Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?



  • A lot of great new technologies are introduced into the marketplace, only to flounder and fail to be adopted by users. In many cases, users’ failure to adopt new technologies is due technology providers’ failure to consider two important factors: ecosystem completeness and switching costs.

    Ecosystem Completeness

    Every technology introduced into the market offers users a particular value-in-context; that is, the technology enables users to generate value under specific conditions.

    Take, for example, an cellphone. For users to be able to generate value from a cellphone, they must have

    1. An cellphone,
    2. A charged battery (e.g., access to electricity services)
    3. Connection services (including a phone number), and
    4. Other people to call.

    All four of these pieces must be present simultaneously for the cellphone to provide value to the user. Conversely, if any of those four pieces is missing, then the cellphone provides no value.

  • Public vs. Private Information on the Internet

    Does Hardware Drive Software, or Vice Versa?

    Why Have Past Consortia for Compatibility Failed, and Why Would DECE Now Succeed?

    So Are Device-Content Systems Moving Toward Compatibility or Incompatibility?


    There are two trends occurring in the digital world that seem to be at odds with one another.  The first is that towards incompatible hardware/device – software/content ecosystems and the other is towards compatible ecosystems.

  • On Tuesday, November 8, 2016, India’s Prime Minister, Narendra Modi, announced that he would pull 500 and 1,000 rupee currency notes from circulation. The move is an attempt to nullify untaxed (“black”), corrupt, and counterfeit currency. Eventually, new bills will replace the old ones, but in the meantime, only low value notes will be considered legal tender. As The Indian Express, “Rs 500, Rs 1000 currency notes stand abolished from midnight: PM Modi” reports:

    In a major step to check black money, Prime Minister Narendra Modi on Tuesday announced demonetization of Rs 500 and 1000 currency notes with effect from midnight, making these notes invalid in a major assault on black money, fake currency and corruption. In his televised address to the nation, Modi said people holding notes of Rs 500 and Rs 1000 can deposit the same in their bank and post office accounts from November 10 till December 30.

    How reasonable a policy is this? That is, will it accomplish its purpose while minimizing collateral damage?

  • This analysis considers how the US healthcare system would change if we were to transition from the current multi-payer system to a single-payer system. The analysis first presents facts that will be important in considering what a single-payer system might look like. Then, given these facts, the analysis considers specific issues about the transition. 



    1. Four factors affect a person’s risk of premature death.

    Behavior, genes, environment, and healthcare services are the four factors that Impact people’s risks of premature death (Kaiser Family Foundation) (see Figure 1).

    Figure 1

    1 impact factors on death 

    (i)  Behavior: 40%

    From Kaiser Family Foundation: “Health behaviors, such as smoking and diet and exercise, are the most important determinants of premature death.”

    According to OECD, “Health at a Glance 2015”

    While genetics is a risk factor, only about 5% to 10% of all cancers are inherited. Modifiable risk factors such as smoking, obesity, lack of exercise and excess sun exposure, as well as environmental exposures, explain up to 90-95% of all cancer cases.

    (ii)  Genes: 30%

    (iii)  Social and Environment: 20%

    Figure 2 (from Kaiser Family Foundation) displays specific social and environment factors contributing to health.

    Figure 2

     2 social determinants

    More from the OECD report:

    Recent analysis shows that, although overall spending on social services and health care in the United States is comparable to other Western countries, the United States disproportionately spends less on social services and more on health care.

    (iv)  Health Care: 10%

  • Current Doctor-Patient Communications Involve Miscommunications

    Suppose a patient damages his knee. He goes to see an Orthopedic Surgeon. The surgeon conducts some tests and concludes that the patient has torn his meniscus and needs arthroscopic surgery to fix it (see Figure 1)

    Figure 1

    1 mensicus


    After informing the patient of this, the patient then asks the surgeon, “How much will this surgery cost me?”

    The surgeon replies to the patient’s question with something akin to, “I have no idea,” or “I can’t tell you.”

