internet economy - aalto...france germany japan sweden uk usa usd 50000 40000 30000 20000 10000 5000...
TRANSCRIPT
![Page 1: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/1.jpg)
InternetEconomy
OlliMar1kainenAutumn2018
![Page 2: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/2.jpg)
Whatweexpectyoutolearn• Industrialrevolu1ons• Produc1vity• InternetEconomy
– ICT-areasandtheirchangeasabasis– Innova1onintensiveSchumpeteriancompe11on– Dominantdesigns– Switchingcosts– Networkexternali1es– Complementari1es– Asymmetricinforma1on– Newgrowththeory– Systemicstructures– Internetbusinessmodels
• References
![Page 3: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/3.jpg)
Industrialrevolu1onsaredisplayedasproduc1vityrateincreases
![Page 4: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/4.jpg)
Industrialrevolu1ons
• Ineconomicstechnologymeansarecipehowtomakeproductsfromrawmaterials(notonlyatechnicalartefact)
• Theapplica1onofatechnologycomesintwophases–productinnova1onsandprocessinnova1ons(1stlecture)
• ThesephasesarealsocalledasTechnologyPhaseandDiffusionPhase
• Inthediffusionphasethetechnologyisappliedinindustriesandtheproduc8vityinorganiza1onsimproves
• ThemajortechnologicalbreakthroughscanbeseenintheGDPgrowthrateofna1ons
• TheincreaseofgrowthrateiscalledanIndustrialRevolu0onwhichmeansincreaseinproduc8vity:
GDP/popula1on=GDP/workhoursxworkhours/popula1on,i.e.Livingstandard=Labourproduc1vityxWorkamount
![Page 5: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/5.jpg)
600182018301840185018601870188018901900191019201930194019501960197019801990200020102016
China
Finland
France
Germany
Japan
Sweden
UK
USA
USD50000400003000020000
10000500020001000
Source:MaddisonProjectDatabase,version2018.Bolt,Juda,RobertInklaar,HermandeJongandJanLuitenvanZanden(2018)
GDPpercapitagrowth1820-2016
![Page 6: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/6.jpg)
10001820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2016
USD5000040000300002000010000500020001000
AverageGDPpercapitagrowth
FirstIndustrialRevolu1on(diffusionphase)
SecondIndustrialRevolu1on
ThirdIndustrialRevolu1on
Whythegrowthrateisnotincreasing?Whatistheproblemindigitaliza1on?
![Page 7: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/7.jpg)
IndustrialRevolu1ons
• FirstIndustrialRevolu1on(diffusionphase)1830-1920– Steam,industrialproduc1on,railway,telegraph
• SecondIndustrialRevolu1on1920-1980– Electricity,chemicalindustries– Car,telephone,radio,television
• ThirdIndustrialRevolu1on1980-– Informa8onandCommunica8onTechnologies(ICT)– Computer,digitalnetworks,PC,GSM,Internet,Apps– Knowledgeasaninputinproduc1onthathasincreasingmarginalproduc1vity(PaulRomer,Nobelprice2018)
![Page 8: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/8.jpg)
ThirdIndustrialRevolu1on
TechnologyphaseNooffirmsindex
Diffusionphase
1980199020002010
produc0vityincreasesherebyprocessinnova1onsstrongcomplementari1esbusinessstructureredefinedincrementaldevelopment
DominantDesigns
Sources: Abernathy and Utterback 1978 Christensen 1997, OECD 2003
ICTfocusshiisfromtechnologytoprocessesandservices:
Cf.Electricity1880-1929
![Page 9: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/9.jpg)
ICTDiffusionPhase
Source:EUsta1s1cs
![Page 10: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/10.jpg)
ICTDiffusionPhase
• ICTisusedinallindustriestoincreaseproduc1vity• InFinland2/3oftheICTgeneratedGrossDomes1cProduct
(GDP)hasbeenbasedonICT-industryproduc1on• InUSA2/3oftheICTgeneratedGDPisbasedonICTusein
differentindustries• ITincreasesproduc1vityanaverageof8-18%whenitis
combinedwithorganiza8onalandprocesschangesanddatacommunica8ons(ETLA2003,OECD2003).
