to disruption because technologies are becoming faster, more complex etc and new things are being created everyday things like the iphone that envelop and disrupt things like the camera and mp3 business.

How is the economics of the semi-conductor industry unlike analog or physical product industries? Note cost/performance relation but also discuss other concepts like rate of adoption, investment in IT trends, evolution of big data and metrics, and how Moores law relates to transmission speeds and storage. Semi-conductors (or microprocessors) are physical hardware. However, its unlike other physical products because without the other pieces of hardware (made by that company or another), it cannot be used, and without it, the other pieces of hardware are virtually useless. They are so very inexpensive compared to other innovations with this importance/power. Moores law makes it so that these processors can yield higher amounts of power with the same amount of space (and the same price as the one previously).
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Semi-conductors/microprocessors are exponentially increasing in performance while decreasing in cost over time Moores law also similarly relates to transmission speeds and storage because they are also increasing at exponential rates

-Even though IT price is going down, more people are investing in it every year.

(21-Jan) - Class 3 Notes/Study Guide: Complex Adaptive Systems Theory (CAST) World and Market keep changing Terms

Prediction Markets- where a diverse crowd is polled and opinions aggregated to form a forecast of an eventual outcome; oftentimes more accurate than expert forecasts/estimates stock market.
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Least accurate when participants are highly similar

Wisdom of Crowds- a group of individuals (untrained amateurs), collectively have more insight than a single or small group of trained professionals. Can more accurately predict consumer wants than a small group of experts. Example: Best buy employees more accurately predicted gift card sales than the experts hired by best buy. (This is also an example of bottom-up leadership) Path Dependence- small, random changes can lead to radically different outcomes (butterfly effect) Punctuated Equilibrium - Long periods of relatively stable environments followed by short, sudden periods of intense change. Emergence - Interaction between other agents. For example, the ant colony It is the way complex systems arise due to multiple simple interactions; the whole is greater than the sum of its parts Cognitive Diversity- in a business, it is optimal to have a large group of cognitively diverse people (people with different views and ideas on a variety of topics) in order to be successful in a constantly changing marketplace. Crowdsourcing: act of taking a job traditionally performed by a designated agent and outsourcing it to an undefined, generally large group of people in the form of an open call Complex adaptive systems- A framework theory for business thinking and problem solving. A dynamic network of many agents which may represent cells, species, individuals, firms, nations acting in parallel constantly acting and reacting to what the other agents are doing.

Study Exercises and Questions

Explain what a complex adaptive system is by noting the different types of characteristics and examples of how they show themselves in nature, the world, and in business? A complex adaptive system is a system that is made up of many parts, and no one single part/event controls all of it. It is a network of people constantly acting and reacting within the network of business thinking and problem solving. As with the example of the ant hill, the individual ants had their own jobs, which collectively affect the whole. The whole is greater than the sum of the parts. The three characteristics = heterogeneous agents, interaction, and emergence Why did Harvard write a case about the Fire at Mann Gulch? What mental models can we draw from in terms of "fighting fires" in business, control, equilibrium, and also about the type of leadership that thrives in chaos. It was an example of mental models under pressure. People fight fires everyday, but everyone responds differently. Instead of trying to outrun the fires, people should

adapt to survive change/stress. People who are willing to think towards the everchanging environment are most likely to survive.

What is the concept of "wisdom of crowds" or "group brain" about? How does something like Wikipedia apply when talking about this concept? What is a way that businesses today utilize crowdsourcing to gain advantage? Wisdom of crowds talks about how a group of amateurs are smarter/can bring more info to the table than an expert or two because of diverse personal experiences. Wikipedia is an excellent example because anyone can edit it. While it is looked down upon because of this factor, there seems to be a majority who really cares that correct info is on there, so the majority of the time Wikipedia seems to be put together well. Businesses can use crowdsourcing to their advantage by seeing what the people want to see from their business, or to predict sales, successful products, etc. How does diversity play a role in dealing with complexity and specifically what kind of diversity are we speaking of? Diversity is a key to crowdsourcing because everyone comes from different backgrounds, altogether having more experiences than an expert. This is referring to cognitive diversity, because even though we tend to want to work with peers that are similar to us and can agree with, it is better to be diverse in mental models to bring about the best collection of info. Explain what it means to manage your business at the "Edge of Chaos?" This means you have to be able to maintain a stable company while trying to find things/solutions for your company for the future.
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Have a structure for your business, but not rely on the structure. Be prepared to tear down structure and be flexible in order to adapt. (a balance of continuity and discontinuity).

