《技术创新管理》课程教学课件（英文）Strategic Management in Network Industries

Strategic Management inNetworkIndustriesDr.MScBertSadowskiTechnischeUniversiteitTUeEindhovenUniversityof TechnologyWhere innovation starts

Strategic Management in Network Industries Dr. MSc Bert Sadowski

StructureGovernment Management in Network Industries:CaseofSECAMTheDynamicsofNetworkIndustries·Criticalmass,complementaryassets,lock-inEffectsonIcTeco-systemTechnischeUniversiteitTUEindhoveneUniversityofTechnology10/16/2013PAGE1EconomicsofInnovation2013

Structure • Government Management in Network Industries: Case of SECAM • The Dynamics of Network Industries • Critical mass, complementary assets, lock-in • Effects on ICT eco-system Economics of Innovation 2013 10/16/2013 PAGE 1

GovernmentManagementinNetworkIndustries:TheCaseofSECAMTechnischeUniversiteitTUEindhoveneUniversityofTechnologyEconomics210/16/2013of Innovation2013

EXAMPLE OF SECAM Government Management in Network Industries: The Case of SECAM 10/16/2013 Economics of Innovation 2013 2

AnExample:TheFrenchSECAMstandardSEcAM(Séquentielcouleuramemoire,"SequentialColour with Memory")1stEuropeanColorStandard>permittingexistingmonochrometelevisionreceiverspredatingitsintroduction to continue to be operateasmonochrometelevision>colorstandardaddedasasecondsignaltothebasicmonochromesignal(compatibilityrequirement)-Workstartedin1956>readybytheendofthefiftiesSECAMinauguratedinFrance(October1,1967),onladeuxiemechaine(thesecondchannel)(France2)Differentotherstandards(PAL,NTSC)Technische UniversiteitTUSource:Wikipedia SECAMEindhovenUniversity ofTechnologyEconomics310/16/2013of Innovation2013

10/16/2013 Economics of Innovation 2013 3 An Example: The French SECAM standard • SÉCAM (Séquentiel couleur à mémoire, "Sequential Colour with Memory") • 1 st European Color Standard > permitting existing monochrome television receivers predating its introduction to continue to be operate as monochrome television > color standard added as a second signal to the basic monochrome signal (compatibility requirement) − Work started in 1956 > ready by the end of the fifties − SECAM inaugurated in France (October 1, 1967), on la deuxième chaîne (the second channel) (France 2). • Different other standards (PAL, NTSC) Source: Wikipedia SECAM

SECAMdiffusionNTSCSECAMPALOrPAL/SECAMno infoIUSource:WikipediaSECAMEindhoveneUniversity of Technology10/16/2013PAGE4EconomicsofInnovation2013

SECAM diffusion Economics of Innovation 2013 10/16/2013 PAGE 4 Source: Wikipedia SECAM

QuestionsWhat have beenthe incentivesfor theFrenchgovernmenttoaggressivelypromoteSECAM?Arethere anyexamples that doyouknowabout currentpracticesofgovernments to sponsor particularstandards?Why didtheSECAM standardfail eventually?Whatwas the role of thegovernment intervention inthisfailure?Wearenowtwentyyearslater.Isthereareroleforgovernment intervention in standardisation?Technische UniversiteitTUEindhoven-University of TechnologyPAGE5EconomicsofInnovation201310/17/2013

Questions • What have been the incentives for the French government to aggressively promote SECAM? Are there any examples that do you know about current practices of governments to sponsor particular standards? • Why did the SECAM standard fail eventually? What was the role of the government intervention in this failure? • We are now twenty years later. Is there are role for government intervention in standardisation? Economics of Innovation 2013 10/17/2013 PAGE 5

The Dynamics in Network Markets:Increasing ReturnsTechnischeUniversiteitTUEindhoveneUniversity of Technology10/16/2013PAGE6EconomicsofInnovation2013

WHAT The Dynamics in Network Markets: Increasing Returns Economics of Innovation 2013 10/16/2013 PAGE 6

DemandexternalitiesDemandexternalitiesorincreasingreturnstoscaleonthe demandside (in contrastto traditionalmarkets whereusers/demandispassive andthey arepricetakers).Demandexternalities are importantto generate acritical massand critical mass is vital to get anetworkstartedDemandexternalitiesarerelatedtoincome,priceandexpectations(aboutthe futuresizeofthenetwork)Technische UniversiteitTUEindhoven-UniversityofTechnologyPAGE7EconomicsofInnovation201310/16/2013

Demand externalities • Demand externalities or increasing returns to scale on the demand side (in contrast to traditional markets where users/demand is passive and they are price takers) • Demand externalities are important to generate a critical mass and critical mass is vital to get a network started • Demand externalities are related to income, price and expectations (about the future size of the network) Economics of Innovation 2013 10/16/2013 PAGE 7

MarketswithnetworkproductsNetworkeffects:Ifconsumer'sutilityisincreasingwithnumberofusersorproductsthatarecompatiblewithitDirectnetworkeffects:ability to communicatewithother users>themoreusers,the greatertheopportunities,the greaterincentivestojoinnetworkIndirectnetworkeffects:combiningdifferentcomponentsina complementarywaySwitchingcosts:buyersthatshouldbearthecosts of switchingwhentheyswitch-Meansthatbuyers valuecompatibilityTechnische UniversiteitTUEindhovenUniversity of TechnologyPAGE8EconomicsofInnovation201310/16/2013

Markets with network products • Network effects: If consumer’s utility is increasing with number of users or products that are compatible with it − Direct network effects: ability to communicate with other users > the more users, the greater the opportunities, the greater incentives to join network − Indirect network effects: combining different components in a complementary way • Switching costs: buyers that should bear the costs of switching when they switch − Means that buyers value compatibility Economics of Innovation 2013 10/16/2013 PAGE 8

Whymathematical shapeofexternaleffectsimportant?Powerlaws(Reed)Metcalf'sLaw(value=n^2)Thevalueofatelecommunicationsnetworkisproportional to the squareofthe numberof(metcalfe)usersofthesystem(n^2)."Odlyzko-Tillylaw(value=n*nlog (n)log(n)"Differentvalueofdifferentconnectionsandgroups(Sanotf)Reed'sLaw(value=2^n)"The value ofaGroup Forming Networkincreasesexponentially,inproportionto2nSarnoff's Law (value=n)Numberofusers,n"Valueofabroadcastnetworkisproportionaltothenumberofviewers"Source: Serge BlochTechnische UniversiteitTUEindhovenUniversityofTechnologyPAGE9EconomicsofInnovation201310/17/2013

Why mathematical shape of external effects important? Power laws • Metcalf’s Law (value = n^2) • The value of a telecommunications network is proportional to the square of the number of users of the system (n^2).” • Odlyzko-Tilly law (value = n * log(n)) − “Different value of different connections and groups” • Reed’s Law (value = 2^n) • “The value of a Group Forming Network increases exponentially, in proportion to 2 n • Sarnoff’s Law (value = n) • “Value of a broadcast network is proportional to the number of viewers” Economics of Innovation 2013 10/17/2013 PAGE 9 Source: Serge Bloch