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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  • 2 Often Overlooked Factors that Impede Adoption of New Technologies

    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.

  • A Brief Overview of the Fake News Game

    Facebook and Google have recently being getting flack from users for hosting fake news stories. As Jack Nicas and Deepa Seethataman report, “Google and Facebook Take Aim at Fake-News Sites”

    Facebook Inc. and Alphabet Inc.’s Google announced steps to prevent fake-news websites from generating revenue through their ad-selling services, signs that technology companies are moving to address a growing controversy about misinformation on the internet.

    The Fake News Game is illustrated in Figure 1, and players’ objectives, actions, and tensions are described briefly below.

  • A Note on My Previous Net Neutrality Blog Post

    I recently published a blog entry on the Net Neutrality Game.  However, I just found out that there is a critical aspect of the net neutrality issue that I failed to understand, namely that involving deep packet inspection (DPI).  Using DPI methods, Internet providers have the capabilities of detecting not only the size of files passing through their lines, but also the content as well.  Clearly, there is a world of difference between managing flows of traffic based solely on file size, and managing flows of files based on the type and content of the files. 

  • An Overview of the Market for Driverless Cars

    Two Potential Market Outcomes

    Complementary Infrastructure Requirement

    Benefits of Self-Driving Cars

    Costs of Self-Driving Cars

    Winners

    Losers

    System Evolution

     

    Driverless (autonomous) vehicles is one of the hottest topics being discussed in the news lately. Some writers have been touting the enormous benefits adoption of driverless cars will bring, emphasizing the utopian scenario associated with the new technology. Others have noted the large industries dislocations their adoption will create, emphasizing the dystopian scenario. This analysis is my attempt to better understand what the market for driverless cars will entail.

     

    Two Potential Market Outcomes

    There have been two general market scenarios bandied about in discussions of autonomous vehicles:

    • Personal Self-Driving Cars (PSDC): In this scenario people generally own their own vehicles, but instead of people doing the driving, the vehicles drive themselves. This market outcome would yield a vehicle environment that looks relatively similar to the one that exists today, except that cars would have no drivers.
    • Shared Self-Driving Cars (SSDC): In this scenario people don’t own their own vehicles. Instead, third-party providers of transportation services own fleets of driverless vehicles, which people hail when they need to go somewhere. In other words, the SSDC scenario conflates autonomous vehicle with peer-to-peer (or sharing) technologies. This market outcome would yield a vehicle environment that is radically different from the one that exists today.
  • Are Airlines Baggage Fees a Smart Move?

    Airlines’ Costs and Revenues

    Legacy Carriers vs. Low Cost Carriers

    Airline Costs

    Airline Revenues

    Are Baggage Fees Justified?

    Pricing Fairness

    Alternatives to Baggage Fees

     

     

    According to the CAPA Centre for Aviation, it was early 2008 when the US airlines started charging customers to check their first and second pieces of luggage. “Previously, additional charges were not applied until the third bag was checked. The claimed reason behind the baggage fees was to help the carriers offset high fuel prices.”

    Scott McCartney in The Math Behind New Baggage Fee, reports that since the airlines started charging passengers to check even their first bag, more passengers have been bringing their luggage on-board the plane with them as carry-ons, causing flight delays as passengers vie for space in the overhead bins:

    To avoid checked-baggage fees, more travelers are carrying more bags onboard with them. At the same time, airlines have packed flights with more passengers, on average. That's led to a real-estate crisis in the cabins—not enough space in overhead bins to accommodate all customers. So more flights are delayed when customers struggle to cram bags into full bins and airline workers have to send bags that don't fit down to cargo compartments.

    McCartney further indicates that the costs associated with the flight delays caused by passengers grappling for space to store their carry-ons is now being used by the airlines to justify charging passengers fees for carry-ons. Checked baggage and carry-on fees have caused “consumer outrage, Congressional scorn and federal investigation,” according to McCartney.

    Are the baggage fees justified? Why are passengers so outraged at the fees? Is there a better alternative to the current structure of checked and carry-on baggage fees?

  • Are Device – Content Systems Moving Towards Compatibility or Incompatibility?

    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.

  • Are We Destined for a Race to the Bottom on Product Quality?

    Replacement of Durable Products

    Buyers’ Perspective

    Sellers’ Perspective

    When Price Competition Leads Low Quality to Crowd Out High Quality

    How to Sustain Supply of High Quality Products

     

     

    I recently bought a new electric hand mixer. The second time I used it, the head of one of the beaters fell off the rod. I know it’s not just me who thinks that they just don’t make them like they used to.

    My boyfriend has an old gas heater system for his store that is activated by a pilot light. There’s a thermal coupler (a sensor) on the pilot light that prevents gas from flowing, if the pilot light goes out. Every year he has to buy a new thermal coupler, because they only manage to function for a single season before they break.

