The document discusses how vertical disintegration has impacted various industries including computers. It notes that vertical disintegration has enabled smaller firm scope, reduced barriers to entry, and led to changes in leading firms. Many new additions to the top computer firms benefited from emerging in vertically disintegrated layers like applications software, routers, operating systems, and internet content.

1. A/Prof Jeffrey Funk
Division of Engineering and Technology Management
National University of Singapore

2. Business Model
 Value proposition: what to offer and how to
differentiate
 Customer selection: whom to serve and not
serve
 Scope of activities: what activities to carry out
and what relationships to have
 Value capture: dominant sources of revenue
 Strategic control: how to sustain profitability
(e.g., how to control architecture and standards)

3. Scope of Activities
 Constantly changing, creating opportunities for new firms
 Mostly changing towards vertical disintegration, thus
enabling more firms to participate in an industry
 Examples  Examples
 Automobiles
 Apparel
 Internet
 Construction
 Movie Production
 Agriculture?
 Personal computers
 Semiconductors
 Broadcasting
 Music
 Mobile Phones
 Exceptions
 Hospitals?
 Oil Companies?

4. Scope of Activities (2)
 Extreme example: There are millions of firms in the vertically
disintegrated Internet!
 Facebook, YouTube, newspapers (e.g. blogs), and others have outsourced
content production to users
 Current big growth area is mobile phone based software, e-commerce, and
consumer Internet firms
 Rapid growth in users, apps, and firms - think Xiaomi, Uber, Snapchat,
Flipkart, Spotify, WeWork, and many more
 Many members of Billion Dollar Startup Club benefited from
vertical disintegration
 Many more will benefit as wearable computing and IoT
experience vertical disintegration
 Number of software and content firms will be much larger than hardware
firms

5.  Recent Startups
 with valuations over $1 Billion
 and are still private (no IPO yet)
 sometimes called Unicorns
 97 firms as of June 2015
 With 19 other firms in list, that exited in recent years due to
IPOs, acquisitions or decreasing value (total of 116 firms)
 High valuations mean investors believe these firms are
offering something valuable, unique, and hard to copy
 Some of them will
 lead to creative destruction
 have $100 Billion plus market capitalizations in the future, like
the strongest hi-tech startups: Apple, Google, Amazon, and
Microsoft
Billion Dollar Startup Club

6. Many of these firms have put the puzzle
together differently
Created new blocks,
with new interfaces
Some represent
more detailed
modules
Some have
completely different
boundaries

7. Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions

8. Scope of Activities
 What do you make or do, versus what do you buy or
outsource?
 Partly a cost decision, partly a strategic decision
 Want to reduce costs
 But also a strategic issue
 want to develop capabilities
 don’t want to become dependent on a single firm for a key
component
 Thus, make versus buy decisions determine the areas in
which a firm intends to compete

9. Example of Strategic Issue
 If an automobile supplier stops making engines, can it
begin making them again?
 If a leading automobile firm begins selling engines to
other firms,
 will this help its competitors and thus hurt its auto
sales?
 or will this enable greater development spending?
 How about the country level?
 Similar things in other industries, particularly
materials industries where performance depends on
close integration of everything

10. Other Strategic Issues
 Part of the make or buy decision involves whether you
can buy or outsource something –
 this depends on the degree to which independent suppliers
of components and services (i.e., vertical disintegration)
have emerged
 This is why one must consider the levels of vertical
(dis) integration in the industry using value chains,
etc when considering the scope of activities
 Increasing amounts of vertical disintegration may provide
firms with new opportunities for outsourcing
 You must be aware of how industries are evolving when you
determine your scope of activities

11. Vertical (Dis)integration
 Represents extent to which work is shared among
different organizations
 Changes in vertical (dis)integration can come from
technological, institutional, or social changes
 In particular, reductions in transaction cost lower
 costs of having work done by multiple firms/agents
 importance of integrative capabilities
 and thus facilitate the emergence of vertical disintegration
(and entrepreneurial opportunities)

12. Reducing “Transaction” Costs
 Emergence of standards often leads to reductions in
transaction costs
 Political and regulatory changes can also lead to lower
transaction costs
 Whether these reductions in transaction costs also
lead to emergence of vertical disintegration also
depends on whether
 standards are open?
 different capabilities required?
 economies of scale or network effects exist?