• Mobilecommunica1onscanincreaseproduc1vityanaverageof40%(ETLA2004)
![Page 11: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/11.jpg)
Produc1vityeffectsofICTinfirms
-40 % -20 % 0 % 20 % 40 % 60 %
Computers
Internet
LAN
Services
Old
Middle
Young
Maliranta and Rouvinen 2003
![Page 12: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/12.jpg)
Produc1vityeffectsofICTinfirms
-40 % -20 % 0 % 20 % 40 % 60 %
Computers
Internet
LAN
Manufacturing
Old
Middle
Young
Maliranta and Rouvinen 2003
![Page 13: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/13.jpg)
Produc1vity• Produc8vityismeasuredasthera1oofoutputvolumeto
inputvolume• Differentproduc1vi1esareobtainedsuchasvalueadded
basedlabourproduc1vity=producedvalueadded/workhours
• TotalFactorProduc8vityTFPismeasuredoverallinputs(work,capitalandotherinputs)andexplainsthegrowthpossibili1es
• Produc1vitygrowthrateisthemeasureoftechnicalchangeandcanbeusedtoiden1fytechnologycycles
• Knowledgeandskillsareessen1alwhennewtechnologyisdevelopedandapplied
![Page 14: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/14.jpg)
Newgrowthisbasedonknowledge
![Page 15: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/15.jpg)
NewGrowthTheory• IneconomicstheproducedoutputQismodeledas
produc8onfunc8onFasfollowsQ=F(L,C,H),whereL=labor,C=capitalandH=knowledgearefactorsofproduc8on
• TechnologicalchangecreatesabederF• WiththesametechnologyFsomefirmsmaybehavemuch
bederthanothers• Thisisaresultofknowledgesuchaseduca1on,skillsand
patents• Forinstance,ecosystemsareknowledgebasedindustrial
systemsthatmayimproveproduc1vitymuchoverna1onalaverages
• Newgrowththeoryemergedfromthisobserva1onthatinforma1onandknowledgearefactorsofproduc1on
![Page 16: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/16.jpg)
Nobelprice2018:PaulRomer
Source:Ilkka
Un1l1980’stheincreaseofproduc1vitywasbasedoninvestments,whichsubs8tutedlabourbymachines.Latertheincreaseoftotalfactorproduc8vity(TFP)hasbeenthemajordriverofgrowth,whichmeansthattheproduc1onfunc1on(“recipeofmaking”)hasbeenchanging.PaulRomerwasabletoexplainthesechangesbyaddingin1986theknowledgeasafactorintheproduc1onfunc1onmodel.Thiscreatedtheso-calledNewGrowthTheory,alsocalledasEmbeddedGrowthTheory(Romer1986).Innova1ons,patentsandknowledgegiveadvantagetotheirownersandcreatemarketfailuresinbusiness.ThesearetypicalinInternetEconomy.
![Page 17: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/17.jpg)
NewGrowthTheory
PRODUCTIONFUNCTIONF(K,L,H)
CAPITALKsuchasmachines
LABOURLsuchaspeople
KNOWLEDGEHsuchaspatents,soiware,educa1on
Availableinanindustrialdistrict,industrialcluster,competenceblock,plaoormorecosystem,asasystemicfactor.Skillsincreasewithallpartnersandonthevaluechain.SeeAcemoglu2015anditsreferencesforins1tu1onalfactors.
FactorsofProduc1on:
![Page 18: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/18.jpg)
Interneteconomyisbasedonmarketfailures
![Page 19: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/19.jpg)
Characteris1csofInternetEconomyInternetEconomyisbasedonseveralmarketfailures.• ICT-areasandtheirchangeasindustrybasis• Innova1onintensiveSchumpeteriancompe11on• Crea1vedestruc1onandproduc1vityimprovements• Patentsas1melimitedmonopolies• Dominantdesigns• Switchingcosts• Externali1es• Complementari1es• Asymmetricinforma1on• Systemicstructures
– Secondunbundling– EcosystemsandPlaoorms– Internetbusinessmodelsbypasstradi1onalmodels
Businessecosystemshaveoienthesefeatures,whichpreventcompe11on,andarehencemarketfailures!
.
.
.
