Winning the Hardware Software Game book Winning the Hardware-Software Game

Using Game Theory to Optimize the Pace of New Technology Adoption

Innovators of new technology systems requiring users to combine both hardware and software components often face delays in adoption of their new systems.  Users will not buy the hardware until enough software or content is available, while at the same time software providers will not provide content until enough users have adopted the new system.  This book examines the dynamics of this adoption process and provides methods for optimizing the pace of adoption of new technology systems.     Read more...

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  • Playing the Amazon Monopoly Game

    Amazon Ecosystem Components

    Amazon Segments

    Amazon Sales, Income, and Margins

    Amazon Methods of Competition

    Anti-Trust Issues

     

    Amazon is leaving a large pile of battered companies in its wake as it increasingly steals sales away from traditional bricks and mortar companies and decimates their market shares. Some of the better-known victims include: Barnes & Noble (books), Macy’s (clothes and home goods), Toys R Us (toys and baby products), Staples and OfficeMax (office supplies), Etsy (handmade products), and Best Buy (electronics).

    In fact, there’s even an index, the Bespoke “Death By Amazon” index, that tracks the performance of 54 public companies most at risk from Amazon:

    Bespoke publishes the “Death By Amazon” as a way to track performance of the companies most affected by the rise of AMZN. Companies included must be direct retailers with a limited online presence (or core business based on physical retailing locations), a member of either the Re- tail industry of the S&P 1500 Index or a member of the S&P Retail Select Index, and rely on third party brands. We view these attributes as the best expression of AMZN’s threat to traditional retail. The index is designed as both a performance benchmark and idea generation tool for our clients.

    On July 17, 2017, Patti Domm reported in “Amazon's victims: These stocks have lost $70 billion so far this year” that the index is down 20% so far this year.

    As Amazon’s seeks to dominate yet another market segment – the grocery business – through its plans to purchase Whole Foods, we must question once again whether or not Amazon is “too big” (however we choose to define bigness).

    This analysis examines

    • The various players in Amazon’s market ecosystem
    • The extent to which Amazon covers its ecosystem
    • How Amazon earns its money to finance its operation
    • The methods Amazon uses to compete
    • Other potential anti-trust issues
  • Playing the Black Friday Game

    The Origin of Black Friday

    What’s at Stake?

    The Evolution of Patterns in Retail Sales

    Some Issues Regarding the Black Friday Game

     

    The Origin of Black Friday

    The origin of the name Black Friday is described in “Black Friday (shopping) explained” as follows:

    The day's name originated in Philadelphia, where it originally was used to describe the heavy and disruptive pedestrian and vehicle traffic which would occur on the day after Thanksgiving. Use of the term started before 1961 and began to see broader use outside Philadelphia around 1975. Later an alternative explanation began to be offered: that "Black Friday" indicates the point at which retailers begin to turn a profit, or are "in the black".

    It has only been recently that Black Friday has been the busiest shopping day of the year. Previously, the busiest shopping day of the year had been the Saturday before Christmas. As Miranda Marquit describes it in “What Is Black Friday – History of the Holiday Shopping Phenomenon”

    Interestingly, the day after Thanksgiving has only recently become the biggest shopping day of the year. Between 1993 and 2001, it ranked between fifth and tenth on the list of the busiest shopping days. In fact, for years, the busiest shopping day was usually the Saturday before Christmas.

    But things changed in 2002. That was the year Black Friday took the lead, and it has remained the busiest shopping day of the year ever since, with the exception of 2004 when it was second.

  • Playing the Dynamic Pricing Game

    Price discrimination may be defined as selling the same thing to different people for different prices. Price discrimination can take many forms, such as volume discounts, price premiums, or market segmentation. Suppliers regularly use many different forms of price discrimination, which people generally don’t object to.

    Some suppliers use dynamic pricing, a sub-category of price discrimination, in which prices change over time with market conditions. Consumers have been used to the fact that prices for airline tickets and hotel rooms change constantly, and that different people end up paying different prices for a seat on the plane. While uncomfortable with the practice, consumers have generally come to accept this type of dynamic pricing (what choice do they have?).