    That simple statement goes a long way towards killing the patient’s trust of the doctor. And without trust, patients are less likely to comply with the doctor’s recommendations, which, in turns leads to worse patient outcomes, less satisfied patients, fewer patient referrals, and more billing disputes.

    And all this happens due to a miscommunication between the surgeon and the patient.

  • Terminology/Technical Information

    Players in the Electric Vehicle Game

    Current Stages of Adoption of Electric Vehicles

    Advantages and Disadvantages of Electric Vehicles

    Energy Inputs and Emissions Costs of Electric Vehicles

    Should the Construction of Electric Charging Stations be Subsidized by the Public?



    A recent article in the WSJ, “U.S. Utilities Push the Electric Car” by Cassandra Sweet, notes that electric companies nationwide are seeking to charge electricity consumers extra fees to fund construction of electric vehicle charging stations by the electric companies. The rationale is that having more charging stations available will speed adoption of electric vehicles by consumers, thereby leading to fewer pollutant emissions, and thus higher air quality for everyone.

    Should all electricity consumers be required to pay the construction costs of electric vehicle charging stations?

    The answer to this question requires understanding the underlying distribution of the private and social costs and benefits associated with manufacture and use of conventional versus electric vehicles.

  • A recent article in the NYT, “Sites to Refuel Electric Cars Gain a Big Dose of Funds” by Nelson D. Schwartz,described the latest development in the evolution of the market for electric cars:

    Better Place, the closely watched start-up that hopes to create vast networks of charge spots to power electric cars, is set to receive a vote of confidence on Monday, in the form of $350 million in new venture capital.  Although Better Place will most likely require billions more in financing, this investment is an important step for the company...

  • Does Apple Dominate the MP3 Player & Smartphone Markets?

    Apple iPod & iPhone Sales Timeline

    How Did Apple Manage the Growth of Its Ecosystem to Create Value?

    Would Even More Value Have Been Created If Apple’s System Had Been Open?


    A recent article in Newsweek, “Think Really Different” by Daniel Lyons, laments the fact that Apple’s ecosystem is a closed system, which represents paradigm shift from the prior, open system the PC industry and post-Internet world had evolved into:

  • The Technology Triangle

    Years ago I attended a meeting on intellectual property (IP). One of the speakers, a sharp IP attorney named Pat Ellison, gave a talk, which greatly resonated with me. He said that a successful technology requires a balance between technology, business, and law, as represented by the triangle in Figure 1. (I recently contacted Pat about the origin of this idea and he said he was fairly sure that the idea was developed collaboratively with others, but he couldn’t remember who the other contributors were.) Very succinctly, descriptions for the requirements are:

    • Technology: The technology must work well.
    • Business: The technology must be cost effective, that is, is must able to be manufactured and sold for a profit.
    • Law: The legal and regulatory underpinnings of the technology, including intellectual property foundations and liability issues, must be sound.

    A successful technology will exhibit balance in each of the three areas in the sense that if any of the three is too weak – the technology doesn’t function well, the technology cannot be sold for a profit, and/or the intellectual property is invalid or ineffective or other regulatory issues have not been settled – then the technology will not become commercially successful.

    Figure 1


  • This is a presentation I’m preparing for “Tech Startup Conference: Artificial Intelligence” being held on September 26, 2017.

    1. Issues Covered

    • Adoption of New Technology Systems: What does it take for new technologies to become successfully adopted in the marketplace? Why do some technologies become adopted while others do not?
    • Value Creation: How do the components of the system combine to create value for the different players? Can the environment be changed so that the system will create more value?
    • Value Extraction: How much value does each player extract? In particular, are players extracting as much value from the system as they can?
  • 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?

