978-0134129945 Chapter 15 Lecture Note Part 2

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NEW PRODUCTS AND SERVICES

(Learning Objective #6)

The digital revolution has spurred innovation in many different industries. Companies in all

parts of the world are developing a new generation of products, services, and technologies. These

include broadband networks, mobile commerce, wireless connectivity, and smartphones (Exhibit

15-6).

Broadband

A broadband communication system is one that has sufficient capacity to carry multiple voice,

data, or video channels simultaneously.

Bandwidth determines the range of frequencies that can pass over a given transmission channel.

Broadband offers a variety of marketing opportunities to companies in a variety of industries.

Broadband allows Internet users to access streaming media such as streaming audio and

streaming video.

Streaming media represents huge market opportunity for the video game industry, which

includes electronics companies (e.g., Microsoft and Sony), game publishers (e.g., Electronic

Arts), and Internet portals (e.g., Google).

Gamers in different locations, even different countries, compete against each other using PCs,

Xbox, or Play-Station consoles.

Cloud Computing

In the preceding section, cloud computing was referenced as one driver of higher broadband

speeds. The term refers to next-generation computing that is performed “in the cloud.”

Rather than installing software such as iTunes or Microsoft Office on a computer hard drive,

such applications will be delivered through a Web browser. Cloud computing means that archives

—including music and movies files, photos, and documents—are stored on massive remote

servers and data centers rather than on individual users’ computers.

THE GLOBAL STARTUP: INNOVATION AND ENTREPRENEURSHIP

Reed Hastings, Netflix

Reed Hastings is an entrepreneur. He developed an innovative service, created a brand, and

started a company to market it. As is true with many entrepreneurs, Hastings’ idea was based on

his recognition of a problem that needed to be solved and his own experience as a consumer.

In 1997 Hastings started Netflix, a mail-order DVD rental service. Within a few years, red-and-

white Netflix envelopes were appearing in mailboxes throughout the United States.

Netflix’s success came at the expense of competitors in the brick-and-mortar video rental

business; in 2010, for example, Blockbuster filed for bankruptcy. Hastings was at the forefront in

a video industry that was undergoing rapid transformation. However, more change was to come:

As the user base of household broadband and lightning-fast 4G mobile networks reached critical

mass, streaming video was supplanting physical DVDs as the viewing medium of choice.

Hastings responded by offering streaming-content subscriptions for $7.99 per month in addition

to DVD rentals. However, Netflix faced competition from Redbox, an upstart DVD rental

company with very low prices, as well as from streaming services such as Hulu.

Netflix predicts it will have operations in 200 countries by the end of 2016. Irrespective of

location, streaming subscribers pay roughly the equivalent of the U.S. subscription rate—about

$8.00 per month. Netflix content can also be accessed on more than 1,000 different devices,

including smartphones, tablets, and, of course, televisions.

Computer files can be accessed remotely, via the Internet, from any location and from any

computer.

Google’s Chrome operating system, which has been described as “a new computing paradigm,”

is designed to exploit the opportunities of cloud computing. Another industry trendsetter,

Amazon.com, has set up Amazon Web Services (AWS) to offer cloud-computing resources to

businesses. AWS is a variation on the outsourcing trend that was discussed in Chapter 8; Netflix,

foursquare, and thousands of other companies use the service instead of running their own data

centers.

However, cloud computing is still in its infancy; a recent service interruption of AWS caused

widespread disruptions among its clients. Despite such setbacks, cloud computing is expected to

grow at an annual torrid pace of 25 percent over the next several years.

Smartphones

Cell phones have been one of the biggest new product success stories of the digital revolution.

Worldwide, 1.75 billion smartphones were shipped in 2014. Soaring demand has boosted the

fortunes of manufacturers such as Apple, HTC, Motorola, Research in Motion (RIM), and

Samsung, as well as AT&T, Deutsche Telekom, U.S. Cellular, Verizon, and other service

providers.

New features and functionality give consumers a reason to upgrade their handsets on a regular

basis. Conventional cell phones allow text messaging via short message service (SMS), a

globally accepted wireless standard for sending alphanumeric messages of up to 160 characters.

