DoCoMo & Google Cases

1. Is DoCoMo wise to offer its existing mobile phone rivals access to FeliCa?


This question is a matter of economics and determining which avenue will yield the greatest financial return. If DoCoMo believes that it will eventually make more money by offering the Felica technology and licensing it to rivals rather than offering it as a DoCoMo exclusive, then that ought to be the course of action. In addition, this is also impacts the level of adoption of the Felica technology. Since DoCoMo is a major partner in Felica, it has a financial interest (a potential new revenue stream) in seeing Felica succeed and thus, will benefit from the mass-adoption of Felica. DoCoMo has maxed out its market share and needs to seek new revenue streams and Felica is first in line as a realistic possibility. Networking effects suggest that the Felica technology will only be successful if it is widely-adopted by all and regarded as the primary IC technology. The Bluetooth technology is a good example; Sony invented and patented the Bluetooth technology and decided to license the technology so that it would be adopted on a grand-scale as opposed to keeping it proprietary and specific to only Sony products. Also, by licensing the technology for others to use, there is potential for a reduction in the risk associated with implementation of the technology since all cell phone manufacturers/carries may decide to implement the technology thus, enhancing the possibility of success through mass-adoption. Finally, as the case mentioned, DoCoMo will still have a competitive advantage over its competitors who license the Felica technology, through a first-mover advantage every time there is a modification/improvement to the technology, DoCoMo will be the first to have access to it. Therefore, it is wise for DoCoMo to offer Felica to its rivals.

2. Is search a winner-take-all business?

Search is not a WTA business:

1. It is not a "natural monopoly"

2. Homing-costs are low for both sides

3. Network effects are irrelevant since "searches" are automated algorithms and not a network

4. Platform differentiation can be transaction-specific when people need different types of searches (ex. legal search, library search, document search, image search, person search, etc.)

Therefore, "search" is a multi-homing platform.

Electronic Arts 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?

The internet has become an important component to the gaming market. Nintendo and Sony have both joined Microsoft in offering an online component to their gaming consoles. The Nintendo wii allows users to connect the console up to a wired or wireless internet connection, enabling web-surfing, news-browsing, game downloading, wii-channel downloading, and multi-player interactive play with friends and family. There are a multitude of free internet services available, including playing games online with other players. For downloading games, Wii points are used and may be purchased through the Wii store.

Sony has countered by offering its 100% free PlayStation®Network. Users may sign up for free accounts which, give them access to free multiplayer online gaming, in-game matchmaking, text and chat with friends, viewing friends online, voice-chat, video-chat with up to 6 people, previewing upcoming games, purchasing games, watching HD movies and game trailers, renting or purchasing downloadable movies and TV shows in standard or HD quality.

Therefore, both Nintendo and Sony have integrated free online gaming (and much more into their consoles) in an attempt to offer customers more entertainment value while fiercely competing with Microsoft’s Xbox Live service. In addition, Nintendo and Sony have made efforts to distinguish their systems by making them standalone multi-media systems with internet offerings. Therefore, in order to compete in the game console market, online gaming is a must. Additionally, it is obvious that in order to be a competitor in the video game market, video games creators must create games for online play and that are compatible with each of these gaming consoles.

From a business standpoint, there is potential for achieving additional revenues through movie rentals, movie sales, game purchases, etc. The question is whether these companies are able to generate more revenue, by offering online gaming, than the costs associated with providing the service.

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?

Currently, Netflix is running its VOD service in parallel with their main source of revenue, DVD rentals. However, the VOD service is not offered as a standalone service, but rather as a bonus offering added to the standard DVD subscription service. Users have several options in regards to how they watch the streaming video content: on their PCs, Macs, or Netflix-ready device such as the Xbox 360, etc.

