Welcome to Session # 6 Week 3/1/04

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1 Covr Wlcom to Sssion # 6 Wk 3/1/04 Profssor C. S. Langdon IS Stratgy, 1 Marshall Architcturs School & Economics of Businss, Univrsity of Southrn California, Los Angls csl@bizstratgy.org

2 CASE MINDSPRING IS Stratgy, Architcturs & Economics 2 csl@bizstratgy.org

3 Vido Intrviw w. Earthlink s Sky Dayton IS Stratgy, Architcturs & Economics 3 csl@bizstratgy.org

4 Plas mak sur that your nam and group-# ar on th covr! Classroom Cas C D 1, Mindspring: Cas Qustions and Grading Schm [15 P] Plas mak sur that all nams of th group mmbrs hav bn addd to th first pag. Plas obsrv th pag limit of 2 pags. CASE (1) Plas dscrib th businss of Mindspring systmatically (-> using th concpts that hav bn discussd in class, such as U.S. Cnsus Burau s 3E, tc.)? [4] (2) Explain how th Mindspring businss opportunity rlats to th dvlopmnt of th -Economy as a whol? What ar th major challngs prsntd to Mindspring (-> using concpts that hav bn introducd in class, such as 4 Environmnts, tc.)? [4] (3) Basd on your answrs to qustions 1 and 2 what ar th implications for th futur dvlopmnt of Mindspring? [2/ach, 4 max] Us of th cours litratur (bindr without Portr, 3E): [1/ach, 3 max]. Good luck, CSL IS Stratgy, Architcturs & Economics 4 csl@bizstratgy.org

5 Classroom Cas C D 1, Mindspring : Rmarks (Q1) CASE Q1: Businss dscription Stratgic rols: Mindspring = srvic providr, not a vndor M-sgmnts/sourcs of rvnu: B2C, B2B, not a wholsalr 3E: Supporting infrastructur (p. 492, 493) Valu systm: Rtailr + significant srvic oprations 77% of subs wr calling into company-ownd POPs (p. 495 and p stps 1-5 of building and owning POPs), Mindspring kpt its support and [customr] srvic oprations in-hous (p. 492). Ovrviw: C B G C B G $100m + company, barly profitabl (p. 499) SME (No on Fortun list at $1.2bn) Compound annual subscribr growth of approx. 200% for th four yar priod from (p. 489) vrsus CAGR of Intrnt hosts of 65% for th four yar priod (s lctur nots, sssion # 4) probably abov industry avrag growth 2nd largst ISP in th U.S., 25% largr than th No. 3 by customr bas but dwarfd by industry ladr AOL (p. 505) littl rlativ scal advantags S B Infrastructur E-Economy Elmnts Valu Systm IS Stratgy, Architcturs & Economics 5 csl@bizstratgy.org

6 Classroom Cas C D 1, Mindspring : Rmarks (Q2) A2: Opportunitis/challngs assssmnt First and formost, th ISP modl is not possibl without th Intrnt -> Intrnt dvlopmnt critical to Mindspring s futur vnts in communications and computing ar important Mindspring volvd with on of th first wavs of digital intractiv communication srvics how to rspons to th mrgnc of information and transaction srvics -> to stop or continu to volv? 4E: (T) Off-th-shlf CRM apps. may rod srvic diff. advantag basd on propritary DB tracking systm (p. 497), (R) difficultis with accss to Intrnt cabl lins as CATV MSOs common carrirs (p. 493), (E) tlcoms may lack funding to dploy DSL srvics, thrfor inhibiting broadband growth (p. 493), (C) product attributs miss approx. 50% of th markt, targt markt is prdominantly mal (p. 494). Portr s 5F: (R) Vrtically intgratd comptitors: AOL=ISP+contnt, MSN=ISP+computing, RBOCs=ISP+tlcom (p ), fr ISPs diffrntiation disadvantag, cost prssur (S) Accss to DSL, Intrnt cabl lins highr cost of inputs, limitd broadband capabilitis (B) Fr ISPs rduc willingnss-to-pay lack of rvnu (Entrants) ISP as a componnt of a bundl,.g., Dll, banks markt forclosur (Sub) Wirlss,.g., DoCoMo s i-mod srvic, WAP obsolscnc? C I CONTENT IS T R E C 4 Environmnts Portr s 5 Forcs Valu Chain CASE t IS Stratgy, Architcturs & Economics 6 csl@bizstratgy.org

