Emerging Techno-business Digital Hubs

Shishir K. Jha
Ashank Desai Centre for Policy Studies
IIT Bombay
skjha@iitb.ac.in
Topics For Class (November 30th):
- Revision of Previous Class
- Generativity - Jonathan Zittrain
- Technological Disruptions - Clayton Christensen
- Long Tail - Chris Anderson
- Wisdom of the Crowds - James Suroweicki
- Open Business Models - Henry Chesbrough
● Types of Platforms:
● [advertising platforms] - (e.g. Google, Facebook) - extract information on users,
undertake a labour of analysis, and then use the products of that process to sell ad
space.
● [cloud platforms] (e.g. AWS, Salesforce) - owns the hardware and software of digital-
dependent businesses and are renting them out as needed.
● [industrial platforms] (e.g. GE, Siemens) - build the hardware and software
necessary to transform traditional manufacturing into internet-connected processes
that lower the costs of production and transform goods into services.
● [product platforms] (e.g. Rolls Royce, Spotify) - generate revenue by using other
platforms to transform a traditional good into a service and by collecting rent or
subscription fees on them.
● [lean platforms] (e.g. Uber, Airbnb) - reduce their ownership of assets to a minimum
and to profit by reducing costs as much as possible.
 Topics:
• Generativity - Jonathan Zittrain
• Technological Disruptions - Clayton Christensen
• Long Tail - Chris Anderson
• Wisdom of the Crowds - James Suroweicki
• Open Business Models - Henry Chesbrough
Digital Promises
• Scientists such as Vinton Cerf & Tim Berners Lee, and others, during the late
80s and early 90s, built the granular functioning of the internet, their vision
was not limited to merely the technical functioning.
• The NET would completely democratise several aspects of our lives, beginning
from knowledge creation to institutional and organizational governance.

Digital Pitfalls

• From a public policy perspective, this vision seems rather compromised.

• Just six companies consume close to 60% of global network traffic (Google,
Facebook, Netflix, Amazon, Microsoft and Apple).
• Fait-accompli (tech world so far ahead of policy oversight, creates forms of
tech entrenchment).
• Reigning model of revenue generation is advertising (or data extraction)
 Big Tech and Policy Reform
• 48 countries are already pursuing forms of policy interventions to
address the growing importance of big tech.
• Policies around antitrust, privacy, data protection, consumer rights,
labour regulations, safety and public order are in the offing globally.
• The early incumbents like Geocities (website hosting), MySpace (social
media), Orkut (social media), Yahoo! (email) and Skype
(communication) have been decisively replaced.
• Information (free) has clear characteristics of a public good,
essentially non-rival and non-excludable.
• Classic problem with public goods - people unprepared to pay for
services - free-ride.
What is "generativity" and why is it at risk? - Zittrain

● Jonathan Zittrain - "The future of the Internet and how to stop it".
● Generativity is a system’s capacity to produce unanticipated change through unfiltered
contributions from broad and varied audiences.

● IT ecosystem functions best with generative technology at its core.

● Ability to use a platform to build new things (unintended use) and share them without
the permission of the maker of the platform [move from copyright infringement/
permission to platform or device based intermediary infringement]

● Ideas central to the Internet revolution came about because of experimentation by

programmers. Allowed many ideas to be tried with low investment and low risk.

● Mainstream is however dominated by non-generative systems, that will harm innovation

and expressions of important individual freedoms.

● Risk with open systems: Qualities that make generative systems good also make them
susceptible to abuse when they become successful.

Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay

 The Generative Success of Wikipedia

● Success of Wikipedia can help us come to solutions for problems besetting generative
successes at other layers of the Internet.

● Success based on a light regulatory touch (as opposed to centralized interventions):

▬ an openness to flexible public involvement,
▬ a way for members of the public to make editing changes, good or bad, with
immediate effect;
▬ a focus on earnest discussion, including reference to neutral dispute resolution
policies as a means of being strengthened rather than driven by disagreements;
▬ a core of people prepared to model an ethos that others can follow.

● Wikipedia also stands for the idea that people of diverse backgrounds can work
together on a common project with, whatever its other weaknesses, bringing such
knowledge to the world.

Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay

 Lack of Generativity:
Rise of Tethered Systems/Appliances
1. Toward independent information appliances that optimize a particular application and
that naturally reject user or third-party modifications or

2. Toward a form of device lockdown that resembles the centralized control that IBM
exerted over its rented mainframes in the 1960s.

3. People will be propelled away from open systems (PC environment) and toward
information appliances controlled by their makers.
▬ Eliminate the PC from many living rooms,
▬ Eliminate the distribution point of new, useful software from any corner of the globe.

4. We do not buy a PC (proxy for an open environment) as insurance policy against closed
tethered appliances (tethered systems - ZERO basics of FB) that limit our freedoms,
even though a PC serves exactly this vital function.

5. Tethered Appliances: iPads, iPhones, Xboxes, Facebook represent the first wave of
Internet-centered products that can’t be easily modified by anyone except their vendors
or selected partners.
▬ Tethered appliances and applications have eclipsed the PC, the very nature of the
Internet—its “generativity,” or innovative character — is at grave risk.
 Lack of Generativity:
Rise of Tethered Systems/Appliances
● Top 10 Websites accounted for 31% of US page views in 2001, 40% in 2006 and 75% in
2010. 6 companies consume close to 60% of global network traffic (Google, Facebook,
Netflix, Amazon, Microsoft and Apple).
● 68% of all website traffic comes from search engines ('21).
● Google (92.16%) - majority market share of all search engine activity, with Bing a
distant second (2.88%).
● 6 million apps in mobile app stores (2.87 Google; 2 Apple; 0.67 Windows; 0.45
Amazon), 25% of these apps would only be used once though.
● Estimated that mobile apps will generate $693 billion worldwide in 2021.
● ComScore study [2009]: only 16% of users ever click on an ad, and 8% of users
accounted for 85 percent of all clicks.
● TV — which also accounts for 35 % of our media time, gets nearly 40 percent of ad
dollars.

Carcinogens
Prof. Shishir K. Jha, Shailesh | NoSchool
J. Mehta Mercy / of
NoManagement,
Malice (profgalloway.com)
IIT Bombay
 Is The Open Web Dead?
● Openness is where innovation happens; closedness is where value is captured.
● If you follow the money, it clearly appears to be heading towards the closed
platforms.

● A Platform Driven Internet Economy:

Vision of Mark Zuckerberg: developers who built applications would always be
subservient to the platform itself. Creating a radical displacement & an extra-
ordinary concentration of power. The Web of countless entrepreneurs was being
overshadowed by the single model: rigid standards, high design, centralized
control.
 Topics:
• Generativity - Jonathan Zittrain
• Technological Disruptions - Clayton Christensen
• Long Tail - Chris Anderson
• Wisdom of the Crowds - James Suroweicki
• Open Business Models - Henry Chesbrough
 Market Disruptions/Innovator's Dilemma
- Why do successful companies often fail to respond appropriately and profitably when a
disruptive innovation emerges? or
- Why are one's best customers sometimes the last people one should be listening to?

● Problems of Proximity: by staying too close to one's current customers a company

develops processes and incentive systems that are geared only toward satisfying those
customers.

● Paradox at the heart of this issue: the logical competent management decisions that are
critical to a company’s success are also the very reasons that a company loses its position
of market leadership.

● Company's resources: meeting needs of established customers and fending off

competitors takes all the resources a company has. Such processes are designed to weed
out proposed products & technologies that do not address the present customers’
needs.

● Organizational challenge: as a result, the company has great organizational difficulty

recognizing and responding to the disruptive technology/model — whose potential at
least at first, is with new markets and customers.
Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay
 Sustaining Innovation

Source:- Christensen:
Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay
 Disruptive Innovation
Sustaining Innovation

time t1

Drastic price/performance reduction

is a key challenge, e.g. “@15% price
Source:- Christensen: increase with 50% performance
improvement”
Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay
 Haier (Chinese MNC)
♣ Introducing innovative products for niche consumer markets and then
expand into bigger ones – “Loose brick in the wall”
 Mini dual-compartment refrigerators for offices, college dormitories
and hotels.
 Specially designed bottom drawer that children could reach into to
grab ice cream.
 Electric wine cellars for customers who lacked regular cellars.

