Tuesday, September 7, 2010

How to sell the sizzle of the NBN?


Proposed Poster for IBES Symposium 21 Sept,
(Institute for a Broadband Enabled Society, University of Melbourne)

NBN: faster, simpler, cheaper broadband.
Get more…. Do more… on the NBN.



What is the NBN? Liberal Coalition view
Final Poster a4 print (1Mb) | a1 print (9Mb) | Draft (1.2Mb)| Value Model (170k)





Background


Why do consumers adopt new technology? What holds them back? How much will they pay? Past innovation theory focuses on early and later adopters, the young and high income earners (Rogers 2003). Value theory suggests consumer goals drive consumer choices (Woodruff 1997). Co-construction of value (Vargo and Lusch 2008) is a new perspective suggesting consumer value drives successful innovation (Kim and Mauborgne 2005). Innovation succeeds when it creates consumer and shareholder value. Innovation fails when it fails to create value.

Aim


This project aims to understand how consumers understand value in a new technology. Using grounded theory, I am seeking how consumers differ in their needs rather than what they have in common. Understanding value dynamics and building a theory that explains how value shifts over time and why is a focus.

Technology Findings


Approach: 3G mobile broadband is the site for this research as a proxy for understanding the slower moving broadband sector. I interviewed consumers and telecoms analysts to discover how the consumers came to have a 3G mobile phone, what their experience was, and what if anything they would change about their experience. Telecoms analysts were interviewed, since the telcos were reticent to particiate. The analysts described how the 3G telcos were going to make a return from their 3G investment, who they were targetting and how they were going o capture consumers and revenue in the marketplace. 3G telco annual reports and brochures were also sources of telco intentions, to contrast with consumers.

Results: Consumers assess value in new technology, such as 3G mobile broadband, through a number of processes (exploring, comparing, recommending) and by aggregating competing value meanings, such as novelty, beauty, power, simplicity, service, reliability against price. Valuing takes place both before and after purchase, and positive value outcomes are important for ongoing social recommending. Bargain hunting is an important driver of new technology adoption. Consumer love bargains, because bargains are gains in value.

Consumers avoid (filtering) low value messages, and reject uninteresting technology approaches (closing). The NBN must cut through these value construction processes to engage consumers. Social construction value construction processes are important (observing, inquiring, recommending). Therefore, IBES should set up connected demonstration kiosks (in cinemas, libraries and the NGV) to show consumers what NBN performance is like. Video services, and play is a key to consumers getting the message that NBN is good value, but pricing is critical too.

Conclusion


To sell the sizzle of the NBN, we need to talk about how the NBN creates value for consumers. The focus should become how the NBN is cheaper ($ per GB), faster, and ideally simpler in pricing, choice, and usage. We should forget the $43 billion headline price, and 1 Gbps headline speed and talk in terms consumers understand: price per month.
NBN: Do more, Get more…. On the NBN. Faster, cheaper, simpler. Easy…!

Poster contains three Use Cases, with image to follow....

Thursday, August 12, 2010

Ten things I would do with 1Gbps NBN...


NBN (National Broadband Network) CEO Quigley announces Gb network test successful, today. Given unlimited download (as proposed by the McKinsey NBN implementation advice, what would I use GB NBN for?


* - possible with my internet now

** - not possible now

43 yo Phd student
skype my nephew 2000km away in HD**
lecture my innovation class from rural town**
watch HD Stanford/Harvard webcasts and interact**
talk to the doctor without travel*
watch Aegean sunset in HD**
interview for job 1000km away from home**
Jam with sister in Germany, she on violin, me on trumpet**
watch my nephews school play live**
give English lesson with an Asian English learner*
watch webcast of NBN AIIA lunch talk*
My internet: 4Gb 3G VirginBroadband at 500k inc local/std calls $60/mth


80 yo father
skype my 2000km away son*
talk to doctor online*
watch Andre Rieu concert live*
borrow library books*
record video memoirs and store online**
watch Parliament*
chat to overseas daughter (skype)*
browse family photos online*
train young lawyers*
keep an eye on Arsenal football games live*
My internet: 2Gb ADSL2 $30/mth

What is not possible now is to do these things all at once, or within our download limits.

Tuesday, August 10, 2010

Comparing VM with the literature


In June 2008, I wrote a results paper for the DRUID conference at Copenhagen Business School. An earlier version of the paper compared Value Management with the innovation and consumer value literature.