7 Classroom Cas C D 1, Mindspring : Rmarks (Q3) CASE A3: Businss outlook Potntial rosion of customr srvic diffrntiation advantag: availability of standard softwar may allow th comptition to catch up and fr ISPs may mak xtnsiv customr srvic unaffordabl altogthr -> Switch from diffrntiation stratgy that may lad to markt shar rosion and a nich position to cost ladrship stratgy M&A to bnfit from conomis of scal in th aras of data and call cntr oprations, bandwidth, tc.) Fr ISPs and bundling of othr goods with Intrnt accss srvic may liminat B2C ISP rvnus ntirly,.g., onlin banking, nws srvics dvlopmnt of nw rvnu sourcs in B2C markt through prmium packags, dvlopmnt of B2B products such as corporat mail/portal oprations Contnt intgration may turn th ISP businss into a mr fatur (s AOL s bradth and dpth of srvic offring) sk alliancs and partnrships with convntional contnt crators and distributors... IS Stratgy, Architcturs & Economics 7 csl@bizstratgy.org

8 Classroom Cas C D 1, Mindspring : IS Stratgy CASE How dos a so calld fr ISP such as Ntzro work? IS Stratgy, Architcturs & Economics 8 csl@bizstratgy.org

9 Cours Structur & Sssions 4 NETWORK INFRASTRUCTURE BUSINESS STRATEGY 2 BUSINESS STRATEGY REPETORIUM BUSINESS PROCESSES 9 13 Cas Projct INFORMATION SYSTEMS WEB-IS ARCHECTURE I 8 7 E-BUSINESS MODELS: SUPPLY CHAINS + CHANNEL SYSTEMS WEB-IS ARCHECTURE II IS IMPACT/DIGAL BUSINESS TRANSFORMATION ADMINISTRATIVA INTRODUCTION & DEF. 2 CASE CLINIC X GUEST SPEAKER Schlutr Langdon, C. Syllabus, Marshall School of Businss, Univrsity of Southrn California, Los Angls IS Stratgy, Architcturs & Economics 9 csl@bizstratgy.org

10 IS IMPACT (2): DIGAL BUSINESS TRANSFORMATION Ovrviw Channl Systms Supply Chains IS Stratgy, Architcturs & Economics 10

11 Vnkatraman Modl (1994) VENKATRAMAN S 5 LEVELS Lvl of Chang Rvolutionary Chang Businss Scop Rdfinition/Businss Transformation Businss Ntwork Rdsign Businss Procss Rdsign/Rnginring Intrnal Intgration Localizd Exploitation Evolutionary Chang IS Stratgy, Architcturs & Economics 11 csl@bizstratgy.org Potntial Bnfits Sourc: Vnkatraman, N Enabld Businss Transformation. Sloan Managmnt Rviw (Wintr): 73-87, 74.

12 Gnric Businss Impact and Bnfits In gnral, information and communication tchnology crats an opportunity to incras or scur sals and cut cost in thr diffrnt ways: TOTAL PRODUCT Product Improvmnt Improv a product to incras product/brand diffrntiation to incras sals Exampl: Car navigation and rmot maintnanc systms in Automotiv Procss Virtualization (ovrcoming barrirs of form, tim and spac) Virtualiz a procss to cut cost, tim-to-markt and throughput tim, and incras quality Exampl: Onlin softwar distribution and customr support Businss Transformation Transform a businss to chang or anticipat th changing of an industry s valu chain/systm and businss modl Exampl: Amazon, EBay, and Yahoo! Sourc: Andrsn Consulting Schlutr Rsarch IS Stratgy, Architcturs & Economics 12 csl@bizstratgy.org ANDERSEN CONSULTING

13 Digital B-Transformation Triggrs: Thr Switchs Analog Digital Narrowband Broadband Wir lin Wirlss Schlutr Rsarch. Schlutr Rsarch IS Stratgy, Architcturs & Economics Schlutr Chris S. Langdon Rsarch FOR INTERNAL USE ONLY

14 Th Nw Digital Economy "Th Nw Economy is ral, vn if its significanc has bn xaggratd. Nw tchnology has ngndrd incras in productivity that will continu to mak an normous diffrnc in our living standards (Josph Stiglitz--a formr chif conomist of th World Bank, a formr chairman of th Council of Economic Advisrs Th Roaring Nintis. Th Atlantic Monthly (Octobr): 75-89, 88) Schlutr Rsarch. Schlutr Rsarch IS Stratgy, Architcturs & Economics Schlutr Chris S. Langdon Rsarch info@schlutrrsarch.com csl@bizstratgy.org FOR INTERNAL USE ONLY

15 VIDEO Digital Businss Transformation METCALFE on DBT IS Stratgy, Architcturs & Economics 15

16 Stratgic Industry Analysis 4 E VS VS 5 F VC VC 4 4 E E Valu Valu Systm Systm 5 5 F F Valu Valu Chain Chain Schlutr Rsarch IS Stratgy, Architcturs & Economics Schlutr Chris S. Langdon Rsarch info@schlutrrsarch.com csl@bizstratgy.org FOR INTERNAL USE ONLY