    And how many stories have you heard about someone who replaced some major household appliance that had lasted for 30 years with a new one, only to have the newer product break down after just a couple of years?

    The question here is: can high quality products survive in this day and age, or will the focus on price competition ultimately lead lower quality products to crowd out higher quality products?

    Certainly, there has to be a large enough demand for high quality products to support their supply. I’m assuming that the problem is not that there is not enough demand for quality. Rather, the question is: will the need to offer low prices to win market share lead suppliers to cut quality even when demand for quality exists? In other words, are we destined to suffer a “race to the bottom” in terms of product quality?

  • Can a Universal Basic Income Address Joblessness Caused by Automation?

    As computers become faster, cheaper, and more efficient, they're increasingly being used in place of labor to generate products and services. This creates a dilemma for society: If a large portion of the population becomes unemployed and is unable to earn an income due to increasing use of automation, then who’s going to buy all the goods and services generated by producers? In other words, having efficient producers doesn't do any good if there are no consumers who can afford to buy their output.

    A universal basic income is a system in which all citizens of a country are paid an unconditional annual income. Can a universal basic income that is funded from taxes on workers and on producer profits be used to solve the problem of joblessness due to automation?

    This analysis seeks to answer the following question: Given a society with a large portion of jobs replaced by automation and an associated large portion of its citizens with no employment prospects, would a universal basic income system ever be sustainable from an incentives standpoint? That is, would all members of society ever find it in their mutual self-interest to support a UBI?

  • Collaborative Product Systems

    The Buy vs. Rent Decision

    Actual vs. Potential Value of Durable Products

    Characterization of Potentially Collaborative Products

     

    There has been an increasing trend toward collaborative consumption, which, which Wikipedia describes as follows:

    The term collaborative consumption is used to describe the cultural and economic force away from 'hyper-consumption' to re-invented economic models of sharing, swapping, bartering, trading or renting that have been enabled by advances in social media and peer-to-peer online platforms.

  • Colleges and Students in a Pickle

    What Is the Purpose of Colleges and Universities?

    How Do the Cutbacks Affect Education Game Players?

     

    A recent article by the Associated Press, “College Cutbacks Make It Harder to Earn Degrees,” described the problems college students are confronted with in the face of drastic budget cuts at colleges and universities.

  • Considerations for a Single-Payer Healthcare System in the US

    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. 

     

    Facts

    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%

  • Creating a Competitive Edge by Inducing New Technology Adoption in Sub-Networks

    Inducing Adoption of New Technologies by Network Members

    Creating Sub-Network Competitive Advantage

     

    A recent article in the NYT, “E-Records Get a Big Endorsement” by Steve Lohr, describes how hospitals are seeking a competitive edge” by offering subsidies to doctors to join the hospitals’ digital networks:

  • Description of the Terrorist Screening Game

    The Trump Administration's most recent proposal to prevent terrorists from entering the country is to undertake "extreme vetting" in the form of disclosing contacts on their mobile phones, social-media passwords and financial records, and answering probing questions about their ideology.

    This brings to mind the nature of the more general Terrorist Screening Game, in which The Government establishes rules and procedures for Screeners to follow in an attempt to weed out Terrorists from Non-Terrorist Visitors and Immigrants into the country.

    This analyzes examines the objectives of players in the Terrorist Screening Game and considers relevant questions and issues.

    players

  • Electric Vehicles and Social Welfare

    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.

  • Evolution of the Adblocking Game, Part 1

    In an earlier analysis, I looked at some of the dynamics involved in Playing the Online Adblocking Game

    This analysis examines the dynamics involved in the Online Adblocking Game, which includes such players as Online Users, Content Providers, Advertisers, and Adblock Software and Services Providers. The first part of the analysis will examine trends in online ad revenues and ad pricing models, as a backdrop for analysis of the Adblocking Game. The second part of the analysis will introduce adblocking and describe its use. And the third part of the analysis (or perhaps third and fourth) will discuss the adblocking game.

    My previous analysis focused more on the nitty-gritty of trends in web advertising models, how ad blocking works, and the tensions that adblocking has created for Advertisers, Content Providers (Publishers), and Users.

    This analysis focuses on wider trends in Internet access by Users that are causing large shifts in the dynamics between Advertisers, Content Providers (Publishers), and Users. In particular, three trends in Users’ Internet access are causing other ecosystem players to change the way they interact with Users: (i) Users are spending more time accessing the Internet from mobile devices than they are from non-mobile devices; (ii) Users are shifting their gateway to access to the Internet from web browsers to apps; and (iii) Users are spending more time on web platforms than they are on other, more fragmented websites.

    In the first part of this analysis I describe how advertising dollars have remained relatively constant over time, even as radically new venues for ads have appeared. I then describe how it was the advent of ad networks that enabled Advertisers to cost-effectively advertise on the Internet, but that the ensuing dynamics have led to a grotesque over-proliferation of ads. I end this part with a discussion of how the ad situation for mobile Users is exacerbated by the unnecessarily poor quality of mobile web browsers.