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


    The following are the essential factors at issue when considering batteries for use in powering electric vehicles:

    Amount of Energy that Can Be Stored

    The batteries of any given size that are able to store the greatest amount of energy in terms of both weight (specific energy) and volume (energy density) of the battery are the most desirable (efficient) to power electric vehicles. Perhaps the largest current disadvantage in terms of the state of battery development for electric vehicles (EVs) is the fact that currently EVs cannot go very far without having to have the battery recharged, creating so-called range anxiety. Lower battery range would be less of a problem if (i) there were more fueling stations around (currently there are very few refueling stations), and/or (ii) it didn’t takes so long to recharge the battery (20 minutes to several hours, depending upon the technology of the charger). Currently, EV manufacturers are working fiercely to increase both the specific energy and/or energy density of batteries for EVs so as to achieve greater vehicle range.

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


    The relationship between specific energy and energy density for various types of batteries are presented in Figure 1, which was taken from Justin Amirault, et. al. “The Electric Vehicle Battery Landscape: Opportunities and Challenges”

    Figure 1

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


    From the beginning, the biggest problem facing all-electric vehicles has been their short range, that is, they cannot go very far without having to recharge their batteries. Since lithium-ion (Li-ion) batteries offer the greatest energy capacity and density of all the batteries, and thus the greatest potential for longer range, Tesla chose to use Li-ion batteries to power its first all-electric vehicle, the Tesla Roadster. As Tesla notes:

    Tesla battery packs have the highest energy density in the industry


    Nickel Metal Hydride (NiMH) batteries are commonly used in hybrid cars. However, a 56 kWh NiMH battery pack would weigh over twice as much as the Roadster battery. Instead, Tesla uses Li-ion battery cells which dramatically decrease the weight of the Roadster pack and improve acceleration, handling, and range.

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


    Now let’s take a look at the characteristics of the current offerings of electric vehicles across manufacturers, which are presented (above in Figure 2 and) in Figures 4 and 5.

    Figure 4

    Figure 5

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


    This section examines the structure of costs associated with manufacturing Li-ion batteries for use in electric vehicles.

    The battery packs used in electric vehicles consist of numerous individual batteries connected together and packaged into modules, which are then connected together and packaged into battery packs.  David L. Anderson, in “An Evaluation of Current and Future Costs for Lithium-ion Batteries for Use in Electrified Vehicle Powertrains” explains this process in a bit more detail:

    [F]or automotive applications, individual cells are typically connected together in various configurations and packaged with associated control and safety circuitry to form a battery module. Multiple modules are then combined with additional control circuitry, a thermal management system, and power electronics to create the complete battery pack…

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


    In Part 1 we learned that the essential factors at issue when considering batteries for use in powering electric vehicles include (i) the amount of energy that can be stored, (ii) longevity, (iii) cost, and (iv) safety.

    In Part 2we learned that (i) theearliest EVs (hybrids) used NiMH batteries, due to their greater safety, longer life, and lower cost; and (ii) two factors led to the industry-wide adoption of Li-ion batteries as the battery family of choice for electric vehicles: (a) their potential for greater vehicle range, and (b) patent access problems to NiMH battery technology.

    In Part 3 we learned that (i) current EVs use Li-ion batteries because they offer the greatest potential energy capacity and density; (ii) Li-ion batteries include a family of batteries composed of different materials; (iii) the cost of the battery is the largest cost component of electric vehicles; of the battery costs, the most significant contributors are the costs of the raw materials, which vary greatly in price; and (iv) different material constructions of Li-ion batteries generate differences in battery performance, where the ranking of battery potential from least to greatest is (a) LCO (1st gen) and LMO (2nd gen), (b) LFP (3rd gen) and NMC (4th gen), and (c) NCA and LTO.

    In Part 4 we learned that information on current EV offerings provide three indications: (i) many of the current EV offerings are “compliance cars”; (ii) the performance of most EVs is clustered around similar levels of energy capacity and range; and (iii) the battery manufacturing industry is consolidating around a few key suppliers.