♣ Global Competitors: America’s Whirlpool, Sweden’s Electrolux &

Japan’s Matsushita, in terms of capital, technology and manpower.

♣ Haier: No. 1 white goods manufacturer in China since 2001 and the
leading refrigerator manufacturer worldwide by Euromonitor.
Hard-disk-drive industry - demonstrating danger of staying too close to customers.

● History of the hard-disk-drive industry, points of disruptive technological change: when

the diameter of disk drives shrank from the original 14 to 8 inches, then to 5.25 &
finally to 3.5 inches.
● Each new drive initially offered substantially less storage capacity than the typical user
in the established market required.
● 8-inch drive offered 20 MB when introduced, while the primary market for disk drives
at that time—mainframes—-required 200 MB on average. Not surprisingly, the leading
computer manufacturers rejected the 8- inch architecture at first. As a result, their
suppliers, whose mainstream products consisted of 14-inch drives with more than 200
MB of capacity, did not pursue the disruptive products aggressively.
● Pattern was repeated when the 5.25-inch and 3.5-inch drives emerged: established
computer makers rejected the drives as inadequate, and, in turn, their disk-drive
suppliers ignored them as well.
● Between 1976 & 1992, disk-drive performance improved at a stunning rate: the
physical size of a 100-megabyte (MB) system shrank from 5,400 to 8 cubic inches,
and the cost per MB fell from $560 to $5. … As a result, not one of the independent
disk-drive companies that existed in 1976 survives today.
 Disruption
● Managers of companies with disruptive technologies in new or emerging
markets look at the world quite differently.
● Without the high cost structures of their established counterparts, these
companies find the new and emerging markets appealing.
● Once the companies have secured a foothold in the markets and improved the
performance of their technologies, the established markets above them, served
by high-cost suppliers, look appetizing.
● When they do attack, the entrant companies find the established players to be
easy and unprepared opponents because the opponents have been looking
upmarket themselves, discounting the threat from below.
What really is at issue?

● Sustaining innovation maintains a steady rate of product improvement.

● Disruptive innovation often sacrifices performance along dimensions that are
important to current customers and offers a very different package of attributes
that are not (yet) valued by those customers.

● New attributes can open up entirely new markets, e.g., Sony’s early transistor
radios sacrificed sound fidelity, but they created a new market for small, portable
radios.

● New attributes improve at such a rapid rate that the new technology can later
invade the established markets.

● Staying focused on your main customers can work so well that you overlook
disruptive technologies.

● Consequences can be far more disastrous than merely a missed opportunity.

 Topics:
• Generativity - Jonathan Zittrain
• Technological Disruptions - Clayton Christensen
• Long Tail - Chris Anderson
• Wisdom of the Crowds - James Suroweicki
• Open Business Models - Henry Chesbrough
Digital Revolution

No. Business Process Examples

1. Democratizing PC + Internet, digital video-cameras,

Production desktop music, video editing software &
(text, audio & video) social computing ...
2. Democratizing Amazon, eBay, iTunes, Netflix …
Distribution
(distribution channels)
3. Connecting Google, Amazon, Craiglist, blogs, on-line
Supply & Demand recommendation and best seller lists …
(search engines)
 Long Tail
 Long Tail first coined by Chris Anderson.
 Products low in demand or with low sales volume can cumulatively make
up a market share that actually rivals or exceeds the relatively few current
bestsellers and blockbusters.
 Pareto Principle
● Advertising, promotion and distribution have been closely aligned with a
Pareto reality where approximately 20% of the products have brought in 80%
of the revenues.

● Pareto principle is changing for dozens of markets [books, music, movies,

software, advertisement …] under the influence of the digital revolution.

● By greatly lowering search costs, IT in general and Internet markets in

particular could substantially increase the collective share of niche products
[like out-of-print-books] thereby creating a longer tail in the distribution of
sales.

Source: Chris Anderson, “The Long Tail”, http://changethis.com.