SMS is the technology platform that is the basis for Twitter’s microblogging service. Industry

experts expect marketers to integrate SMS with communication via other digital channels, such

as interactive digital TV, the Internet, and e-mail.

Smartphones have much greater functionality than feature phones, incorporating many of the

capabilities of computers. Worldwide, smartphones represent about one-fourth of all cell phone

sales.

Mobile Advertising and Mobile Commerce

Mobile advertising and mobile commerce (m-commerce) are terms for conducting

commercial transactions using cell phones as channels for delivering advertising messages and

conducting product and service transactions. Most smartphone and tablet users can access the

Internet via Wi-Fi; in addition, cell phone service providers typically offer data plans that allow

Internet connections via 3G or 4G networks. This allows Apple, Crisp Wireless, Google,

Medialets, Mobext, and other companies to offer clients mobile ad services. For example,

Unilever, Nissan, and other companies use Apple’s iAd service to place interactive ads inside

iPhone and iPod apps.

Total worldwide spending for mobile ads was only about $1 billion in 2007; according to

eMarketer, at the end of 2014 the figure was nearly $43 billion. Mobile ad spending in the United

States totaled $18.9 billion in 2014.

Smartphones that are equipped with global positioning systems (GPS) can determine the user’s

exact geographic position. This capability has created new opportunities for location based

mobile platforms, such as Foursquare and Uber. The popularity of GPS-equipped mobile devices

is driving interest in location-based advertising.

Cell phone usage is exploding in India. As Manoj Dawane, CEO of Mumbai software company

People Infocom, explains, “In India, mobile phone penetration is high compared to other forms

of media like television or the Internet. You can’t have a better place than India for mobile

advertising. “One factor driving mobile ads in India is the low rates that subscribers pay—as

little as 2 cents per minute. Demographics play an important role, too. About two-thirds of the

Indian population lives in rural areas where television ownership and newspaper readership are

low.

Another mobile communication technology, Bluetooth, has the advantage of consuming less

power than Wi-Fi. This makes Bluetooth well-suited to use with cell phones.

The Internet-connected car is becoming a reality as automakers rush to incorporate technology

into their vehicles.

Mobile Music

Because of rampant illegal sharing of music files, record companies are searching for new

sources of revenue. Thanks to technology convergence, a new generation of cell phones is

leading to changes in the mobile music industry.

Mobile music is music that is purchased and played on a smartphone or other mobile device.

The market for paid, legal; full-track music downloads is dominated by Apple’s iTunes Store.

Music purchased from iTunes can be played back on computers and mobile devices such as the

Apple iPod, iPhone, and iPad.

The market for paid downloads has matured rapidly as consumers opt for streaming services.

Annual global download revenues peaked in 2012 at about $4 billion. Also in 2012, streaming

revenues totaled about $ 1 billion. However, streaming revenues are exhibiting strong growth,

while downloading revenues are in decline.

Cloud computing, which was discussed earlier in the chapter, is expected to have a major impact

on the mobile music business. Cloud-based music services represent a hybrid of the subscription

and online store business models; the new approach addresses some of the shortcomings of the

existing methods.

Mobile and Online Gaming

Mobile gaming is gaining in popularity; revenues were expected to reach $17.6 billion in 2015,

up from $3.77 billion in 2010. Worldwide, Apple’s iPhone, iPod, and iPad are the dominant

mobile-gaming platforms.

In the past few years, online gaming has morphed into a spectator sport. In fact, the term e-sport

has been coined to describe video game competitions in which professional gamers compete for

cash prizes than can reach $1 million.

Mobile Payments

Mobile payments – payments using smartphones – received a major boost when Apple launched

Apple Pay in conjunction with the iPhone 6 in 2014. Users link their smartphones to their bank

accounts; a technology called near-field communications (NFC) allow users to “swipe” their

phones near a payment terminal to complete a purchase.

Streaming Video

Global penetration of broadband Internet service has fueled the growing popularity of global

digital services such as YouTube. Other players in the space include Facebook, Instagram and

Twitter.

Number of people who tune into YouTube each day: 1 billion

Number of hours of video viewed on YouTube each day: 300 million

Number of hours of new content uploaded to YouTube every minute: 300

Internet Phone Service

For the telecommunications industry, Internet telephone service is the “next big thing.”

