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?

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game

  • 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 the pre-mobile payments game, which involved Users, Merchants, and Credit Card Companies. I also disussed three significant features of the pre-mobile game: (i) Credit card fraud is a huge cost for Credit Card companies; (ii) The Credit Card Companies introduced a new credit card system in 2005 that is contactless and more secure than the current system, but the new technology has been slow to become adopted in the US; and (iii) High credit card fees have generated resentment from (Users and) Merchants toward the Credit Card Companies, and in 2012 the Merchants established a consortium, MCX, to develop an alternative payment system that would bypass the credit card system.

     Version 2 of the Mobile Payments Game starts after the introduction of smartphones. The widespread adoption and use of smartphones has paved the way for the development and recent introduction of mobile payment systems. It seems reasonable to assume that since smartphones enable mobile payment systems, eventually, Users will come to expect their smartphones to offer that capability. What this means is that any smartphone provider who hopes to gain widespread market share of their handsets will have to offer a mobile payments system. Of course, in theory, a smartphone provider can always offer someone else’s mobile payment system on his handsets – say, Apple could offer a Google-designed system for use on iPhones – but this would be a foolish move strategically for major systems providers. They would be passing up an extremely valuable opportunity for generating revenues, data, product differentiation, and/or general promotion of proprietary (branded) technology ecosystems.

    Since Apple and Google currently provide the majority of smartphone operating systems, and since the two behemoths seem to have developed a need to compete in every possible market, it should come as absolutely no surprise that Apple and Google have been developing their own mobile payment systems. Also, based on the tremendous antipathy that has been developing for decades by Merchants against Credit Card Companies, it’s also logical that Merchants have been developing a mobile payment system that will bypass the Credit Card Companies. The last group of early mobile payment systems developers is the Mobile Carriers.  The Mobile Carriers probably figured that since they have direct access to smartphone Users through their mobile services offerings, it would make sense for this relationship to serve as a means of them getting their finger in the humongous consumer credit card payments pie, if at all possible.

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

     

    The latest version of the Mobile Payment Systems Game started in early 2015, with two significant changes in the structure of the Game.  First, the Mobile Carriers surrendered to Google. And second, Samsung entered into the game with its acquisition of a technology company that provides an alternative to Google Wallet. PayPal also joined the Game, allying itself with the Merchants, though this is a less-significant change than the other two. The structure of the game is presented in Figure 5.

  • Definition of Net Neutrality

    The Heart of the Matter

    Overview of the Net Neutrality Game

    Outcome of the Game: Per-User vs. Per-Usage Internet Fees

     

    A recent court decision struck a blow against net neutrality.  One account of the decision appeared in the WSJ, “Court Backs Comcast Over FCC on 'Net Neutrality’” by Amy Schatz:

  • Brief Recap of Part 1

    Understanding Deep Packet Inspection

    Understanding Broadband Services

    Using DPI to Manage Internet Traffic

    Outcome of the Net Neutrality Game — Take 2

     

    Brief Recap of Part 1

    In Playing the Net Neutrality Game, Part 1, I presented a discussion of net neutrality that focused on the common carrier aspect of the issue.  That is, proponents of net neutrality argue that the Internet, is an essential component of the nation’s communication system, and as such

    Internet access providers should not discriminate with regard to what applications an individual can use, or the content an individual can upload, download, or interacted with over the network. Individuals acquiring services from Internet access providers should be able to use the applications and devices of their choice, and interact with the content of their choice anywhere on the Internet.

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

     

    One of the biggest issues currently in the media is the subject of online adblocking. Adblocking involves the installation and use by Internet Users of adblocking software on their web browsers, so as to prevent advertisements from appearing on websites. Many are predicting that adblocking software will seriously hamper the provision of content on the Internet by preventing the use of the highly popular, ad-based, Internet business model. For example, recent headlines include:

    “AdBlock Plus won’t bring down the web, but the bell is tolling for current business models”

    “Blocking ads will force online publishing to change”

    “Should ad blockers be legal?”

    “Google lost billions of dollars last year thanks to Adblock extensions”

    A recent announcement by Apple further heightened the controversy over the use of adblocking software. In early June the Company announced that it would provide adblocking software for the next version of its Safari browser for use on mobile devices (see for example Joshua Benton, “A blow for mobile advertising: The next version of Safari will let users block ads on iPhones and iPads”).

    What’s even more interesting is that an entire ecosystem is popping up around the use of adblock software, for example as different players introduce new adblocking software for Users and new Service Providers introduce analytics to help Content Providers understand the extent of adblocking use by Users.