![Page 20: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/20.jpg)
ICT-areasandtheirchangeICT(Informa0onandCommunica0onTechnology)industriesarebasedonInforma1onpresentedandtransferredindigitalform:
• ContentIndustry– Mediabecomesdigital(E-media)
• Consumerelectronics– Audiovisualreplayandbroadcasttechnologies
• ComputerIndustry– PCtopersonal,consumerandmobile
• TelecomIndustry– Broadbandnetworks,mobileandinternetservices,digital
mul1media
![Page 21: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/21.jpg)
ICT-areasandtheirchangeICTLawsofGrowth:
• Moore’sLaws: MIPSx2every1.5years
TRs/Chipx2every2years
Chipsize-25%every2years
• Guilder’sLaw:bpsx3eachyear
• Shugart’sLaw: Diskcapacityx10every4years
Price/bit-50%every18months
• Edholm’sLaw:Radiobw=fixedwith8yeardelay
• Metcalfe’sLaw: NetworkValue=(NoofUsers)2
InternetProtocol(IP)asnetworkandWebasuserinterfacestandard
HighInternetandMobilePenetra1on
![Page 22: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/22.jpg)
ICT-areasandtheirchange
0.1
1
10
100
1000
10000
100000
1000000
2000 2005 2010 2015 2020
CPU PC (GHz)CPU HandheldsMemory PC (GB)Memory HandheldsFixed network (Mbps)Wireless network
![Page 23: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/23.jpg)
ICT-areasandtheirchange
VR=VirtualrealityOTT=Over-the-topcontentsuchasNeoix(alsoVOD=VideoonDemand)
![Page 24: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/24.jpg)
Innova1onintensivecompe11on• Innova8onisanideawithcommercialpoten1al• Innova1onsdriveindustrialdynamicsandproduc8vity• Schumpeter(1911)Thetheoryofeconomicdevelopmentand
(1942)Capitalism,Socialism,Democracy• SchumpeterintroducedtheconceptCrea8veDestruc8on,
whichmeansthatnewinnova1vefirmstakeoverbusinessfromoldandlessinnova1vecompanies
• Crea1vedestruc1onexplains30-50%ofproduc1vitygrowth• Successfulinnova1onsanddominantdesignsgiveashort
1memonopolytotheirowners(e.g.iPhone)• Similarly,plaoormsandecosystemsmaygivestrongbusiness
advantagestotheircreators(e.g.Apple,Google,Amazonetc.)• Patentedinnova8ongivesamonopolyfor20years
![Page 25: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/25.jpg)
Example:Innova1onecosystems• AppleiPhoneandGoogleAndroidphonescreatedstrong
ecosystemswithAppsmarkets• InterviewofRistoSiilasmaa,theChairmanofBoardof
Nokia,YLE15.10.2018:”Wesold300000Lumiaphones(withtouchscreenandWindows)permonthin2012butAppleiPhoneandAndroidsold300000perday.Itwasthenimpossibletocatchupbecausetheapplica1ondeveloperspreferredthesetwofastestgrowingopera1ngsystems(iOSandAndroid).”“WefinallydecidedtosellNokiaMobilePhonestoMicrosoifor5,5billionUSDin2013.”
Source:TekniikkajatalousSeealsoExternali1es
![Page 26: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/26.jpg)
Produc1vity
Defini1onofProduc1vity:
Produc1vity=Y/X,where
Y=output(ineuros,tons..)X=input(hours,labourcosts,..)
Usuallyonlyrela1vechangesarecompared(%).Thedefini1ondependsonwhoisdoingtheanalysis:
Na1onaleconomy:Y=industryvalueadded,X=labourhoursFirm:Y=profit+labourcosts,X=labourcostsTechnicalprogress(technologicalinnova1ons):87%ofthegrowthinUSofthegrossoutputperperson-yearwasadributabletotechnicalprogressin1909-1949(Solow,1957).
![Page 27: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/27.jpg)
• Amajorproduc1vityimprovementinindustriesresultsfromtheCrea8veDestruc8on(Schumpeter1942),whereenterpriseswhichhavenewandbederwaystocombinefactorstoproductsorservices(i.e.whichhaveabeHerproduc8onfunc8on)winmoremarketsharefromtheoldfashionedfirms(withanoldproduc1onfunc1on),andasaresultpartoftheoldfirmsgofinallyoutofthemarket
• Compe88onbetweenfirmsisessen1alhere,firmswithbederproduc1onfunc1ongetlimited1meadvantage
• TheCrea8veDestruc8onexplainsmorethan30-50%oftheproduc8vityimprovements.Therest(lessthan70-50%)followfromdevelopmentac1vi1esinsidetheorganiza1ons(BöckermannandMaliranta,2007)
• Thesefeaturescreateindustrialdynamics
Produc1vity
![Page 28: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/28.jpg)
Crea1veDestruc1on
Produc1vityindex
Time
NewProduc1onFunc1ons(howfactorsarecombinedas(b)(c)productsorservices)
Produc1onFunc1on(a,blue)withorganiza1onsthatusethisoldmodelvanish.NewProduc1onFunc1ons(b,green)andlater(c,red)comeintouse.