 Physics and the limits of shelf space
● Constraints of physical shelf space:

● Victims of popularity: With high storage and distribution costs only the most
popular products can be sold and Pareto’s principle comes into effect.

● Low inventory, storage and distribution costs makes it economically viable to

sell relatively ‘unpopular’ [niche] products in digital space.

● Constraints of physics:

● Broadcast technologies [radio/cable] have a limited reach. Large audiences

need to be aggregated in defined geographic areas to take advantage of
content being beamed to them. Beyond this geographical area the content is
highly restricted.

● Dispersed audiences can be easily aggregated and are a steady source of

revenue generation for digital products, however unpopular it may be
[iTunes].

● Long Tail business can treat consumers as individuals, offering mass

 Piracy and the Long Tail
● Misplaced piracy anxiety: With the marginal cost of production being abysmally low or
almost nil, reproduction has become cheap and easy with no depreciation in quality for
infinite number of copies.

● Piracy also has a cost: the psychological value of the inconvenience or the risk involved
in getting a pirated product whose quality may be dubious.

● In 1999, best-selling author Paulo Coelho, who wrote “The Alchemist,” was failing in

Russia. That year he sold only about 1,000 books, and his Russian publisher dropped
him. But after he found another, Coelho took a radical step. On his own Web site,
launched in 1996, he posted a digital Russian copy of "The Alchemist."

● By offering fair pricing, ease of use, and consistent quality, for digital products one can
compete with the pirated world.

● Business models can attack the root cause of piracy: namely high costs of storage,
distribution and delivery and their inability to take advantage of the Long Tail.
 Response Of B&M Business Models Against Piracy

● B&M reasoning [RIAA, MPAA, BSA, Hollywood and Bollywood]:

● Digital economy is flawed as it easily allows for leakages through pirate
networks.

● Response to the digital threat:

● Lobbying law makers for stringent control over the flow of digital
information [extending copyright to life of author + 70 years]
● Principally employing restrictive digital management practices like DRM
(Digital Rights Management).
Mapping Changes In Copyright Law
Copyright Law in 1790:
  PUBLISH TRANSFORM
Commercial (Regulated) © Free
Noncommercial (Unregulated) Free Free
Copyright Law in 1890:
  PUBLISH TRANSFORM
Commercial © ©
Noncommercial Free Free
Copyright Law in 1975: as copying machines became common
  PUBLISH TRANSFORM
Commercial © ©
Noncommercial © / Free Free
Copyright Law in 2010: as digital networks become common
  PUBLISH TRANSFORM
Commercial © ©
Noncommercial © ©
Mapping Copyright Law

US Copyright Extensions: From 1790 to 2005

1790 First copyright term is 14 years + 14 year renewal

1831 28 years + 14 year renewal

1909 28 years + 28 year renewal

1962-2005 Eleven times extension of existing copyrights + twice

extension of renewals

1976 Copyrights extended to author’s life + 50 years

(75 years if owned by a corporation)

1998 Sonny Bono Act extends existing copyrights another

20 years [life + 70 years]
 Topics:
• Generativity - Jonathan Zittrain
• Technological Disruptions - Clayton Christensen
• Long Tail - Chris Anderson
• Wisdom of the Crowds - James Suroweicki
• Open Business Models - Henry Chesbrough
 Wisdom of the Crowds

● Collective wisdom is often superior to the individual’s wisdom of even

the biggest expert

● Leverage collective wisdom with decentralized systems designed to take

advantage of crowd-sourced decision making

● Important limitations of crowd wisdom, most of sociological nature,

that we must be aware of
 Francis Galton - knighted, an English Victorian era polymath: a
statistician, sociologist, psychologist, anthropologist.

