D ISRUPTIVE N ATURE OF IT

W HAT IS THE PROBLEM ? In 2002, over a billion files where available for sharing on the internet At its highest there were 50 million hits on Napster a day! Several artist created their own websites that allowed customers to download directly from thereby bypassing music companies Music industry claims that digital file sharing is a clear & present danger to the future of the music industry as we know it. Declining Revenues over the past 6 years High Employee Turnover and high artist defections to other companies Only one record sold over 10 million the last 5 years But the problem is not new since there are billions of illegal CDs being produced in 3 rd world companies and other places. The Internet is hitting home because the yr old in a developed market is the industry’s target audience and they are the current computer user. 2

W HY HAS THE INDUSTRY BEEN SO SLOW TO EMBRACE THE NEW TECHNOLOGIES ? At the beginning they thought it will go away It was too small to affect their business They thought they can crush it There was conflict of interest with other units in the organization (Sony & AOL) It was not their core competency so they allowed others to take the lead (Apple) Government anti-trust regualtions

H OW DO COMPANIES USUALLY RESPOND TO DISRUPTIVE TECHNOLOGIES ? Ignore – RIAA early response Fight – RIAA (Recording Industry Association of America) lawsuits Straddle (do both separately) – Bertelsman, B & N Recombine (Try to integrate) – Sony, Netflix Switching (dropping the old in favor of new) - Schwab Harvest (new business model) – Apple

W HAT ARE THE T ECHNOLOGICAL DEVELOPMENTS THAT DISRUPTED THE RECORDING INDUSTRY mp3 compression technology Broadband P2P (Person-to-Person) transfer A repository of where the music exists Social Networks & other sites where artists can reach the consumer directly

W HAT ARE THE CURRENT BUSINESS MODELS ENABLED BY THE INTERNET ? Pay for download (iTunes) Subscription (Napster 2.0) Advertising (Pandora)

VOIP – T HE DISMANTLING OF THE TELEPHONE BUSINESS MODEL

Phone Company Circuit Switch Handling calls using POTS (Plain Old Telephone Service) Copper Local Loop Fiber Optic Trunk Copper Local Loop Analog Digital Phone Company Circuit Switch

W HAT TECHNOLOGY ENABLED VOIP? PACKET SWITCHING TECHNOLOGY Change Analog message to Digital Divide digital message into packets of about 1500 characters each Add to each packet a destination and origination addresses Add to each packet the total number of packets that the message consists of Add to each packet its sequence number (important to know the order of the packets to rebuild the message) Rebuild the message once all packets arrive at destination Convert Digital message to Analog

Handling calls using VOIP Gateway A PBX Gateway B PBX R1 R2 R3 R4 Packet Switch Packet Switch

A DVANTAGES OF VOIP Higher quality sound More efficient use of assets (packet switching vs. circuit switching) Faster transfer of voice messages Cost Freedom from dependence on location Ability to provide local numbers at any location Ability to use a single number for all communication devices Ability to hear s and read voice messages Ability to consolidate everything on one bill Ability to consolidate voice & data communications on one network

D ISADVANTAGES OF VOIP dropped packets (jittery delivery) security support out of business if electricity is out no 911 calling Difficulty to make money off. No barriers to entry

B USINESS M ODELS E NABLED BY VOIP Skype (P2P) – where you do not pay for calling other Skype users and pay local charges for calling other phone users (Utility Model) Vonage, Net2Phone, SBC: phone service providers – functions like a regular telephone company – usually has a subscription based fee to handle your monthly telephone needs

L ATEST DISRUPTIVE T ECHNOLOGY Siri