17 Valu Systm--Th Industry Raw Matrials Supplirs Focal Firm Channls Buyrs Sourc: Portr, M. E Comptitiv Advantag: Crating and Sustaining Suprior Prformanc. Th Fr Prss: Nw York, NY(35). IS Stratgy, Architcturs & Economics 17

18 Figur Sourc: Turban, E., E. McLan, and J. Wthrb Information Tchnology for Managmnt Making Connctions for Stratgic Advantag. 4 th d. John Wily & Sons, Inc.: Nw York, NY. IS Stratgy, Architcturs & Economics 18 csl@bizstratgy.org

19 Supply Chains Sourc: Turban E., King, D. L, J., and D. Vihland Elctronic Commrc: A Managrial Prspctiv. 3rd d. Parson/Prntic Hall: Uppr Saddl Rivr, NJ: Chaptr 8. IS Stratgy, Architcturs & Economics 19 csl@bizstratgy.org

20 Essntials of th Supply Chains Th Componnts of Supply Chain Upstram supply chain includs th organization s first-tir supplirs and thir supplirs Intrnal supply chain includs all th procsss usd by an organization in transforming th inputs of th supplirs to outputs Downstram supply chain includs all th procsss involvd in dlivring th products to final customrs Sourc: Turban, E., E. McLan, and J. Wthrb Information Tchnology for Managmnt Making Connctions for Stratgic Advantag. 4 th d. John Wily & Sons, Inc.: Nw York, NY, pag 83. IS Stratgy, Architcturs & Economics 20 csl@bizstratgy.org

21 DBT DEF Schlutr Rsarch. Schlutr Rsarch IS Stratgy, Architcturs & Economics Schlutr Chris S. Langdon Rsarch FOR INTERNAL USE ONLY

22 5. Businss Scop Rdfinition VENKATRAMAN S 5 LEVELS Thm: Knowldg-basd ntworks Full, systmic chang and transformation Scop: Us to rconfigur th ntrpris Import bst-in-class idas and mthods Eliminat non-valu addd Idntify nw forms of businss Bit Larning: can facilitat nw businss forms and xtndd ntrpriss which ar thmslvs, nw businss forms Linkags: Fdral Exprss Sourc: Vnkatraman, N Enabld Businss Transformation. Sloan Managmnt Rviw (Wintr): IS Stratgy, Architcturs & Economics 22 csl@bizstratgy.org

23 DBT UNDERSTANDING DBT IS Stratgy, Architcturs & Economics 23

24 EXERCISE DBT NEWS PUBLISHING (T_Excis) IS Stratgy, Architcturs & Economics 24

25 DBT NEW ENTRANTS/ INDUSTRY CONVERGENCE - OBSERVATIONS - IS Stratgy, Architcturs & Economics 25 csl@bizstratgy.org

26 Industry Convrgnc, 2003 "Sir Howard [Stringr, chairman and chif xcutiv of Sony s U.S. oprations] said Appl s approach had dmonstratd th valu of using music downloads to driv th sal of dvics, which ar much mor profitabl. [ ] Sony is also prparing to launch a portabl vrsion of its PlayStation gams consol, which will allow usrs to play gams, watch movis and listn to music. (Thal Larsn, P Sony ruls out slling music businss. FINANCIAL TIMES (Nov. 5) [lctronic documnt]) Schlutr Rsarch. Schlutr Rsarch IS Stratgy, Architcturs & Economics Schlutr Chris S. Langdon Rsarch info@schlutrrsarch.com csl@bizstratgy.org FOR INTERNAL USE ONLY

27 Supporting Slid 10-I: List of Rcnt Mga-Mrgrs (US, ) 1995 Disny and Capital Citis/ABC 1995 Tim-Warnr and Turnr Broadcasting 1995 Wstinghous and CBS Inc SBC and Pacific Tlsis 1996 NYNEX and Bll Atlantic 1996 US Wst and Continntal Cabl 1996 Thomson and Wst Publishing 1998 Amrica Onlin and Ntscap 1999 AT&T and Comcast 1999 Viacom and CBS Inc Amrica Onlin and Tim-Warnr 2000 Tribun Company and Tims Mirror Company IS Stratgy, Architcturs & Economics 27 Copyright 2001 by Marktspac LLC

28 Schlutr Rsarch. Schlutr Rsarch IS Stratgy, Architcturs & Economics Schlutr Chris S. Langdon Rsarch FOR INTERNAL USE ONLY

