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 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?

  • Definition of Sexual Harassment

    Scenarios in the Sexual Harassment & Misbehavior Game

    Cost to Firms of Sexual Harassment & Misbehavior

    The Sexual Harassment & Misbehavior Game

    Musings about the Game

    Outcomes of the Model

     

    The scourge of the day is sexual harassment. There’s nothing new about sexual harassment. It has always existed. What has changed is the fact that society is now overtly condemning the practice, rather than covertly condoning it.

    On the other hand, the issue is a more complicated than simply determining whether or not harassment is acceptable.

    Of course, sexual harassment does occur. And from what I’ve personally heard and experienced, there’s much more actual harassment that happens than just those cases that make the news.

    However, there are complications.

    One complication is the fact that relatively benign behavior can be misinterpreted as harassment. Someone tells a joke in bad taste. Or someone makes an inappropriate comment or gesture. An overly sensitive worker may then “misinterpret” or overreact to the inappropriate behavior.

    A second complication is that the alleged victim may be intentionally falsely accusing the alleged harasser. The intention of the accuser may be to extort gains (payment, promotion, etc.) from the alleged harasser. Alternatively, the accuser may want the alleged harasser to be punished (have him fired, ruin his reputation, etc.) for whatever reason (personal, political, ideological). I would call this latter event sexual misbehavior, where the accuser has bad intentions. The classic case is the “woman who sleeps her way to the top.”

    A third complication is that the accuser and the alleged harasser may have actually both willingly engaged in sexual activity. But after-the-fact, the accuser may have regretted his or her actions and thus have alleged harassment. This is another of case of what I would call sexual misbehavior, but where the accuser does not necessarily (initially) have bad intentions.

    All these potential scenarios create complications for firms. When one employee accuses another employee of harassment, it may be

    • An actual case of sexual harassment;
    • Inappropriate behavior misinterpreted by the accuser as sexual harassment;
    • A case of sexual misbehavior on the part of the accuser, trying to benefit at the expense of the accused; or
    • A case of sexual misbehavior by the accuser who regrets his or her actions.

    So then given an accusation of sexual harassment, what should the firm do? Should the firm punish the accused, given the risk that

    • The allegation may be true, but the accused is a rainmaker for the firm, and firing him or her will cost the firm a substantial amount in lost revenues?
    • The alleged harassment was simply a misinterpretation? Or worse, given the risk that the alleged harassment is actually sexual misbehavior by the accuser? In this latter case, firing the accused means you would be firing an innocent—and perhaps valuable—employee.
    • If the firm does not punish the employee and information about the incident leaks to the public, then the firm will be suffer the wrath of society?

    We see, then, that when a firm is presented with an accusation of sexual harassment, it’s not so clear which actions the firm should take.

    This analysis examines the Sexual Harassment & Misbehavior Game. It seeks to answer such questions as:

    • How do the courts define sexual harassment?
    • What are some of the different scenarios involving sexual harassment?
    • What are the costs to firms of sexual harassment and misbehavior?
    • What does the Sexual Harassment & Misbehavior Game look like?
    • What does the model predict?

    My thanks to Lloyd Nirenberg, PhD, for providing significant direction for the analysis.

  • Incidents of hackers ("Black Hats", that is, those with nefarious intentions) breaking into technology systems are certainly nothing new. But each new report reminds us that we’re all vulnerable to falling victim to some hacker’s attack on some system that would cause us harm.

    Hackers hacking into systems that contain our financial information can cause us financial harm. Examples include incidents last year in which hackers stole customer credit card information from Target and Home Depot.

    Hackers hacking into systems that contain our personal information can cause us reputational harm. The recent hack of the Ashley Madison website, together with the release of participants’ identification provides a good example of this.

    Hackers will also increasingly be able to cause physical harm, for example, by hacking into automobile systems.

    While we cannot expect systems developers to make systems completely impenetrable, we can surely expect them to take sufficient efforts to make their systems reasonably robust to hacker attacks. Unfortunately, in many environments, systems developers simply do not have the incentives needed that would encourage them to make their systems nearly as robust as we – the potential users and victims of attacks – would like them to.

    This analysis examines the game between Systems Developers, Hackers, and Users (Victims) to determine when developers have too few incentives to make their systems robust and what might be changed to incentivize them to take more care.