    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.

  • 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 recent trends in Internet advertising and Internet advertising pricing models. In this part, Part 2, I introduce adblocking and describe its use, together with the two major controversies surrounding the use of adblocking software.

     

    About Internet Adblocking

    According to Wikipedia, “Ad filtering or ad blocking is removing or altering advertising content in a webpage.” Most browsers allow basic forms of adblocking through the Options or Preferences settings. And users have been using browser settings to block pop-up ads in particular for quite some time. However, the adblocking that has been discussed in the media lately involves using browser add-ons, which enable users to completely block out all ads, not just pop-ups.

    This section starts with a brief description of how adlocking works, goes on to describe the benefits of using adblocking, trends in adoption of adblocking, and then ends with a discussion of the controversies surrounding the use of adblocking.

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    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 recent trends in Internet advertising and Internet advertising pricing models. In Part 2, I introduced adblocking and described its use, together with the two major controversies surrounding the use of adblocking software. In this part of the analysis, Part 3, I describe the players and their motivations in the Adblocking Game. I also present a model of the Adblocking Game. In the last part of the analysis, Part 4, I will provide a discussion of the interesting aspects of the Game.

     

    The Online Adblocking Game

    Figure 15 presents the various players in the Online Adblocking Game. I describe below each of the (groups of) players, together with his motivations in the Game.

    Figure 15

     

  • 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 recent trends in Internet advertising and Internet advertising pricing models. In Part 2, I introduced adblocking and described its use, together with the two major controversies surrounding the use of adblocking software. In Part 3 of the analysis, I described the players and their motivations in the Adblocking Game, and I also presented a model of the Adblocking Game. In this last part of the analysis, Part 4, I discuss some interesting aspects of the Game.

     

    Discussion of the Adblocking Game

     

    Ad-Based Models Create Misaligned Incentives

    A big problem with ad-based business models is that they create incentive misalignments in the business process. More specifically, when a business relies on advertising revenues, it ends up putting the needs and/or interests of Advertisers and/or Users in front of the needs of the business. Ian McAllister explains this in “What's wrong with an ad-supported business model?”

  • AI Basics

    Definition

    Why Now?

    The Controversy

    The Letter

    Current AI Ecosystem

    Categorization of AI Technologies

    Organization of Companies in the AI Ecosystem

     

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

     

    OpenAI, the organization recently cofounded by Elon Musk, has been receiving a lot of press lately. The company was introduced as follows:

    OpenAI is a non-profit artificial intelligence research company. Our goal is to advance digital intelligence in the way that is most likely to benefit humanity as a whole, unconstrained by a need to generate financial return.

    Since our research is free from financial obligations, we can better focus on a positive human impact. We believe AI should be an extension of individual human wills and, in the spirit of liberty, as broadly and evenly distributed as possible.

    Two issues in particular have been generating most of the attention surrounding the founding of the new organization:

    • OpenAI will focus its research on discoveries that will have positive benefits for society; and
    • OpenAI will be open source, that is, its discoveries will be freely available to all.

    Recent advancements in AI have enabled researchers to provide valuable new products and services in the marketplace, and the promise of continuing advancements suggest that even more valuable discoveries are on the horizon. As such, what motivations lay behind the decision of Elon Musk and his cofounders to make their new organization open source, rather than establishing it as a for-profit company? They have said that their intent is to provide discoveries that benefit humanity. But are the founders really as altruistic as they, themselves, and the media have made them out to be?

    This analysis is an attempt to better understand the dynamics underlying the AI ecosystem so as to better understand what motivated the founders of OpenAI to designate the organization as open source and whether or not there may be other agendas out there besides pure altruism.

  • Generating Value from AI Systems

    Essential Components

    Feedback Loops

    Stated Benefits of Open Source Systems

    Focus on Projects that Benefit Humanity

    Mitigate Power of Single Entity

    Benefit From and Improve the Technology

    Attract Elite Researchers

    Why Do I Think OpenAI Was Established As Open Source?

    The More Obvious/Discussed Justifications

    The Less Obvious/Discussed Justification

     

    In Part 1 of this analysis, I provided some background information on AI as a foundation for the discussion. In this part of the analysis I continue on to discuss why I think Elon Musk designated OpenAI as an open source entity.

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

     

    Generating Value from AI Systems

    Essential Components

    I’ve mentioned several times throughout the analysis that AI technology involves three essential components: IA algorithms (software), AI platforms (hardware), and big data. In this section I describe the nature and use of these components in more detail.