Innovation lit compared:

  • Christensen (1997) The innovator's dilemma

  • Bass (1969) A new product growth model for consumer durables, Management Science

  • Ryan and Gross (1943) The diffusion of hybrid seed corn

  • Bijker (1995) Of bicycles, bakelites and bulbs: toward a theory of sociotechnical change

  • Rogers (1962, 2003) Diffusion of innovations


Consumer value lit compared:

  • Holbrook (1996) Customer value ACR

  • Zeithaml (1988) Consumer perceptions of price, quality and value. Journal of Marketing

  • Woodruff (1997) Customer value: the next source of competitive advantage. JAMS

  • Flint, Woodruff and Gardial (2002) Eploring the phenomenon of customers' desired value change. Journal of Marketing

  • Not included here, ut to include in thesis: Richins 1994 Valuing things. JCR



Pdf 24 pages of comparison: http://depositfiles.com/files/rbhxe5tn9
For your reading pleasure, and any comments welcome. This is a draft. See final DRUID paper here.

Monday, July 12, 2010

Resistance to innovation: a value perspective





The connecting value that holds society together resists the novelty seeking value of explorers. A dynamic tension exists between these two social forces; to change and to remain, which is destabilised by innovation and entrepreneur's effort. A community, society, club, association or family is an aggregation of community shared values. These values are ongoing connections and connecting. Novelty emphasises and values newness, while community (resistance) emphasises shared ongoing practices that constitute the identity of the community.

From the perspective of the Innovator, shared ongoing community practices (tradition) look like resistance. From the perspective of the Community, novelty (change, innovation) looks like distraction from ongoing community constituting practices. Community resists Innovation to the extent the change disrupts community identity. Rogers compatibility factor of speed of adoption captures this idea. Innovation unravels Community by changing constituting practices.

Thus innovation and resistance are two alternate value perspectives, valuing the new, and the known, those practices that constitute the community.

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Innovation Poster Quote: "Imagination is more important than knowledge". Albert Einstein Quote $24.70 at M100 Plus Posters.

Innovation: for profit or value?


A new results chapter, brings me to further reflect on what innovation is? My review of the innovation literature, and finding recent exponents of the two perspectives encourages me to document the difference I found, and my argument of its impact.

Supranormal profits are the reward for successful innovation (Nelson and Winter 1982*, p.409).

Innovation is the successful commercial exploitation of new ideas… The eventual aim of [innovation] is the delivery of value and the process of commercialisation – that is obtaining returns from innovation investments – is a central element of MTI (management of technological innovation). (Dodgson, Gann and Salter 2008*, p.4).

[Managers] confuse novelty with innovation. The test of an innovation is that it creates value. A novelty only creates amusement. Managements decide to innovate for no other reason than they are bored doing the same thing or making the same product day in and day out. The test of an innovation – as is also the test of quality – is not ‘Do we like it?’ It is: ‘Do customers want it and will they pay for it?’ (Drucker 1999, p.85).


Two perspectives contest what innovation means. Is innovation profit oriented (Dogson et al 2008), or is innovation consumer and value oriented (Drucker 1999)? This chapter examines value from a consumer’s perspective and seeks to understand innovation through understanding consumer value. Management simplifying of innovation theory to a profit focus has reoriented innovation away from value creation. A single word dropped has caused the problem. The strategic management catch cry is “innovate or die” (Dess, Lumpkin and Eisner 2006, p.400) because supranormal profits are the reward of the innovator. By dropping ‘successful’ from the Nelson and Winter quote (see above), the need for value creation disappears. Innovation without a requirement of success, becomes novelty, and results in definitions in Strategic Management such as Innovation involves introducing or changing to something new (Dess et al 2006, p.397). They go on, saying Innovation is essential to sustaining competitive advantage (p.400). Now, anything ‘new’ will lead to sustained competitive advantage, and value has been lost in the wilderness. Such slight simplifying of what innovation is, by removing value creation as a focus, makes innovation easier because consumer’s input is no longer essential. Consumer needs, the focus of value, are no longer relevant, since value creation is no longer required. Yet management is mystified when such innovations fail, blaming the resistance of consumers (rather than their poor understanding of what consumers want or need). This thesis seeks to put value back in the centre of our understanding of what innovation is. Better understanding value, will help management to better understand innovation. Innovation becomes ‘something new that creates value’. <image source>

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All quotes:

A cynic knows the price of everything and the value of nothing (Oscar Wilde in Green 2009).

Supranormal profits are the reward for successful innovation (Nelson and Winter 1982*, p.409).

Profit is not the explanation, cause or rationale of business behaviour and business decisions, but rather the test of their validity (Drucker in Green 2009).

Innovation is the successful commercial exploitation of new ideas… monopoly power is useful in providing incentives to technological research (Schumpeterian rent). (Dodgson, Gann and Salter 2008*, p.4, 9)

The eventual aim of MTI is the delivery of value and the process of commercialisation – that is obtaining returns from innovation investments – is a central element of MTI (management of technological innovation) (Dodgson et al 2008*, p.4).

Innovation is the search for and exploitation of new opportunities for satisfying human wants and needs… Entrepreneurship create[s] a new market and a new customer… Customers only pay for what is of use to them and gives them value. Nothing else constitutes quality. (Drucker 2007, p13, 20, 206).