● Galton obsessed with two things: the measurement of physical and mental
qualities, and breeding.
● Destination - the annual West of England Fat Stock and Poultry Exhibition, a
regional fair where the local farmers and townspeople gathered to appraise the
quality of each other’s cattle, sheep, chickens, horses, and pigs. …
● Breeding mattered to Galton because he believed that only a very few people
had the characteristics necessary to keep societies healthy. Devoted much of his
career to measuring those characteristics, in fact, in order to prove that the vast
majority of people did not have them.
● Experiments left him with little faith in the intelligence of the average person,
“the stupidity and wrong-headedness of many men and women being so great
as to be scarcely credible.” Power and control stayed in the hands of the select,
well-bred few, Galton believed, could a society remain healthy and strong.
● Galton, in the exhibition, came across a weight-judging competition. A fat ox had
been selected and placed on display, and members of a gathering crowd were lining
up to place wagers on the weight of the ox. … For sixpence, you could buy a stamped
and numbered ticket, where you filled in your name, your address, and your
estimate. The best guesses would receive prizes.
● 800 people tried their luck. Were a diverse lot - butchers and farmers, who were
presumably expert at judging the weight of livestock, but there were also quite a few
people who had no insider knowledge of cattle.
● Galton borrowed the tickets from the organizers and ran a series of statistical tests
on them. Galton … calculated the mean of the group’s guesses. That number
represented, you could say, the collective wisdom of the Plymouth crowd. If the
crowd were a single person, that was how much it would have guessed the ox
weighed. Galton undoubtedly thought that the average guess of the group would be
way off the mark.
● After all, mix a few very smart people with some mediocre people and a lot of dumb
people, and it seems likely you’d end up with a dumb answer. But Galton was wrong.
● Crowd had guessed that the ox, after it had been slaughtered and dressed, would
weigh 1,197 pounds. After it had been slaughtered and dressed, the ox weighed
1,198 pounds. In other words, the crowd’s judgment was essentially perfect. Perhaps
breeding did not mean so much after all. Galton wrote later: “The result seems more
creditable to the trustworthiness of a democratic judgment than might have been
expected.” That was, to say the least, an understatement.
 The case of the disappeared U.S. submarine Scorpion

● Chasing the expert is a mistake, and a costly one at that. Just ask the crowd
(which, of course, includes the geniuses as well as everyone else) instead.
Chances are, it knows.
● Put together a big enough and diverse enough group of people and ask them to
“make decisions affecting matters of general interest,” that group’s decisions
will, over time, be “intellectually (superior) to the isolated individual,” no matter
how smart or well-informed she is.
● May 1968, the U.S. submarine Scorpion disappeared on its way back to Newport
News after a tour of duty in the North Atlantic. The sub’s last reported location
was known, but there was no idea about what had happened to the Scorpion.
● The area where the navy began searching for the Scorpion was a circle twenty
miles wide and many thousands of feet deep. You could not imagine a more
hopeless task.
● Possible solution was to track down three or four top experts on submarines
and ocean currents, ask them where they thought the Scorpion was, and search
there.
● But a naval officer named John Craven had a different plan.
 The case of the disappeared U.S. submarine Scorpion

● First, Craven concocted a series of scenarios—alternative explanations for what

might have happened to the Scorpion. Then he assembled a team of men with a
wide range of knowledge, including mathematicians, submarine specialists, and
salvage men.
● He asked each of them to offer their best guess (no consultation among them)
about how likely each of the scenarios was. To keep things interesting, bottles of
Chivas Regal were offered as prizes.
● Needless to say no one of these pieces of information could tell Craven where
the Scorpion was. But Craven believed that if he put all the answers together,
building a composite picture of how the Scorpion died, he’d end up with a
pretty good idea of where it was.
● And that’s exactly what he did. He took all the guesses, and used a formula
called Bayes’s theorem to estimate the Scorpion’s final location. When he was
done, Craven had what was, roughly speaking, the group’s collective estimate of
where the submarine was.
● Location that Craven came up with was not a spot that any individual member
of the group had picked. In other words, not one of the members of the group
had a picture in his head that matched the one Craven had constructed using
the information gathered from all of them.
 The case of the disappeared U.S. submarine Scorpion

● Final estimate was a genuinely collective judgment that the group as a whole
had made, as opposed to representing the individual judgment of the smartest
people in it. It was also a genuinely brilliant judgment. Five months after
the Scorpion disappeared, a navy ship found it. It was 220 yards from where
Craven’s group had said it would he.