    I like the way Neil Lawrence describes the AI system in “OpenAI won't benefit humanity without data- sharing.” He uses the analogy of cooking, where AI algorithms are the recipes, the data are the ingredients, and the platform is the stove or oven.

    Anyone who has tried to come up with an original recipe will tell you that it generally needs to be tweaked before you come out with the ideal output. Similarly, researchers design AI algorithms, test and train them by running data through them, then tweak them to improve their performance.

    Generally speaking, the better cooks are those with more experience, and they tend to be the ones who come up with the best recipes. Of course, occasionally unknown or unpracticed chefs come up with excellent recipes, but that’s not the norm. Similarly in AI, the better, more experienced researchers are the ones who will probably generate most of the advancements in AI. However, that does not preclude the possibility that some unknown savants will be able to come up with advanced solutions on their own.

    Also, in cooking, better ingredients produce better dishes. Similarly, in AI, higher quality data lead to better results – as the saying goes, garbage in, garbage out. At the same time, AI algorithms become more accurate (trained) as they run more data. This means that having access to larger volumes of data will generate more accurate algorithms. So when it comes to data, both volume and quality are important.

    Finally, when cooking, the sizes of the ovens constrain the volume of food that can be produced. Similarly, with AI algorithms that need to run through large volumes of data to become properly trained, larger, more efficient hardware systems produce results much more quickly than do smaller systems.

  • 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?

  • Defining the Peer-to-Peer Economy

    Description of the Peer-to-Peer Platform Game

    Major Issues Surrounding the P2P Platform Game

    Winners and Losers in the P2P Platform Game

     

     

    The “sharing economy” is one of the hottest, new tech paradigms. How hot is it? I just Googled “sharing economy paradigm” and got 6,590,000 hits. Pretty hot.

    In particular, Airbnb, Uber, and Lyft have been all over the media for challenging established regulations and driving traditional businesses into a tizzy for threatening their livelihoods.

    Is the sharing economy really a new paradigm? Is it here to stay? If so, how will it impact the traditional economy? Who will be the winners and losers under the new paradigm?

  • 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? 
  • Electric scooters (“e-scooters”) are one of the latest hot new tech toys on the scene. Several start-ups have unloaded thousands of rentable e-scooters onto the streets of major cities in the US. The scooters offer users a cheap and convenient way to travel short distances across town. These scooters are dockless: users leave them on the anywhere on the street -- no need to find a docking station at a predetermined location. Quite the convenience for users. But quite the hazard and eyesore for local residents, who are finding scooters indiscriminately strewn about the sidewalks.

    I started to map out the Electric Scooter Game. That involves identifying the players who interact with e-scooter users. However, as I started identifying the players, the game quickly expanded from e-scooters on sidewalks or in bike lanes to all users of roadways.

    I realized that two trends have quickly engulfed our cities. First, capitalism has provided ever more modes of transportation – types of vehicles – to move us from one place to another. And second, city and suburban roadways have become much more congested. Together, these two trends are creating a fantastic game between people using different modes of transportation to get to where they want to go, as quickly, conveniently, and cheaply as possible.

    This analysis will first review the electric scooter market – who the major companies are, how electric scooter rentals work, and regulatory actions that have recently been taken by cities against scooter companies.

    The analysis will then move on to examine the broader Public Roadways Game. This game examines the dynamics among all the different users of public roadways, together with other interest groups whose actions affect the use of public roadways.

  • Remember when restaurant delivery options included Domino’s, Pizza Hut, or Papa John’s? No longer! These pizza restaurants still have a majority share of the restaurant delivery market. However, GrubHub, Eat24, DoorDash, UberEats, and other restaurant delivery platforms are expanding users’ choices beyond just pizza.

    This analysis examines the Restaurant Delivery Game: Who are the Players and what are the issues?

    Players

    See Figure 1

    Restaurants

    • Traditional (Dine-In) Restaurants
    • Takeout/Delivery Restaurants

    ♦ Takeout/Delivery Only (Virtual Restaurants)

    ♦ Dine-in or Takeout

  • A recent article in the NYT, "The Fight Over Who Sets Prices at the Online Mall" by Brad Stone, discusses that battle between manufacturers, who want retailers to abide by price floors, and retailers, who want the freedom to set prices as low as they please:

    Wary of the Internet’s tendency to relentlessly drive down prices, major brands and manufacturers — and now, book publishers — are striking back, deploying a variety of tactics and tools to control how their products are presented and priced online…

  • 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.

  • 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.

  • 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.

  • 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.