(23-Jan) - Class 4 Notes/Study Guide: Business Strategy - Part 1 Robust Adaptive Strategy (RAS)- a strategy that is adaptable and diverse RAS Terms

Bottom-up versus top-down- use cognitive diversity and crowdsourcing to your advantage by asking questions to people only a step or two above you, rather than directly asking the main person/boss of the business. (leadership is bottom up, NOT top down) Fitness Landscape- 3D-ish business maps that shows peaks (successes) and valleys (failures)
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Incorporate the idea of horizons and peaks

Small Experiments- dont have to come up with monumental ideas; tweaking of certain things can bring about big changes.

RAS Study Exercises and Questions

While thinking of the relation between a theory and a strategy explain how RAS relates to CAST. complex adaptive systems is basically all the parts to a system, while RAS suggests the many strategies to be successful in CAST. RAS changes in response to CAS. CAS is a theory (model of how the world works). RAS is strategy (plan, method, series to obtain specific goals or results) Explain what RAS is and how it relates to good strategies of investing in the stock market. Utilize terms like peaks, small experiments, and horizons. Also touch on how and why you find new peaks, explain how horizons fit into a robust strategy, and give an example of how that would relate to an actual business. RAS sacrifices accuracy and efficiency to take the chance to provide more flexibility and a higher probability of success. RAS can predict strategies that can potentially be successes/peaks, and by tweaking little by little, doing small experiments, you can see what strategies lead you down or uphill. The frozen yogurt example, he went over it in the review last night! What are characteristics of Horizon 1, 2, and 3? Which horizon(s) fit into a robust strategy, and give an example of how that would relate to an actual business. 1extend and defend existing business (adaptive walk), 2- initiatives seek to build off existing capabilities to create new businesses (medium jumps), 3- initiatives plant the seeds for future businesses that do not yet exist (long jumps).RAS is mix between all. Peaks usually lead to higher peaks, and valleys lead to lower valleys, but if you try to make a big jump you could potentially miss a peak and land in a deeper valley. Mixing steps increases chances of finding peaks. Microsoft hedging moves while creating diversity. Internet initiative added skills and technologies. Articulate what are arguments against RAS and the counter-argument for RAS? Defend with terms that prove you truly understand what RAS is. -lack of $ rarely an issue -build new competencies -doesnt have to be all or nothing

different trees

-RAS can almost be seen as straddling because you are looking into so many possibilities.

-You simply cant invest in too many different strategies...money doesnt grow on How does diversity play a role creating a population of strategies? Diverse People= Diverse Ideas= Diverse Strategies (28-Jan) - Class 5 Notes/Study Guide: Business Strategy Cont'd (Porter's Models)

Porters Model of Competitive Advantage- strategic positioning must come first and then operational effectiveness can come into play

Strategy and Technology Terms: Operational Effectiveness- Trying to compete against other companies by doing the same tasks in a better way Strategic Positioning- Performing different tasks than rivals; or the same task in a different way Straddling- (low margin storefront and high margin delivery) trying to hold your company in two different businesses Porters Model of Industry Structure (5 Forces) 1) the intensity of rivalry among existing competitors 2) the threat of new entrants 3) the threat of substitute goods or services 4) the bargaining power of buyers 5) the bargaining power of suppliers Cost Focus versus Differentiation- Focus on doing the exact same thing for less vs. changing the product or value chain o Ex. Walmart tries to carry cheap products since theyre always low prices o Target competes more w/Walmart b/c they are more similar than like Neiman Marcus which is differentiated instead of cost focus o Ex. KIA is cost focused, Mercedes is differentiated since it also does motorcycles o Ex. Apple entered the cost focus with iPhone 5C; since they knew some customers cannot afford the other expensive one Scope (Industry Wide or Focused)- Refers to the breadth of activities your business engages in. To give you a simplified example: Company A is basic restaurant business. Company B offers the same services as A, in addition, includes a bar and provides catering services. Then firm B has broader scope of business than firm A. o Industry-wide: variety of products o Focused: one type of product Resource-based view of competitive advantage-Owning a set of exploitable resources that are 1.) Rare 2.) Non substitutable 3.) Non imitatable 4.) Inherently valuable Value Chain- The set of activities through which a product or service is created and delivered to customers. 5 primary components of the value chain and four supporting components. o Inbound logistics o operations o outbound logistics o Marketing and sales o Support Secondary components: firm infrastructure human resource management technology/ research and development procurement

Barriers to Entry -- something that keeps a potential competitor from entering a market and gaining a market share 1) clear product differentiation (need heavy advertising) 2) economies of scale (heavy investment for competitive pricing) 3) restricted access to distribution channels 4) collusion on pricing 5) well established brands 6) fierce competition
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walmart wants to copy amazon, but amazon has built a value chain that allows same day delivery. So the value chain is hard to copy, resulting in a barrier to entry.