● What’s astonishing about this story is that the evidence that the group was
relying on in this case amounted to almost nothing. It was really just tiny scraps
of data. No one knew why the submarine sank, no one had any idea how fast it
was traveling or how steeply it fell to the ocean floor. And yet even though no
one in the group knew any of these things, the group as a whole knew them all.
 Wisdom of the Crowds: basic conditions
● Prediction markets: a) Iowa Electronics Market [1988] consistently outperformed polls
in predicting presidential elections; b) Hollywood Stock Exchange [since 2004]
accurately predicted more than 90% of Oscar winners, c) Google's internal prediction
market have mapped almost perfectly onto actual outcomes.

● Revolution in Iran (1979), the fall of the Berlin Wall (1989) & the lack of WMDs in Iraq
(2003) could not be predicted by US intelligence analysts.

● Experts are subject to all kinds of psychological biases, institutional pressures and limits
on the amount of information they can process versus collective intelligence of
forecasters/crowds as a whole.

● Crowd wisdom: a crowd's "collective intelligence" will produce better outcomes than a
small group of experts even if members of the crowd don't know all the facts or
choose, individually, to act irrationally.

● Four basic conditions:- (1) diversity of opinion; (2) independence of members from one
another; (3) decentralization; and (4) a good method for aggregating opinions.

● Diversity = different information; independence = people are not swayed by a single

opinion leader; people's errors balance each other out; aggregation = including all
opinions guarantees results are "smarter" than if a single expert had been in charge.
 Wisdom of the Crowds

● Collective wisdom is often superior to the individual’s wisdom of even

the biggest expert

● Leverage collective wisdom with decentralized systems designed to take

advantage of crowd-sourced decision making

● Important limitations of crowd wisdom, most of sociological nature,

that we must be aware of
 Topics:
• Generativity - Jonathan Zittrain
• Technological Disruptions - Clayton Christensen
• Long Tail - Chris Anderson
• Wisdom of the Crowds - James Suroweicki
• Open Digital Business Models - Henry Chesbrough
Open Innovation Models
LEVERAGING EXTERNAL
DEVELOPMENT

P C
R O
O N
D D S
B C
U A U
C M
T P
Component Of Business Value Chain T
I CLOSED VERSUS OPEN BUSINESS MODEL
O I
N O
N
 Six Functions Of A Business Model:

1. Value proposition – Value created for users by the offering.

2. Market segment – Users to whom the offering and its purpose are useful.
3. Value chain - Structure of the value chain required to create and distribute
the offering, and determine the complementary assets needed to support
the firm’s position in this chain.
4. Cost structure and profit potential - Revenue generation mechanisms and
estimating the cost structure and profit potential of producing the offering.
5. Value network - Position within the overall value network, linking suppliers
and customers, including identification of potential complementors and
competitors.
6. Competitive strategy - Formulation of the competitive strategy by which
the innovating firm will gain and hold an advantage over rivals.

Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay

 A New Ecosystem
♣ Huge increase in access to knowledge resources or a decrease in
the cost to innovate.

♣ More talent outside the organization than inside it. Need to leverage
such talent.

♣ Leverage unused internal technologies.

– Goldcorp: challenged industry’s No# 1 rule: “Don't share your proprietary data”
– Released 400 MB worth of information on 55,000 acres of property on its web-site.
– Total of $575,000 in prize money made available to participants who submitted the best
methods and estimates.
– ~1000 virtual prospectors from 50 countries got busy crunching the data.
– Contestants identified 110 targets on the Red Lake property, more than 80% of which
yielded substantial quantities of gold. 8 million ounces of gold have been found—worth
well over $3 billion.
 New Business Models - Chesbrough

♣ Raw material costs - increasing

♣ Product life cycles - (incomes)
- reducing

REVENUE
MKT.
REV.

INTERNAL
COST DEV.
COSTS

CLOSED
BUSINESS
MODEL
 New Business Models - Chesbrough

♣ Leverage talent outside the firm

NEW
SOURCES ♣ Leverage unused internal
OF technologies.
INCOME
REV.

