MBA 734

Google Prediction Markets Case

2009-04-21T12:36:00.000-07:00

Is it a good idea to encourage ALL employees to trade in these markets? Should insiders and/or highly uninformed people be allowed to trade? Do they help or hurt the market?

The first thought that comes to mind is not to allow ALL employees to trade in the prediction markets. Common sense tells you that people with insider information have the potential to sway the prediction in a manner reflective of the information that they possess. This comes across as an unfair advantage for these traders in addition to possibly swaying the end result. On the other side of the information gap, there are those uninformed individuals who our instincts tell us that they lack any information of value and thus, should also be excluded from participating. Setting aside these notions, we take a look at the theory of prediction markets. The theory tells us Yes, ALL employees should be allowed to trade. In theory, with a large enough active population, the few people with insider information and those lacking any information, will be absorbed into the masses thus, balancing out any of their efforts to sway the prediction. The model is successful due to a synergy from the masses, where the output is greater than any one individual’s input. The case mentions this by saying that the prediction outcome is more accurate from a large population than it is from one highly inlelligent/informed person.

People with insider information and the highly uninformed people have the potential to help and harm, respectively, the outcome on a small scale. However, as the population of participants increases, the degree of influence from these two groups decreases. Therefore, it is important to use a large enough population to balance out these effects, in order to obtain accurate prediction results. Also, as a side note, it is important to understand that even those with insider information aren’t guaranteed to have an accurate prediction, as nobody is 100% sure of what the actual outcome will be. (They may have a greater probability of an accurate prediction, however.)

Threadless Case

2009-04-16T15:56:00.000-07:00

In what other industries or areas would Threadless’ community-driven product development model work well? And not so well?

Threadless’ community-driven product development model would work well in essentially any industry where consumer-generated products are valued. It would also have to be in an industry where simple products are sold. Highly complex products such as electronic devices, computers, etc. would not be candidates. Perhaps, the art industry would be able to utilize this methodology. Artists could use it for paintings, crafts, drawings, pottery, jewelry, etc. In addition, the music industry might also be a candidate. Singers/music artists/etc. could upload their music, have it critiqued, voted on, and sold.

However, this type of model is very limited in its applicability. This model mostly works for products (not services) that are provided by typically one person. People on their own, generally have limited resources and therefore aren’t able to offer many products or designs for products that are complex (i.e. usually this limits people to the arts.)

Social Networking Sites and LinkedIn

2009-04-07T12:18:00.000-07:00

Online social networks have become ubiquitous in the past few years. What forms of value do users get from these services and who is most likely to sign up on LinkedIn versus other sites?

Forms of value that users receive from social networking sites:

1) Re-establish connections with former co-workers, friends, family, lovers, etc.
2) Form new relationships with individuals. (i.e. meet new people, form new friendships, find dates, etc.)
3) Knowledge of what others are doing in their lives. This is accomplished via status bars, bloggs, posted pictures and videos, messages, etc.
4) Self-expression. Users have multiple forms of media to convey their thoughts, expressions, stories, experiences, etc. for an audience.
5) Networking. Social networks make it possible to find people who have something of value. (ex. someone looking for a job at a software company could find an Oracle employee and get that person to pass his/her resume around within the company.)
6) Advertising and promotion. Individuals and companies can leverage social networks to promote events, products, bands, music, groups, etc.
7) Groups. Through social networks, people are able to find others with similar interests and form/join groups.
8) Social interaction. People are able to communicate and interact with each other in a virtual environment.
9) Social media. Social networks offer a place for social media.
http://en.wikipedia.org/wiki/Social_media

LinkedIn:
People most likely to signup on LinkedIn as opposed to other social networking sites are:

1) Human Resource (HR) recruiters - for companies looking to hire new employees.
2) Independent Recruiters - use it to match jobseekers with open positions at companies.
3) Jobseekers - those seeking new employment by passing their resumes around and meeting recruiters.
4) Career-minded individuals - those persons who actively network with the purpose of managing/enhancing their careers.
5) Entrepreneurs - seeking contacts to find resources necessary for starting up a business. (i.e. seeking venture capitalists)
6) Business Executives - establishing contacts with other business executives for purposes of mergers and acquisitions, lining up their next job, etc.
7) Salespersons - use it to find sale leads (typically business-to-business sales).
8) Venture Capitalists - use it to find entrepreneurs with great ideas and companies to invest in.
9) Consultants - use it to find clients.

LinkedIn has positioned itself as a business-focused networking site that attracts “business-minded” users. This particular niche is what distinguishes LinkedIn from many other social networking sites such as myspace and facebook, which are not segmented and attract the general masses.

Wikipedia and DrKW Wiki Case

2009-03-30T15:35:00.000-07:00

How do Wikipedia’s processes for creating and modifying articles ever lead to high-quality results?

I believe this can best be explained by the following quote from Jimmy Wales, the founder of Wikipedia:

“The wiki model is different because it gives you an incentive when you’re writing. If you write something that annoys other people, it’s just going to be deleted. So if you want your writing to survive, you really have to strive to be cooperative and helpful.”

Wikipedia’s processes allow anybody (except for non-registered and new users) to edit, modify, delete, and restore text within articles. This allows for an open community of users where all users are essentially given the same privileges and thus, have equal rights regarding content. With an open model, people worry about graffiti, deletion, and accuracy of the information. However, these worries are addressed by the underlying fundamental element of Wikipedia: people actually use it because as a whole, they have a need for a free accurate online encyclopedia. The proof is in the pudding: the fact that millions of articles have been written by thousands of users, demonstrates that people use Wikipedia, that it works, and that there is a bone-fide need for it. Therefore, as long as people, as a whole, see value in the service, they will continue to use it and will monitor the accuracy of the content, for it is only useful to them when it contains accurate information (i.e. it is self-serving). Ultimately, it is a self-serving community that has incentives to keep it useful for its users and will therefore contribute, add value, and protect it.

