1) Is DoCoMo wise to offer its existing mobile phone rivals access to FeliCa?
It certainly is a wise idea for DoCoMo to offer its existing mobile phone rivals access to FeliCa. DoCoMo has a 38% equity in FeliCa Networks. Firstly, to begin with FeliCa Networks had three sources of revenue: (i) Collect license fees from carriers that purchased mobile FeliCa chips with DoCoMo being exempt. (ii) Provide platform management services. Users downloaded applications into a 5-kilobyte memory area. FeliCa Networks managed the memory area and served encryption keys needed to activate the application. (iii) FeliCa Networks could provide application providers with a range of hosted services such as managing the servers used to download applications or to authenticate users. For most such services, FeliCa Networks would collect transaction fees.
‘DoCoMo’s equity stake in FeliCa Networks was a potential source of both profits and competitive advantage.’
Therefore, the more the number of carriers of FeliCa technology the more revenue for FeliCa Networks. This means Do Como will benefit more from the three sources of revenue.
Secondly, given the rapid replacement rate (as cited in the case) for mobile phones in Japan, FeliCa could become a de facto standard or a preferred platform and could soon be built into 80 million handsets. By making FeliCa a defacto standard DoCoMo could create positive network effects. Although rivals will have access to the FeliCa technology, applications in those handsets must be activated through FeliCa Networks and rivals must license technology from FeliCa Networks. This implies that DoCoMo has considerable power over rivals because of its 38% stake in the company and might become profitable.
Thirdly and most importantly, although it offered rivals access to FeliCa technology DoCoMo differentiated itself from competition through its exclusive upper level services such as loyalty-points program. Initially, when FeliCa mobile phone was launched DoCoMo partnered with Asano SuperMarket and offered a loyalty program, which provided a 5% discount to customers who made cashless payments using FeliCa. Another way it differentiated from rivals was by promoting the user of eMoney on FeliCa phones in different ways. One way was to continue its support for Edy and the installation of Edy-exclusive readers. Payment services appeared to be especially promising for DoCoMo. FeliCa technology was already used for electronic money, that is, digitally stored value that could be used like cash and replenished. With eMoney, it became easy for users to make payments especially in locations where speed was important.
Fourthly, as a major shareholder DoCoMo always has the competitive advantage to learn about new mobile FeliCa applications before its rivals. This provides launch time advantages and a head start in the market. Therefore, by offering the FeliCa technology to rivals DoCoMo has made a smart move. Although it has invited competition in the mobile FeliCa market, it has gained competitive advantage by being the ‘first mover’, differentiating itself through it’s exclusive features and has increased its profit potential by increasing the number of FeliCa carriers. DoCoMo’s decision has worked out to its benefit.
2) Is search a winner-take-all business?
I agree with the statement that understanding whether a new-networked market is likely to be served by a single platform or by rival platforms is crucial when formulating entry strategies. However, I don’t think Search is a winner-take-all (WTA) business. Because in a WTA business, competition is fierce and losers face extinction (as cited in the case). At the end there is a single platform provider. But in today’s world this is not the case yet. Like Google, there are many search engines, such as Yahoo and MSN. Although Google is considered as one of the most frequently used search engines, it is not a WTA because the ‘Homing’ costs are low. In other words, it not expensive for a network user to affiliate with multiple platforms other than Google. However, if it is expensive then they will be inclined to use a single platform provider.
Secondly, ‘Switching’ costs are lower or close to none in most cases. There is absolutely no cost to search neither on Google nor on any other sites. I also think some amount of marketing and brand name / perception plays a role here. For example, if I want to search a recipe or some information the first site I will access will be Google. I may access Yahoo and or MSN as well. I think the vast amount of information on Google attracts many users. But it does not deter them to visit other sites, which clearly validates that Search is not a ‘Winner take all’ business.
Thirdly, Network effects are also another reason why Search is not a winner-take-all business. Google offers several networking capabilities such as Gmail, Picasa Webalbums, and Gtalk. Likewise, Yahoo offers Yahoo mail, messenger and MSN offers Hotmail and messenger services. Therefore, users can continue to use these services even if they switch providers.
In order for Search to be a winner-take-all business it should become a single platform, which is not the case right now.