    In Part 5 we learned that (i) high quality control standards for the manufacture of batteries for EVs result in low manufacturing yields, on the order of about 60%; (ii) materials account for about 75% of total manufacturing costs of batteries for EVs; and (iii) cost reductions in the manufacture of lithium-ion batteries may be achieved through larger scale production volumes and technological breakthroughs.

    Putting it all together yields the following insights.

  • The IoT Ecosystem Contains a Vast Array Of Components

    The Potential Value of Iot Will Increase Exponentially Over Time

    Barriers Are Currently Impeding Adoption of Iot

    How the Evolution of Iot Will Proceed

    Why Be an Early Adopter?

    What Will Be Important for Success in Iot?



    Vasyl Mylko of SoftServe notes that the Internet of Things is emerging at the intersection of Semiconductors, Telecommunications, and Big Data, through the evolution of their respective laws (see Figure 1)

    • Moore’s Law observes that semiconductors have been achieving a 60% increase in computer power every year.
    • Nielsen’s Law observes that Internet bandwidth has been achieving a 50% increase in speed every year.
    • Metcalfe’s Lawobserves that telecommunications networks increase in value with the square of the number of nodes
    • Law of Large Numbersobserves that the average obtained from a set of data approaches the true value as the size of the dataset increases.

    Charles McLellan, in “The internet of things and big data: Unlocking the power,” describes more directly how the confluence of trends inspired by these laws is enabling the rise of IoT:

    A huge number of 'things' could join the IoT, whose recent rise to prominence is the result of several trends conspiring to cause a tipping point: low-cost, low-power sensor technology; widespread wireless connectivity; huge amounts of available and affordable (largely cloud- based) storage and compute power; and plenty of internet addresses to go round, courtesy of the IPv6 protocol…


    Figure 1

    1 iot intersection

  • Underlying Issue

    Trends in Total US Healthcare Expenditures

    Trends in Personal Healthcare Expenditures

    Trends in Healthcare Expenditures by Condition

    In Sum



    Underlying Issue

    The total annual costs of healthcare paid by each individual is the sum of the healthcare premiums he pays and the out-of-pocket costs he incurs:

    Total Cost of Healthcare = Insurance Premiums + Out-of-pocket Costs

    Roughly speaking, the annual insurance premium an individual pays is the average of the total annual costs paid by his insurance company for the healthcare costs incurred by all individuals in his (age) group. What this means is that if the healthcare costs of one individual rise, then that individual does not bear the full burden of the costs increase, but rather, the burden is shared by all members of the group. This is the very nature of risk-pooling, and it works fine when all the members in the group face the same risks.

    Out-of-pocket costs for healthcare depend on the type of coverage an individual has, plus the amount of healthcare individuals use.

    Moving on, the amount of healthcare an individual will use/need during the year depends on several factors:

    • Genes: People will end up using more healthcare services to the extent that they have “bad” genes.
    • Luck: People will end up using more healthcare services to the extent that they have bad luck or are otherwise accident prone.
    • Lifestyle: People will end up using more healthcare services to the extent that they have an unhealthy diet, don’t exercise, smoke, don’t take safety precautions (e.g., wear seatbelts), or otherwise lead more risky lifestyles.
    • Compliance: People will end up using more healthcare services to the extent that they don’t comply with their doctors’ recommendations (e.g., take medication, lose weight, stop smoking, etc.)

    Obviously, people can’t control whether they have bad genes or bad luck. However, they can control the type of lifestyle they live and whether they comply with their doctors’ recommendations.

    This begs the following question: To what extent are healthcare costs attributable to factors that people cannot control (bad genes and bad luck), as opposed to factors that they can control (lifestyle and compliance)?

    Most people would probably agree to have society (government) subsidize healthcare costs associated with factors people cannot control. However, to the extent that people choose to not control those factors over which they do have power, then to what extent should society be responsible for subsidizing those people’s higher healthcare costs?

    Clearly, the issue becomes more important as the costs of healthcare have increased so dramatically over the years.