    Over the past few years, dynamic pricing has become more widely used by sellers as a means of supplementing shrinking margins in an increasingly competitive world. As more information becomes easily available in digital form, pricing algorithms used to support dynamic pricing systems have been able to draw upon more and more information to hone prices and increase profits.

    A more controversial sub-category of dynamic pricing is personalized pricing, which uses personal information on each customer to tailor prices specifically to that customer.

    This analysis examines the different types of price discrimination, how they increase profits, why they are becoming increasingly prevalent, and some emergent issues surrounding their use.

  • Playing the e-Book Game

    The e-Book Pricing Battle

    The following is a brief history of the e-book pricing battle that has been taking place. The passage quotes heavily from three articles:

    “Publishers, Amazon in Flux in e-Book Pricing Fray” by Phil Wahba and Alexandria Sage, Reuters  

    “Amazon Looking Foolish in e-Book Flap” by Therese Poletti, MarketWatch

    “Cost of an E-Book Will Be Going Up” by Motoko Rich and Brad Stone, NYT

    Being first to market, Amazon established a $9.99 e-book pricing model.

    Amazon was first on the market with an electronic book (e-book) reader (e-reader), the Kindle.  Being first to market and having a large market presence together provided Amazon with enough leverage vis-à-vis publishers as to be able to establish a low, fixed sales price of $9.99 for all sales of e-books to Kindle users. This single, low, fixed price for all books is analogous to Steve Job’s iTunes music store pricing model, which initially sold all songs for 99 cents each.

  • Playing the Over-the-Top Content Game

    To download a pdf copy of this post, click on the attachment below.

     

    History of Cable

    Away from Cable and Toward Over-the-Top

    The Over-the-Top Game

    Issues and Strategies

     

     

    The recent announcement of the AT&T – Time Warner merger has generated a flood of press. There is much skepticism about whether the companies will be allowed to proceed with the merger. Regardless, the underlying trend that spurred the desire of the two companies to merge – the increasing prevalence of over-the-top content – will continue.

    Since the advent of broadband internet in the early 2000s, users have been increasingly dropping their cable TV services in favor of accessing à la carte content over the internet, from such providers as Hulu, Netflix, and Amazon Prime. Such over-the-top (OTT) content has been wreaking havoc on cable companies’ bottom lines. In response, cable companies have been increasingly buying up content providers and creating their own original content in order to better compete with OTT content providers.

    This analysis examines the OTT Content Game, in particular,

    (i) How will OTT content continue to evolve? and

    (ii) How will cable companies respond to the increasing prevalence of OTT content?

  • Playing the Platform Game

    The purpose of this analysis is to better understand the dynamics of internet platforms. The analysis considers the three basic types of platforms:

    • Vendors (WalMart, Apple, Pandora, etc.)
    • Social Media (Facebook, LinkedIn, YouTube, etc.)
    • Matchmakers (eBay, Uber, etc.)

    And will seek to address such issues as

    • Who are the different players in each type of platform game? 
    • How do the players' actions combine to generate value in each type of game?
    • Who extracts what value?
    • Which types of platforms and configurations have the greatest value potential? 
  • Playing the Same-Day Delivery Game Part 1: Bricks-and-Mortar vs. Online Stores and Last Mile

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    Shopping Experiences: Bricks-and-Mortar vs. Online Stores

    Let’s start with a comparison of shopping experiences in bricks-and-mortar versus online stores.

    There are three major advantages associated with in-store versus online shopping experiences. First, buyers are able to handle the merchandise. This basic sensory experience reduces much of the risk associated with online shopping regarding not knowing exactly what you’re getting. Second, in-store shoppers are able to take immediate delivery of the items they buy – no shipping costs or delays. Finally, to the extent that shoppers need to return items, in-store returns don’t require any of the packaging or shipping costs associated with online returns.

  • Playing the Same-Day Delivery Game Part 2: Configurations of Delivery Networks

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Playing the Same-Day Delivery Game Part 1, I discussed the differences between shopping experiences that take place in-stores vs. online, and I noted that same-day delivery services aim to provide shoppers with much of the convenience of online shopping, without the associated delays. I then discussed the Last Mile problem, which has historically been an impediment to the cost-effective provision of same-day delivery services.

    In this part of my analysis, Part 2, I discuss various configurations of delivery networks.