Thursday, February 26, 2009
Thursday, February 19, 2009
EA Case
Since the writing of the Electronic Arts Case the Sony Playstation 3 and the Nintendo Wii have been released and both have online gaming capabilities. What’s your assessment of the current online gaming market?
Since the Electronic Arts case there have many positive changes in the online gaming market. It has become the biggest industrial wave. It is the fastest growing form of entertainment and has captured a similar size of customer base as the movie box office. It has transformed the way users find entertainment. Many online games are like reality TV imitating real life scenarios. I think that given the number of people with high-speed Internet access is growing at a fast pace, many free online games are becoming hugely popular due to the ease of access. Furthermore, online games are growing on a global scale and attracting a broader range of demographics than the traditional video game industry. Research indicates that in 2008, the North American video game market reached $21.33 billion and people continued to spend a greater portion of their free time playing them.
PS3 and Nintendo Wii – Performance in the Online Gaming Market
The Sony PlayStation 3 and Nintendo Wii both jumped into the game console market to compete against Microsoft’s Xbox 360. Each has a new feature that makes it stand out from older consoles, the Xbox, and each other. For the PS3, the feature is its Blu-ray DVD player. Nintendo Wii has outsold Sony’s PS3 by a factor of nearly 2 to 1. Research suggests that Nintendo generates a positive gross margin on its consoles as compared to Sony. Wii generated 55% of all console sales in 2008. Although Sony has the largest installed base, it has lagged behind Wii in terms of number of units sold. PS3 sold approximately 1.3 million units as of year-end 2007 whereas Wii sold 2.5 million. To better meet the competition and to further boost sales Sony dropped the price of its PS3 console product.
The sales continued to decline for Sony PS3 in December 2008. US sales of the PS3 fell 19% in December 2008 while sales doubled for the Wii console. Research suggests that part of Sony's strategy hinged on selling the PS3 as a relatively inexpensive Blu-ray player. But prices of Blu-ray players have fallen so sharply recently, new players are available for less than $200, that it's possible to buy a Blu-ray player and an Xbox 360 for less than a PS3.
Since the Electronic Arts case there have many positive changes in the online gaming market. It has become the biggest industrial wave. It is the fastest growing form of entertainment and has captured a similar size of customer base as the movie box office. It has transformed the way users find entertainment. Many online games are like reality TV imitating real life scenarios. I think that given the number of people with high-speed Internet access is growing at a fast pace, many free online games are becoming hugely popular due to the ease of access. Furthermore, online games are growing on a global scale and attracting a broader range of demographics than the traditional video game industry. Research indicates that in 2008, the North American video game market reached $21.33 billion and people continued to spend a greater portion of their free time playing them.
PS3 and Nintendo Wii – Performance in the Online Gaming Market
The Sony PlayStation 3 and Nintendo Wii both jumped into the game console market to compete against Microsoft’s Xbox 360. Each has a new feature that makes it stand out from older consoles, the Xbox, and each other. For the PS3, the feature is its Blu-ray DVD player. Nintendo Wii has outsold Sony’s PS3 by a factor of nearly 2 to 1. Research suggests that Nintendo generates a positive gross margin on its consoles as compared to Sony. Wii generated 55% of all console sales in 2008. Although Sony has the largest installed base, it has lagged behind Wii in terms of number of units sold. PS3 sold approximately 1.3 million units as of year-end 2007 whereas Wii sold 2.5 million. To better meet the competition and to further boost sales Sony dropped the price of its PS3 console product.
The sales continued to decline for Sony PS3 in December 2008. US sales of the PS3 fell 19% in December 2008 while sales doubled for the Wii console. Research suggests that part of Sony's strategy hinged on selling the PS3 as a relatively inexpensive Blu-ray player. But prices of Blu-ray players have fallen so sharply recently, new players are available for less than $200, that it's possible to buy a Blu-ray player and an Xbox 360 for less than a PS3.
Thursday, February 12, 2009
Netflix Case
Since the publishing of this case, Netflix has entered the video on demand (VOD) market. What is your analysis of how Netflix has attempted to update their business model with VOD?
Introduction - Netflix, Inc.is the world's largest online movie rental service, providing more than five million subscribers access to over 70,000 DVD titles. The company offers a variety of subscription plans, starting at $4.99 a month (current rate). There are no due dates, no late fees and no shipping fees. Netflix can reach more than 90 percent of its subscribers with generally one business-day delivery. Netflix offers personalized movie recommendations to its members and has more than one billion movie ratings. Netflix also allows members to share and recommend movies to one another through its FriendsSM feature.