REV. REV.
O
INTERNAL
INTERNAL & EXTERNAL Closed Models Have Innovation
COST COSTS COSTS Inefficiencies [mkts. do not
LEVERAGING EXTERNAL efficiently respond]
DEVELOPMENT

CLOSED OPEN
BUSINESS BUSINESS
MODEL MODEL
 IBM’s Open-Source Journey:
● Donated 500 software patents and established teams to help the Apache
(Web server) and Linux (operating systems) open-source communities.

● Spent approx. $100 million/yr. Linux development, dedicating ~ 600

software developers from 40 countries to the project — divided evenly
between code that is specifically customized for IBM customers and more
general contributions.

● By contrast, it would cost the firm ~ $1 billion per year to develop and
maintain an equivalent proprietary operating system. Linux saves IBM some
$900 million per year.

● Fujitsu, Hitachi, Hewlett-Packard, Intel, NEC, Novell, Oracle among many

others have followed IBM into the open-source community.
 Product Platforms: Rolls Royce

● Maintenance of engines involves much higher profit margins than sales – 7 times
higher
● Challenge with maintenance is that it is quite easy for outside competitors to
come in to the market and take the profits away.
● Rolls Royce introduced the ‘goods as a service’ model - airlines do not purchase
the jet engine but pay fee per hour of use. In turn, RR provides maintenance and
replacement parts.
● Sensors are placed on all the engines and massive amounts of data are extracted
from every flight, combined with weather data and information on air traffic
control, and sent to a command center in UK.
● Information on the wear and tear on engines, possible problems, and times for
scheduling maintenance are all derived.
● Immensely useful data in blocking out competitors and in securing a competitive
advantage against any outside maintenance firm that may hope to break into the
market.
● Data on how the engines perform have also been crucial for developing new
models: enabled Rolls Royce to improve fuel efficiency and to increase the life of
the engines.
The End
Digital Business Model
Key Partners Key Activities Value Proposition Customer Relationships Key Resources
● Platform development For Hosts ● Self serve Platform
● ● Airbnb platform and
● Hosts Sales and marketing ● Simple and secure ● Personalized
● Hosts who offer ● Managing risks ● Full Control mobile app
recommendations ● Employees - software
experiences ● Protect sensitive ● Professional services ● Customer service support
● Investors/venture information ● Communication engineers, analytic and
● Maintain customer data scientists
capitalists For Guest: ● Millions of properties listed
● Corporate travel service ● Save money
● Easy to browse and easy Channels on platform
partners & Managers ● Captured data and
● Insurance companies Customer Segments
to book
● Professional ● Spacious property ● Airbnb platform(website and algorithmic systems
● Hosts ● User-generated content on
photographer ● Travellers ● Amenities app)
● Provide unique ● Platform like content the webpages including
services ● Freelance
marketing, media coverage, reviews
Photographers experience
● Perform background digital ad campaigns
check
Cost Structure Revenue Streams

● Platform development and Maintenance cost

● ● Development and maintenance ● Host fee (Commission)
Infrastructure cost
● ● Credit card processing fees ● Travelers Fees (Transaction fees)
Sales and marketing cost
● Customer Acquisition cost ● Insurance cost
● Employee salaries ● Legacy and administrative cost
● Cost of capital ● Regulatory cost
 The Traditional Economics Of Information

Richness
[bandwidth,
Customization,
interactivity]

Traditional
trade-off

Reach [connectivity]

Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay

 Reach vs Richness

● Reach simply means the number of people, at home or at work, exchanging

information.

● Richness is defined by three aspects of the information itself.

● Bandwidth, or the amount of information exchanged.

● Customization or the degree to which the information can be customized.

For example, an advertisement on television is far less customized than a
personal sales pitch but reaches far more people.

● Interactivity or the ability to move from read only to read & write.

Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay

• Q: Do you think that crowds’ clearly eager participation in sites like NewsFutures.com, which you
discuss in your book, voting for “American Idol” contestants, and the countless other ways wired first-
world life has become a lively participatory democracy, can or will re-translate into a more active, in-
person engagement with lower-tech forms of collective action, like voting in greater numbers, political
protests, environmental activism, global crises, and labor organizing?
• But there is a big gap between dialing a call-in number on “American Idol” and participating in a
demonstration, let alone actually doing real labor organizing. The thing about lower-tech forms of
collective action is that they’re often hard, not just in the sense of being demanding in terms of time and
energy, but also in the sense that they require tremendous amounts of patience and a willingness to
defer immediate gratification. Unlike electing Jordin Sparks this year’s American Idol, social and political
change does not happen in a few hours, or even a few months. So I’m not sure we can expect the
“democracy” of the Net and of modern media to lead to an efflorescence of real-world activism. But that
doesn’t mean that participatory democracy in the wired world is unimportant. We just have to be
realistic about what it can accomplish.
• Q: Some potential Surowiecki-Gladwell synergy: You remind your readers that although you laud
collective judgment, you recognize the obvious value of experts. Wouldn’t it be better if a given expert
was someone like Lois Weisberg, one of Gladwell’s “connectors,” who’s related to so many laypeople
she’s almost a crowd in herself? It’s conventional wisdom that it’s no asset to any organization,
whether it’s a media company or a nonprofit or a global corporation, if its leaders or idea people are
too isolated from the world for which they’re making decisions. Would hiring more appropriately
skilled Lois Weisbergs as crowdsourcers make sense for any company or organization that can’t always
poll the masses?
• A: It would depend on whether “connectors” are actually assimilating knowledge and information from
the people they’re connected to, or whether their real talent was simply in making connections between
people. I think more important than the number of connections is the diversity and breadth of the
connections: in other words, you want people who are willing to listen to and take seriously opinions
and perspectives that are dramatically different from their own. That’s a very difficult thing to do.
 Response To Lack of Generativity:
Rise of Tethered Appliances [contd …]
● Top 10 Websites accounted for 31% of US page views in 2001, 40% in 2006 and 75% in
2010. Not likely reversed.
● 68% of all website traffic comes from search engines ('21).
● Google (92.16%) - majority market share of all search engine activity, with Bing a
distant second (2.88%).

● 6 million apps in mobile app stores (2.87 Google; 2 Apple; 0.67 Windows; 0.45
Amazon), 25% of these apps would only be used once though.
● 196 billion mobile app downloads on the Google Play Store ('21).
● Estimated that mobile apps will generate $693 billion worldwide in 2021.
● Audience continues to grow at a rapid rate — about 35 percent of all our media time
is now spent on the Web — but advertising revenues aren’t keeping pace.
● ComScore study [2009]: only 16% of users ever click on an ad, and 8% of users
accounted for 85 percent of all clicks.
● Online adverts. have risen to some 14 percent of consumer advertising spending but
have begun to level off.
● In contrast, TV — which also accounts for 35 % of our media time, gets nearly 40
percent of ad dollars.

Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay

 Disruptive Technology/Business Model
Disruptive Technology:
– Under-performing on attributes valued by mainstream customers;
– New features appreciated by low-end or new/niche customers (cheaper, smaller,
easier to use); that can be further improved over time with affordable R&D.

A) Market Positioning:
– Attractiveness in the low-end market [BOP or MOP]
– Attractiveness in a new market [Emerging]
– Asymmetry of motivation [incumbents may stay away?]

B) Technology:
– Adequate performance for a foothold in low-end or new niche
market [cheaper, smaller, easier to use];
– Could be further improved in performance, price/performance.
– R&D needed is affordable

C) Other Favorable Drivers:

– Life-style changes (e.g. Netbook);
– Legislations (e.g. Environmental protection);
– Bottom-of-Pyramid (BOP opportunities, e.g. GE medical);
Prof. Shishir K. Jha, Shailesh J. Mehta School of Management, IIT Bombay
Performance trajectories
— Rate at which the performance of a product has improved, and is expected to improve,
over time:

Differences:
- Sustaining technologies maintain a steady/incremental rate of improvement - give
customers something more or better in the attributes they already value.

- Disruptive technologies initially introduce a very different package of attributes - often

perform far worse along one or two dimensions.

- Mainstream customers are unwilling to use a disruptive product in applications they know
and understand. DTs tend to be used and valued only in new markets or new applications.