Blogging at DrKW Case

2009-03-23T12:37:00.000-07:00

What are the advantages and disadvantages of implementing internal versus external employee blogs in a corporate setting? Are there certain industries where one of these strategies makes more sense?

Some advantages of internal employee blogs are:

- Facilitate communication and collaboration between internal company divisions (ex. Marketing and R&D)
- Companies have control over what information is being entered in the blogs
- Employees can voice suggestions/recommendations without the public becoming privy
- Internal blogs can serve as company community bulletin boards to disseminate important new information/policies.

Some disadvantages of internal employee blogs are:

- Smaller user base
- Company controlled and monitored – employees may not be able to discuss “sensitive” issues
- Not open to customers (i.e. no customer feedback)
- Audience is one-sided (all company representatives…no one will play devil’s advocate with)

Some advantages of external employee blogs:

- Open to the public. This aids in idea generation for new company products/new features/new ways of doing business/etc., can obtain customer feedback, can be used as a marketing platform, can be used to identify new market opportunities, relay product information, method to address the public (i.e. public relations media outlet).
- Larger user base

Some disadvantages of external employee blogs are:
- Lack of corporate control
- Security risks
- Opportunity for corporate information leaks (i.e. secret information)
- Risk of negative publicity

It may be most appropriate to use external employee blogs in customer-focused industries where customer feedback is important such as software development, consumer electronics, and consumer entertainment. Internal employee blogs may be a better fit in industries with companies that operate using highly protected trade secrets (prevent a leak) and operate in highly criticized social/political/areas (avoid negative publicity) such as R&D firms, non-environmentally friendly manufacturing firms, and the fast food industry (unhealthy food).

Apple and the digital music market

2009-03-18T14:12:00.001-07:00

Has the digital music market irreversibly tipped in Apple’s favor?

One might have been able to make a positive claim to the above question prior to Apple’s removal of DRM. DRM provided the grounds for high switching and high homing costs, since Apple’s proprietary Fairplay DRM software was incompatible with non-Apple players and products. Apple was able to grab an 80% market share in the digital music market. A part of this advantage came from customers getting “locked in” once they purchased DRM-encoded music in AAC format through iTunes. Now that iTunes sells DRM-free music, this has removed this advantage along with the high switching and homing costs. It is expected that Apple’s iTunes will see a decreased market share in a DRM-free environment, as users will be able to obtain music content from other sources. However, it is unlikely that consumers will switch music content providers unless Apple is the only source offering DRM-free music which, would give Apple a clear advantage, since consumers prefer DRM-free music due to its universal usability and freedom from usage restrictions.

Regardless of the DRM situation and its impact on iTunes, Apple has admitted that it earns no real profits from music sales through iTunes and that Apple’s true revenue is generated by hardware sales such as iPod and iPhone sales. Therefore, Apple will continue to be a profitable and successful company as long as it continues to keep its competitive advantage derived from its customer-focused, easy-to-use, and innovative technology...not through music sales.

Apple has been able to keep its dominant share in the portable digital music player market by continually releasing newer, better, versions of its iPods. A replacement mentality among consumers has emerged. Consumers have been replacing their older iPods for newly released versions thus, allowing Apple to defeat stagnant sales within a saturated market. Additionally, Apple’s iPhone has been the next product line extension of its digital music players and includes an integrated mini-computer and cell phone. With over 17 million iPhone sales within 2yrs, the iPhone has seen impressive growth and has placed Apple in the lead for the mobile digital music market.

Brightcove Case

2009-03-02T11:52:00.000-08:00

What are the strengths and weaknesses of Brightcove’s business model?

Strengths:

Integrated model with four components - four sides are publishers, advertisers, affiliates, and consumers (multi-sided network).

Multiple Potential revenue sources - Advertising, platform operations, content licensing and distribution, etc.

Syndicated Marketplace - gives the potential to make money at the Brightcove site and any other sites with Brightcove-enabled video content. This strategy helps hurdle the networking effects in an attempt to gain a wider acceptance, similar to a licensing strategy.

Market Niche directed towards providing a solution for content providers. By offering content providers a total package for offering online video, Brightcove has positioned itself in a unique way.

Potential first-mover advantage - Brightcove has begun to service a market that is subject to winner-take-all. If it can become fully operational, it may be able to leverage its first-mover advantage to help place it as a top contender for the market and potentially as the winner in the future.

Weaknesses:

Low-barriers to entry - Providing a platform for “internet tv” is easy and fairly inexpensive. This leads to increased competition, which in turn leads to lower profitability.
Competitors - Several strong competitors exist in the marketplace (Google, YouTube, Amazon, Yahoo, www.revver.com, www.roo.com, etc.)

Massive Amount of Resources - The business model requires a large amount of resources (time, money, skilled employees, etc.) in order to build the complete business.

Complex business model - The business model is made up of many moving parts (multi-sided) and needs all parts in order to function (network must be adopted by all parties involved).

Subject to the “Penguin Effect” - have to get all four parties involved, nobody will join without the others. Who will join first?

Difficult to implement - It is difficult to implement portions of the business model in phases; essentially, it must all be done at once (an all-or-none strategy).

DoCoMo & Google Cases

2009-02-23T13:48:00.000-08:00

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

2009-02-17T17:22:00.000-08:00

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

2009-02-11T15:19:00.000-08:00

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

2009-02-02T10:53:00.000-08:00

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.

ezBoard Case

2009-01-23T06:35:00.001-08:00

1. How should ezboard update their business model to reach their revenue goals?
2. What services should they consider offering with the new Version 8.0 software?