Netflix Business Model – Netflix was the first in the industry to offer DVD’s. A Subscription service for unlimited mail order DVD rentals with no late fees. Netflix has changed the movie rentals business by eliminating late or extended viewing fees and allowing consumers to watch movies on their schedule. In short, I would call it a ‘Rent by mail business model’. This model has allowed it to thrive in the rental industry amidst big competitor ‘Blockbuster’.
Entry into the VOD Market & Netflix Business Model - On January 16, 2007, Netflix announced that its Video On Demand service was finally available that allowed people to immediately watch movies and television series on their personal computers. As stated in the article, Hastings repeatedly stated that Netflix’s purpose was not to provide DVD rentals through the Internet but rather to allow for the best home video viewing for its customers. Additionally, pursuing this strategy was vital to Netflix’s future, because it realized that as new innovations in technology become popular, the DVD-rental subset of the home movie market will shrink, while the downloading and streaming of movies will eventually come to dominate the majority of this market. Netflix realized this change in the market and entry into VOD was a significant enhancement to its’ service where subscribers still continued to receive DVDs by mail and also had the additional option of instantly watching the movies on their PCs. Through this initiative Netflix hoped to keep itself relevant in the video industry. There was no additional charge for the service, but the number of hours of VOD movies one could watch depended on his / her current service plan. In mid 2007, Netflix launched a new service called ‘Watch now’ that allowed films to be viewed directly on the Internet. Netflix quickly emerged as the leader for web rentals and with the introduction of VOD they continued to capture the instant download market as well. Watch now started with about 1,000 films and TV titles.
Downloading and watching movies online could be a painful process due to the amount of time one has to wait for the downloads. Watch now did not require users to wait until a movie is downloaded, which could take considerable time even on high-speed Internet hookups. Instead, Netflix used a real-time playback technology that allowed users to begin watching the movie within 10 to 15 seconds after downloading begins. This also allowed Netflix to differentiate and position itself in it’s current market. Based on my research few customers have commented that viewing Netflix movies works a lot like viewing standard DVD’s. Clicking on the “play” button on any of the shows in the Netflix library launches the Netflix Movie viewer in an explorer window. The movie will start in less time. And most importantly, all this is available at no additional cost to the users. Therefore, to maintain their current business model of ‘no late fee and allowing viewers to watch on their schedule’ Netflix included the ability to watch movies and TV episodes streamed from Netflix to PC or Mac with all plans.
A basic plan at Netflix costs $4.99(reference www.netflix.com), with this plan a customer could rent 1 DVD at a time and instantly watch up to 2 hours of movies (some new releases) online for free. With other unlimited plans they can watch more but at an increased cost. Therefore, this clearly indicates that Netflix has targeted their existing customer base to leverage the VOD service. Netflix has efficiently used their current business model and has offered the VOD service as a bonus / complementary product to the DVDs and has included it in the membership. This will serve two purposes: 1) Make the existing customers happy 2) Also, will slowly get them used to the ‘Watch Now’ program (will help in transition when Netflix fully migrates to VOD in the future). Although this has impacted the DVD rental business, in most cases the Video on demand service has served to be a complementary unique product and reinforced customers’ satisfaction. Although few customers have complained about connectivity and content issues (which will improve over the coming years with technology enhancements), given its first mover advantage with DVD mail rentals Netflix stands a very good chance to become a dominant player in the VOD market. Netflix’s current position demonstrates the enduring value of being first. Finally, Netflix has made the right choice with the introduction of the Video on demand service with its DVD rentals. It has proved itself to the market that its’ business model works; therefore it is a matter of continuous learning, improvement that will help Netflix to slowly migrate to its VOD service from DVD rentals and further update its business model.
Introduction - Netflix, Inc.is the world's largest online movie rental service, providing more than five million subscribers access to over 70,000 DVD titles. The company offers a variety of subscription plans, starting at $4.99 a month (current rate). There are no due dates, no late fees and no shipping fees. Netflix can reach more than 90 percent of its subscribers with generally one business-day delivery. Netflix offers personalized movie recommendations to its members and has more than one billion movie ratings. Netflix also allows members to share and recommend movies to one another through its FriendsSM feature.
