VALUING INNOVATIONS “The most important discoveries of the next 50 years are likely to be ones of which we cannot now even conceive.” - John Maddox

Importance of Innovation Innovation creates a competitive advantage in business. Can be the difference between success and failure.

Difficulties Short Lived Advantage Rapidly changing digital world Competitors can easily copy innovation Risky No guarantee technology will be successful VHS vs. Betamax Organizational Requirements Firms must work together in harmony Need many skilled workers to deploy new IS

Predicting Future Technology is Hard

Disruptive Innovations A product that surpasses the dominant technology to become the norm.

Innovation Process 1. Choose Emerging Technologies Create processes that are dedicated to discovering disruptive innovations 2. Match Technologies to Opportunities Determine the purpose served by the emerging technology

Innovation Process 3. Execute Business Innovation for Growth Select the emerging technology. Act on opportunity to increase customers and market share. 4. Asses Value Assess value of the technology used. Continuous.

e-Business Innovation Cycle

CANDY CANDY CANDY Hypothetical situation

Choose one :

Hypothetical situation Choose one :

Background to experiment Conducted by MIT professor Dan Ariely The original study found that: 27% selected Hershey 73% selected Lindt

Background to experiment The second study found that: 69% selected Hershey 31% selected Lindt Why?

Understanding the power of free When Free is Dangerous

FREECONOMICS Online, there is such a thing as a free lunch.

HOW DO WE VALUE IT….. …when we increasingly give it away for free?

Gordon Moore Co-founder of Intel Published an article in Electronics magazine on April 19 th, This article became known as Moore’s law

Moore’s Law The number of transistors in a processor will roughly double every 18 to 24 months.

Moore’s law In 1961, a single transistor cost $10.00 In 2010, you can get 2 billion transistors for $1, or one transistor costs $

Freeconomics as economics

What happens when the marginal cost is essentially $0.00?

Free! Why $0.00 is the future of business [/twitter]

Different freeconomic models Type Advertising Cross Subsidies Zero marginal cost Gift economy Known example Google’s pay per click Comcast YouTube Videos Wikipedia

1. Consumer Google’s something… 2. Consumer clicks on a sponsored link (an “ad”) 3. Consumer is redirected to advertiser’s website 4. Consumer gets advertiser’s product, and the advertiser pays Google.

Different freeconomic models Type Advertising Cross Subsidies Zero marginal cost Gift economy Known example Google’s pay per click Comcast YouTube Videos Wikipedia

A single DVR costs Comcast $250.00, and they give them away to each new customer. How does Comcast make their money back? 1. Subscription fees 2. Faster internet speeds 3. Pay-per-view movies

Different freeconomic models Type Advertising Cross Subsidies Zero marginal cost Gift economy Known example Google’s pay per click Comcast YouTube Wikipedia

How can you charge people effectively for watching YouTube? In 2010, it cost Google $0.25 to have someone stream HD video for one hour In 2011, it was $ projection – less than $0.10

Different freeconomic models Type Advertising Cross Subsidies Zero marginal cost Gift economy Known example Google’s pay per click Comcast YouTube Videos Wikipedia

All content is user generated with non-monetary returns for those who invest in it… How can this exist? Remember Chris Anderson’s video on Free!

FREEMIUM CASE STUDY

Background Founded in 2007 by Drew Houston, a forgetful MIT graduate. Dropbox has only received $7.2 million in venture capital What is the pricing structure of Dropbox?

Dropbox - The business model of free Dropbox rents users space in the cloud, similar to how students rent apartments or dorms from the Temple. However, unlike Temple dorms, one of Dropbox’s options is free, for everyone. Dropbox pricing scheme: 2 GB – Free 50 GB – $9.99 / month 100 GB - $19.99 / month 1000 GB – $ / month

Dropbox news As of October 2011, Dropbox has over 50 million users. Over 96% of Dropbox’s users use their services for free. In 2009, Steve Jobs offered to buy Dropbox for a reported $800,000, Dropbox declined. Today, Dropbox is valued at over $1,000,000,000.00

So, what’s the secret? Moore’s law and freeconomics!

Freemium in a box Cost of adding a user to Dropbox is essentially zero. However, as users use the product, some will become paying users. The profit from paying customers, less than 4%, is enough to make Dropbox a wildly successful company. Dropbox can offer its product for free because of the marginal cost is essentially $0.00. Drop

Profitability of: