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?



  • The Current State of Electric Vehicles Part 3: Electric Vehicles Now Use Lithium-ion Batteries

    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.

  • The Current State of Electric Vehicles Part 4: Current Electric Vehicle Offerings

    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

  • The Current State of Electric Vehicles Part 5: The Costs of Manufacturing Li-ion Batteries

    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…

  • The Current State of Electric Vehicles Part 6: The Future of Electric Vehicles

    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 Future of Money

    Traditional currency systems are being assailed from several directions. Some propose digitizing national currencies as a means to decrease transaction costs, facilitate tracking, and discourage illicit uses of currency. Some suggest a single, global currency system is inevitable. Others propose creating non-government-backed forms of currency to eliminate the ability of government to control transactions, as well as to decrease transaction costs and enable anonymity.

    What does the future hold for currency?

    For more information on currencies and Bitcoin, see my previous blog, “Bitcoin: Wave of the Future or Flash in the Pan?”


    Why Barter Systems Don’t Work

    Before there were currency systems, the barter system was used by people as a means of directly exchanging one good or service for another. However, the barter system had several fundamental disadvantages, such as

    • Need for Double Coincidence of Wants: Barter transactions can be possible only when two people have goods or services that are mutually useful to each other.
    • Lack of Divisibility: Commodities and services cannot be easily sub-divided to effect an evenly valued exchange.
    • Lack of a Common Measure of Value: Barter systems lack a common measure of value.
    • Lack of Store of Value: In a barter system, value can only be stored in the form of commodities, which do not have a stable value over time.
  • The Unrecognized Casualty of Minimum Wage Hikes: Customer Service


    Brief History of the Federal Minimum Wage

    Studies of the Impact on Employment of Raising the Minimum Wage

    The Minimum Wage Game



    Back in April 2105, McDonald’s announced that in response to worker demands for higher wages, it would raise wages to the lowest paid employees to $1 above minimum wage. McDonald’s rationale for the pay raises was to increase the motivation of their employees to provide better customer service. As Kaja Whitehouse and Paul Davidson report in “McDonald's raises pay for 90,000 workers”:

    McDonald's, which has been struggling with workers protests and sagging sales, plans to increase pay for some 90,000 workers starting in July, the company said on Wednesday.

    The pay increase will lift the average hourly rate for its U.S. restaurant employees to $1 above the mandated minimum wage on July 1, the company said. McDonald's said it expects average wages to rise to more than $10 an hour by the end of 2016.

    CEO Easterbrook said the pay increase is meant to motivate workers.

    "We know that a motivated workforce leads to better customer service so we believe this initial step not only benefits our employees, it will improve the McDonald's restaurant experience," he said in a statement. "We'll continue to evaluate opportunities that will make a difference for our people."

    Typical of those for and against higher minimum wage, the pro groups generally insisted that the dollar raise wasn’t sufficient, that the federal minimum wage should be raised to $15 per hour, while the anti groups warned that increases in wages would lead to higher prices, lower profits, and/or job losses.

    Recently, McDonald’s reported that they have, indeed, been seeing greater worker productivity following the wage increases. Noah Smith, in “U.S. Companies, Try This: Raise Your Minimum Pay,” reports:

    Recently, McDonald’s decided to raise wages for many of its hourly restaurant workers. The rise is modest, from about $9 to about $10, but already the company’s executives claim that they are seeing improvements in service quality:

    “It has done what we expected it to --90 day turnover rates are down, our survey scores are up—we have more staff in restaurants,” McDonald’s U.S. president Mike Andres told analysts at a UBS conference... “So far we’re pleased with it."

    But Why? If it helps the bottom line to raise wages, why haven’t companies done it already?

    As Noah Smith asked in his article, if raising wages increases worker productivity, then why haven’t more minimum wage payers increased their wages above the minimum?

    This analysis examines the dynamics between

    1. Employers of Unskilled Employees, 
    2. Unskilled Employees, and
    3. Customers.

    The purpose of the analysis is to better understand

    • The circumstances under which employers of unskilled workers will generate net benefits by raising wages above the federally established minimum, and
    • The impact that increases in the minimum wage have on players’ actions and outcomes.


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

  • The US Healthcare System Is Massively Complex and Massively Interconnected 

    Consider how the different groups of players in the healthcare system are connected to one another:

    hc game

    Healthcare Industry Trends

    Trends in society and in the healthcare industry over time have led to 

    • Increases in medical information 
    • Increases in numbers and specialties of service providers
    • Increases in numbers of available medical devices and pharmaceuticals
    • Increases in malpractice attorneys and healthcare regulations
    • Consolidation of payers
    • Consolidation of providers
    • Increases in consumer access to healthcare insurance
    • Increases in incidences of chronic disease in consumers

    All these trends in the healthcare industry have led all the different sets of players to become more interconnected to one another in their actions and payoffs. As players become more interconnected, small changes to one piece of the system increasingly ripple through and affect all other parts of the system. In other words, you cannot change one part of a system without that change rippling through and causing changes in other parts of the system.

    The healthcare system has become an intricately interconnected web of players. Furthermore, each player acts in seemingly perverse ways — given his particular set of incentives — to optimize his payoffs. Actions in one of the system lead to unexpected outcomes in other parts of the system.

  • Understanding the Evolution of IoT and What Will Be Important for Success

    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

  • War Between 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.

  • Why Did Apple Block Potential Profits from Pre Users?

