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Figure 11.8 3G and 802.11 coexisting.
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This chapter addressed three main economic factors important to the argument for co-existence of NthG cellular and Wi-Fi technology: tipping, externalities, and increased user market caused by complementary technologies. Tipping occurs when users jump on the bandwagon with everybody else, an act that accelerates how new technologies are adopted. The economics of externalities illustrate how value increases to each user as the number of users grows. When this is coupled with the evidence that the market is tipping, the increased number of users caused by interoperable technologies, the value of NthG's friendly coexistence with 802.11 is exacerbated. The economics of viewing Wi-Fi and NthG cellular as complements, not substitutes, are strong because both users and service providers win.
To gain the most from network effects, the user market must be as large as possible. By encouraging interoperability between wireless technologies, the total number of users will be larger. More total users equates to more users for each technology, as users will tend to use both of them, picking the technology that fits the particular situation, as long as the business model supports this interoperability. The effects of coexistence are illustrated in Figure 11.9 — it is helpful to both technologies. The X-axis is the number of users; the Y-axis is the value to each user of the service. N1 and N2 are the number of users of 3G and Wi-Fi wireless service treated as substitutes. The bottom curve is the value of 3G, and the top curve is the value of WiFi; as expected, as the number of users grows, so does the value to each user. The star is the value of having N1 users. More users implies more value, and when cellular service providers can tap into the Wi-Fi market, the number of users increases to N1 + N2, and the value increases to 3GC, the dot. This figure illustrates this because 3GS < 3GC. The same effect is seen on the Wi-Fi value curve — WiFis < WiFiC. More users equates to more value per user. Thus, the value of complementary technologies is: (3GC + WiFiC) - (3GS + WiFis). In the case of these technologies, cooperation has more value than competition because of network effects.
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N1 N2 N1 + N2
Figure 11.9 Value NthG and Wi-Fi as complementary services.
To maximize value, the larger user base needs many choices. Service providers must come from every nook and cranny if the best services are to be found. As discussed before and illustrated in Figures 11.6 and 11.7, different groups will have different expertise. Large telco-like service providers need to capitalize on the massive innovation that occurs when niche players experiment in their area of expertise by looking everywhere for new services. The most value comes from giving users the most choices because some of these choices might be superior matches to the uncertain market.
The current business model of cellular service providers seems the opposite of what is needed to capture value from the next-generation cellular data services provided by smaller, niche providers specializing in certain markets. Today's wireless service providers market plans that encourage most users to buy more minutes than they use. This model won't transfer well to cellular data services because if these wireless service providers gain additional minutes only from independent service providers, they lose; they get no additional revenue as users' usage increases closer to their allowable allocation. As users begin to use up their minutes with services not directly related to the wireless provider, it costs the wireless provider more, but generates no additional income. This current business model won't work because services from providers unaffiliated with the wireless provider will increase costs to the wireless provider without generating revenue to offset the increased cost. This is the opposite of what is needed — a way for unaffiliated service providers, affiliated service providers, and the wireless service providers to all share in the success of wireless services.
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I-mode, a next-generation cellular data service started in Japan, is succeeding with its business model. I-mode services are of three main types: those offered by the wireless service provider (DoCoMo), services offered by other vendors but affiliated with I-mode because it manages the billing, and services that have no association with DoCoMo — they only provide extra data transfer charges to them. Models like I-mode, in which users pay as they go, may provide the economic incentives needed to convince the wireless providers to open up their networks, similar to what DoCoMo is successfully doing in Japan. By adapting their current business model to promote independent service providers, these wireless service providers can capture the most value.