  • Trade protectionism has been getting a lot of exposure in the media lately, with strong proponents of both sides of the issue. This analysis seeks to better understand:

    • What are the various forms of trade protection?
    • What are its advantages and disadvantages?
    • What are the big issues surrounding trade protection?
  • Description of Players

    Complications for Import Tax

    Other Issues

     

     

    One of Donald Trump’s more salient campaign promises was a promise “to bring back jobs to fading steel towns and former manufacturing areas.”To promote the create of more jobs in the US, Trump has proposed

      Tax cuts for the middle class and businesses;

      Reduction in government regulations by at least 75%;

      Incentives for businesses that produce and hire in the U.S.; and

      An import tax, at a suggested rate of 35% – 45%

    The import tax has been the most contentious measure, which opponents claim will harm

      US consumers, who will end up paying higher prices,

      US manufacturers who currently outsource production to Mexico, China, and other countries with low cost labor, who will suffer from higher costs/lower profits

      Foreign manufacturers who export their good to the US., who will suffer from higher costs/lower profits

    This analysis examines the actions and issues other market players face vis-à-vis Trump’s proposed import tax as a means of creating new jobs and growth in the US.

  • Smartphone manufacturers, such as Apple and Samsung, have thrived for the past fifteen years using a specific business model that involves

    (i) Swiftly releasing next generation products that contain significant advancements over previous generations of products, and

    (ii) Selling next generation technologies at a premium.

    However, more recently, sales of used and refurbished older-generation-technology products have cut into sales of latest-generation-technology products. This analysis examines the game between sellers of new products and sellers of used and refurbished products.

     

    Figure 1

    used tech game

  • Key Concepts

    Before we can understand the issues related to 360°, 3D, AR and VR technologies, we have to understand some key concepts.

    Immersion and Presence

    The goal of 360°, 3D, AR and VR technologies is to immerse users in an environment, so that they feel they have been “teleported” to this new locale and are actually present in this new world. Achieving immersion and presence requires that the brain be fooled by the senses into believing it is somewhere that it really is not.

    Here are descriptions of immersion and presence by some other sources:

    Reality Technologies:

    Total immersion means that the sensory experience feels so real, that we forget it is a virtual-artificial environment and begin to interact with it as we would naturally in the real world.



    Virtual reality immersion is the perception of being physically present in a non-physical world. It encompasses the sense of presence, which is the point where the human brain believes that is somewhere it is really not, and is accomplished through purely mental and/or physical means. The state of total immersion exists when enough senses are activated to create the perception of being present in a non-physical world.



    a sense of immersion (i.e. convincing the human brain to accept an artificial environment as real).

    iQ by Intel:

    … presence: “The unmistakable feeling that you’ve been teleported somewhere new.

    VR Lens Lab

    … presence. That is, the ability to take you somewhere other than where you really are, and trick your mind into believing it.

    Jonathan Strickland at How Stuff Works

    In a virtual reality environment, a user experiences immersion, or the feeling of being inside and a part of that world.

  • Structure of the Visa EMV Game

    Outcome of the Visa EMV Game

    What Can Visa Do to Speed Up Adoption of EMV?

     

    Visa’s EMV ("Europay, MasterCard and Visa") technology standard (aka "Chip and PIN") -- used for credit card processing -- was introduced several years ago as a means of decreasing credit card fraud.  This new EMV standard has passed well into the intermediate stages of adoption in virtually all countries in the rest of the world.  However, EMV adoption in the US has barely taken hold.  Visa has made a recent push to encourage US Merchants to upgrade their Visa credit card processing systems to the EMV standard.  Interestingly, the media has noted that while the Merchants who accept Visa credit cards as payment for purchases made by their Customers will have to bear the majority of the total costs to industry associated with the technology upgrade, it will be the Issuers who realize the majority of the benefits of decreases in credit card fraud.

    An analysis of this game was undertaken as a means to better understand the dynamics among industry players involved with adoption of EMV.  The following is an excerpt from the analysis.  A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

     

  • 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.

  • 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 described 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.

  • 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 described 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.

  • The Yelp Controversy

    Yelp is a social media site that hosts information about local businesses and lets customers post ratings and reviews about their experiences with those businesses. Yelp uses a proprietary algorithm to sort through posted reviews and filter out those that might be fake or inauthentic. Reviews that do not pass muster are relegated to a separate folder and not used to calculate businesses’ average ratings scores, which are prominently displayed to users.

