Professor Charles Fine Co-Director, Communications Futures Program Massachusetts Institute of Technology Cambridge, Massachusetts January Tel: , Fax: Thoughts on Value Chain Dynamics and P2P Networking

P2P: Who are peers? What do they do? End User “Peers” Interact –“real time” communication (or asymmetric or near RT) voice, , IM, some games Social networking –Facebook, etc. –Some gaming environments (e.g., 2nd 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 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? Aggregators/platforms/frameworks End User Peers Interact –“real time” communication (or asymmetric or near RT) voice, , IM, some games Social networking –Facebook, etc. –Some gaming environments (e.g., 2nd 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-to- end simplicity Transport Peers ISPs Carriers Concerned with ROI “The Network” is my business. I want to monetize my pipes? Provide environments that support end-user utility, usually using Transport networks Some not for profit –Gnutella, BitTorrent, Some for profit –Google, eBay, Facebook, Akamai, Skype –Corporations, Universities, etc.

What are platforms? What do they do? Aggregators/platforms/frameworks End User Peers Interact –“real time” communication (or asymmetric or near RT) voice, , IM, some games Social networking –Facebook, etc. –Some gaming environments (e.g., 2nd 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-to- end simplicity Transport Peers ISPs Carriers Concerned with ROI “The Network” is my business. I want to monetize my pipes? Provide environments that support end-user utility, usually using Transport networks Some not for profit –Gnutella, BitTorrent, Some for profit –Google, eBay, Facebook, Akamai, Skype –Corporations, Universities, etc. Multi-sided platforms eBay buyerssellers google Content providers Advertisers Content consumers

Who creates value in this chain? Who captures value? Who controls what aspects of the chain? Aggregators/platforms/frameworks End User Peers Interact –“real time” communication (or asymmetric or near RT) voice, , IM, some games Social networking –Facebook, etc. –Some gaming environments (e.g., 2nd 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-to- end simplicity Transport Peers ISPs Carriers Concerned with ROI “The Network” is my business. I want to monetize my pipes? Provide environments that support end-user utility, usually using Transport networks Some not for profit –Gnutella, BitTorrent, Some for profit –Google, eBay, Facebook, Akamai

What are the dynamic forces that impact his chain? How can we create and assess useful future scenarios? Aggregators/platforms/frameworks End User Peers Interact –“real time” communication (or asymmetric or near RT) voice, , IM, some games Social networking –Facebook, etc. –Some gaming environments (e.g., 2nd 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-to-end simplicity Transport Peers ISPs Carriers Concerned with ROI “The Network” is my business. I want to monetize my pipes? Provide environments that support end-user utility, usually using Transport networks Some not for profit –Gnutella, BitTorrent, Some for profit –Google, eBay, Facebook, Akamai Business Cycle Dynamics Regulatory Policy Dynamics Corporate Strategy Dynamics Industry Structure Dynamics Customer Preference Dynamics Capital Market Dynamics Technology & Innovation Dynamics

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

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