Characteristics of Innovation New or improved product, service or process from market point of view, which contains new technological solutions and has been commercially successfully introduced to the market Radical, disruptive, sustained, incremental, architectural, service and process innovations Innovator gets competitive advantage through timing advance and IPR protection by patents – short monopoly Monopoly will loosen through trade of patents and licenses or knowledge spillovers when competitors copy the technology and proprietary technology gets common to all players in the industry © Sakari Luukkainen

Innovation process Market appeal Technology push Process innovation Market appeal Service innovation GSM, Internet, fax, I-mode, Ethernet, IN, ADSL, CATV data Product innovation Proprietary technologies R&D investment X.400, ISDN, WAP, ERMES, ATM, 3G/UMTS? Generic technologies Science base Technology push © Sakari Luukkainen

Discontinuous technology Improvement trajectory of incumbents Magnitude of Change Discontinuous change Incremental change Time Source Tushman, 1997 © Sakari Luukkainen

Technology cycle Technological Substitution Variation Selection Discontinuity Variation Era of Incremental Change Era of Ferment Technological Discontinuity Selection Variation Dominant Design Era of Incremental Change Era of Ferment Selection Dominant Design Source: Anderson & Tushman, 1997 © Sakari Luukkainen

Disruptive innovation in mobile data Performance 1-3 G Performance which customers can utilize Technological trajectories WLAN Time Source: applied from Christensen 1997, Gilbert 2002 © Sakari Luukkainen

What is market uncertainty Market uncertainty relates to the inability of vendors and service providers offering new communications solutions to predict what are the latent end users needs The uncertainty exists partly also because users do not know what they want until they see and use it When users are first introduced to new technology they tend to view it in the context of the older technology Users needs evolve hiearchically from basic features to more sophisticated ones along with the technology evolution as they become more educated about the benefits it provides Source Gaynor, 2003 © Sakari Luukkainen

Managing market uncertainty The only way to meet uncertain markets is to experiment several ideas and hope at least one will work When market uncertainty is high, being lucky with correct guess about the market is likely to produce more revenue than being right in markets with low uncertainty In high uncertainty competition is feature based and low price based The use of distributed architecture in the introduction phase of new communications platform when the market uncertainty is high Centralized management structure should then be used in later phases of the cycle when the technology and market is mature Source Gaynor, 2003 © Sakari Luukkainen

Lock-in Investments in varying complementary assets related to the actual ICT investment influence switching costs When the switching costs from one brand to another are substantial, customers face lock-in Sonera & Radiolinja example: low number of moving customers before portability of telephone number iki.fi e-mail solution to reduce switching cost Proprietary interfaces Source: Shapiro, Varian 1999 © Sakari Luukkainen

Lock-in Existing installed customer base with high switching cost is significantly valuable asset Collective switching costs, group pricing of mobile calls Total switching cost = costs the customer bears + costs the new supplier bears The present discounted value to a supplier of locked-in customer is equal to total switching costs, plus the quality or cost advantage of current supplier’s product Source: Shapiro, Varian 1999 © Sakari Luukkainen

Networks and Positive Feedback Increasing returns to scale (economies of scale) exist when the cost per unit decreases as more units of the good are produced. Recently, the term "increasing returns to scale" has been used to describe more generally a situation where the net value of the last produced unit [= (€ amount consumers are willing to pay for the last unit) - (average per unit cost of production)] increases with the number of units produced. This effect can be called also demand side of economies of scale. © Sakari Luukkainen

Networks and Positive Feedback A network exhibits network externalities when the value of a subscription to the network is higher when the network has more subscribers. Metcalfe´s law: n * (n-1) = n2 – n Dominant design is a technology that wins the allegiance of the market place, it usually takes the form of a new product (or a set of features) synthesized from individual technological innovations introduced independently © Sakari Luukkainen

Positive Feedback Winner Market Share (%) Battle zone Loser Time 100 50 Battle zone Loser Time Source: Shapiro, Varian 1999 © Sakari Luukkainen

Demand-side Economies of Scale Virtuous cycle Value to User Vicious cycle Number of Compatible Users Source: Shapiro, Varian 1999 © Sakari Luukkainen

Adoption Dynamics Laggards (16%) Late majority (34%) Saturation Number of Users Laggards (16%) Late majority (34%) Early majority (34%) Early adopters (13,5%) Innovators (2,5%) Takeoff Launch Critical mass Time Source: Rogers, 1995 © Sakari Luukkainen

Innovation diffuson Relative advantage (price and performance) over competing technologies substitutes Compatibility with the values, norms, and experience of the end-users Innovations that are connected to already proven technology Complexity Easy trialability of the early adopters Observability of innovation, the visibility among the user community  Characteristics of the implementation decision: centralized, group, individual Source: Rogers, 2003 © Sakari Luukkainen

Fax © Sakari Luukkainen Source: Varian

Mobile communications Source: Srivastava, Lara, “from the mobile internet to the ubiquitous internet”, ITU, July 24, 2006 © Sakari Luukkainen