Netflix Business Model – Netflix was the first in the industry to offer DVD’s. A Subscription service for unlimited mail order DVD rentals with no late fees. Netflix has changed the movie rentals business by eliminating late or extended viewing fees and allowing consumers to watch movies on their schedule. In short, I would call it a ‘Rent by mail business model’. This model has allowed it to thrive in the rental industry amidst big competitor ‘Blockbuster’.
Entry into the VOD Market & Netflix Business Model - On January 16, 2007, Netflix announced that its Video On Demand service was finally available that allowed people to immediately watch movies and television series on their personal computers. As stated in the article, Hastings repeatedly stated that Netflix’s purpose was not to provide DVD rentals through the Internet but rather to allow for the best home video viewing for its customers. Additionally, pursuing this strategy was vital to Netflix’s future, because it realized that as new innovations in technology become popular, the DVD-rental subset of the home movie market will shrink, while the downloading and streaming of movies will eventually come to dominate the majority of this market. Netflix realized this change in the market and entry into VOD was a significant enhancement to its’ service where subscribers still continued to receive DVDs by mail and also had the additional option of instantly watching the movies on their PCs. Through this initiative Netflix hoped to keep itself relevant in the video industry. There was no additional charge for the service, but the number of hours of VOD movies one could watch depended on his / her current service plan. In mid 2007, Netflix launched a new service called ‘Watch now’ that allowed films to be viewed directly on the Internet. Netflix quickly emerged as the leader for web rentals and with the introduction of VOD they continued to capture the instant download market as well. Watch now started with about 1,000 films and TV titles.
Downloading and watching movies online could be a painful process due to the amount of time one has to wait for the downloads. Watch now did not require users to wait until a movie is downloaded, which could take considerable time even on high-speed Internet hookups. Instead, Netflix used a real-time playback technology that allowed users to begin watching the movie within 10 to 15 seconds after downloading begins. This also allowed Netflix to differentiate and position itself in it’s current market. Based on my research few customers have commented that viewing Netflix movies works a lot like viewing standard DVD’s. Clicking on the “play” button on any of the shows in the Netflix library launches the Netflix Movie viewer in an explorer window. The movie will start in less time. And most importantly, all this is available at no additional cost to the users. Therefore, to maintain their current business model of ‘no late fee and allowing viewers to watch on their schedule’ Netflix included the ability to watch movies and TV episodes streamed from Netflix to PC or Mac with all plans.
A basic plan at Netflix costs $4.99(reference www.netflix.com), with this plan a customer could rent 1 DVD at a time and instantly watch up to 2 hours of movies (some new releases) online for free. With other unlimited plans they can watch more but at an increased cost. Therefore, this clearly indicates that Netflix has targeted their existing customer base to leverage the VOD service. Netflix has efficiently used their current business model and has offered the VOD service as a bonus / complementary product to the DVDs and has included it in the membership. This will serve two purposes: 1) Make the existing customers happy 2) Also, will slowly get them used to the ‘Watch Now’ program (will help in transition when Netflix fully migrates to VOD in the future). Although this has impacted the DVD rental business, in most cases the Video on demand service has served to be a complementary unique product and reinforced customers’ satisfaction. Although few customers have complained about connectivity and content issues (which will improve over the coming years with technology enhancements), given its first mover advantage with DVD mail rentals Netflix stands a very good chance to become a dominant player in the VOD market. Netflix’s current position demonstrates the enduring value of being first. Finally, Netflix has made the right choice with the introduction of the Video on demand service with its DVD rentals. It has proved itself to the market that its’ business model works; therefore it is a matter of continuous learning, improvement that will help Netflix to slowly migrate to its VOD service from DVD rentals and further update its business model.
Thursday, February 5, 2009
P2P Case
Who will win the competitive battle between P2P file sharing networks and iTunes over the long run and why?
Introduction
P2P vs. iTunes P2P - P2P - P2P file sharing programs became famous with the release of Napster in 1999. Since Napster’s release, a host of other software programs have emerged allowing users to download their favorite music, videos, images and other files. As stated in the article, Napster was a small program and allowed only music files to be shared. However, P2P adoption has grown quickly since the introduction of Napster and several other programs (Fast Track and Gnutella) have emerged allowing users to exchange different types of files. Therefore, p2p technologies emerged and quickly became the dominant mechanism for online music distribution at no cost.
ITunes - IPod the digital music player was released in 2001 when p2p dominated the market. IPod used its own DRM and encrypted the songs thereby protecting musicians’ copywrights. Apple’s iTunes website provided music lovers the opportunity to download songs at $0.99 each in addition to offering iTunes software for free download. ITunes got agreement from all of the “big five” and provided revolutionary rights to music consumers. ITunes has the backing of the media and film industry. Based on the article, iTunes is not about selling songs however it’s about selling more iPods. (iTunes has sold only enough songs to account for about 1.5% of the 30 billion songs).
Who will win & why?
P2P vs. iTunes –
Who will win the battle is a debate. Based on the information presented in the article, it is clear that P2P will win in the short run due to its current strengths and that it has been in the market for a while however if iTunes adopts the right strategies to tap the market then no doubt it will win in the long run as it will have a better leverage. Although P2P networks offer a variety of content with no restrictions on content for free of cost and is constantly improving its technology by adding new features, there is also downside to this. Firstly, P2P is constantly being attacked by the media/film industry. Secondly, although it is free it is not free of “spoof files”. As cited in the article, down loaders encountered “spoof” files 50% of the time when trying to download more popular tracks. This is pretty significant for any average user. As an example, if I want to download a popular track I would rather pay a fee to download it without any ad ware or spy ware that will save my computer from any viruses and most importantly save me time. Thirdly, at times downloading songs from P2P had congestion issues and were unreliable due to slow performance. The article cites that the reliability of Gnutella was not always great and predicted that 50% of requests were never fulfilled because users often connected and disconnected sporadically. Therefore, although it is free it may keep users in the short run but not in the long run as unreliability, performance issues and other issues will end up causing frustration to music lovers. Fourthly, iTunes is legal, receives major support from industry players and is easy to use. Legal consideration is pretty important as the article cites that many p2p users have been sued by music industry. The RIAA had been at the center of the battle against p2p networks. While RIAA ended up losing some of the suits, it was quite successful with a few lawsuits. ITunes also has the support of over 200 music industry technology companies whose main goal was to protect copyrights. Fifthly, it facilitates easy and faster downloads with high reliability as opposed to p2p. Download times in iTunes does not depend on the number of users in the network. So, an average consumer is better off purchasing in iTunes as he will enjoy faster downloads. iTunes works well with iPods, meaning after purchasing the songs the listener can enjoy the songs in iPod or load it in his computer. Finally, although users had to pay a fee of $0.99 in iTunes they did not experience any congestion problems (as any other p2p website). In the long run, this eventually will increase quality and the customer experience.
Based on the above it is clear that although p2p file sharing is free it is not free of any legal, copyright issues and any other costs associated with that. Although an average user will enjoy free downloads he may end up paying dollars if he is sued at any point. In order to be successful in the market and to win in the long run, Apple may consider the following to have a better leverage than p2p and win the battle:
1) In p2p consumers can download for free. So, iTunes must offer something that will make consumers’ pay rather than downloading it for free. It could be in the form of additional discounts, added features to the iTunes website that makes downloading experience even more enjoyable. In other words, an average consumer must think of iTunes if he wants to download his favorite music track. This will require lots of marketing and newer strategies by Apple.
2) Secondly, pricing plays an important role in marketing the iTunes product. Both the music industry and Apple must consider better pricing strategies to attract a p2p user. Given, that both record companies and the rights collection agencies share a major percentage of the profits they must be actively involved in pricing and marketing iTunes. They must consider the competition from p2p very carefully and determine how the price will produce a superior return on invested capital. Perhaps, initially to attract the free users in p2p they may decide to price it low in the beginning and once iTunes proves that is a better product and is ‘value for money’ and they may be in a better position to increase the price.
3) Retaining iTunes customers is another way to win the battle in the long run. Apple may come up with a referral program where the existing customers get new clients and may reward the customers for generating traffic. By this way iTunes can get new traffic in addition to keeping the existing customer base happy.