Theproduc1vityimprovementinphase(b)byorganiza8onaldevelopment
Theproduc1vityimprovementfromCrea8veDestruc8on
(a) FIRM
![Page 29: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/29.jpg)
DominantDesigns
• DominantDesign(DD)isthewinningstandardacceptedbythemarket– Notnecessarilythebestpossibleavailable– Sufficientlywellperforming– Oiensimpleorelegant
• Publica1onandpatentamountshaveoienmaximumsomeyearsbeforetheDD(Ehrnberg)(TechnologyPhase)
• ThenumberoffirmsinvolveddecreasesstronglysomeyearsaiertheDD(AbernathyandUderback)
• Applica1onofthenewDDcon1nuesinfirmswithincrementalandprocessinnova1ons(DiffusionPhase)
![Page 30: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/30.jpg)
Example
• Mobilephonedominantdesigns–seethe1stlecture– Keyboardandscreenonthephone– Shellphone– Touchscreenphone– Applica1onmarketsforservices
• Todaythedominantdesignsareoienbundledwithecosystems
![Page 31: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/31.jpg)
Switchingcosts• Switchingcostsincurwhencustomersswitchfromone
suppliertoanother.• Examplesofswitchingcosts:
– Theeffortneededtoinformcolleaguesaboutanewtelephonenumber
– Thecostsfromlearningtheinterfaceofanewmobilephonefromadifferentbrand
• Switchingcostsinclude– Exitfees– Searchlearningandemo1onalcosts– Equipment,installa1onandstart-upcosts– Financial,psychologicalandsocialrisk.
![Page 32: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/32.jpg)
Example• Numberportabilityinsmartphones
– SeveralEuropeanmobileoperatorsleasedthemobilephonetogetherwiththemobileconnec1on(withmobilenumber),itwascalledbundlingthephoneandnumber
– Itwaspossibletoswitchtoanothermobileoperatorbutyouhadtopaythepreviousleasingperiodbill,too
– Thispreventeduserstoswitchoperatorstoooien– InFinlandthenumberandphonewereseparate,andwhennumberportabilitybecomecompulsoryinEUin2003,theFinnishusersswitchedtothecheapestoperatormany1mes,andmobileservicesturnoveralmosthalvedinoneyear
![Page 33: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/33.jpg)
Externali1es• Externali8esareconsequencesofeconomicac1vi1esto
unrelatedthirdpar1es,e.g.pollu1on,educa1onleveletc.• Networkrelatedexternali1esarecallednetworkeffects• Networkeffectcreatesvaluetoapoten1alcustomer
dependentonthenumberofcustomersalreadyowningthatgoodorservice
• Examples:soiware,telecomservices,web• Metcalfe'slaw:thetotalvalueofagoodorserviceis
roughlypropor1onaltothesquareofthenumberofcustomersalreadyowningthatgoodorusingthatservice
• Cri8calmass:networkeffectbecomessignificantaieracertainamountofcustomers
• Sideeffect:thepurchaseofaservicebyonecustomerindirectlybenefitsotherserviceusers
![Page 34: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/34.jpg)
Externali1esThesuccessofiPhonesandAndroidphoneswasspedupbytheApplica1onmarketexternali1es:
Source:hdps://play.google.com/storeSource:hdps://www.apple.com/ios/app-store/
SeealsoComplementari1es
![Page 35: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/35.jpg)
Complementari1es• Thecommercializa1onofaninnova1onissystemic,itmust
bedoneinconjunc1onwithComplementaryassets,suchas– Manufacturing– Marke1ng– Distribu1on– Services
• Complementaryassetscanbegeneric,specialized(withdependencebetweenpar1es)orcospecialized(mutualdependencebetweeninnova1onandasset)
• Missingcomplementari1esoienexplainwhysomanyinnova1onsfail
• Tightappropriabilityregimessuchaspaten1ngortradesecretsprotectinnovatoragainstimita1onandcompe11on
![Page 36: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/36.jpg)
Complementari1es• Underwhichcondi1onshouldfirmscollaboratetoaccess
complementaryassets?Incorporatesdynamicsoftechnologicalchange.