[Managers] confuse novelty with innovation. The test of an innovation is that it creates value. A novelty only creates amusement. Managements decide to innovate for no other reason than they are bored doing the same thing or making the same product day in and day out. The test of an innovation – as is also the test of quality – is not ‘Do we like it?’ It is: ‘Do customers want it and will they pay for it?’ (Drucker 1999, p.85).

The starting point [of management] has to be what customers consider value (Drucker 1999, p.29).

References:
Dess, G., Lumpkin, G., & Eisner, A. (2006). Strategic Management: text and cases. Mc-Graw Hill Irwin: New York, NY.

Dodgson, M., Gann, D., & Salter, A. (2008). The Management of Technological Innovation: Strategy and Practice. Oxford: Oxford University Press.

Drucker, P. (1999). Management challenges for the 21st Century. Harper Business: New York, NY.

Drucker, P. (2007). Innovation and Entrepreneurshio: practices and principles. Elsevier: Oxford.

Green, S. (2009). Good Value: reflections on money, morality and an uncertain world. Allen Lane: London

Green, S. (2009). Good value in Banking. Available online at: http://www.hsbc.com/1/PA_1_1_S5/content/assets/newsroom/090908_speech_frankfurt.pdf

Tuesday, July 6, 2010

My Cost Benefit Analysis on the NBN


The Senate report ( process here, final report here, pdf (327k) here) on the viability of the NBN asked for a cost benefit analysis. Several have been done already, including:

* Ergas and Robson (2009) here, found $13 - 20 billion loss, based on all revenue generated from usage fees (reported here, pdf here)

* Gans (2009), found overall social benefits, using a month consumer payments and surplus analysis here, and pdf here.

* My previous attempt on this blog (Apr 2009), which suggested an operating shortfall of $40 million per month: available here.

I have updated my Cost benefit analysis of the NBN and attach it for your information (here ; updated for broken link, Apr.2013). Given the recent Senate Report calling for a cost benefit analysis, and media talk, I thought I would have a go at putting one together. About three hours work.

I found that to achieve a positive NPV, the NBN needs to add between 0.5 and 1.0% to GDP per annum. Approx $7 billion per annum, proportional to % build complete from network 50% complete. I add NPV for NBN Co, including projected revenue, depreciation, operating costs, but no interest.

This model assumes, funding/interest at 5%, consumer takeup maximum 70%, corporate takeup maximum 90% at year 8, pro rata over the course of the build, with accelerating takeup as the build passes 50% complete.

In the model I assume that the Federal Government pays interest on $43 billion invested at 5%. That Telstra loses 50% of its value over the network build (about $20 billion). That NBN Co earns profits, which pay down the $43 billion NBN investment, and NBN Operating expenses of 20% of depreciation (about $430 milllion after build). Depreciation straight line at 5% per annum.

Future adjustments to model could include: grossing Telstra loss up to future value (adds about $10 billion, and reduces NPV by $7 billion), adding other telco losses, eg Optus, AAPT, shaping GDP gains from high in mid term, and dropping over the longer term.

The spreadsheet allows all these variables to be manipulated and show the impact on NBN and National NPV. I look at cashflows for years 1-15, and discount at 5%, including debt outstanding at that point. If you have any questions about the model or would like to discuss it, please let me know.

Tuesday, June 22, 2010

NBN Early Pricing analysis - Value WATCH (June 2010)









I have analysed the early NBN pricing between Exetel, iiNet and Primus using my Value Watch methodology.

The McKinsey Report (https://wiki.dbcde.gov.au/dashboard.action) advises pricing for penetration  - see Exetel Tas NBN prices http://www.exetel.com.au/residential-fibre-pricing-tasmania.php starting at $0 plus $2/Gb for basic (25mbps) to $50 plus $0.75/Gb for fast (100mbps). Mckinsey advise wholesale price around $30 for entry level broadband (25mbps; unlimited Gb) plus $5 for unlimited calls. Equates to about $55-60 retail entry level. But three other ISPs are pricing NBN like a premium service: iiNet, Primus $50 for 5Gb; $90 for 15 Gb. I know who I would prefer. I will attach my comparison of the initial NBN prices below.

See graphical comparison here.... http://www.mediafire.com/file/wdyj0qkzmbe/NBNvalueWatchJun2010.pdf...

Comments welcome below. The Value Watch compares Price per month and Price per Gb. Greater value is when both these indicators are minimised. Exetel shows a clear value lead over iiNet and Primus in these early stages.

Update: Exetel revised their prices up from $1.50 / Gb to $2/Gb and monthly access down from $10 to $0. Faster plans had no changes. Will have to update analysis.... Revised graphs with updated Exetel prices here - http://www.mediafire.com/file/htfdqy3m4j2/nbnJune2010b.pdf