Introduction
P2P vs. iTunes P2P - P2P - P2P file sharing programs became famous with the release of Napster in 1999. Since Napster’s release, a host of other software programs have emerged allowing users to download their favorite music, videos, images and other files. As stated in the article, Napster was a small program and allowed only music files to be shared. However, P2P adoption has grown quickly since the introduction of Napster and several other programs (Fast Track and Gnutella) have emerged allowing users to exchange different types of files. Therefore, p2p technologies emerged and quickly became the dominant mechanism for online music distribution at no cost.
ITunes - IPod the digital music player was released in 2001 when p2p dominated the market. IPod used its own DRM and encrypted the songs thereby protecting musicians’ copywrights. Apple’s iTunes website provided music lovers the opportunity to download songs at $0.99 each in addition to offering iTunes software for free download. ITunes got agreement from all of the “big five” and provided revolutionary rights to music consumers. ITunes has the backing of the media and film industry. Based on the article, iTunes is not about selling songs however it’s about selling more iPods. (iTunes has sold only enough songs to account for about 1.5% of the 30 billion songs).
Who will win & why?
P2P vs. iTunes –
Who will win the battle is a debate. Based on the information presented in the article, it is clear that P2P will win in the short run due to its current strengths and that it has been in the market for a while however if iTunes adopts the right strategies to tap the market then no doubt it will win in the long run as it will have a better leverage. Although P2P networks offer a variety of content with no restrictions on content for free of cost and is constantly improving its technology by adding new features, there is also downside to this. Firstly, P2P is constantly being attacked by the media/film industry. Secondly, although it is free it is not free of “spoof files”. As cited in the article, down loaders encountered “spoof” files 50% of the time when trying to download more popular tracks. This is pretty significant for any average user. As an example, if I want to download a popular track I would rather pay a fee to download it without any ad ware or spy ware that will save my computer from any viruses and most importantly save me time. Thirdly, at times downloading songs from P2P had congestion issues and were unreliable due to slow performance. The article cites that the reliability of Gnutella was not always great and predicted that 50% of requests were never fulfilled because users often connected and disconnected sporadically. Therefore, although it is free it may keep users in the short run but not in the long run as unreliability, performance issues and other issues will end up causing frustration to music lovers. Fourthly, iTunes is legal, receives major support from industry players and is easy to use. Legal consideration is pretty important as the article cites that many p2p users have been sued by music industry. The RIAA had been at the center of the battle against p2p networks. While RIAA ended up losing some of the suits, it was quite successful with a few lawsuits. ITunes also has the support of over 200 music industry technology companies whose main goal was to protect copyrights. Fifthly, it facilitates easy and faster downloads with high reliability as opposed to p2p. Download times in iTunes does not depend on the number of users in the network. So, an average consumer is better off purchasing in iTunes as he will enjoy faster downloads. iTunes works well with iPods, meaning after purchasing the songs the listener can enjoy the songs in iPod or load it in his computer. Finally, although users had to pay a fee of $0.99 in iTunes they did not experience any congestion problems (as any other p2p website). In the long run, this eventually will increase quality and the customer experience.
Based on the above it is clear that although p2p file sharing is free it is not free of any legal, copyright issues and any other costs associated with that. Although an average user will enjoy free downloads he may end up paying dollars if he is sued at any point. In order to be successful in the market and to win in the long run, Apple may consider the following to have a better leverage than p2p and win the battle:
1) In p2p consumers can download for free. So, iTunes must offer something that will make consumers’ pay rather than downloading it for free. It could be in the form of additional discounts, added features to the iTunes website that makes downloading experience even more enjoyable. In other words, an average consumer must think of iTunes if he wants to download his favorite music track. This will require lots of marketing and newer strategies by Apple.
2) Secondly, pricing plays an important role in marketing the iTunes product. Both the music industry and Apple must consider better pricing strategies to attract a p2p user. Given, that both record companies and the rights collection agencies share a major percentage of the profits they must be actively involved in pricing and marketing iTunes. They must consider the competition from p2p very carefully and determine how the price will produce a superior return on invested capital. Perhaps, initially to attract the free users in p2p they may decide to price it low in the beginning and once iTunes proves that is a better product and is ‘value for money’ and they may be in a better position to increase the price.
3) Retaining iTunes customers is another way to win the battle in the long run. Apple may come up with a referral program where the existing customers get new clients and may reward the customers for generating traffic. By this way iTunes can get new traffic in addition to keeping the existing customer base happy.
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