     

    Essential Components

    The essential components required to operate any type of delivery network include (i) hubs, (ii) vehicles, and (iii) drivers. The minimization of costs associated with operating a delivery network entails several, simultaneous optimization problems involving these essential components.

  • Playing the Same-Day Delivery Game Part 3: Delivery Network Operations and Barriers to Adoption

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Playing the Same-Day Delivery Game Part 1, I discussed the differences between shopping experiences that take place in-stores vs. online, and I noted that same-day delivery services aim to provide shoppers with much of the convenience of online shopping, without the associated delays. I then discussed the Last Mile problem, which has historically been an impediment to the cost-effective provision of same-day delivery services.

    In Playing the Same-Day Delivery Game Part 2, I discussed various configurations of delivery networks, including hub-and-spoke systems, aggregator systems, point-to-point aggregator systems, and point-to-point systems.

    In this part of the analysis, I discuss the different options for delivery network operations and the barriers to adoption of same-day delivery services.

     

    Delivery Network Operations

    Suppliers who wish to provide delivery services to their customers currently have several options: (i) they can provide delivery services in-house; (ii) they can outsource delivery services to a third party; or (iii) they can provide modified delivery services, such as curbside delivery.

  • Playing the Same-Day Delivery Game Part 4: Same-Day Delivery – Why Now?

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Playing the Same-Day Delivery Game Part 1, I discussed the differences between shopping experiences that take place in-stores vs. online, and I noted that same-day delivery services aim to provide shoppers with much of the convenience of online shopping, without the associated delays. I then discussed the Last Mile problem, which has historically been an impediment to the cost-effective provision of same-day delivery services.

    In Playing the Same-Day Delivery Game Part 2, I discussed various configurations of delivery networks, including hub-and-spoke systems, aggregator systems, point-to-point aggregator systems, and point-to-point systems.

    In Playing the Same-Day Delivery Game Part 3, I discussed the different options for delivery network operations — in-house and outsourced, and others — and the barriers to adoption of same-day delivery services, namely, will enough customers and suppliers sign on?

    In this part of the analysis, I discuss why same-day delivery services have just now (over the past several years) appeared in the marketplace.

     

    The last mile problem has existed since the advent of transportation and communications systems. So why have same-day delivery start-ups suddenly been popping up now, over the past few years? In fact, what has changed since the late 1990s when Webvan, Kozmo, and other startups tried, but failed, to do the same thing?

    There are two separate factors contributing to the recent renaissance of same-day delivery services. The first is the improvement in logistics technologies, which have vastly reduced the costs of operating delivery service networks. The second is the implementation of same-day delivery services by Amazon and Google as a means to other ends.

  • Playing the Same-Day Delivery Game Part 5: How Will the Same-Day Delivery Game Evolve?

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Playing the Same-Day Delivery Game Part 1, I discussed the differences between shopping experiences that take place in-stores vs. online, and I noted that same-day delivery services aim to provide shoppers with much of the convenience of online shopping, without the associated delays. I then discussed the Last Mile problem, which has historically been an impediment to the cost-effective provision of same-day delivery services.

    In Playing the Same-Day Delivery Game Part 2, I discussed various configurations of delivery networks, including hub-and-spoke systems, aggregator systems, point-to-point aggregator systems, and point-to-point systems.

    In Playing the Same-Day Delivery Game Part 3, I discussed the different options for delivery network operations — in-house and outsourced, and others — and the barriers to adoption of same-day delivery services, namely, will enough customers and suppliers sign on?

    In Playing the Same-Day Delivery Game Part 4, I discussed why same-day delivery services have reappeared recently, after having been tried and failed in the late 1990s. In particular, I note that over the past decade, there have been tremendous advances in logistics technologies, which have significantly decreased the costs of providing same-day delivery services. I also note that Amazon's and Google's forays into the same-day delivery market are driven by more than just providing delivery services. Specifically, the two companies are seeking to (i) grab a share of the grocery market, (ii) increase their respective shares in the product search market, (iii) generate access to consumer use data, (iv) generate direct access to consumers, and (iv) generate spillover effects to other parts of their technology ecosystems.

    In this part of the analysis, Part 5, I discuss how I think different aspects of the same-day delivery game will evolve.

     

    Will Enough Consumers Sign Up?