29 Obsrvation: Tlcom Hollywood Rlationships, US, 94 MCA MCA UNIVERSAL UNIVERSAL INTEL INTEL BELL ATLANTIC GENERAL INSTRUMENTS GENERAL INSTRUMENTS CAROLCO CAROLCO PICTURES PICTURES MICROSOFT MICROSOFT NINTENDO NINTENDO TURNER TURNER TCI TCI PDSC PDSC COLUMBIA COLUMBIA QVC QVC SONY IMAGESOFT SONY IMAGESOFT SEPC Multimdia SEPC Productions SONY SONY TRISTAR TRISTAR SEGA SEGA TIME WARNER TIME CABLE WARNER TIME WARNER CABLE TIME INTERACTIVE WARNER INTERACTIVE GROUP GROUP WARNER WARNER BROS BROS TIME WARNER TIME ENTERTAINMENT WARNER ENTERTAINMENT RMD RMD HEWLETT- HEWLETT- PACKARD PACKARD CBS CBS RECORDS RECORDS SCIENTIFIC SCIENTIFIC ATLANTA ATLANTA TOSHIBA TOSHIBA PHILLIPS PHILLIPS POLYGRAM POLYGRAM RECORDS RECORDS HBO HBO US WEST KALEIDA KALEIDA APPLE APPLE TIME TIME INC. INC. MOTOROLA MOTOROLA IBM IBM DEC DEC ELECTONIC ELECTONIC ARTS ARTS DIGAL DIGAL DOMAIN DOMAIN 3DO 3DO AT&T AT&T SGI SGI PARAMOUNT PARAMOUNT PICTURES PICTURES SANYO SANYO PARAMOUNT PARAMOUNT COMMUNICATION COMMUNICATION SIMON & SCHUSTER SIMON & SCHUSTER NYNEX USA USA CABLE CABLE MATSUSHA MATSUSHA VIACOM NEW VIACOM MEDIA NEW MEDIA VIACOM VIACOM LUCAS LUCAS SPECTRUM HOLOBYTE SPECTRUM HOLOBYTE PARAMOUNT INTERACTIVE PARAMOUNT INTERACTIVE PRENTICE PRENTICE HALL HALL SCI FI SCI FI CHANNEL CHANNEL PANASONIC PANASONIC NICK NICK MTV MTV SHOWTIME SHOWTIME AVID AVID ALIAS ALIAS 20TH CENTURY 20TH FOX CENTURY FOX BUENA BUENA VISTA VISTA MGM MGM FOX FOX FOX BASIC FOX CABLE BASIC CABLE DISNEY DISNEY MOVIE STUDIO OWNER MOVIE STUDIO OWNERSHIP SERIOUS INVESTMENT STRATEGIC ALLIANCE PIXAR PIXAR IS Stratgy, Architcturs & Economics 29 ANDERSEN CONSULTING

30 Important Groups of Information Highway Playrs Mrgr Mania: U.S. companis ar trying to build or buy Information Highway-comptncis through mrgrs, alliancs and partnrships (.g. Tim Warnr-US Wst, Nynx-Dow Jons, Viacom-Paramount, Gnral Instrumnts-Microsoft, Sony-MCA). Lgnd Film-/Musicstudios MCA Paramount Publishrs Dow Jons Tribun Film/music studio, print publishr TV/cabl TV ntworks Infrastructur providr Equipmnt supplir TV Ntworks ABC FOX CablTV Ntw. QVC HBO Hardwar manufact. Sony Gnral Instrumnts Softwar manufact. Microsoft Kalida Long Distanc Carrirs Cabl MSO s AT& T Sprint Tim Warnr Viacom Rgional Tlcoms US Wst Nynx Utilitis Sourc: Andrsn Consulting IS Stratgy, Architcturs & Economics 30 csl@bizstratgy.org

31 Infocosm Framwork W ar at th bginning of a tchnology-nabld, prmannt convrgnc of svral larg and prviously disparat industris BOXES Computing Providrs STUFF Contnt Providrs GLUE Contxt PIPES Communications Providrs Contnt (Stuff) - Th digitally stord things, that customrs want. Convrsations, Movis, Publications, Vido gams, Tlvision, Education... Communications (Pips) - Th lctronic channl that will carry th contnt. Fibr, Coax, Twistd Pair, Digital Satllit, Digital Cllular, PCS, Radio... Computing (Boxs) - Th intllignt dvics which will allow us to accss and consum th contnt. Computr, St-top Box, Tlphon, CD-ROM, Tlvision, Nintndo, Scannr... Contxt (Glu) - Th softwar and intrmdiary tchnologis rquird to hold it all togthr. Digital Libraris, Gatway Providrs, Oprating Systms... Sourc: Andrsn Consulting IS Stratgy, Architcturs & Economics 31 csl@bizstratgy.org

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