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Chapter 7

Business Strategy: Innovation, Entrepreneurship, and Platforms

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Learning Objectives

Outline the four-step innovation process from idea to imitation.

Apply strategic management concepts to entrepreneurship and innovation.

Describe the competitive implications of different stages in the industry life cycle.

Derive strategic implications of the crossing-the-chasm framework.

Categorize different types of innovations in the markets-and-technology framework.

Explain why and how platform businesses can outperform pipeline businesses.

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The AFI Strategy Framework

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Innovation Is a Competitive Weapon

Innovation can create and destroy value.

Innovation often comes in waves:

Many firms dominated an early wave of innovation and are challenged by the next wave.

Traditional networks vs. cable providers.

Cable providers vs. streaming content.

Typewriters to PC’s to mobile devices.

“Creative destruction” – Joseph Schumpeter

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Initial innovations are foundational for other rapid innovation.

Disruption video: https://hbr.org/video/2688242135001/the-explainer-disruptive-innovation

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Case Study: Netflix - Disrupter of Cable TV

Founded in 1997 by Reed Hastings with online rentals of DVD’s via the mail, (because Blockbuster pissed him off over $40 in late fees).

1999: moved to unlimited DVD rental for one monthly rate

2000 approached BB to become their online partner, BB declined

2002 Netflix turned profitable, went public

2004 4M subscribers, (BB started online, but lost 75% of market share, Bk by 2010)

2007: Streaming content over the internet,12M subscribers

2010: Not viewed as a threat by TV, “rerun TV”…Hulu

2013: Started streaming online original content: (House of Card, Orange is the New Black, The Crown)

2017: 100M worldwide subscribers, $9B in Revenue, $60B Market Cap, Stock up 4200%

2020: Market Cap $230B, 73M US subscribers, 167M worldwide, (Covid related?)

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Case Study: Netflix - Disrupter of Cable TV

How did they disrupt?

Delivery of content streamed online, bypassing networks/cable, less $$$

Access created “binge watching”, create demand and buzz, older movies/TV shows

Management via algorithms, no “pilots” needed

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Users build movie queues, which allowed future demand.

Personalized recommendation engine allows for “older” content to be requested, lowering demand on new, but providing fresh revenues to other studios, (until everyone else wants into the game).

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Case Study: vs.

Disney enters streaming services with intro price of $6.99/mo, undercutting Netflix, (free for VzW customers).

Removes Disney content from Netflix, (Disney movie library, Marvel, Star Wars, etc…)

Adds 20th Century Fox library, (Simpsons) and own Hulu and ESPN

Disney+ has 60M subscribers and doing well…

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Aug 2020 - Disney stock soared as much as 10% on Wednesday as investors cheered strong growth at Disney Plus last quarter, boosting the entertainment giant's market cap by about $21 billion to $234 billion. Theme parks crashing, but streaming huge. Disney+ has 60M subscribers.

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Cable vs. Streaming, where is the future?

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Small group discussion

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Accelerating Speed of Technological Change

Exhibit 7.1

Source:. Depiction of data from the U.S. Census Bureau, the Consumer Electronics Association, Forbes, and the National Cable and Telecommunications Association.

Access the text alternate for the slide image.

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This image shows how many years it took for different technological innovations to reach 50 percent of the U.S. population (either through ownership or usage). For example, it took 84 years for half of the U.S. population to own a car, but only 28 years for half the population to own a TV. The pace of the adoption rate of recent innovations continues to accelerate. It took 19 years for the PC to reach 50 percent ownership, but only 6 years for MP3 players to accomplish the same diffusion rate.

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The Four I’s: Idea, Invention, Innovation, and Imitation

Exhibit 7.2

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Idea, Invention, Innovation and Imitation

Idea:

Abstract concepts or research findings.

Invention:

Transformation of an idea into a product.

The modification and recombination of products.

Innovation:

Commercialization of an invention.

Imitation:

Copying a successful innovation.

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Idea: basic research to discover new knowledge. Wireless technology today was first talked about in WWII with Albert Einstein and actress Heddy Lamar

Invention: Patents are for useful, novel and non-obvious inventions, Intellectual Property