Vertical vs Horizontal Integration - Vertical=owning all aspects of production of a product. Horizontal=owning all competitive companies; own less of the value chain so less risk, but also less control. Product Uniqueness vs Process Uniqueness- companies usually focus on one or the other in order to be unique. Product uniqueness- creating something that no one has created and no one can duplicate. Process Uniqueness- creating similar things to those that are already in the market, but making it in a way that no one has before and in a way that it would be hard to imitate. o Product Uniqueness: Apples iPhone o Process Uniqueness: FreshDirects Apple Pie - it is easier to duplicate the product than the process Strategy and Technology Questions and Exercises: What does it mean to say Strategy comes before Technology? How can this guide us from making bad IT decisions and good ones? Also what does it mean to say IT is about strategic business value and use Prada and one other company as an example. Throwing technology at something without a good strategy is not guaranteed to work a. Pradas futuristic dressing rooms and how someone tried to get into the tablet industry but they were both too early and the consumers werent ready for that level of advanced technology There has to be a strategy for getting the consumers to transition before advances in technology can be made. The best product doesnt always win. Another example would be TIVO What are the five forces that affect competitive advantage? Be able to apply the five forces framework to an industry, assessing the competitive landscape and the role of technology in influencing the relative power of rivals, buyers, suppliers, new entrants and substitutes. Also what does it mean for our chances in creating sustainable profits and advantage when the forces in Porters 5 Forces model goes up or down? . Power of Suppliers- if a specific company makes a product that you need they can raise their prices, so it makes it profit friendly(up model)(for them?). Where if the power of the suppliers goes down because there are more companies making the same product then they have to lower their prices. a. Power of buyers: is the influence customers have on a firm's price

b. Threat of substitute products or services- depends if there are alternatives. For example generic meds that are competing with brand names in the pharmaceutical industry. c. Potential for new entrants:The less threat there is from firms entering the industry, the more stable a firms profits are. d. Rivalry among existing competitors: examples are hospitals, Austin is friendly for new arrivals for hospitals because theres a market. But if you were to go to Houston it wouldnt be that friendly because Houston already has many hospitals. If all the forces go up, then the company will have less sustainable profits. How is operational effectiveness different from strategic positioning? Think of examples for both. Also explain why competitive advantage derived from operational effectiveness hard to sustain? (Think Dell) a. Operational is easier to copy because you can have cheaper products compared to strategic positioning where its harder to match like Fresh Direct - unique process. Because Operational is simple other companies can jump on the ideas and produce their own business like HEB and Randals. Why is it hard for companies to be successful by straddling different positions? Think of an example of a company that is straddling and one that choosing not to. . It is harder for them to be innovative and unique if they are in multiple positions. By not straddling companies are able to focus on one product and how to make it different and unique to other products. a. You have to know the market in order to take on straddling, one example is how HEB has chosen not to make deliveries because that would be a different market. The amount they would have to spend to go into online grocery shopping could ruin their in-store model that they have working for them now. BlockBuster tried to straddle the market and failed, unlike Netflix which stuck to one side. Define and diagram the value chain model. What are the main primary functions? What are components or examples of activities that exist within each of the primary

functions?

. a. b. c. d.

Inbound Logistics- are materials and inputs to firm (external info) Operations-inputs into products or service Outbound logistics- delivering to the consumer Marketing and Sales- customer engagement, pricing Service- maintenance and customer support Inbound Logistics Operations Outbound Logistics Marketing and Sales Support Inbound logisticsgetting needed materials and other inputs into the firm from suppliers o Ex. All the activities including communicating with farmers to get the potatoes to the plant Operationsturning inputs into products or services o Ex. How to wash them, peel them, fry them, package them, etc. Outbound logisticsdelivering products or services to consumers, distribution centers, retailers, or other partners o Ex. How you get them out and distribute the product Marketing and salescustomer engagement, pricing, promotion, and transaction o How you market them and get money from it Supportservice, maintenance, and customer support o Managing complaints and customer support

