IPPTChap005_rev_6th_ed_MDOforstudents.pptx

UberAir 1
In April 2017, Uber announced UberAir, an on-demand air transportation service.
Uber’s on-demand ride-sharing service had disrupted traditional taxi and livery. However, ride sharing was based on an innovative business model and a software application.
UberAir would leverage Uber’s existing business model and software programs, but required major technological development in air transportation, infrastructure for air traffic control, and a network of landing pads.
Uber estimated initial operating costs would be $5.73 per passenger mile but with efficient pooling could be as low as $1.84 per passenger mile. With fully autonomous operation, could be as low as 44 cents per passenger mile.
As of June, 2018, the company had plans for testing the service in Dallas and Los Angeles by 2020, and was seeking an international launch city. It planned to have commercial deployment of the service by 2023.

Uber Air/Elevate

UberAir 2
Discussion Questions:
Will there be increasing returns to adoption for an early mover in air taxi service? If so, what will they be?
What are the disadvantages of entering the air taxi market early?
What are the important complementary goods and enabling technologies for the air taxi market? Are they available in sufficient quality and economy?
Is Uber well positioned to be a dominant player in this market? What resources will it need to be successful?
Overall, would you say Uber’s entry into the air taxi market is too early, too late, or about right?

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Chapter 5
Timing of Entry
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Overview
Increasing returns suggests that timing of entry can be very important.
There are a number of advantages and disadvantages to being a first mover, early follower or late entrant. These categories are defined as follows:
First movers are the first entrants to sell in a new product or service category (“pioneers”)
Early followers are early to market but not first.
Late entrants do not enter the market until the product begins to penetrate the mass market or later.

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First-Mover Advantages and Disadvantages
Being a first mover can confer the advantages of:
Brand loyalty and technological leadership
Preemption of scarce assets
Exploiting buyer switching costs
Reaping increasing returns advantages.
However, first movers often bear disadvantages also:
High research and development expenses
Undeveloped supply and distribution channels
Immature enabling technologies and complements
Uncertainty of customer requirements

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First-Mover Advantages and Disadvantages
The market often perceives first movers as having advantages because it has misperceived who was first.
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First-Mover Advantages
and Disadvantages 3

Source: R. M. Grant, Contemporary Strategy Analysis (Malden, MA: Blackwell Publishers, 1998); D. Teece, The Competitive Challenge: Strategies for Industrial Innovation and Renewal (Cambridge, MA: Ballinger, 1987); and M. A. Schilling, “Technology Success and Failure in Winner- Take-All Markets: Testing a Model of Technological Lock Out,” Academy of Management Journal 45 (2002), pp. 387–98.

Theory In Action
Obstacles to the Hydrogen Economy
Hydrogen offers an inexhaustible and environmentally friendly fuel source that could be used to power automobiles and the electrical grid that serves homes and businesses.
However, several serious obstacles stand in the way of utilizing hydrogen for energy:
Hydrogen vehicles require a new fueling infrastructure.
Isolating hydrogen for energy in an environmentally-friendly way require a major shift to windmills or solar energy.
Implementing hydrogen as a primary energy source required the cooperation of numerous stakeholders, including government, automakers, oil (or other energy) companies, etc.
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2018 Toyota Mirai
Passenger, Sedan
MSRP: $58,365
Dimension: 192.5″ L x 71.5″ W x 60.5″ H
Fuel tank capacity: 32 gal
Seating: 4
Model years: 2019 – 2019

The Toyota Mirai is a mid-size hydrogen fuel cell car manufactured by Toyota, one of the first such sedan-like vehicles to be sold commercially. The Mirai was unveiled at the November 2014 Los Angeles Auto Show. As of December 2017, global sales totaled 5,300 Mirais. The top selling markets were the U.S. with 2,900 units, Japan with 2,100 and Europe with 200. Compared with the Tesla Model 3 at 5,000 per month in the 4th quarter of 2018.

