1. New product development

2. Internet Time • Need for Rapid product development • Market changing constantly • HP gets 77% of their revenue from products that were developed within the last two years!!

3. Why the rush? • Speed buys learning from customers • Product life cycles are shrinking • Speed allows you to get better alliances • Speed allows development of plug-ins • Speed increases chances of winning the standard wars

4. Impact on profits • If you are 6 months early, your profits will be double • If you are 6 months late, you profits will be one third

5. New product development cycle Concept generation Product design Testing Manufacturing Ramp and release Technology Customer needs

6. How to speed up the process • Market research on internet time • Modularity in design • Flexibility in development

7. Two approaches Traditional approach Market Introduction Concept development Implementation Flexible approach Concept development Implementation Time

8. Modularity in designBaldwin and Clark (1997) Rapid feedback Specification Design Testing Integration Stabilization Time

9. Design rules • Visible design rules – how modules interact with each other, communicate standards, expected performance • Hidden design parameters – Internal workings of each module

10. Testing • Alpha testing • Beta testing

11. Rapid release • Leads to formation of alliances

12. Standards • Open standards – developed by debate, consensus and voting by official standards body • Fast and wider adoption • More competition • De-facto standard – based on market acceptance • Harder to establish, more profitable

13. Standards Wars • Microsoft and Real audio • VCR – VHS vs Betamax • DVD vs DivX • North (4’8.5”) vs South (5’) in railroad gauges

14. Lessons • Incompatibilities can arise almost by accident. Yet persist for many years • Network markets tend to tip towards the leader, unless other players coordinate to act quickly and decisively • Seceding from the standard setting process can leave you in a weak position • A large buyer like the government can tip the balance • Those who lose have to find a way to adapt to or adopt the new standard

15. Edison versus Westinghouse (DC vs AC) • Edison was first mover • Westinghouse was innovator • Lesson: Innovator can beat the early mover if performance advantage is sufficient and users are not overly entrenched

16. In network economy.. • Standards are very critical as consumers want compatibility Three outcomes of a standards battle • Truce – 56k modems, Fax machines • Duopoly – Sony and Nintendo • Fight to the death – railroad, VCRs, AC/DC In this war cooperation is beneficial

17. Open profiling standard – Platform for Privacy Preferences (PPP) developed by World Wide Web consortium. • Secure Electronic Transactions (SET) • Virtual reality modeling language for 3-D viewing in browsers • In all the above cases Microsoft cooperated with Netscape

18. Type of Standard wars • How large are the switching costs? • How compatible is the new technology with the current technology? • Evolution – minimal switching costs- NTSC • Revolution – new tech not compatible – benefits of new tech should be very high for consumers to incur switching costs • Rival evolutions – compatible with old tech but not with each other DVD and DivX

19. Rival technology Compatible Non compatible Compatible Evolution versus revolution Rival evolutions Your technology Revolution versus evolution Rival revolutions Not compatible