• Twokeydimensions:(i) Appropriabilitycondi1ons=thepossibili1estoprotectR&Dand
innova1ons(e.g.patents,copyright,complexity,lead1mes)(ii) Natureofcomplementaryassets=externalassetsthatinnovators
needtocommercializetechnologies– Genericassets– Specializedassets(unilateraldependency)– Co-specialisedassets(bilateraldependency)
• R&Dalliancesareviableifappropriabilitycondi1onsareweakandcomplementaryassetsarenon-generic–thisistypicallythecaseintheearlyphaseofatechnologylifecycle
![Page 37: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/37.jpg)
Complementari1esStart: you have new innovation
Innovation requires
complemenatry assets?
Commercialiseimmediately
Complementary assets specialized?
Specializedasset critical?
Weakappropriability?
Cash position OK?
Competitors better positioned?
CollaborateYes
Yes
Yes
Yes
Yes
No
No
No
No
No
Yes
Collaborate
Collaborate
Collaborate
CollaborateDevelop assets
yourselvesNo
(Source: adapted from Teece 1986)
![Page 38: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/38.jpg)
AsymmetricInforma1on
• Asymmetricinforma1onoccurswhenonepartyoftransac1onhasmoreorbederinforma1onthantheotherparty.
• Exampleswithseller:used-carsalespeople,stockbrokers,realestateagents
• Examplesofbuyer:lifeinsuranceforabuyerwithheavysmokinghabits
• Interneteconomyhasaneffectoninforma1onasymmetrybyallowingtheuserstoacquirepreviouslyunavailableinforma1onsuchaspricesofrecentsalesortransac1ons,foreignprices,selec1onofavailableusedcars,etc.
• Butalso–fakenews
![Page 39: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/39.jpg)
Secondunbundling• Thefirstunbundlingallowedthespa1alsepara1onof
factoriesandconsumers• Thesecondunbundlingspa1allyunpackedthefactoriesand
officesthemselves.Theoldparadigm–essen1allytradi1onaltradeeconomics–wasusefulforunderstandingtheimpactofthefirstunbundling(Baldwin2006)
• Understandingthesecondunbundling(whichhasvariouslybeencalledfragmenta1on,offshoring,ver1calspecializa1onandslicingupthevalue-addedchain)mayrequireanewparadigm,especiallywhenitcomestotheoffshoringofservices
• Secondunbundlingdistributesna1onalvaluechainsandclusterstointerna1onalvaluenetworks(Pajarinenetal.2010),someofwhichdeveloptoecosystems
![Page 40: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/40.jpg)
NokiaN95phoneretailprice€546decomposedtohardware,soiwareandothervalueaddedin2007:
ThevaluebreakdownofNokiaN95bysupplychainpar1cipant(%):
![Page 41: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/41.jpg)
Systemicstructures• Industrialclusterisageographicallyproximategroup
ofinterconnectedcompaniesororganiza1onsinapar1cularfieldlinkedbycommonali1esandcomplementari1es– Innova1on,produc1vitygrowthandnewbusinessforma1oncanbeexplainedbyawellworkingcluster
– Increasingsophis1ca1onofcompe11ongrowstheimportanceofcluster
• Competenceblock(Eliasson)explainswhichsystemicactorsareneededtocarryanideathroughaninnova1ontosuccessfulbusiness
• Ecosystemisaglobalindustrialsystembasedondominantdesigns,plaPormsandIPRs
![Page 42: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/42.jpg)
CompetenceBlock
• CompetenceBlockcreatesasystemicviewoffirmsandexplainstheselec1onofwinnersandlosers
• Actorsrepresen1ngdifferentlevelsofknowledgearenecessaryinthecompetencebloc:1.Competentandac1vecustomers2.Innovatorswhointegratetechnologiesinnewways3.Entrepreneurswhoiden1fyprofitableinnova1ons4.Competentventurecapitalistswhorecognizeandfinancetheentrepreneurs