Factors Influencing Optimal Timing of Entry
1. How certain are customer preferences?
If customer needs are well understood, it is more feasible to enter the market earlier.
2. How much improvement does the innovation provide over previous solutions?
An innovation that offers a dramatic improvement over previous generations will accrue more rapid customer acceptance.
3. Does the innovation require enabling technologies, and are these technologies sufficiently mature?
If the innovation requires enabling technologies (such as long-lasting batteries for cell phones), the maturity of these technologies will influence optimal timing of entry.
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Factors Influencing Optimal Timing of Entry
4. Do complementary goods influence the value of the innovation, and are they sufficiently available?
Not all innovations require complementary goods, but for those that do (e.g., games for video consoles), availability of complements will influence customer acceptance.
5. How high is the threat of competitive entry?
If there are significant entry barriers, the may be less need to rush to market to build increasing returns ahead of others.
6. Are there increasing returns to adoption?
If so, allowing competitors to get a head start can be very risky.
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Factors Influencing Optimal Timing of Entry
7. Can the firm withstand early losses?
The first mover bears the bulk of R&D expenses and may endure a significant period without revenues; the earlier a firm enters, the more capital resources it may need.
8. Does the firm have resources to accelerate market acceptance?
Firms with significant capital resources can invest in aggressive marketing and supplier and distributor development, increasing the rate of early adoption.
9. Is the firm’s reputation likely to reduce the uncertainty of customers, suppliers, and distributors?
Innovations from well-respected firms may be adopted more rapidly, enabling earlier successful entry.
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Research Brief
Whether and When to Enter?
Will Mitchell studied 30 years of data on whether and when an incumbent in one subfield of the medical diagnostic imaging industry would enter another subfield. He found:
If only one firm can produce an inimitable good, it can enter if and when it wants. If several firms could produce a good that will subsequently be inimitable, they race to capture the market.
If good is highly imitable, firms prefer to wait while others invest in developing the market.
Firms were more likely to enter if they had specialized assets that would be useful in the new subfield or if their current products were threatened by the new subfield.
Firms entered earlier when their core products were threatened and there were several potential rivals.
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Strategies to Improve Timing Options
To have more choices in its timing of entry, a firm needs to be able to develop the innovation early or quickly.
A firm with fast-cycle development processes can be both an early entrant, and can quickly refine its innovation in response to customer feedback.
In essence, a firm with very fast-cycle development processes can reap both first- and second-mover advantages.
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Chapter 5 Summary
A first mover may be able to build brand loyalty and a reputation for technological leadership, preemptively capture scarce resources, and exploit buyer switching costs.
First movers may also benefit from increasing returns to adoption due to learning curve effects and network externalities.
Some studies, however, argue that first movers may have higher failure rates. First movers have to bear the brunt of R&D expenses and may face considerable consumer ambiguity. Second movers can capitalize on the R&D and marketing efforts of the first mover, producing a technology that costs less to develop and that corrects for any of the first mover’s mistakes.
First movers may also face poorly developed supplier markets, distribution channels, and availability of complementary goods, all of which can increase the challenge of successfully launching their new product or service. Enabling technologies may also be immature, hindering the new technology’s performance.
The biggest disadvantage many first movers face is uncertainty over customer requirements. Customers themselves may be uncertain about what features or form they desire in a new innovation. A firm may have to withstand significant losses before customer preferences become more certain.
The optimal timing of entry is thus a function of several factors, including the margin of advantage offered by the new innovation, the state of enabling technologies and complements, the state of customer expectations, the threat of competitive entry, whether the industry faces increasing returns, and a firm’s resources.
Firms that have fast-cycle development processes have more options when it comes to timing. Not only does a fast-cycle developer have an advantage in introducing innovations earlier, but it also can be its own fast follower by quickly introducing refined versions of its own technology.

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Discussion Questions
What are some of the advantages of entering a market early? Are there any advantages to entering a market late?
Can you think of an example of a successful a) first mover, b) early follower, and c) late entrant? Can you think of unsuccessful examples of each?
What factors might make some industries harder to pioneer than others? Are there industries in which there is no penalty for late entry?
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