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Answers exam 2020/2021 (grade 9.2)! Digital Innovation And Entrepreneurship (6013B0524Y)
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DIGITAL INNOVATION EXAMLauryn Jackson 12198390
Q1. Explain the advantages and disadvantages of collaborative and competitive markets
and what you need to consider when selecting between the two
A collaborative community is a way of organising external innovators that encourages open
access to information, transparency and joint development. An advantage of collaborative
communities is that members are often willing to work for free. A disadvantage is that it’s difficult
to profit from it as an individual as it was created by a community. In competitive markets there
is no collaboration, in this case competitors will develop a different variety of goods which the
consumer can choose from. Profit is central in competitive markets. An advantage of this is that
when the efforts are successful the benefits will be rewarded to them as individuals. A
disadvantage of competitive markets, on the other hand, is that during the process of innovation
a lot of ideas will get lost as only one idea tends to become successful.
When choosing between the two 3 factors should be considered. The first is the type of
innovation. When this type involves a problem that requires cumulative knowledge and
continually learning from the past, a collaborative community would be preferable. Linux, for
example, allows participants to use similar technologies so that they learn from each other and
build on collective knowledge. When the best approach to a problem, on the other hand, is
through experimenting it would be best to choose a competitive market. This is because
markets cause competition between participants which gives them an incentive to differentiate
maintaining the heterogeneity of the solutions. Lego, for example, has competitions with the
public for the next lego idea. This creates a certain drive for the participants to win the
competition.
The second factor to consider is motivation of the individuals. If the nature of the motivation is
more intrinsic (eg. fun) then a collaborative community would be preferable. The people writing
in Wikipedia, for example, are all driven by intrinsic motivation as they do not get paid to post.
However, if the motivation is more extrinsic (eg. money) then competitive markets are
preferable. People that develop an app for the app store are clearly driven by the profits they
can earn.
The third factor to consider is the nature of the platform business model. There are three main
types of business models: integrator (relatively high platform control), product platform and two
sided platform (high autonomy externals). Collaborative communities often prefer two sided
models als this offers the most freedom to external innovators (Boudreau & Lakhani, 2009).
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, Q2. Strategies second comers can use to overtake market leaders
According to Suarez and Kirtley (2012), there are 4 ways in which we can dethrone an
established platform. The first way is to find a distinctive and underserved segment of users.
The assumption in the past was that all users are equally important in value, however Suarez
and Kirtley soon realized that users with similar interest and need can create more value than
users that are not similar. A new platform that wants to compete with an existing one can thus
focus on a specific group of similar users that are currently unserved by the established
platform. A good example of this is Facebook that was competing with the already established
Myspace. Facebook decided to focus on getting Harvard students to join their platform thereby
focussing on a specific and similar community which eventually led to the success of Facebook.
A second way we can dethrone an established platform is by producing a superior product or
service based on emerging needs. Google’s gmail was a great example of this. They were late
to enter the email market compared to yahoo and hotmail but differentiated by offering a lot
more storage, which gave them a huge advantage compared to its competitors.
A third way a platform can compete with an existing one according to Suarez and Kirtley is to
leverage your existing platform. A platform can use another platform it owns to stimulate the
usage of the new platform and design the interface such that it will attract users. Apple did
exactly this by leveraging the user base of Itunes (which apple already owned). Customers
could use Itunes to manage their phone from the computer and download apps and music.
Furthermore, Apple made their product very user friendly and was consistent in their award
winning design aesthetic which attracted a lot of users.
The last way a company can compete with an already existing platform is by simplifying the
business model for complementors. The incumbent platform can help complementors create a
business model and give them a new revenue stream which the platform can profit from. Apple
did exactly this by attracting app creators. Apple focused on personal usage of the phone
(instead of business) thereby attracting more app developers. They also made it very cheap for
developers to create an app which- together with the single model and sleek interface, also
attracted a lot of new developers (Suarez & Kirtley, 2012).
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