How does competing on product uniqueness versus process uniqueness affect the type of software a company would potentially use, specifically around buying packaged software versus building custom software? A process uniqueness example is FreshDirect. They sell the same products as any other company, but delivery right to the customers door. Process uniqueness would be how one carries out their business, so software would be based on how they get their products to customers. Product uniqueness example is Apple. They dont have time to make their own software, so they spend more time on how different the product could be, but arent as concerned with the software. Custom building your own software would make it hard to copy, creating your own market in that area.

o o o o o o o

What are examples of barriers to entry such as Brand, Distribution Channel, Switching Cost, and Network Effects? Recognize the difference between creating barriers to entry and recognizing low barriers to entry. When are barriers a good thing for you and a bad thing? If you are in industry, barriers to entry are helpful because it weakens potential competition. It is bad for the user if we cant figure out how to use the products. For example, a bad barrier for users would be high switching costs, because if we are so used to one product, we are discouraged from switching. However, if youre trying to enter the market, you dont want high switching costs. You want to lower the switching costs as much as possible so that its easy for people to leave a previous product and switch to you. Brand- hard to compete with a trusted brand Startup shoe company vs. Nike Differentiation- iPhone vs. Nokia Network Effects We use ebay because other people do Facebook would be useless if your friends didnt use it too Would be hard to start new social media Switching Cost Changing from ymail to gmail is high switching cost Patents Nobody else can make Vivance Distribution Channels AT&T convinced you that you didnt need a TiVo Scale- starting a new business may take more money than you have or are willing to bet.

(30-Jan) - Class 6 Notes/Study Guide: Network Effects Network Effects Terms: Metcalfes Law- Network effects. The more users= more value. Value=(users)^2

Exchange- A network becomes more valuable because its users can potentially communicate with more people= creating more value. For example, Movies, music, money, video games, and computer programs. Network Effects- (metcalfes Law or Network externalities). When network effects are present, the value of a product or service increases as the number of users grows. (more users= more value) Two-sided markets- [Are 2-sided markets the same as cross-side exchange?? >> Cross side exchange derives from two-sided markets ] Network markets comprised of two distinct categories of participant, both of which that are needed to deliver value for the network to work (e.g., video game console owners and developers of video games). Staying Power / Lock-in- (long term viability) of a product or service is particularly important for consumers of technology products. Like when you buy a MAC OS, your investment over time greatly exceeds the initial price paid for the operating system. A user invests in learning how to use a system, buying and installing software, entering preference, or other data, creating files all of which mean that if a product isn't supported anymore, much of this investment is lost. Cross-side exchange benefit- When an increase in the number of user on one side of the market (like console owners) creates a rise in the other side (software developers). two-sided markets Switching Cost- The cost a consumer incurs when moving from one product to another they can strengthen the value of network effects as a strategic asset. the more a user has invested in products, the less likely they are to leave. Complementary Benefits- those products or services that add additional value to the network such as how to books, software, and feature add ons, even labor. (Ex. House Netflix) Feedback Loops- more people are buying, more people are selling (more people buy Xbox, more Xbox games made, less PS3 games made, less people buy PS3, then back to more people buying Xbox) Platform- Products and services that encourage others to offer complementary goods. a great strategy because those firms will spend their time and money to enhance your offerings. Ipad leading to other companies to build and sell speaker docks Network Effects Questions and Exercises: Consider the three parts that make up network effects and then use this to assess why people use Facebook more than Google+. What could Google do to increase network effects? How did Netflix help increase its own? Consider barriers to entry and how you want barriers to exist (i.e. high or low) when you are trying to attract and then when you are trying to retain customers. The three parts of Network effects are exchange, staying power, and complementary benefits. More people are on Facebook and therefore has more exchange and value to the users. Google could lower the switching cost by bringing all your fb friends over or something. Netflix offered online streaming and delivery. You want barriers to be low when customers are entering your company, but want them to go up as soon as they are in so that they are locked in. ex phone contracts, 2 years