13. Bottom-Up vs. Top-Down
 Much of vertical disintegration has emerged from bottom-up
 For example, firms must design their electronic systems
around available microprocessors, operating systems, and
other ICs and software
 This is because specific ICs and OSs have become “standards”
with large network effects (session 5)
 As all mechanical products and systems become connected
e.g., wearable computing and Internet of Things), vertical
disintegration will occur and it will probably occur through
bottom-up and not top-down
 This is very different from how systems engineering and systems
architecture modules are taught
 Suppliers of ICs and software will continue their efforts to make
their products standards and venture capitalists will reward
promising firms

14. As an Aside
 How is Horizontal (Dis)integration different
from Vertical (Dis)integration?
 Most profitable firms are usually more
vertically integrated than other firms

15. Horizontal (Dis)integration
 Scope of products that a firm offers
 Similar to narrow or broad market scope that
were discussed in first Week
 Apple offers many kinds of electronic
products
 Desktop computers, laptop computers
 MP3 players, Phones
 Tablet computers
 Televisions

16. As an Aside
 Most profitable firms are usually more
vertically integrated than other firms
 Thus, although these slides emphasize vertical
disintegration, this is only because new
entrants pursue this strategy due to lower
barriers to entry
 Examples of profitable vertically integrated
firms
 IBM
 Intel
 Big chemical and oil firms
 Samsung

17. Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions

18. Firm infrastructure activities
Human resource management
Research, development and design
Purchasing,
inventory
holding,
materials
handling
Manufac-
turing
Outbound
logistics
Market-
ing &
Sales
Dealer
support
and
customer
service
Support
activities
Primary
activities
Purchasing
Vendor
relations
Inbound
logistics
Inventory
holding
Materials
handling
Raw
materials
Capacity
Location
Parts
production
Assembly
Prices
Advertising
Promotion
Sales force
Packaging
Brand
Sales
Channels
Inventory
Warehousing
Transport
Warranty
Speed
Captive/
independent
Value chains
Issues

19. Value Chains for Individual Firms Exist within
Larger Value Chains
Supplier Firm Channel Buyer
Value Value Value Value
Chains Chain Chains Chains

20. The Degree to which One Firm does all these activities is Called
“Scope of Activities” or Vertical Integration (the opposite is vertical
disintegration)
Some people use the term industry architecture to describe the level
of vertical integration
Supplier Firm Channel
Buyer
Value Value Value Value
Chains Chain Chains Chains

21. Value Shops
 The primary activity is finding out what the
customer wants and how to fulfill it
 Examples
 Health care
 Travel agencies
 Real estate companies
 Financial institutions
 Education
 Technology, in particular the Internet is changing
the way value shops can be managed

22. Value Networks
 Firms operate as brokers between buyers and sellers in a
value network
 Network effects play a larger role in value networks than
in value chains or value shops
 Examples
 Before the Internet: banks, stock brokers, newspaper
classified ads, video games
 Change to value network or increased importance of value
network by the Internet: employment sites, E-Bay, real-
estate sites, Amazon.com
 Many successful Internet sites are value networks

23. Scope of Activities
 Firms operating in value shops or value networks
must also think about their scope of activities
 Vertical disintegration has emerged in many of value
shops and value networks at a global level (Internet is
a big facilitator). Examples:
 U.S. hospitals outsource medical decisions to Indian doctors
by using the Internet
 Universities outsource courses to contract professors that
teach in class or over the Internet
 This vertical disintegration increases the number of
choices for firms with respect to scope of activities

24. Impact of Vertical Disintegration on Other
Aspects of a Business Model (1)
 Vertical disintegration complicates the choice of
value capture, customer selection, value
proposition by increasing the number of firms
involved with delivering value to the final
customer
 Firms must consider impact of their choices
(methods of value capture, customer selection,
value proposition) on their suppliers, customers,
and other firms (e.g., collaborators) that supply
complementary products

25. Impact of Vertical Disintegration on Other
Aspects of a Business Model (2)
 If suppliers of complementary products do not
focus on same customers or value propositions, or
implement complementary methods of value
capture, then your business may not grow
 If your method of value capture prevents
 suppliers of complementary products from making
money, complementary products will not emerge
 retailers or distributors from making money, they will
not distribute your products
 Many of the examples below involve these issues

26. Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions

27. Computers
 Many changes in computer sector over last 60 years –
including changes in leading firms
 In discontinuities (relevant to value propositions):
mainframe, mini, personal, portable
 In lead customers
 from accounting departments to
 scientists and engineers to
 Small firms, professionals, and home professionals
 mobile professionals
 In methods of value capture
 from leasing and/or selling them with a sales force to
 selling them through a retail outlet to
 selling them online to
 licensing software

28. Other Changes (1)
 Emergence of relatively open interface standards between
 computers and peripherals
 computers and remote services
 computers, LAN, and Internet
 operating system and application software
 in some cases operating systems and microprocessor
 Rising development cost for OS, application software and
microprocessors
 6 Billion USD to develop Windows Vista, the 2007 Windows
operating system
 Between 100 Million and 1 Billion USD to develop high-end
microprocessor
 Emergence of these standards (and high development
costs) supported emergence of vertical disintegration

29. Other Changes (2)
 Political/regulatory decisions
 US government forced IBM to unbundle hardware and
software in late 1960s
 But didn’t force Microsoft to unbundle operating system
and application software in 1990s, as European Union did
 U.S. government supported the development of open
standards and commercialization of the Internet
 Universities defined open standards for the Internet
 These decisions also enabled vertical disintegration to
emerge

30. Emergence of Vertical Disintegration
 Enabled smaller scope of activities, lower development
costs and thus reduced barriers to entry
 And thus impacted on business model
 In combination with other changes (e.g., changes in
value capture, changes in lead customers, dimensions
of performance), led to dramatic changes in the
leading firms

31. Source: Christensen & Raynor, 2003
Vertical Disintegration
Emergence of Standards Drove:

32. The Computer Industry: 1980
Top 10 Public Companies in US Computer Industry
(Area reflects market capitalization value in constant US $)
Services S
P
Systems Integration E
R
R
Applications Layer Y D CVC
Middleware Layer U H E
Operating Systems IBM N P C
S
Hardware Y XRC
S
AMP
Components
TI Intel
XRC: Xerox; Source: Source: Carliss Baldwin and Kim Clark

33. The Computer Industry: 1995
Top 10 Public Companies in US Computer Industry
(Area reflects market value in constant US $)
Services
First Data
Systems Integration EDS
Oracle
I CA
Applications Layer B MSFT
Middleware LayerM
Operating Systems
Hardware: Printers HP
Hardware: Servers IBM
Hardware: Routers Cisco
Components Intel
Micron
S
P
E
R
R
Y D CVC
U H E
IBM N P C
S
Y XRC
S
AMP
TI Intel
Abbreviations: CA (Computer associates); EDS (Electronic Data Systems);
MSFT (Microsoft); Source: Carliss Baldwin and Kim Clark
1980

34. The Computer Industry: 2004
Top 10 Public Companies in US Computer Industry
(Area reflects market value in constant US $)
Services First Data
ADP
Systems Integration
Oracle
Applications Layer IBM
Middleware Layer MSFT
Operating Systems
Hardware: Printers HP
Hardware: PCs Dell
Hardware: Servers IBM
Hardware: Routers Cisco
Components Intel TI
Abbreviations: ADP (Automatic Data Processing); MSFT (Microsoft);
Source: Carliss Baldwin and Kim Clark
1995

35. Market Capitalization in 2007
 Microsoft - $264B
 Google - $210B New to list
 Cisco - $189B
 Apple Inc. - $162B New to list
 IBM - $159B
 Intel - $155B
 HP - $112.57B
 Dell - $45.09B
Source: http://en.wikipedia.org/wiki/List_of_information_
technology_companies_by_market_capitalization

