The Core-Edge Dynamics Toolkit Core-Edge Dynamics Toolkit

Objective:

• Turn methodology into step-by-step tools for sponsors to apply to their own case studies

Approach:

• Use current taxonomy and methodology • Apply methods and lessons learned from case studies • Create worksheets to produce the “outcomes” • Update throughout the research program (e.g., adding System Dynamics)

Core-Edge Dynamics Toolkit Core-Edge Dynamics Toolkit

Brief review of the steps Taxonomy & Control Point Constellations

OBJECTIVE METHOD OUTCOME

Offering A Offering B Offering C Enumerate possible Apply taxonomy to a 1. Service transactions … … … control points for a given case study Control points … … …

given service Delivery infrastructure … … …

Service infrastructure … … …

Management infrastructure … … …

… … … …

2. Enumerate varying Create control point business models constellations

Core-Edge Dynamics Toolkit Trigger Dynamics

OBJECTIVE METHOD OUTCOME

Technological Regulatory Social Business 3. Identify triggers causing change of List triggers … … … …

business … … … …

Let us take the folllowing Gear Teeth Dynamics (from C. H. Fine Presentation)

Busin ess Industry/ Regulat ory Technology Consumer Co r p o r a t e cycles Organization Policy Preferences St ra t e gy Clockspeed St r u ct u r e Dow nturns downturns Dow nturn Bu si ne ss stifle Cy c l e s trigger triggers dis- R&D outsourcing; integration investment Search for sm oot hness

Industry/ Integration Integration/ Wrap services integrality Organization buffers Disintegration around downturns slow s St ru ct u re com modities clockspeed regulation Identify Trigger Apply gear teeth model Regu lat or y slow s deregulation Policy incumbent speeds 4. innovation innovation innovation Technology innovation Integration/ innovation technology Dynamics At t acks can obsolete innov drives Disintegration slow dow ns incumbents regulations clockspeed & supports drive brand integration investment branding Consumer slow s Preferences disintegration branding project Co r p o r a t e slow s frequency St r a t e g y disintegration drives Capab. life faster cust om er Capability life innovation drives project Clockspeed power drives moderates clockspeed frequency downturns

Trigger A 5. Capture cause-and- Create transitions of effect of triggers control point Trigger C constellations

Trigger B Core-Edge Dynamics Toolkit Value Annotation & Coreness Path

OBJECTIVE METHOD OUTCOME

6. Annotate Control Create value networks Points with Value

1

Coreness Evaluation Create Coreness Path T 7. 1 T2

t

Core-Edge Dynamics Toolkit Core-Edge Dynamics Toolkit

Worksheet examples Step 1: Apply taxonomy to a chosen product

Example: Location Based Services

Garmin Street Pilot Pharos Pocket GPS Navigator Avis Assist

FUNCTIONALITY

Service transactions • Receive WAAS/GPS signal • Receive GPS signal • Call to initiate service • Lookup position on maps • Transfer location via Bluetooth to other • Receive GPS signal • Trace signals on map device with software • Lookup position on maps • Store routes • Lookup position on maps • Trace signals on map • Purchase device from retailer • Trace signals on map • Daily phone rental from Avis • Software updates • Purchase device from retailer Control points • Software creation • Software distribution • Device manufacture • Device distribution • Location collection • Location management • Map creation • Map distribution

Core-Edge Dynamics Toolkit Step 1: Apply taxonomy to a chosen product

Example: Location Based Services (con’t)

Garmin Street Pilot Pharos Pocket GPS Navigator Avis Assist

INFRASTRUCTURE

Delivery infrastructure • GPS Network (The transportation resources required for product creation.) • WAAS (Wide Area Augmentation System) Network • Public Internet • Rent-a-Car Network • Call Center • Retail Network Service infrastructure (How the delivery infrastructure resources are arranged.) GPS Network Centralized Centralized Centralized WAAS Network Centralized n/a n/a Public Internet Decentralized n/a n/a Rent-a-Car Network n/a n/a Centralized Call Center n/a n/a Centralized Mobile Phone Network n/a n/a - PDA Centralized Retail Network Decentralized Decentralized n/a

Etc…. Step 2: Create Control Point Constellations

Example: Digital Music Services – iTunes Music Store

Windows Windows Creation distribution Online product Content PC creation creation