Staying Power and Switching Cost are talking about the same thing essentially except it depends on whose perspective youre considering. Please explain what is meant by this statement. Staying power deals with how a company keep their customers instead of losing them to another business. If the competing businesses have a high switching cost (aka its a pain in the ass to switch, contracts or if you have a lot of their products already) then the customers will stay with the original company. If the competing business can lower that switching cost (ex. offering for pay for the fee to break contract, offer no contract plans for phone then customers may choose to switch).The higher the switching cost your customers have from your business, the more staying power you have. In other words, its what a company does in order to keep customers from switching to a different companies product. (<-- can this be worded better? Im confused as to what its trying to say) and switching costs deal with the cost for the customers to switch to a different company. Basically company perspective vs consumer perspective How does a platform contribute to network effects? Think Made for iPod and how Apple or Microsoft may have built up network effects for their platform by encouraging exchange, lock-in, and complimentary benefits. Apple utilizes the complementary benefits concept of network effects. (You can now also get cases, accessories, ihome, apps...etc.,--> so many compliments built by people outside of Apple). Apples app store has over 775,000 apps in their store. They encourage people to develop apps by giving away software developer kits so that people can create their own apps. This is brilliant strategy because apple gets the benefits from other peoples works and doesnt have to spend money on developing since consumers do it for themselves. Is Groupon an example of a one-sided market or a two-sided market? Whats the difference between one and two sided markets? What about AOL Instant Messenger? How does growth or monetization of a network change when you are two-sided versus one-sided. Groupon is a two sided market. More users means more deals, which leads to more users. AOL instant messenger is a one sided market. One sided markets derive most of their value from single class of users. example: IM Two sided markets derive their value from two classes of users. example: eBay (feedback loop) Markets where network effects are at play experience what kind of competition? How are feedback loops a contributor to this? vicious competition, they are constantly causing buyers and sellers to increase, decrease, feed off of each other, and adjust to what is happening.WHY IS THIS?? How can a product with less technical functionality end up being the overall winner over a better product? and don't just tell me because of network effects. Because customers are either already using something that the new product would be a complementary benefit to and they would have no switching cost or difficulties adding the product, or the worse product already has more users so it is more valuable to customers.

What are different methods noted in class and in text of how one can acquire network effects? Can you spot the method if I gave you an example of a companys strategy? o Blue Ocean Strategy-Wii- targeted a new audience by offering less violent games that female and family can play o envelopment- Apple (mp3, cameras,... into one product: iphone) o seed the market (blu-ray) o leverage viral promotion (skype, facebook feedback) o distribution channels- DirecTV offering DVR with subscriptions (ultimately got rid of Tivo by leveraging distribution channels) o complementary benefits o Incumbents constantly innovate to create a moving target and block rival efforts to access your network (apple try to block access to its own system) o for large firms with well known followers, make preannouncement (microsoft)
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(4-Feb) - Class 7 Notes/Study Guide: Software Ecosystem (Traditional vs Open Source) Microsoft Case and Software Today Terms: Software / Hardware Ecosystem- hardware= equipment that processes the data to create information aka the actual computer. software= step by step instructions that convert data into information Software Suite- a software product offered commercially by a third party Operating System (OS)- provides a common set of controls for managing computer hardware, making it easier for users to interact with computers and for programmers to write application software. o also designed to give programmers a common set of commands to consistently interact with the hardware. Monopoly- a market where there are many buyers but only one dominant seller TCO (Total Cost of Ownership)- All of the costs associated with the design, development, testing, implementation, documentation, training and maintenance of a software system. Microsoft and Software Learning Objectives: What is TCO (Total Cost of Ownership) about and how does it relate to switching cost? This relates to switching costs because TCO takes into consideration all the components of a computer that would be worth their money, on the business and public side. What is the model of the hardware/software ecosystem entail? What are its layers? What does control over certain layers provide in terms of competitive advantage, staying power, and network effects? IS THIS KONAS ECOSYSTEM MODEL??? Explain what network effects strategies Microsoft took to become the major leader in the OS Market, Productivity Software (i.e. Office), and the browser market (e.g. Internet Explorer) Partnering with IBM increased its Exchange, Platforms