    Yelp generates revenues to support its business primarily through sales of ads to local businesses that appear on Yelp’s website.

    Business owners have alleged that in an attempt to coerce (extort) businesses into advertising on Yelp’s site, or in retaliation for ceasing to advertise on its site, Yelp manipulates those businesses’ reviews by either

      i.  Filtering out good reviews and relegating them to the “reviews not recommended” folder, thus hiding them and lowering businesses’ average star ratings,

     ii.  Highlighting bad reviews of the businesses, and/or

    iii.  Creating fake bad reviews.

    Business owners allege that Yelp’s manipulations of the businesses’ reviews have resulted in lost sales for their businesses.

    Yelp vehemently denies accusations that it extorts business owners or manipulates the filtering of reviews.

    This analysis examines the Yelp Ratings Game. First, I describe the shift in customer relations that the advent of social media has engendered. Next, I describe how the Yelp site works. Then I discuss possible reactions by business owners to having ratings and reviews by users about their businesses posted online and perhaps manipulated to the business owners’ detriment. Finally, I discuss some other interesting issues related to the Game.

  • Why do we adopt new technologies?

    Many people will be quick to respond, “Because they help us do things faster, easier, or better.”

    Pretty obvious.

    Well, then, why don’t people adopt new technology?

    Most people would probably say that people don’t adopt new technology either because the technology is too expensive or because people don’t need the features the technology offers.

    But there’s another reason we don’t adopt new technology or make some other change in our lives, even though we’d like to: something is holding us back. There’s an obstacle that’s preventing us from making the change.

    I call this obstacle switching costs. Switching costs are an important, yet often overlooked, obstacle to change. In my book, Winning the Hardware-Software Game, I define switching costs as it relates to adoption of new technology as follows.

  • The Players: Incentives and Potential Actions

    Regulators

    Users

    Automobile Manufacturers

    Emissions Testers

    Gasoline vs. Diesel vs. Hybrid Automobiles

    US vs. European Automobile Standards and Procedures

    Standards

    Approval Process

     

    The VW emissions scandal has brought the issue of automobile emissions to the forefront of discussions. Recent scrutiny of industry practices has led to further revelations about behaviors of industry players. In particular, auto manufacturers have been gaming the emissions testing system by increasing amounts over time, while regulators – particularly those in Europe – have been lax in establishing/enforcing appropriate standards. Taken together, the actions taken by auto manufacturers and regulators have led to real-world levels of pollutant emissions from automobiles that significantly exceed healthy limits.

    This analysis examines the evolution of incentives and actions taken by each set of automobile industry players (Regulators, Users, Manufactures, and Emissions Testers), together with the actual outcomes that have occurred, as well as the potential alternative outcomes that might have occurred under alternative scenarios.

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

  • How Did We Get Here?

    Actual vs. But-For Outcomes

    Actual Outcome

    But-For Outcome

    Other Possible But-For World

    Other Questions

    Why Didn’t a Competitor Blow the Whistle on VW?

    Will VW Users Take Their Cars in for Repair?

    Will Users Punish Automobile Manufacturers for Gaming the System?

     

    In Part 1 of this analysis, I described the evolution of incentives and actions taken by each set of automobile industry players (Regulators, Users, Manufactures, and Emissions Testers). In this section I examine actual and potential alternative dynamics of the game.

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

     

    How Did We Get Here?

    Recent investigations of automobile industry practices – mostly as a consequence of the VW scandal – have shown that pretty much all Automobile Manufacturers have been gaming emissions testing procedures by an increasing amount over time, while Regulators have largely condoned their actions. VW’s “defeat device” was clearly illegal and will be sanctioned. However, the other general practices by all industry players, such as vehicle and equipment priming, which have led to actual levels of emissions far above those intended, have long been accepted as legal and standard practice in the industry by both Regulators and Auto Manufacturers.

    Brad Plumers published two separate articles in Vox that provide fantastic descriptions of the European Government’s encouragement of diesel-fuel automobiles in Europe: “Europe's love affair with diesel cars has been a disaster”, together with the specifics of VW’s actions: “Volkswagen's appalling clean diesel scandal, explained”.

  • 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…