Voice over Internet protocol (VoIP) technology allows the human voice to be digitized and

broken into data packets that can be transmitted over the Internet and converted back into normal

speech.

Currently, VoIP accounts for only a small percentage of global calling. However, it has the

potential to be a disruption innovation that will upset the balance of power in the

telecommunications industry.

Skype has become a global phenomenon. In 2005, eBay acquired Skype for $2.6 billion.

Digital Books and Electronic Reading Devices

The digital revolution has had a dramatic impact on traditional print media properties such as

newspapers and magazines. Publishers are experiencing dramatic downturns in readership as

people spend more time online.

Amazon.com sold the first Kindle for $359; prices for the latest generation Kindle Fire D starts

ate $99 (Exhibit 15-11). Apple launched the iPad in March 2010; by mid-2014, Apple has sold

more than 200 million devices.

Industry observers think that colleges and universities will be instrumental in building awareness

and encouraging adoption of e-readers and e-books. The reason is simple: electronic versions of

textbooks represent a huge market opportunity.

For example, the textbook you are reading is available direct from the publisher in the form of an

electronic “subscription” at www.coursesmart.com. The online version requires users to be

connected to the Internet; the text can be accessed from an unlimited number of computers.

Buyers can use the e-book for 180 days before the subscription expires. The price is

approximately half of what bookstores charge for a new copy of the physical textbook. Usually,

students can print as many as 10 pages at a time; it is also possible to cut and paste, highlight,

and take notes directly on the computer.

As is the case with music and movies, digital piracy is a growing problem with e-books.

A number of Web sites and file-sharing services distribute unauthorized copies of popular

copyrighted material. What do the authors themselves think of the problem? Some view digital

piracy as a way to gain new readers. Others say that they simply want fair compensation for their

work.

A third camp includes authors who don’t think pursuing the pirates is worth the effort.

Wearables

Wearable technology – including fitness bands, Google Glass, Apple Watch, and other products –

are reaching a tipping point in terms of sales growth. Technology research firm IDC predicts that

annual sales will reach 113 million units by 2018, up from 6 million units in 2013.

TEACHING TOOLS AND EXERCISES

Cases:

“HTC Corporation: A Smartphone Pioneer From Taiwan”, by Lien-Ti Bei and Shih-Fen Chen,

Richard Ivey School of Business Foundation, 2012. W11227-PEF-ENG, 22 p.

“Air France Internet Marketing: Optimizing Google, Yahoo!, MSN, and Kayak Sponsored

Search”. Mark Jeffery; Lisa Egli; Andy Gieraltowski; Jessica Lambert; Jason Miller; Liz

Neely; Rakesh Sharma. HBS KET319.

“What is the Best Global Strategy for the Internet?”. Mauro F. Guillen. HBS BH077.

Videos: “Product Red (A) and (B), Video DVD” by Youngme Moon, Michael I. Norton, 2009,

video supplement. Product # 509724-VID-ENG.

Four Seasons Embraces Digital Marketing, Virtual Experiences – How they are coping with

advertising changes worldwide, and the new moves they are making.

http://adage.com/article/cmo-interviews/seasons-embraces-digital-marketing-virtual-

experiences/232055/

Activity: Students should be preparing or presenting their Cultural-Economic Analysis and

Marketing Plan for their country and product as outlined in Chapter 1.

Movie: 1950s Global Economy, Commerce & World Trade Center Films DVD: Vintage Business

Economic Globalization, Foreign Commerce & WTC Footage. Available from Quality

Information Publishers.

This is a DVD compilation of three vintage world commerce and foreign trade films. This is an

absolutely wonderful short (25 minutes or so) piece that shows just how much things have

changed.

Out-of-Class Reading: Singh, Tanuja, and Mark E. Hill. “Consumer Privacy and the Internet in

Europe: A View from Germany.” Journal of Consumer Marketing 20, no. 7 (2003), pp. 634-652.

Internet Exercise: Take a look at some of the foreign websites of Amazon.com and eBay. How

do they differ from our “American” version?

Guest speaker: Invite someone from a company that designs websites and hear what is involved

in creating a website for domestic and/or global use.