Professor Ran Kivetz Columbia Business School Spring 2007 High Technology Marketing and Entrepreneurship THE ROLE OF MARKETING (& “Can this High-tech Product Sell Itself”)

The Role of Marketing - Agenda Overview of RIDE Model Marketing communications and promotions Matching RIDE strategies with marketing communications & promotion tactics “Can Visual Motion 2.0 sell itself” Conclusion of case discussion: “The role of marketing in high-technology firms”

The R I D E Model__ R Market Tech. (vs. Execution) I Info Industrial economics D Elastic Inelastic E Homogenous Heterogeneous Externalities Copyright © 2001, Professor Ran Kivetz

The RIDE Model R ISK Technological RiskMarket Risk Demand - preferences are ill-defined and labile - adoption and diffusion are hard to predict - market measurement is difficult - capacity-setting is risky Standards & Compatibility Competition - abundant & fast - 1st mover & “unfair” advantages - sometimes: “winner-take-all” dynamics Value & Supply Chain - partners, competitors, suppliers, customers, & channels involve risk and change - frequent power conflicts Environment - uncertain and changing business environment (e.g., financial markets; regulation) Functionality & Delivery - concern re feasibility & performance - concerns re delivery timetables - problems with service & “experience” Obsolescence - changing standards - dominating innovations - leapfrogging technologies Side Effects - malice: e.g., cyber-crime, viruses & attacks, access violations - privacy & trust concerns - intellectual property (IP) issues

Technological RiskMarket Risk The type of RISK (& focus/opportunities) shifts over time

Information versus Industrial Products Total Industrial Good Cost Volume Total Information Good Cost Volume Variable costs are low relative to fixed costs Decreasing average cost, no capacity limits: Substantial economies of scale Sunk Costs Information commodity markets don’t work Potential Market Structures Differentiated product (personalize) ORDifferentiated product (personalize) OR Cost Leadership First Mover Advantages: Aggressive Pricing Competitive signal, threat Pricing: Personalized & value pricing Versioning Market Segment pricing Experience goods

Demand Typology: Heterogeneous vs. homogeneous Demand Heterogeneous vs. homogeneous Demand Demand for high-tech products can often be extreme Demand for high-tech products can often be extreme  varies from remarkably elastic to remarkably inelastic Dependence on unit of analysis (e.g., company vs. consumer; “between” vs. “within” product categories) and product life- cycle Dependence on unit of analysis (e.g., company vs. consumer; “between” vs. “within” product categories) and product life- cycle Demand type has implications for customization, “versioning,” branding, bundling, and marketing communications Demand type has implications for customization, “versioning,” branding, bundling, and marketing communications

When thinking Externalities think about... Network Externalities Network Externalities Chicken & Egg Externalities Chicken & Egg Externalities Other externalities & dependencies in value chain Standards & Compatibility Switching costs & Exit barriers Switching costs & Exit barriers Lock-in Lock-in Speed and path dependencies

Technology has the largest Installed Base of Users Technology is Attractive To New Buyers Technology gets large share of new purchases Installed base grows Positive Feedback

Apple’s Market Share 4.9% 14.7% 14.1% 7.8% 5.5% (first quarter)

Key Strategies for Dealing with Network Externalities Positive Feedback, path dependencies, and “snowball” effects can lead to extreme outcomes Try to predict the (unpredictable, stochastic) future landscape Race to reach critical mass; fast growth & installed base are key Manage customer expectations and create sense of inevitability Razorblade & seeding strategies may be required when chicken & egg externalities exist Viral marketing, evangelism, and buzz

Key Strategies for Dealing with Network Externalities Focus on partnerships and nurturing the network Often need to overcome collective switching costs Chose between “evolution via compatibility” and “revolution via performance” Chose between “evolution via compatibility” and “revolution via performance” Chose between openness (maximizing the network) and control (maximizing your brand share-of-network) Chose between openness (maximizing the network) and control (maximizing your brand share-of-network)

Can This High-Tech Product Sell Itself?

The Role of Marketing - Lessons How do you promote a new high-technology product? Marketing communications & promotions tactics must match the strategic situation of the company (RIDE analysis) Being a marketer in a high-technology firm is not easy...