1. Innovation Life Cycles

Key drivers of innovation life cycles:

The rate or trajectory of technological advance - S-curves (cumulative adaptation).
Firm’s decisions of when to enter the market.
Customers decisions of when to adopt new technologies.

1.1 Readings

👍 Crossing the chasm: Marketing and selling technology products to mainstream customers 1991. Moore identifies a perilous gap, or “chasm,” that many high-tech products fall into when attempting this transition. Strategies for successfully transitioning products to the mainstream market, including focusing on a specific niche market and concentrating resources on becoming the dominant player in that segment.

👑 Eager Sellers and Stony Buyers: Understanding the Psychology of New-Product Adoption 2006

The Psychology of Gains and Losses - why individuals deviate from rational economic behavior:
1. people evaluate the attractiveness of an alternative based not on its objective, or actual, value but on its subjective, or perceived, value.
2. consumers evaluate new products or investments relative to a reference point, usually the products they already own or consume.
3. people view any improvements relative to this reference point as gains and treat all shortcomings as losses.
4. loss aversion : losses have a far greater impact on people than similarly sized gains.
The endowment effect (Status quo bias): Loss aversion leads people to value products that they already possess—those that are part of their endowment—more than those they don’t have.
Fail: Executives, who irrationally overvalue their innovations, must predict the buying behavior of consumers, who irrationally overvalue existing alternatives.
Behavioral Framework (built by author) : the new product ortechnology itself, the consumer who must adopt it, and the company that designs it.
- Innovations and behavior change.
- Consumers and behavior change.
- Companies and behavior change. (“curse of knowledge,”)

Some innovations offer great benefits but require minimal behavior change. These products stand the best chance of both short-term and long-term success.

Accepting Resistance: Be patient. Eliminate the old.
Minimizing Resistance: Make behaviorally compatible products. Seek out the unendowed. Find believers.

1.2 Lifecycles

Innovation Adoption Lifecycle (Non-cumulative adaptation - bell shape)

Diffusion of firms: firm takeoff and sales takeoff points. Firm takeoff usually come before sales takeoff.

Product life cycle (Reading), takeoff point as the sales takeoff.

1.3 Types of Innovations

Process
Incremental
Radical
Disruptive (initial bad, gradually getting better )
Business Model

1.4 Crossing Over from Niche Markets to Mass-Market Dominance

Early market, MVP (~alpha/beta product) is OK.
Find a niche. NEED A PERFECT PRODUCT. Companies need to identify a beachhead segment and develop a perfect product for that segment.
(To Mass-Market) Generate volumes and harness cost advantages so as to develop reliable products.

1.5 Prospect Theory: Minimizing Losses and Maximizing Gains

2. Disruptive Innovation

How innovating entrants can disrupt industry leaders

2.1 Readings

Match Your Innovation Strategy to Your Innovation Ecosystem 2006

When they work, ecosystems allow firms to create value that no single firm could create alone.

Innovation ecosystems are characterized by three fundamental types of risk:
1. initiative risks, or the familiar uncertainties of managing a project.
2. interdependence risks, or the uncertainties of coordinating with complementary innovators.
  - different partners should be able to satisfy their commitments within a specific time frame.
  - other ecosystem actors had to develop their own distinct innovations.
3. integration risks, or the uncertainties presented by the adoption process across the value chain.
  - Innovation adopt it to old value chain before it can reach volume sales.
Target Markets and Ecosystem Risk
Strategy in Ecosystems:
1. Where to compete.
2. When to compete.
3. How to compete.

2.2 Demand-Side Disruption

《The innovator’s dilemma》, 《The disruption dilemma》.

What makes a disruption a disruption is not the original starting point, but how the trajectory improves over time.
Two types:
- The low-end disruptor, targeting the underserved segments by offering a lower quality product at that point in time.
- The new to the market disruption, they come in with a totally different package of attributes and catered to the non-served market.

Prescriptions for Incumbents for Assessing Disruptions. Elements : Leadership & Vision, Resources, Processes, Culture, Structure.

Creating a Disruptive Innovation.

Three elements together : technology, business model, ecosystem - simplifying technology paired with a business model that is then embedded in a viable ecosystem..
Opportunities can be discovered through three dimensions : Time, Skill, Accessibility.

3. Open Innovation

pursue an “open” strategy by seeking new ideas and technologies outside the firm.
different mechanisms that enable firms to capture value from innovations, including the importance of patents and specialized assets and capabilities in providing a competitive advantage.
when innovators should forward integrate to compete with other firms in product markets and when they should license their innovations to other firms in technology markets.

3.1 Readings

The Era of Open Innovation 2003

Markets for Technology and their Implications for Corporate Strategy Get access Arrow 2001

3.2 Open Innovations

Open innovation is creating value by focusing on internal and external ideas from various stakeholders and using different pathways to the market including licensing, acquisition, and launching using company channels. (e.g. InnoCentive & NineSigma, to open the world)

👑 Crowd sourcing

block-beta
columns 3
CW["Crowd Wisdom"] CV["Crowd Voting"] CL["Crowd Labor"]
CC["Crowd Contests"]:2 CF["Crowd Funding"]
CCC["Crowd Content"]:3

Crowd Content: through collaborative communities. (e.g. Wikipedia)
Crowd Contests: sponsor post the problem, and the crowd response. (e.g. TopCoder)
Crowd Funding (众酬) : tends to democratize opportunities and access to deserving cases that might not otherwise have a chance. (e.g. KickStarter)
Crowd Labor (外包): matching buyers and sellers of matching skills (short term). (e.g. Amazon Mechanical Turk, Upwork)
Crowd Voting is valuable to gauge interst and excitement. It can be used to generate engagement. (e.g. Google, Youtube Like, American Idol)
Crowd Wisdom : crowd to generate insight (e.g. Intrade, Befair, Iowa Electronic Markets, Inkling markets, Corwdcast, Prokons)
1. Diversity of opinions. Private information.
2. Independence.
3. Decentralization. Local knowledge.
4. Aggregation.

4. Multi-sided Platforms

Platforms enable firms to both create and capture value by bringing together sellers and buyers and controlling the transactions between them.

value chain and platform businesses

4.1 Readings

Networks and positive feedback: How to exploit network effects 1998

Strategic Decisions for Multisided Platforms 2013:

Definition of Multisided Platforms (MSPs): MSPs are technologies, products, or services that primarily create value by enabling direct interactions between two or more customer or participant groups. (eBay, Facebook, Airbnb, Uber, Apple’s iOS, Google’s Android operating system)
Value of MSPs: reducing search costs or transaction costs (or both) for participants. As a result, MSPs often hold a privileged position in their respective industries, with most other industry participants revolving around and depending on MSPs in important ways.
Characteristics of MSPs: (1) each group of participants (a “side”) is a customer of the MSP in some meaningful way, and (2) the MSP enables direct interaction between the sides.
Strategic Decisions: (1) the number of sides to bring on board; (2) design; (3) pricing structures; and (4) governance rules.
Network Effects: The article also discusses the network effects that MSPs may exhibit, including one-sided network effects and cross-side network effects.

4.2 The Strategic Logic

The strategic logic involves transitioning from a traditional pipeline business model, which focuses on linear value chains, to a platform model that connects multiple consumer groups, enhancing efficiency and creating network effects.

The pipeline business model creates value by controlling a linear series of activities wherein inputs at one end of the chain undergo a series of sequential steps that transform them into a finished product. A platform model can be defined as intermediaries that connect two or more distinct groups of users and facilitate their interaction.

4.3 Network Effects

Network effects occur when the value of a product increases as more people use it.
Double Jeopardy Effect: Larger brands benefit from higher loyalty rates due to their popularity, as customers of smaller brands are often aware of and likely to switch to larger brands.
The Internet enhances network effects (both Direct and Indirect effects).

4.4 Multi-sided Markets

Competitive Limits
- When larger competitors enter the market, it can become challenging to compete effectively. Recognizing this reality is crucial for strategic planning.
- It may be more beneficial to focus on harvesting your existing business rather than trying to compete directly with these larger entities.
Exploring New Growth Opportunities
- While managing your current business, it’s essential to explore potential new avenues for growth. This proactive approach can lead to discovering innovative strategies.
- Diversifying your efforts can help mitigate risks associated with relying solely on your existing business model.
Strategic Adaptation
- Adapting your strategy in response to market changes is vital for long-term sustainability. This may involve reevaluating your business goals and objectives.
- Embracing innovation and being open to change can position your organization for future success.

Develop content - user to build critical mass chicken-egg problem : 《Matchmakers - The new economics of multisided platform》

ZigZag strategy : pushing participation simultaneously till both side reach critical mass (ebay, YouTube).
Two-Step strategy : pushing participation on one side first (allow the company to achieve critical mass) and then fostering the other side of the platform
- video game industry - provider first; newspapers - develop content first.
Mixed strategy : pursuing zig zag first and then a two-step strategy (YouTube).

Pricing strategy. Ecosystem governance.

Contemporary Business Models in the Era of Digitization:

Platform Business Models
- Platform businesses leverage network effects, leading to increasing returns to scale, but they face complex pricing challenges due to costs and revenues on both sides of the platform.
- Successful platforms often need to subsidize one side to generate revenue from the other, making pricing strategies intricate.
Long-Tail Business Models
- The long-tail model shifts focus from a few blockbuster products to a vast array of niche items, which can be profitable due to the infinite shelf space available online.
- Online retailers can stock a significantly larger variety of products, leading to substantial sales from niche items that traditional brick-and-mortar stores cannot accommodate.
Crowd-Sourced Models utilize the collective intelligence of the crowd, exemplified by platforms like Kickstarter and InnoCentive, enabling innovative solutions and funding opportunities.
Bundled Models combine multiple products or services into a single offering, benefiting sellers by simplifying pricing and reducing marketing costs while catering to diverse consumer preferences. (Microsoft, Newspaper)