36. Rank Company Market Capitalization Type of Business
1 Apple $742 Billion Hardware
3 Google $375 Billion Search
4 Microsoft $360 Billion Software
21 Facebook $211 Billion Content
26 Oracle $192 Billion Software
30 Amazon $177 Billion Online Sales
37 Intel $171 Billion Integrated Circuits
39 Samsung $162 Billion Electronics
40 IBM $158 Billion Hardware
41 Tencent $156 Billion Internet content
43 Comcast $153 Billion Cable TV, content
51 Cisco $150 Billion Hardware
53 TMSC $122 Billion Integrated Circuits
57 Qualcomm $117 Billion Integrated Circuits
98 SAP $92 Billion Software
Top IT Firms Among Top 100 - Market Capitalization (17 Feb 2015)
http://www.corpo
rateinformation.c
om/Top-
100.aspx?topcase
=b%3b+http%3a
%2f%2fwww.lib.
uwo.ca%2fnews
%2fbusiness%2f
2011%2f04%2f0
8%2ftopglobal10
0companiesbyma
rketcapitalization.
html

37. http://www.economist.com/news/business/21647612-once-dominant-software-giant-determined-prove-life-begins-again-40-openin

38. New Additions to Top 10 Firms Benefited from Emergence of
Vertical Disintegration
Year Firm Vertically disintegrated layer
1995 First Data, EDS Remote services
Oracle, Comp. Assoc. Application software
Cisco Routers, emergence of Internet
Microsoft Operating systems
2004 ADP Remote services
Dell Personal computers
2007/
2010
Google Internet and search engines
Apple Internet: computers and content
SAP AG Application software
Amazon.com, Tencent Internet and Internet content
Comcast Cable TV, content

39.  Cloud Computing: Dropbox, Pure Storage (also hardware), Nutanix,
Jasper Technologies (IoT), AppDynamics, Box
 Big Data: Palantir, InsideSales.com, Deem, New Relic
 Open Source: Cloudera, Automatic, Hortonworks
 Online Ads: InMobi, AppNexus, IronSource
 Security: Tanium, Good Technology, Lookout
 Database: MongoDB, MarkLogic
 Integration Platforms: MuleSoft, SimpliVity
 Tools (for individual and enterprise): Zenefits, DocuSign, Slack,
Sprinklr, Actifo, Qualtrics, Shopify, Cloud Flare, Evernote
Software Suppliers in Billion Dollar Startup Club
Benefit from Vertical Disintegration

40. Why Big Changes in Leading Firms
 Because change creates opportunities for new firms
 Changes in Technology (value propositions, discontinuities):
mainframe, mini, PC, portable, Internet, smart phone, tablet
 Changes in lead customers for hardware
 from accounting departments to
 scientists and engineers to mobile professionals
 Changes in methods of value capture
 from leasing and/or selling them with a sales force to
 selling them through a retail outlet to
 licensing software
 Changes in levels of vertical disintegration
 Challenged incumbents and enabled many firms to co-exist

41. Why are Some Firms Most Profitable
(Method of Strategic Control)
 Controlled key interfaces (standards) at some point in time
 IBM: interfaces in mainframe computer
 Microsoft and Intel: operating system and microprocessor in PC
 Cisco: IOS in routers
 Very innovative
 Apple in i-pod, i-phone, and i-pad
 Benefited from Network Effects, Switching Costs, Lock-in
 IBM in mainframe; Microsoft and Intel in PC (Wintel)
 Cisco: in routers; Google in search
 Oracle and SAP: application software for big clients
 Apple in i-pod, i-phone, and i-pad
 Next week, we talk about Method of Strategic Control

42. Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions

43. Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Mobile Phones
 Mobile phone apps, e-commerce, and software
 Implications for IoT and Wearable Computing

44. Video Consoles and Games
 How are video consoles similar to PCs?
 Vertical disintegration has also emerged in video
consoles
 But
 Less vertical disintegration in video consoles than in PCs
 And manufacturers make more money than do software
(game) providers
 Why these differences?

45. Consumers
Developers
Tools and
Middleware
Providers
Console Maker
Publishers
Content
Providers
Value Network for Video Consoles and Games
Games
Consoles
& Games
Royalties
Content
Financing
Games
Games

46. Business Model for Video Game Consoles
 Value proposition
 Provide graphic intensive game consoles
 Growing niches: PC, Internet and mobile games
 Customer selection
 Mostly high-end graphic-loving users
 Growing niches: PC, Internet and mobile games
 Scope of activities
 Vertically disintegrated: different firms provide hardware and
software
 Value capture
 Console manufacturers take most of revenues including portion
of independently sold game software revenues
 How do they do this?
Source: Pong, Chapter 6 in Invisible Engines