PC iTMS distribution music iTunes player for Internet USB iPod Portable Mac or Windows Connectivity Connectivity distribution product FairPlay DRM distribution Mac distribution iTMS FairPlay DRM Storefront iTunes for interface Mac OS Creation/ iPod FairPlay DRM distribution iTunes player for iPod OS Mac/ creation Mac or Windows creation

iPod creation

Core-Edge Dynamics Toolkit Step 3: List triggers

Example: Digital Music Services

Technology Social behaviors • P2P networks enable unauthorized file-sharing • DRM enables authorized services •Users • Mobile phone networks enable mobile procurement and/or portable listening • create unauthorized P2P networks (started stealing) • Portable digital players extend the digital user experience • hack/circumvent DRM (keep on stealing) • Procurement, storage, playback, transfer capabilities of devices • respond to RIAA legal action (stop stealing) • Devices capabilities for procurement, storage, playback (fixed and mobile) • respond to legal alternatives (start buying) • demand mobile listening (service built around the portable Business player, e.g., iTunes + iPod) • Free music limits competitiveness of authorized services • demand mobile procurement (cell-phone shopping for • Subscription models reduce the appeal of owning music music) • Harder to justify storage costs • demand device convergence/seamlessness • Play list/index replaces tracks as the object of ownership • rent (streaming) and/or own (downloading) music • Labels sign with digital services • Sharing playlists rather than music files – rise of personal radio • client/server models attract majors only so far •Artists • P2P networks attract indies only so far • Choose cheap/free distribution and promotion via P2P • DRM used as a product-tying strategy by service providers (Apple iTunes) networks • Sabotaged by other service providers (RealNetworks) • Choose alternative license/compensation systems • Cultures/markets segment along architectural lines Regulatory • P2P vs client/server becomes analogous to • Copyright law Sundance vs Hollywood in the film industry • Legality of P2P networks • Potential conflict re Apple anti-establishment • Economic (anti-trust law) culture tied to iPod

Core-Edge Dynamics Toolkit Step 4: Apply Gear Teeth Model

Let us take the folllowing Gear Teeth Dynamics (from C. H. Fine Presentation)

Business Industry/ Regulatory Technology Consumer Corporate cycles Organization Policy Preferences St r a t eg y Clockspeed St r u ct u r e Dow nturns downturns Dow nturn Business st ifle Cy c l e s trigger triggers dis- R&D outsourcing; integration investment Se a r ch f o r smoothness

Industry/ Integration Integration/ Wrap services buffers integrality Organization Disint egrat ion around downturns slow s St r u ct u r e commodities clockspeed regulation Regulat ory slow s deregulation Policy incumbent speeds innovation innovation innovation technology innovation Integration/ Technology At t acks innovation innov drives can obsolet e Disint egrat ion slow dow ns incumbents regulations clockspeed & supports drive brand integration investment branding Co n su m e r slow s Preferences disintegration branding project Corporate slow s frequency St r a t egy disintegration drives Capab. life faster cust om er Capability life innovation drives project Clockspeed power drives moderates clockspeed frequency downturns

Core-Edge Dynamics Toolkit Step 6: Create Value Networks

Example: Digital Music Services – iTunes Music Store

Windows Windows Creation distribution Online product Content PC creation creation

PC iTMS distribution music iTunes player for Internet USB iPod Portable Mac or Windows Connectivity Connectivity distribution product FairPlay DRM distribution Mac iTMS is a loss leader to distribution sell iPods. In 2004, iTMS FairPlay DRM iTMS is free iTunes had 70% market Storefront iTunes for share. Project >80% by interface Mac OS end of 2005. Creation/ iPod FairPlay DRM distribution 0-4¢ The iPod is the iTunes is free iPod OS (high volume, iTunes player for centerpiece of the Mac/ creation low margin) Mac or Windows creation iTMS strategy. In 2004, the iPod had 92% of the high-capacity iPod Mac sales driven by device market. $25-45 per iPod $0 iPod sales (6% of iPod creation 52% of revenue users switched from PC low volume, to Mac in 2004.) high margin

Core-Edge Dynamics Toolkit $? Step 7: Create Coreness Path

Example: VoIP

Evolving Coreness of Call Signaling

• Circuit-Switched PSTN • Scarcity – ILEC and IXCs • Demand – High Price, Low demand (Number of Connections) • H.323 (VoIP in the backbone); some P2P (FWD); early SIP • Scarcity – ILEC, CLEC and IXCs, Calling Cards 1995 • Demand – Long-distance charges drop, No. of Calls increase

2000

• Facility-based, over BB and P2P VoIP 2005 • Scarcity – Higher Adoption of SIP Scarcity • Demand – Flat rate pricing, Free PC2PC Future Commoditization

Server-less SIP Future SIP-Service Interoperation VoIP-inside

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