    In the second part of the analysis, I describe how trends in the way Users have been accessing the Internet have led to decreases the effectiveness of previous modes of advertising.

    In the last part of the analysis I discuss how the ecosystem may continue to evolve from where it is now.

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

  • Evolution of the Adblocking 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 I described how advertising dollars have remained relatively constant over time, even as radically new venues for ads have appeared. I then described how it was the advent of ad networks that enabled Advertisers to cost-effectively advertise on the Internet, but that the ensuing dynamics have led to an over-proliferation of ads. I ended Part 1 with a discussion of how the ad situation for mobile Users is exacerbated by the unnecessarily poor quality of mobile web browsers.

    In this second part of the analysis, I describe how trends in the way Users have been accessing the Internet have led to decreases the effectiveness of previous modes of advertising. 

     

    Three General Trends in Internet Use

    The way Users have been accessing the Internet has been changing over time in three different ways: (i) by source of access, from desktop (PC) to mobile device; (ii) by mode of access, from web browsers to apps; and (iii) by destination of use: from fragmented websites to platforms.

     

    1.  Source of Access: Users Moving away from Desktop toward Mobile

    In 2014 the time spent by Users accessing digital media from mobile devices surpassed the time spent by Users accessing digital media from desktop devices (see Figures 4- 5).

  • Evolution of the Adblocking Game, Part 3

    In Part 1 of this analysis on adblocking I described how advertising dollars have remained relatively constant over time, even as radically new venues for ads have appeared. I then described how it was the advent of ad networks that enabled Advertisers to cost-effectively advertise on the Internet, but that the ensuing dynamics have led to an over-proliferation of ads. I ended Part 1 with a discussion of how the ad situation for mobile Users is exacerbated by the unnecessarily poor quality of mobile web browsers.

    In Part 2 of the analysis, I described how trends in the way Users have been accessing the Internet have led to decreases the effectiveness of previous modes of advertising.

    In this last part of the analysis I discuss how the ecosystem may continue to evolve from where it is now.

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

     

    The Heart of the Matter

    Figure 11 provides an illustration of the players and relationships in the Adblocking Game.

    Figure 11

  • First Game Theory Group Meetup

    Group Introductions

    Introduction of HDTV Technology

    Definition of a Game

    Insights into Technology Games and New Technology Adoption

    How Do You Change the Environment?

    Mapping Out a Game

    How to Determine Which Choice Will Prevail

     

    October 22, 2104

     

    Group Introductions

    The 7 attendees were seated around a large table. Before the talk began, people introduced themselves and gave a short description of their background. The audience included gamers and software and systems people. Several people commented that they were interested in applying game theory to “negotiations” with co-workers, that is to figure out how to better get things done. Others were interested in applying game theory to gaming.

     

    Introduction of HDTV Technology

    I started my talk with a description of the introduction of the HDTV technology into the market in the 1990s. At that time, when digital technology was introduced, TV programs were being broadcast in analog. The government wanted the transition from analog to digital to proceed quickly, because the government planned to use the analog spectrum for emergency services and other government services.

    However, users did not actually end up adopting the new technology very quickly at all, because (i) the TVs were expensive, and (ii) there was very little programming available in digital. Before users would adopt the new technology – by purchasing the expensive HDTVs – they wanted there to be plenty of programming available to be able to watch.

  • For Smartphone Profitability, Focus on Software Beats Hardware

    A recent NYT article, ‘Why Japan’s Cellphones Haven’t Gone Global” by Hiroko Tabuchi, presents a dichotomy in the Japanese cellphone market: while the technology is extremely advanced, the market has evolved in such a way as to effectively isolate the Japanese market from the rest of the world. This will become increasingly problematic for Japanese suppliers (of both hardware and software/content/services), since the Japanese market is shrinking.

  • Game Theory Basics

    What Is Game Theory?

    Game theory is a tool that’s used to “map out” particular situations and figure out what is likely to happen under various scenarios.

    In some cases game theory is employed by means of modeling situations using mathematical equations. In these cases, the equations can be used either to solve for optimal solutions and/or to generate simulations to see how the situation plays out under different scenarios.

    However, game theory can also be employed using less rigorous methods. Most situations can be mapped out visually and textually, and then one can use those mappings to better understand situations and draw conclusions.

     

    When Can Game Theory Be Used?

    Game theory can be used in situations in which an entity’s payoff (profits, well-being, etc.) is dependent upon actions taken by other entities.

    As the world has become globalized and markets have accordingly become more interconnected and complex, game theory has become increasingly applicable to more and more situations. In particular, more situations have become characterized by global ecosystems, in which many players from different countries are involved to different extents and at different levels.