The value of many products and services rises or falls with the number of customers using them; the fewer fax machines in use, the less important it is to have one. These network effects influence consumer decisions and affect companies' ability to compete. Strategists have developed some well-known rules for navigating business environments with network effects. "Move first" is one, and "get big fast" is another. In a study of dozens of companies, however, the authors found that quite often the conventional wisdom was dead wrong. And when the rules failed, the reason was always the same: Companies trip up when they try to attract large volumes of customers without understanding (1) the strength of mutual attraction among various customer groups and (2) the extent of asymmetric attraction among them. Looking at examples such as TripAdvisor, Wikipedia, and the New York Times, the authors offer strategies for competing in markets with network effects. New entrants should focus on customer groups that they are uniquely positioned to serve or appeal to the most attractive customers in a market. Incumbents pursuing growth strategies in adjacent markets or new geographies should consider how similar the needs of new customers are to those of existing customers. Offering complements also allows incumbents to reach additional customer groups.
Wojciech Woziwodzki, co-founder, president, and CEO of Tequila Mobile SA, a mobile games developer, publisher, and service provider, had to make some important strategic decisions. Tequila Mobile SA had already decided to shift to a new "free2play" revenue model but needed to decide whether to focus on building its business in markets where penetration of smartphone devices was high and the economy was developed or in markets where the use of mobile devices was taking off but the economy was still developing. The other critical decision was whether to continue to invest in in-house game development or focus on being a platform providing tools for third-party developers. The mobile game industry had exploded in recent years with the introduction of smartphones, application (app) stores, and cell phone penetration into developing economies. It brought with it a significant increase in the number of mobile games being developed and published, and Woziwodzki wanted to differentiate Tequila Mobile SA from the growing number of players in the quickly evolving industry.
Turbine, Inc., is releasing a massively multiplayer online (MMO) game, The Lord of the Rings Online, based on the popular film trilogy. The firm's CEO needs to consider market conditions and game characteristics to build a business model for the game, decide which type of consumers to target-the hardcore gamers or the casual gamers-and form the optimal pricing scheme. One particular challenge he needs to face is that there is a dominant incumbent in the MMO market that Turbine enters, World of Warcraft. The case encourages students to explore the nature of the competition in the MMO market and to define characteristics of a successful business model.
Cindy Gallop launched IfWeRanTheWorld (IWRTW) in February 2010, as what the tech world called minimum viable product, in order to real-world test Gallop's "business of the future" concept while development was ongoing. IWRTW was conceived to bring together human good intentions with corporate good intentions, to activate both into shared action, against shared goals, to deliver shared and mutually accountable results. She wanted to make "doing good as sexy as hell" for both individuals and businesses, to make it quicker, easier, and simpler to turn intention into action, one "microaction" at a time. In January 2011, Gallop's key challenge was how to amplify the IWRTW experience in a way that would make it a more valuable-and immediately understandable-business proposition to a brand. The idea behind the venture was only as good as its business model and its execution.
The case describes two alternative elective course assignment procedures: Harvard Business School's lottery-based system and Kellogg Graduate School of Management's bidding-based system. The case has been designed to discuss the benefits and drawbacks of each system and their desirability (or lack thereof) depending on the context (the broader business system) within which they are implemented. The case also describes the draft used by the NBA to assign new players to teams. This allows for a discussion of whether a similar system may be preferable to lottery-based or bidding-based procedures to assign students to courses in business schools.
At a time when ever-rising smartphone sales are driven as much by demand for devices that run must-have third-party apps as by the quality of traditional voice and data services, there is a myriad of challenges facing the software developer who is looking to choose which mobile development software platform to invest in. Written from the perspective of an established consumer bank that is about to commence development on its first downloadable application for mobile devices, the case surveys the state of the smartphone market in 2010 and considers the challenges of a platform landscape that includes significantly varying installed device base sizes, growth rates, application distribution models, and hardware device profiles. Focusing on Apple's market-leading iOS platform and App Store, for iPhones and other devices and on Google's developing Android OS and associated Android Market, the case considers potential benefits and pitfalls of each and touches on the reasons that other longer-standing platforms, such as RIM's BlackBerry platform, are less appealing to modern-day application developers.
After years of gaming console industry leadership, how should Sony respond to the overwhelming success of competitor Nintendo's user-friendly Wii over Sony's high-tech PlayStation 3? It was August 2008 and Kazuo Hirai, chief executive of Sony Computer Entertainment Inc. (SCEI), was contemplating questions from reporters about how Sony planned to respond to Nintendo's Wii console, which was dramatically leading Sony's PlayStation 3 and Microsoft's Xbox 360 consoles in sales. The Wii's supremacy was especially disconcerting to Hirai, given that Sony had dominated the videogame industry and largely defined its course since 1995. But the tables had turned dramatically in the current generation. Though the Wii was technologically much less advanced than were PS3 and Xbox 360, the Wii's ease of use, innovative motion-sensitive controller, and simple but fun games had made the console a hit with all demographics: nine to 65 years old, male and female. As a result, Nintendo had stolen a march on its two larger rivals by appealing to people who were traditionally not avid videogame users. Microsoft's and Sony's more powerful machines remained targeted at the traditional "core gamer" audience: 18-to-65-year-old males. Hirai was determined to restore that supremacy in the current generation or the next. He knew that whether or not he publicly defined SCEI's strategy as a response to Wii, he had to find a way for his company to deal with the new order of the videogame industry that Nintendo had created. In seeking to do so, Hirai might find guidance in the history of the industry, which had been marked by rapid and frequent changes of fortune.
eHarmony's CEO needs to decide how to react to imitations of its business model, encroachment by competing models and ascendance of free substitutes. The case provides four options to address these threats and asks students to choose one after they analyzed the company's strategy. The analysis begins with understanding of value proposition, as derived from failures of substitutes. It proceeds to examine industry structure and important differences across its different niches. Students can then analyze the essence of a focused differentiation strategy and understand the importance of costly strategic trade-offs. They can also estimate the size of eHarmony's competitive advantage over two other competitors before articulating threats to sustainability, all of which will help them choose one of the four options.
Introduces students to the technique of relative cost analysis, a core technique of strategists. Among the intricate quantitative analyses that strategists undertake, relative cost analysis may be the most common. The goal of a relative cost analysis is simply to estimate how a company's costs compare to a rival's. Companies examine relative costs for a host of reasons: to anticipate how a rival is likely to react to a price change; to predict how a price war may evolve; to test whether a cost advantage it believes it has is real and sustainable; to decide how low a company must bid in order to win a competitive contract from a rival; to identify opportunities for internal cost reduction; to estimate, in the context of an acquisition, how much the costs of an acquired company might be reduced and what a reasonable price might be for the company; and so forth.