Thoughts on Value Chain Dynamics and P 2

Thoughts on Value Chain Dynamics and P 2 P Networking Professor Charles Fine Co-Director, Communications Futures Program Massachusetts Institute of Technology Cambridge, Massachusetts 02142 January 2008 charley@mit. edu http: //cfp. mit. edu Tel: 1 -617 -253 -3632, Fax: 1 -617 -253 -6720

P 2 P: Who are peers? What do they do? End User “Peers” • Interact – “real time” communication • (or asymmetric or near RT) Transport “Peers” • • ISPs Carriers • • Concerned with ROI “The Network” is my business. I want to monetize my pipes. voice, email, IM, some games • Social networking – Facebook, etc. – Some gaming environments • • (e. g. , 2 nd Life) Consume content (push vs pull) – Downloads – Broadcast – On Demand • Publish content – Individual end users – For-profit • • • Advertise “The Network” provides the “pipes” that enable my utility/consumption. I want easy-to-use, low cost and probably end-to-end simplicity •

What are platforms? What do they do? End User Peers • • Interact – Aggregators/platforms/frameworks “real time” communication • (or asymmetric or near RT) voice, email, IM, some games • Social networking – – Facebook, etc. Some gaming environments • • (e. g. , 2 nd Life) Consume content (push vs pull) – – – Downloads Broadcast On Demand • • Publish content Advertise • “The Network” provides the “pipes” that enable my utility/consumption. I want easy-to-use, low cost and probably end-toend simplicity • • Provide environments that support end-user utility, usually using Transport networks Some not for profit – Gnutella, Bit. Torrent, • Some for profit – Google, e. Bay, Facebook, Akamai, Skype – Corporations, Universities, etc. Transport Peers • • ISPs Carriers • • Concerned with ROI “The Network” is my business. I want to monetize my pipes? •

What are platforms? What do they do? End User Peers • • Interact – Aggregators/platforms/frameworks “real time” communication • (or asymmetric or near RT) voice, email, IM, some games • Social networking – – Facebook, etc. Some gaming environments • • (e. g. , 2 nd Life) Consume content (push vs pull) – – – • – Gnutella, Bit. Torrent, • Publish content Advertise • “The Network” provides the “pipes” that enable my utility/consumption. I want easy-to-use, low cost and probably end-toend simplicity • • • ISPs Carriers • • Concerned with ROI “The Network” is my business. I want to monetize my pipes? • Some for profit – Google, e. Bay, Facebook, Akamai, Skype – Corporations, Universities, etc. Downloads Broadcast On Demand • • Provide environments that support end-user utility, usually using Transport networks Some not for profit Transport Peers Multi-sided platforms Advertisers buyers sellers e. Bay Content consumers Content providers google

Who creates value in this chain? Who captures value? Who controls what aspects of the chain? End User Peers • • Interact – Aggregators/platforms/frameworks “real time” communication • (or asymmetric or near RT) voice, email, IM, some games • Facebook, etc. Some gaming environments • • • ISPs Carriers • • Some not for profit • Concerned with ROI “The Network” is my business. I want to monetize my pipes? – Gnutella, Bit. Torrent, (e. g. , 2 nd Life) Consume content (push vs pull) – – – Downloads Broadcast On Demand • • Publish content Advertise • “The Network” provides the “pipes” that enable my utility/consumption. I want easy-to-use, low cost and probably end-toend simplicity • Provide environments that support end-user utility, usually using Transport networks Social networking – – • Transport Peers Some for profit – Google, e. Bay, Facebook, Akamai

What are the dynamic forces that impact his chain? How can we create and assess useful future scenarios? End User Peers • Interact – “real time” communication • Aggregators/platforms/frameworks • (or asymmetric or near RT) voice, email, IM, some games • Social networking – – Facebook, etc. Some gaming environments • • • Downloads Broadcast On Demand • • Publish content Advertise • “The Network” provides the “pipes” that enable my utility/consumption. I want easy-to-use, low cost and probably end-to-end simplicity Some not for profit – (e. g. , 2 nd Life) Consume content (push vs pull) – – – • Provide environments that support end-user utility, usually using Transport networks • Gnutella, Bit. Torrent, Some for profit – Transport Peers • • ISPs Carriers • • Concerned with ROI “The Network” is my business. I want to monetize my pipes? • Corporate Strategy Dynamics Customer Preference Dynamics Technology & Innovation Dynamics Google, e. Bay, Facebook, Akamai Regulatory Policy Dynamics Capital Market Dynamics Industry Structure Dynamics Business Cycle Dynamics

THE DYNAMICS OF PRODUCT ARCHITECTURE, STANDARDS, AND VALUE CHAIN STRUCTURE: “THE DOUBLE HELIX” NICHE COMPETITORS INTEGRAL PRODUCT VERTICAL INDUSTRY PROPRIETARY STANDARDS MODULAR PRODUCT HORIZONTAL INDUSTRY OPEN STANDARDS INNOVATION & TECHNICAL ADVANCES HIGHDIMENSIONAL COMPLEXITY ORGANIZATIONAL RIGIDITIES SUPPLIER MARKET POWER PRESSURE TO DIS-INTEGRATE INCENTIVE TO INTEGRATE PROPRIETARY SYSTEM PROFITABILITY Examples: IBM, Autos, Embraer/Boeing, Nokia, Small Firms Fine & Whitney, “Is the Make/Buy Decision Process a Core

THE DYNAMICS OF CORE & EDGE “THE (third) DOUBLE HELIX” MSFT VERIZON INCREMENTAL INNOVATION CENTRALIZED CONTROL VERTICAL INTEGRATION PROPRIETARY STANDARDS OPEN ARCHITECTURES VIBRANT EDGE SKYPE NAPSTER I FACEBOOK RADICAL INNOVATIONS FRUSTRATION AND SUBTERFUGE AT THE EDGES POLICY TUSSLES INNOVATOR MARKET POWER PRESSURE FOR OPENNESS LOBBY WARS (e. g. , Net Neutrality) INCENTIVE TO INTEGRATE & LOCK IN ADVANTAGE PROPRIETARY SYSTEM PROFITABILITY AMAZON YAHOO! GOOGLE APPLE Adapted from Clockspeed by C. Fine, Chapter 4, Perseus Books, 1998.