encouraged complimentary benefits from ISV, there was high switching cost with bundling, and upgrades created lock-ins. Explain why network effects determine whether an Independent Software Vender (aka ISV) would prefer to make a Windows-compatible application over a Maccompatible application. Because more people use windows devices and it would have more value due to the more users (Windows has higher Exchange) Open Source Terms: Open source software (OSS)- software that is free and where anyone can look at and potentially modify the code (when the source is open, it is public, meaning that the people can access and edit the code via the internet) EX: Android LAMP (Linux Apache MySQL Perl/Python/PHP) - software bundle that is a free, open source software program. this is how firms can run completely on OSS aka this is how Facebook and YouTube run Marginal cost - the extra cost of producing one more unit of output Scalability - Refers to ability to handle increasing workloads or to be easily expanded to manage workload increases. In a software context, systems that are scalable, often require significant rewrites or the purchase or development of entirely new systems Total cost of ownership (TCO)- a measure of the full cost of owning a product or service (typically computing hardware and/or software) Open Source Questions: What does it mean for something to be open source? What are some examples of open source software and even some non-software related things? The public can edit and adjust it. Wikipedia and android, IBM How have low marginal costs, network effects, and switching costs combined to help create a huge and traditional (SW?) industry? How could OSS be a threat to the traditional SW industry? If OSS is free then what is gained by using it and funding the projects that contribute to it? o Who is coding for free? o People who work for corporations o How do you make money off of it? o Companies have consulting contracts, support help What are benefits of taking an open source approach to building anything (not just software) and tie in your answer with the concepts of crowdsourcing, the group brain, and cognitive diversity? The benefits are that in the end you will have the best product you can have because so many people have contributed to it. And not just one person who doesnt interact with the customers and know what they want. What are the risks and/or concerns of using OSS? Who are main contributors to the code of OSS? How is this different than perception of OSS code. People who work for corporations. Everybody thought that OSS coding was for nerds. Why would a company building tablets choose Android (an open source Operation System) over building their own or paying to license Windows Mobile OS? How does this choice affect the pricing of their tablet? It will be cheaper than the other two options, so the tablet will be priced cheaper.

Strategies for Competing in Markets with Network Effects Move early (Yahoo! Auctions in Japan) Subsidize product adoption (PayPal) Leverage viral promotion (Skype; Facebook feeds) Expand by redefining the market to bring in new categories of users (Nintendo Wii) or through convergence (iPhone). (Blue ocean strategy) Form alliances and partnerships (NYCE vs. Citibank) Establish distribution channels (Java with Netscape; Microsoft bundling Media Player with Windows) Seed the market with complements (Blu-ray; Nintendo) Encourage the development of complementary goodsthis can include offering resources, subsidies, reduced fees, market research, development kits, venture capital (Facebook fbFund). Maintain backward compatibility (Apples Mac OS X Rosetta translation software for PowerPC to Intel) For rivals, be compatible with larger networks (Apples move to Intel; Live Search Maps) For incumbents, constantly innovate to create a moving target and block rival efforts to access your network (Apples efforts to block access to its own systems) For large firms with well-known followers, make preannouncements (Microsoft) NOTE: All examples are from last section of the Network Effects chapter

(11-Feb) Notes/Study Guide Day 9 - Apple Case and Hardware Ecosystem Hardware Ecosystem Terms Hardware -- physical components (non-software) Moores Law- affects amount of E-waste

Computer Architecture (4 parts of computer): 1) processing (CPU) - for processing commands 2) input- from a keyboard, or a floppy, a hard friv tec to input both commands and

data 3) output - to a monitor, a printer, etc 4) memory - place an actual program and or data that the CPU uses MUST reside

E-waste -- discarded or obsolete technology

Hardware Ecosystem Questions and Exercises: Be able to list the major components of computer architecture. Be able to classify commonly seen computer parts as input, output, storage, or processing devices. Know the purpose of each.

What are positive and negative global impacts of Moores Law?

e-waste, technology improves our lives, but not the environment

Can you explain what the three basic layers of the ecosystem are and how Microsofts strategy differed from Apple in terms of what parts of the ecosystem is completed within? applications, operating system, and hardware. Microsoft has open apps and hardware, while Apple only has open apps (closed hardware and OS). When it comes to the ecosystem, Apple followed a similar strategy in the mobile phones and tablets that it did in desktops by controlling the hardware layer. How was that strategy different than Microsoft and explain how this gives some advantages to Apple. By keeping the hardware and OS closed, they had complete control in the end product. Therefore, they were able create optimal product (e.g. very slick, less buggy) for a high-end market. For desktops, Microsoft prefered to make profit by licensing their OS, and not deal with the huge barriers to entry of making their own hard-ware (= less risk). What is the difference between Open and Closed standards when looking at the potential for new entrants, the potential for rivalry, and the potential for profit. In Open systems the potential for new entrants and rivalry both increase because so many people can create the same product; however it causes potential for profit to decrease because of all the competition. Should Apple care that Android has a bigger market share in the mobile phone market? Yes or no? Why? No because Apple has something unique and no one can touch it. While Android competition within itself keeps increasing, Apple can sit back and not worry about it. The market seems to be going toward Android because of the variety, but all the competition within will soon bring it crashing down.