    Will enough people participate in same-day delivery services and use them frequently enough to support operations?

  • Playing the Winner-Take-All Market Game, Part 1

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In order to encourage big bets, Jeopardy is winner-take-all … Only the person in first place keeps their total at the end of the game. There’s a very powerful incentive to be aggressive... The most important thing isn’t the absolute number of dollars you have on the board. It’s how strongly you’re beating the other players.

    – Julio Rodriguez, “Poker Player Crushing Jeopardy With Unorthodox Strategy”

    Winner-Take-All markets – where small groups of companies or individuals receive an over-sized share of earnings – seem to characterize an increasing portion of markets in today’s economy.

    There are actually two, distinct, simultaneously-occurring phenomena that have been enabling fewer individuals to extract larger portions of wealth from global markets. The first phenomenon is a shift in leverage that is enabling fewer individuals to extract more wealth from certain types of markets; that is, it’s an intra-market shift. The second phenomenon is an increase in the size of markets due to the erosion of barriers that had previously prevented regional markets from consolidating globally; that is, the second shift is an inter-market shift.

    What are the factors driving these two sets of phenomena? Are the resulting WTA markets good or bad for society? If/when they’re bad, how can we mitigate against the effects? These are the issues that this analysis addresses. In Part 1 of the analysis, I describe the forces contributing to the creation of Winner-Take-All markets. In Part 2 of the analysis, I provide some examples of WTA markets, together with ways of mitigating negative effects in WTA markets. In Part 3 of the analysis, I discuss some strategic issues associated with WTA markets.

  • Playing the Winner-Take-All Market Game, Part 2

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Part 1 of this analysis on Winner-Take-All (WTA) markets, I described the forces contributing to the increasing incidence of WTA markets that we've been seeing over the past few decades in global economies. More specifically, I decribed two, distinct phenomena that have been enabling fewer individuals to extract larger portions of wealth from global markets: (i) an intra-market shift in leverage that has been enabling fewer individuals to extract more wealth from certain types of markets; and (ii)  an an inter-market shiftcausing increases in the size of markets, due to the erosion of barriers that had previously prevented regional markets from consolidating globally.

    In this part of the analysis, Part 2, I provide some examples of WTA markets, together with ways of mitigating negative effects in these markets.

    In the last part of the analysis, Part 3, I discuss some strategic issues associated with WTA markets.

     

    Examples of WTA Markets

    This section provides some examples of Winner-Take-All markets, together with indications of the specific forces (described in the previous two sections) that have contributed to the formation of WTA phenomena in these markets.

  • Playing the Winner-Take-All Market Game, Part 3

    A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

    In Part 1 of this analysis on Winner-Take-All (WTA) markets, I described the forces contributing to the increasing incidence of WTA markets that we've been seeing over the past few decades in global economies. More specifically, I decribed two, distinct phenomena that have been enabling fewer individuals to extract larger portions of wealth from global markets: (i) an intra-market shift in leverage that has been enabling fewer individuals to extract more wealth from certain types of markets; and (ii)  an an inter-market shiftcausing increases in the size of markets, due to the erosion of barriers that had previously prevented regional markets from consolidating globally.

    In Part 2 of the analysis, I provided some examples of WTA markets, together with ways of mitigating negative effects in these markets.

    In this last part of the analysis, Part 3, I discuss some strategic issues associated with WTA markets.

    With the globalization of markets, the value potential for any product or service is much larger than it used to be, when markets were local, regional, or even national. Let’s consider some of the different factors that contribute to a product’s potential value, together with strategic implications for WTA markets: (i) market size, (ii) predominance of social effects, (iii) availability of complementary assets, (iv) power of path dependency, and (v) use of information filtering.

  • War Between Amazon & Apple?

    Amazon

    Apple

    Amazon vs Apple

     

    I just Googled “Apple” and “Amazon” and “war” and got 40,300,000 hits, with such headlines as

    The Amazon-Apple War Is On

    New $199 Amazon Kindle Stokes Fire in War With Apple

    Amazon Ignites Tablet War with Fire, Takes on Apple

    The Amazon-Apple War Is On - Kindle Fire, 7" Tablet for USD199

    But is Amazon’s release of its new tablet really an indication that it is trying to take on the Apple ecosystem?  I don’t think so.