47. Method of Value Capture for Video Game Firms
 Video game console manufacturers
 Include authentication chips in the games in order to prevent unauthorized
games from being played
 Take a portion of game revenues (20% ?, $3-$9 per game) on their games
 Discount sales of consoles by >$100
 Game publishers and developers
 Revenues from sales of games
 Divided up between publishers, developers, and content providers (e.g.,
basketball player’s image)
 Tool providers
 Sale of tools
 But must pay a licensing fee ($12,000) to console suppliers for technical
information
Source: Pong, Chapter 6 in Invisible Engines

48. Why Differences?
Why are Manufacturers and not OS and IC
suppliers dominant in Video Games?
Why isn’t there as much vertical
disintegration in video games as in PCs?

49. Why are Manufacturers and not OS and IC
suppliers dominant in Video Games?
 Vertically disintegrated layers of operating systems and
microprocessors have not appeared in video consoles
 Graphic performance of games depends on integral design of
operating systems, processors, and other ICs (but changing)
 Compatibility between users (which comes from standard OSs)
is not as important as with PCs (but changing)
 Pricing strategy is also different – discount consoles and charge
software providers a royalty fee (razor blade strategy), partly
because users buy a large variety of software
 Games played on PCs (including online games) undergo
a different set of competitive dynamics than those on
video consoles (but becoming more important)

50.  What do you think would happen if a console supplier
tried to introduce a business model like that found in the
PC industry?
 Open system?
 No royalties?
 Instead pay for software that is loaded onto computer?

51. Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions

52. Old Business Model for Music-Related Firms (1)
 Value proposition
 For many years music companies bundled songs
from top-name artists into record, tape, CD. Now
they try to sell singles over Internet
 Manufacturers focused on quality, design, and price
but sales of special audio players are dropping
 Customer selection
 mostly young people

53. Old Business Model for Music-Related Firms (2)
 Scope of activities
 Vertically disintegration between music and players
 Vertical integration within players and within music
 Value capture
 Music companies take large percentage of music sales
through long-term contracts with artists
 Hardware manufacturers use production business
model but special purpose players are disappearing

54. Apple Changed Scope of Activities & Value Capture for
Music: It sells both players and music and subsidizes music
Music
Companies
Music
Companies
Consumers
Consumers
Old Value Chain
New Value Chain
Design, Make
Music Players
& Components
Retail
RetailRetail
Components
Design
andRetail
Apple
Players Music
Artists
Composers

55. But Apple Purchased Most of the Components
 Storage: Intel micro hard disk / memory chips
 Battery: Sony Lithium polymer technology
 Connectivity: Firewire standard
 Software: ARM architecture
 Microprocessor: Samsung processor
 User Interface : Pixo, a cell phone software developer
Source: Group 5 in past Class

56. Apple Still Purchases Most of the Components

57. Apple’s Scope of Activities
 Represents a completely different level of vertical
disintegration, i.e., scope of activities, from previous
solutions
 More investments in retail outlets than in assembly or
manufacture and development of components
 Thus, return on investment depends more on level of
investment in retail outlets than in manufacturing
 Other firms are replicating this business model
 Consumer electronics firms enter retail: Nokia, Sony, and
others in retail outlets
 Web firms design consumer electronics but outsource
manufacturing: Amazon Amazon Kindle, B&N with Nook;
Google with Google TV

58. Apple and Other Firms
have Created Retail Outlets
 Creating retail outlets is one way of enhancing brand
image
 Many phone manufacturers and other suppliers of
consumer electronics (Sony) have created retail outlets
 These suppliers now compete with traditional retail
outlets (Best Denki, Harvey Norman, Courts) that also
sell products from these suppliers
 Even most clothing manufacturers emphasize retail
more than manufacturing
 Levi was the king of clothing in the 1970s and slow to create
retail outlets

59. Apple has also succeeded in Content
 Developed successful eco-systems of content providers
for i-Pod, iPhone
 Music for i-Pod
 Apps for i-Phones
 Can Apple create new eco-systems of content providers
for
 Tablet computers?
 Smart watches?
 Apple TV?
 Apple Pay?
 These skills may be as important as those for design (and
certainly more important than manufacturing)

60. Outline
 Definitions/Review
 Scope of activities
 Value configuration: chains, shops, networks
 Examples
 Computers
 Video Consoles/Games
 Music
 Mobile Phones
 Conclusions

61. Batteries
Vertical Disintegration Existed at the Start of
Mobile Phone Services in 1980s
Phone
Manufacturers
Displays
Interface defined by air-interface
standards such as GSM and CDMA
Chips
Software
Service
Providers
Base Stations
Switching Equipment
Network Software
Retail Customer

62. Value Chains for Phones
 Have become highly vertically disintegrated
 Most variable costs are materials (see next slide)
 Also encourages entry by new phone manufacturers
(many in China, e.g., Xiaomi)
 Development costs are also low
 First iPhone - $150 million
 More recent phones - $15 million
 Development costs for integrated circuits are much
higher
 Smart phone processors - $1 billion
 Simpler chips - $20 – 100 million
Gizlogy, 2015. http://gizlogy.com/apple-iphone-generations-time-line/ McKinsey, 2013. file:///C:/Users/etmfjl/Downloads/4_ChipDesign.pdf
Vance A 2010. For Chip Makers, the Next Battle is in Smartphones, February 21, 2010. Yota, 2015. http://rostec.ru/en/news/4514817

63. Mobile Phone Manufacturers are Highly Vertically
Disintegrated (Apple designs processors, but
outsources all manufacturing)

64. Google’s Latest Strategy
Google’s Project
Ara
Google defines the
exoskeleton
(including the APIs)
and users create their
own phones
Users can mix and
match modules, and
replace them over
time

65. Batteries
The Big Battle is to Connect Content with Users
Phone
Manufacturers
Displays
Interface defined by air-interface
standards such as GSM and CDMA
Chips
Software
Service
Providers
Base Stations
Switching Equipment
Network Software
Retail Customer
Content
Portals or
Search
Engines

66. New Eco-Systems Emerged
Around Apple’s iOS and Android
 Mostly in the form of apps
 Thousands of apps are available
 Why are apps better than accessing service provider’s
menu or searching with Google?
 The better value proposition of Apps caused
competition to revolve around them, including
network effects
 How strong are the network effects with Apps?
 And who is winning?

67. Google Play Now Offers More Apps than Does iOS

68. And it Has More Downloads
 Android’s Google Play Store generated nearly 60%
more app downloads than Apple’s iOS App Store
(60% more)
 And this doesn’t include sales from Amazon and
Samsung stores
 Most downloads
 Games: Candy Crush Saga
 Non-games: Facebook messenger. Facebook app, Whats
App, Instagram, Skype
 But revenues are a different story
http://www.theguardian.com/technology/2015/jan/28/android-ios-app-downloads-revenues-app-annie-google-play-app-store

69. More App Revenues for Apple
 App Store generated
more than 70% more
revenues than Google
Play
 Apple paid $10 Billion to
iOS developers in 2014,
suggesting Google Play
paid $3 Billion to
developers
 Payouts to developers
represent 70% of App
Revenues for Apple
http://www.theguardian.com/technology/2015/jan/28/andr
oid-ios-app-downloads-revenues-app-annie-google-play-
app-store

70. The UpShot
 Very vertically disintegrated system in mobile phone
industry
 But Apple is generating huge profits through
managing eco-system
 How much from design?
 How much from apps and network effects from apps?
 Other phone suppliers have also created large eco-
systems
 Xiaomi uses light asset model, even lighter than Apple
 No ownership of retail stores, sells most phones online,
making them cheaper than unsubsidized phones obtained
through service providers
 Trying to export model to other countries

71. Conclusions (1)
 Most industries are highly vertically disintegrated
 This enables many firms to co-exist
 Reasons for this vertical disintegration include
 More open standards
 More electronics that facilitate standards and open standards
 High development cost for electronics and software
 Emergence of open standards and other changes (such as
political and regulatory changes)
 can reduce transaction costs and
 thus enable vertical disintegration
 A new scope of activities
 represents a new business model and
 it may require changes to other elements of the business model

72. Conclusions (2)
 Vertical disintegration, which enables a different scope
of activities, provides challenges for incumbents
 reduces barriers to entry, and thus facilitates new entry
 makes new methods of value capture possible
 Vertical disintegration will likely emerge in new
industries
 Internet of Things
 Wearable Computing
 Firms should expect this vertical disintegration to
emerge and plan your business model around it