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Role of Network Externalities and Technology in Creating Profitable Growth

Knowledge Sharing SessionDr. Ir. Asnan Furinto, MBA

October 27, 2010

The Growth of Network and Technology

• Facebook, Twitter, mobile phones, Blackberry

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

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

• Good quality product and and service is no longer sufficient

• Network of producers, complements, and users

News on Video Game Competition

Battle between Standards

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

GSM vs. CDMA PAL vs. Secam vs. NTSC

Interrelationships: Technology, Network, Growth

Technology New Design, New Process, New Basis for Competition

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

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

Technology: The S Curve

Network

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

Three Important Networks

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

Interdependence of “Hardware” and “Software”

Direct EffectDirect EffectIndirect Effect

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

Indirect Network Effects

• Supply of software and demand for hardware affect each

otherother

• Demand side indirect network effect: software availability

affects hardware sales

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

affects software availability

Take Off Analysis (1)

New launch: 1939 New launch: 1954

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

New launch: 1939Hardware: 1947Software: 1948



New launch: 1983Hardware: 1985

New launch: 1985Hardware: 1990


Hardware: 1985Software: 1988

Hardware: 1990Software: 1988


New launch: 1989 New launch: 1997




Summary of Take Off Analysis


Creating a Secondary Dimension for Competition

Technology opens up new basis of competition.

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

Wide Area for Innovation : Design, Process

Wide Area for Innovation : Secondary Dimension (?)

Source: WBCSD IEA Cement Technology Roadmap 2009

Market Share and Profitability Growth

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

Industry Structure: The Rule of 3

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

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

Source: Asosiasi Semen Indonesia 2008

Lessons Learned from Network and Technology

• We must have good quality product in the first place

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

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

d lwe can develop

• “Hardware” and “Software” are interrelated

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

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

and network