5.Exitmarketsthatfacilitateownershipchange6.Industrialistswhotakesuccessfulinnova1onstoindustrialscaleproduc1on
Source:Carlsson&Eliasson2003
![Page 43: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/43.jpg)
Ecosystems• Ecosystemisaninterna1onalvaluenetworkwith
commonali1esandcomplementari1esprovidedbyitsactorsandmanagedbyaleadingorganiza1on
• Ecosystemsarecharacterizedby(Moore1993,2006,GawerandCusumano2002,Gawer2009,KenneyandPon2011,Adner2017)– Commonvisionsharedbytheactors– Commonplaoormandstandardsusedbytheactors,alsocalledasthe”solu1onstack”
– IPRdevelopedbytheplaoormowner(ifcommercialecosystem)– Highinterdependencebetweentheactors– Highpoten1alforinnova1onbyeachactor– Valuecapturebasedone.g.dominantdesignsandcustomerlockin(ifcommercial)
– Entrybarriersbasedone.g.proprietaryelementsandIPR(ifcommercial)
– Customerlockup
![Page 44: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/44.jpg)
InternetBusinessModels• ThegrowthofInternetisnotthesamephenomenonasthedevelopmentofInternetEconomy
• TheInternetopenedseveralsectorsforbusinessentrantsbypassingtradi1onalchannels:– PortalsservingConsumertoConsumer(C2C)– E-commerceasBusinesstoConsumer(B2C)– Brokeringbetweenbusinesses(B2B)– Subs1tu1onofpreviouselectronicsupplychainmanagementsystemsinsideandbetweencorpora1ons(B2B)
• 85%ofInternetbusinessvaluegloballyliesinB2Bandbackofficesystems(Kogut2003)
![Page 45: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/45.jpg)
Summary
• NewGrowthTheoryexplainsthefastproduc1vityincreaseandgrowtheffectsinnewindustrialsystemssuchasplaoormsandecosystemsbytheapplica1onanddistribu1onofknowledgeintheformofinnova1ons,patents,industrialstandards,competenciesandskills
• Theplaoormorecosystemownersusuallyhave1ghtappropriabilitycondi1ons(industrialstandardownerships,patents,trademarksetc.)
![Page 46: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/46.jpg)
References – Abernathy,W.J.andUderbackJ.(1978)Padernsofindustrialinnova1on,
TechnologyReview,40-47.– Acemoglu,D.andRobinson,J.A.(2015)TheRiseandDeclineofGeneral
LawsofCapitalism,JournalofEconomicPerspec1ves,Vol.29No1,3-28.– Adner,R.(2017)EcosystemasStructure:AnAc1onableConstructfor
Strategy,JournalofManagementVol.43No.1,39–58.– B.Carlsson&G.Eliasson(2003)Industrialdynamicsandendogenous
growth,IndustryandInnova1on,Volume10,Number4,435–455.– R.R.NelsonandS.G.Winter,AnEvolu1onaryTheoryofEconomic
Change,HarvardUniversityPress,1982– E.Penrose,TheTheoryoftheGrowthoftheFirm,OxfordUniversity
Press,1959– M.Porter,TheCompe11veAdvantageofNa1ons,MacMillan,1990– D.J.Teece,EconomiesofScopeandtheScopeoftheEnterprise,J.Econ.
BehaviourandOrganiza1on1,1980,223-247– Pajarinen,M.,Rouvinen,P.andYlä-An|la,P.,WhereistheValue
Created?(InFinnish).ETLASeriesB247,Talous1etoOy,2011.
![Page 47: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/47.jpg)
References – Kogut,Bruce:TheGlobalInternetEconomy,TheMITPress,2003.– Drucker,P.F.:TheComingoftheNewOrganiza8on,HarvardBusiness
Review,Jan.-Feb.1988.– Eisenmann,Thomas:InternetBusinessModels,McGraw-Hill,2002.– Böckermann,P.andMaliranta,M.Themicro-leveldynamicsof
regionalproduc8vitygrowth:ThesourceofdivergenceinFinland,RegionalScienceandUrbanEconomics37(2),2007,pp.165-182.
– Eliasson,Gunnar:Kunskap,informa8onochtjänster–enstudieavsvenskaindustriföretag(Knowledge,Informa8onandServices).Stockholm:IndustriensUtredningsins1tutIUI,1986.
– Maliranta,Mika-Rouvinen,Petri:Produc8vityeffectsofICTinFinnishbusiness,ETLADiscussionPapersno.852,2003,42pp.