By offering the VOD service as a free bonus, Netflix is able to get a foothold in the newly emerging process of “video rental” without cannibalizing its DVD rental operations. By pursuing the emerging technology and rental process, Netflix has determined that having a first-mover advantage is critical to its future business operations. Thus, reinforcing its significant amount of investment in the VOD service. One critical component of the VOD service will be to return a profit. It is unclear whether Netflix is currently making any money off of VOD and/or whether it will be able to make money in the future. Or better yet, how it will be able to make money (i.e. rental fees, advertisements, purchase, etc.) It can be assumed that DVD rentals will wane in the future due to new technological advances such as Blue-Ray technology and Internet VOD. With Blue-Ray technology taking off as we speak, it seems obvious that Netflix will have no troubles incorporating Blue-Ray discs into its offerings. However, internet VOD hasn’t taken a strong foothold yet. This is primarily due to the fact that people prefer to watch movies on large HD TV screens over small computer screens and the technology to combine internet and TV hasn’t yet evolved to the point of mainstream. Netflix is trying to bridge this gap through netflix-ready devices. The other problem area for VOD is content and being able to provide large amounts of it. Despite this issue, Netflix advertises that it has access to over 12,000 movies and TV episodes.

Opinion Section:
I believe that despite the massive amounts of financial hemorrhaging that Netflix will endure pursuing the internet VOD service, it will suffer a greater financial catastrophe if it turns a blind eye to VOD and gives up any possible first-mover advantage into this new market, which I predict will be the predominant methodology for video rental in the near future. Additionally, Netflix must continually reinvent itself in order to offer cutting-edge methods for video rental or else competitors will cut it out and take the lead, leaving its DVD rental service to wither and die. Finally, I believe that Netflix chose the best of its options, in terms of offering VOD. People don’t want to buy movies on the internet that they have to download...that’s not renting! Also, it is highly unlikely that Netflix would be able to generate enough revenue based off of selling advertisements, to make the business model as successful as the current one. By offering the service for “free” to its existing loyal customers, it will better be able to test the adoption of the VOD offering as well as slowly migrate its users from DVD rental to VOD. All-in-all, I believe Netflix has chosen a wise path.

P2P Case

Who will win the competitive battle between P2P file sharing networks and iTunes over the long run and why?


The answer to this question is dependent upon the following: legal consequences, cost, and accessibility of illegal downloading. First, in order to make people pay for something (legal downloading) there must be steep enough consequences for downloading illegally. Throughout recent history, the music labels have had limited success in protecting their copyrights through the court system. Despite several attempts at prosecution, file sharing entities have been allowed to exist due to consumers’ “fair rights.” Even attempts at prosecuting individuals proved to be a failure due to the inefficiencies (wasting of time and money) associated with pursuing a resource-poor target. Therefore, without enforceable legal consequences, peer-to-peer file sharing will not only persist, but will be prevalent.

Second, cost has a significant impact on determining whether individuals will choose peer-to-peer file sharing or paid services through iTunes, Rhapsody, etc. The higher the cost associated with the digital media, the greater the likelihood that an individual will resort to peer-to-peer file sharing services to obtain the digital media for free. The premise here is a risk-to-reward philosophy; meaning that if a song, for example, costs a mere $0.05 and the individual perceives a medium level of risk that he/she will be prosecuted if caught downloading illegally, then it is much more likely that the person will purchase the song legally through iTunes than if the purchase price were $0.99 per song.

Thirdly, accessibility, speed, and ease of peer-to-peer file sharing and digital media content has a significant impact upon the adoption and use of paid services such as iTunes. The easier it is for individuals to access and obtain digital media using peer-to-peer file sharing services, the less likely it is that those same people will purchase their digital medial through iTunes. Today, digital media is extremely available due to current advancements in technology and the widespread adoption of such technology due to its low cost; the majority of homes in America have computers with internet connections. Also, along with this technology comes the inability to create a protection that cannot be hacked and undone. This alone, facilitates the sharing of digital media as it cannot be prevented.

Additionally, iTunes has no financial interest in selling music other than to support its iPod and iPhone sales (i.e. Apple doesn’t make a profit on selling digital content on iTunes). In fact, Steve Jobs (CEO of Apple) never believed in the use of DRM; he was forced to use it in order to convince the “big five” record labels to let him sell music through iTunes, which only acted as a digital media source for iPod and iPhone users. Currently, Apple has begun selling DRM-free music through iTunes. For an additional $0.30 per song or $0.60 per video, iTunes users may download music and video that is DRM free, which is free of burn limits and will work on all computers and portable music players.

Therefore, with musicians getting “robbed” by their recording labels, the unprofitability of media content distributors such as iTunes, the lack of legal consequences, and the pervasiveness of peer-to-peer file sharing, it seems doubtful that iTunes-type services will outlast P2P file sharing.