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Karel Cool BP Chaired Professor of European Competitiveness

Critical Mass. Industry and Competitive Analysis Spring 2008. Karel Cool BP Chaired Professor of European Competitiveness. Some Critical Mass Battles. On-line auctions: Yahoo vs. eBay vs. Amazon Mobile phone systems: GSM vs. CDMA Global express delivery: FedEx vs. DHL

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Karel Cool BP Chaired Professor of European Competitiveness

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  1. Critical Mass Industry and Competitive Analysis Spring 2008 Karel Cool BP Chaired Professor of European Competitiveness

  2. Some Critical Mass Battles • On-line auctions: Yahoo vs. eBay vs. Amazon • Mobile phone systems: GSM vs. CDMA • Global express delivery: FedEx vs. DHL • Logic chips: Intel vs. Motorola • Smart cards: Chipknip vs. Chipper vs. Visa • Operating systems: Linux vs. Windows • Games: PS2 vs. Xbox vs. Cube vs. Sega • Satellite vs. Cable broadcasting • Credit cards: Visa / Mastercard / Amex • Airline reservation systems: Sabre vs. Amadeus vs. Galileo • … Small number of big winners, most are losers

  3. c/u p/u • Network effects • Installed base • Host-complements • Experience effects • Trial cost / time • Durability Capacity Critical Scale vs. Critical Mass Critical scale (Minimum efficient scale) Critical mass Driver: “I do something because others do too” 1 2 3 4 5 6 Driver: Fixed Costs / Economies to Scale

  4. The Dying Seminar … Actual attendance Expected attendance 1 5 10 13 22 28 34 40 45 50 54 58 63 65 68 69 Note: ‘never’ = 22

  5. The Dying Seminar … Equilibrium line Actual attendance (Actual MS) Expected attendance (Expected MS)

  6. The Dying Seminar with Critical Mass Equilibrium line III Actual attendance (Actual MS) II I “Diehards” Expected attendance (Expected MS)

  7. When a small difference makes a big difference … Equilibrium line III Actual attendance (Actual MS) stable II Critical mass (unstable equilibrium) I stable Expected attendance (Expected MS)

  8. Reaching Critical Mass Upward movement of the curve Actual attendance (Actual MS) III • ‘Jumpstarting’ • Mandatory • Subsidies / incentives II I For given expected adoption, change the willingness to buy of some Expected attendance (Expected MS)

  9. Reaching Critical Mass Movement along the curve Actual attendance (Actual MS) III ‘Bridging the critical market share zone’ II I For given adoption, change the expected and/or perceived adoption of some Expected attendance (Expected MS)

  10. Special Cases of Critical Mass Segments with different preferences Pro’s: Social’s:

  11. Special Cases of Critical Mass Segments with different preferences Total Social’s Pro’s

  12. Assessing Critical Mass Robustness of adoption Hate zone III Conditionals II I Unconditionals

  13. Assessing Critical Mass Robustness of adoption Hate zone Conditionals Unconditionals

  14. Special Cases of Critical Mass Some are more equal than others When the Dean enters, … ‘ten’ enter the room … ‘twenty’ enter the room ’Weight': if 10 of your close [colleagues] say, buy 'X' but if 'reference' say, buy 'Y', you would choose [X] / [Y]

  15. Special Cases of Critical Mass Some are more equal than others When the Dean enters, … ‘ten’ enter the room … ‘twenty’ enter the room

  16. Special Cases of Critical Mass Some are more equal than others The Dean always goes, … ‘ten’ enter the room … ‘twenty’ enter the room

  17. 5) Gateway 2) Supply 1) Price Video Camera Mass 4) CM in segment 3) New complements 6) New ‘standard’ Critical Mass ‘Jumpstarting’ Strategies Tapes VCR VCR Tapes 7) Open ‘standard’ 8) Join winning standard 9) Towel …

  18. Critical Mass ‘Jumpstarting’ Strategies • Investing in price cuts • Investing in the supply of complements • Investing in new complements • Investing in getting critical mass in a segment of the market • Investing in a gateway to the leading host-complement • Investing in building a new host-complement system • Investing in building an ‘open’ host-complement system • Joining the winning host-complement system

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