– Keskusteluaiheitanro902,2004,49pp.– Palmberg,ChristopherandMar1kainen,Olli:Theeconomicsof
strategicR&Dalliances–areviewwithfocusontheICTsector,ETLADiscussionPapersno.881,2003,50pp.
![Page 48: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/48.jpg)
References – Palmberg,C.,Mar1kainenO.:Thetechnologicaldiversifica8onofthe
FinnishICTcluster–Internal/indigenouscapabili8esversusR&Dalliances,WorkshopontheNordicICTsectors,Pastdevelopmentsandfuturechallenges,19-20.8.2004,Helsinki.
– Mar1kainen,Olli:Complementari8escrea8ngsubs8tutes–divergingpathsintheUSandEuropetowards3Gand4G,WorkshopontheNordicICTsectors,Pastdevelopmentsandfuturechallenges,19-20.8.2004,Helsinki.
– Christensen,M.,L.,TheLawofConserve8onofAHrac8veProfits,BreakthroughIdeasfor2004,HarwardBusinessReview,Feb.2004,17-18.
– L.Miles,ServicesinNa8onalInnova8onSystem:fromTradi8onalServicestoKnowledgeIntensiveBusinessServices.Transforma8ontowardsLearningEconomy,TheChallengeoftheFinnishInnova1onSystem,Sitra213,1999.
– Milgrom,P.,Roberts,J.:TheEconomicsofModernManufacturing:Technology,StrategyandOrganiza8on,TheAmericanEconomicReview,June1990,511-528.
![Page 49: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/49.jpg)
References – Nonaka,I.:TheKnowledge-Crea8ngCompany,HarvardBusinessReview,
Nov.-Dec.1991.– Romer,Paul:IncreasingReturnsandLong-RunGrowth,JournalofPoli1cal
Economy94,1986,1002-1037.– Schumpeter,JosephA.:DieTheoriederWirtschaelichenEntwicklung,
Tubingen,1912.– Schumpeter,JosephA.:Capitalism,SocialismandDemocracy,Harper,
1942.– Solow,R.M.(1957)TechnicalChangeandtheAggregateProduc8on
Func8on,TheReviewofEconomicsandSta1s1cs,Vol.39,No.3,pp.312-320.
– Teece,D.J.,Profi8ngfromTechnologicalInnova8on,ResearchPolicy15(6),1986.
– Teece,D.J.,G.PisanoandA.Shuen:DynamicCapabili8esandStrategicManagement,StrategicManagementJournal,Vol.18:7,1997.
– Vernon,R.,Interna8onalinvestmentandinterna8onaltradeintheproductcycle,QuarterlyJournalofEconomics,80,1966,190-207.
![Page 50: Internet Economy - Aalto...France Germany Japan Sweden UK USA USD 50000 40000 30000 20000 10000 5000 2000 1000 Source: Maddison Project Database, version 2018. Bolt, Juda, Robert Inklaar,](https://reader036.vdocument.in/reader036/viewer/2022071102/5fdb7509533a32662b064de6/html5/thumbnails/50.jpg)
References − Baldwin,R.,Globalisaton:Thegreatunbundling(s),contribu1onto
theproject;GlobalisatonChallengesforEuropeandFinlandorganisedbytheSecretariatoftheEconomicCouncil.TheprojectisapartofFinland'sEUPresidencyProgramme,2006.
− A.Alasalmi,O.Mar1kainen,Mul8channelContactStrategyhelpsOutpa8entHealthcareAccess.TheJournalofTheIns1tuteofTelecommunica1onsProfessionals,Volume2,part2,2008,pp.43-47,ISSN1447-4739
− J.Ali-Yrkkö,O.Mar1kainen,TheImpactofTechnologicalandNontechnologicalInnova8onsonFirmGrowth,ETLADiscussionPapersNo.1165,13.11.2008,1–24.
− O.Mar1kainen,P.Tyrväinen,E.Luoma:BenefitsofICTServiceOutsourcing,Informa1onTechnologiesandControl,ISSN1312-2622,1/2009,2-6.
− O.Mar1kainen:BarrierstoHorizontalDevelopment,ChapterinTyrväinen,P.,Mazhelis,O.(Eds.):Ver1calSoiwareIndustryEvolu1on-AnalysisofTelecomOperatorSoiware,Springer,Contribu1onstoManagementScience,ISBN:978-3-7908-2351-6,2009,pp.109-116
− DatafromSta1s1csFinlandandOECD,2002-2017