    The latest battle in the Smartphone Wars was won by Apple, who blocked users of the Palm Pre from being able to access iTunes. Since Apple makes a profit on every sale from iTunes, why would Apple want to cut off the potential profit source associated with Palm Pre users buying content on iTunes?

  • Why Do Economists Think Free Trade Is So Wonderful, While Many Others Do Not?

    I think the differences in perspectives on free trade between economists and others (dare I say “normal people”?) comes down to the difference between

    1. The theory behind free trade, and
    2. The reality of trade as it has actually been implemented in the real world.

    Free Trade: In Theory

    Economists’ basis for touting the benefits of free trade comes from David Ricardo’s Theory of Comparative Advantage, developed in 1817: Countries can do better by specializing in producing what they do well and trading for goods in which other countries do well. Specialization will lead countries to maximize the size of the global output pie. Then, theoretically, everyone can be made better off by redistributing some of the income from those who gain to compensate those who lose.

  • Why Is So Difficult to Extract Value from Data?

    This is a new idea I'm working on. I'd love to hear any feedback you might have.


    We Collect and Analyze Data

    Why do we collect and analyze data? It informs us about (i) what happened in a given time and place and (ii) why (see Figure 1).



  • Will Adoption of Electronic Medical Records Live up to the Promise?

    Proponents of electronic medical records (EMR) claim their full-scale adoption will lower the costs of providing healthcare, improve the quality of healthcare, and save lives.

    For example, in 2009, ABC News reported

    In the latest step toward the computerization of Americans' medical information, President-elect Barack Obama said in a speech Thursday that the government will push for electronic health records for all Americans within five years in order to save both dollars and lives.

    "To improve the quality of our health care while lowering its cost, we will make the immediate investments necessary to ensure that, within five years, all of America's medical records are computerized," Obama said in a speech from George Mason University in Fairfax, Va. "This will cut waste, eliminate red tape and reduce the need to repeat expensive medical tests."

    "But it just won't save billions of dollars and thousands of jobs; it will save lives by reducing the deadly but preventable medical errors that pervade our health-care system," he said.

    Will electronic medical records actually live up to these promises?

    An analysis was undertaken to examine all the various plusses and minuses – in terms of costs, quality of care and efficiency of care – electronic medical records are expected to achieve and have been found to have achieved with their implementation in the US.

    This blog entry provides a summary of the actual/expected gains and losses found and answers the question posed above as to whether or not adoption and use of EMR systems will reduce medical errors.

    A full copy of the report is available here for download.

  • Will Redbox Decimate the Value of the Market for Home Movies?

    Is Redbox Unbeatable?

    Will Redbox Cause the Value of the Home Movie Market to Plunge?


    A recent article in the NYT, “Movie Studios See a Threat in Growth of Redbox” by Brooks Barnes, discusses Redbox, the latest phenomenon in the home movie market. Redbox “rents movies for $1 a day via kiosks” located “in spots like supermarkets, Wal-Mart Stores and fast-food restaurants… The kiosks hold about 500 DVDs and focus on new mainstream releases.The Illinois-based company started with 12 kiosks in 2004, and by December, there will be 22,000 Rebox machines.The kiosks currently “process about 80 transactions a second on Friday nights.”

  • Will Traditional Retailers Continue to Struggle in On-Line Sales Markets?

    Amenability to On-Line Sales

    Current Market Segment Shares

    Trends in Market Segment Shares of Traditional Retailers

    Trends in Market Segment Shares of Amazon

    Will Traditional Retailer Continue to “Struggle” with On-Line Sales?


    A recent article in the WSJ, “Web Sales Remain Small for Many Retailers” by Shelly Banjo and Paul Ziobro describes the difficulties that retailers have been having trying to grow their online sales into significant portions of their businesses:

    Nearly two decades after the Web revolutionized shopping, many big retailers are still struggling to turn the Internet into a big part of their business…

    Online purchases accounted for just 5.8% of total U.S. retail sales in the second quarter of 2013, up from 5.1% a year earlier.

    They note the small portions that online sales constitute for specific retailers, including Walmart, Target, and PetSmart. In particular,

    •  While Walmart “has never reported its actual online performance,” it did say that “Web-based sales contributed [a paltry] 0.1 to 0.2 percentage point to Wal-Mart's 2.4% increase in U.S. comparable-store sales in fiscal 2013.”

    •  “… A Target spokesman said that the retailer tells investors online sales currently make up less than 2% of its $73 billion in overall sales.”

    •  “A PetSmart spokeswoman said the chain considers e-commerce a growth opportunity but because it currently represents less than 1% of its sales, it isn't a material part of the company's business.”

    They further report that Amazon has continued to dominate online sales for its various markets: Inc. sells more online than its next 12 biggest competitors combined, including Staples Inc. and Wal-Mart… Despite its greater online scale, Amazon continues to grow quickly and command a hefty share of new Internet sales.

    The article provides a weak response by the lagging retailers to the situation, namely that online sales become muddled with in-store sales, so it doesn’t make sense to report on-lines separately from total sales:

    Retailers including Target, Belk Inc. and PetSmart told the SEC that separating online figures doesn't give an accurate picture of their sales gains, because customers continually shift purchases between their stores, websites and mobile-phone applications.

    Retailers have branded this the "omnichannel" approach, arguing that they don't care how a customer completes a purchase as long as they don't buy from a competitor…

    Will multichannel retailers continue to struggle with growing their on-line sales portions of their businesses? Why does Amazon continue to dominate these markets?