Feng Zhu is an assistant professor of business administration in the Technology and Operations Management Unit and teaches Digital Innovation and Transformation in the MBA elective curriculum. Before joining the HBS faculty, he was an assistant professor of strategy at the University of Southern California.
In his research, Professor Zhu examines competitive strategy and innovation in high-technology industries, with an emphasis on platform-based markets. He has studied a wide range of platforms, such as video game consoles, social-networking sites, Craigslist, Wikipedia, smartphone operating systems, blogs, newspapers, and ad-sponsored free products.
Professor Zhu’s work has appeared in journals including the American Economic Review, Management Science, and Strategic Management Journal. It has been covered by such media as the Washington Post, the Financial Times, the Wall Street Journal, and Forbes.com and has most recently won the Strategic Management Society’s Best Paper Award for Practice Implications. He received the Past Chairs’ Emerging Scholar Award from the Technology and Innovation Management Division of the Academy of Management and the Ascendant Scholar Award from the Western Academy of Management.
Professor Zhu earned his Ph.D. in science, technology and management and a master’s in computer science at Harvard University. He did his undergraduate work in computer science, economics, and mathematics at Williams College.
We examine how reducing search frictions in secondary markets affects the value appropriated by firms in primary markets. We characterize two effects on primary-market firms caused by intermediaries entering secondary markets: the “cannibalization” and “option value” effects. Separation between primary and secondary markets can drive which of the two effects dominates. Firms selling valuable and scarce products aremore likely to have separate primary and secondary markets, and will therefore appropriate more value when secondary markets thicken. Firms selling products that are not valuable and scarce will be hurt. Further, we hypothesize that firms have incentives to engineer scarcity by limiting supply when secondary markets thicken to separate primary and secondary markets. We find support for these hypotheses in the U.S. concert ticket industry.
Group Size and Incentives to Contribute: A Natural Experiment at Chinese Wikipedia
The literature on the private provision of public goods suggests an inverse relationship between incentives to contribute and group size. We find, however, that after an exogenous reduction of group size at Chinese Wikipedia, the nonblocked contributors decrease their contributions by 42.8 percent on average. We attribute the cause to social effects: contributors receive social benefits that increase with both the amount of their contributions and group size, and the shrinking group size weakens these social benefits. Consistent with our explanation, we find that the more contributors value social benefits, the more they reduce their contributions after the block.
Cannibalization and Option Value Effects of Secondary Markets: Evidence from the U.S. Concert Industry
We examine how reducing search frictions in secondary markets affects the value appropriated by firms in primary markets. We characterize two effects on primary market firms caused by intermediaries entering secondary markets: the "cannibalization" and "option value" effects. Separation between primary and secondary markets can drive which of the two effects dominates. Firms selling valuable and scarce products are more likely to have separate primary and secondary markets and will therefore appropriate more value when secondary markets thicken. Firms selling products that are not valuable and scarce will be hurt. Further, we hypothesize that firms have incentives to engineer scarcity by limiting supply when secondary markets thicken to separate primary and secondary markets. We find support for these hypotheses in the U.S. concert ticket industry.
Keywords: cannibalization effect;
option value effect;
Entertainment and Recreation Industry;
Responses to Entry in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers
How do firms respond to entry in multi-sided markets? We address this question by studying the impact of Craigslist, a website providing classified-advertising services, on local U.S. newspapers. We exploit temporal and geographical variation in Craigslist's entry to show that newspapers with greater reliance on classified-ad revenue experience a larger drop in classified-ad rates after Craigslist's entry. The impact of Craigslist's entry on the classified-ad side appears to propagate to other sides of the newspapers' market. On the subscriber side, these newspapers experience an increase in subscription prices, a decrease in circulation, and an increase in differentiation from each other. On the display-ad side, affected newspapers experience a decrease in display-ad rates. We also find evidence that affected newspapers are less likely to make their content available online. Finally, we estimate that Craigslist's entry leads to $5 billion in year 2000 dollars in savings to classified-ad buyers during 2000–2007.
Keywords: Multi-Sided Platforms;
Market Entry and Exit;
Journalism and News Industry;
Ad Revenue and Content Commercialization: Evidence from Blogs
Many scholars argue that when incentivized by ad revenue, content providers are more likely to tailor their content to attract "eyeballs," and as a result, popular content may be excessively supplied. We empirically test this prediction by taking advantage of the launch of an ad-revenue-sharing program initiated by a major Chinese portal site in September 2007. Participating bloggers allow the site to run ads on their blogs and receive 50% of the revenue generated by these ads. After analyzing 4.4 million blog posts, we find that, relative to nonparticipants, popular content increases by about 13 percentage points on participants' blogs after the program takes effect. About 50% of this increase can be attributed to topics shifting toward three domains: the stock market, salacious content, and celebrities. Meanwhile, relative to nonparticipants, participants' content quality increases after the program takes effect. We also find that the program effects are more pronounced for participants with moderately popular blogs and seem to persist after participants enroll in the program.
Keywords: ad-sponsored business models;
Business Model Innovation and Competitive Imitation: The Case of Sponsor-Based Business Models
This paper provides the first formal model of business model innovation. Our analysis focuses on sponsor-based business model innovations where a firm monetizes its product through sponsors rather than setting prices to its customer base. We analyze strategic interactions between an innovative entrant and an incumbent where the incumbent may imitate the entrant's business model innovation once it is revealed. The results suggest that an entrant needs to strategically choose whether to reveal its innovation by competing through the new business model or conceal it by adopting a traditional business model. We also show that the value of business model innovation may be so substantial that an incumbent may prefer to compete in a duopoly rather than to remain a monopolist.
Keywords: business model innovation;
sponsor-based business model;
Innovation and Invention;
Duopoly and Oligopoly;
Market Entry and Exit;
Is Wikipedia Biased?
Entry into Platform-based Markets
This paper examines the relative importance of platform quality, indirect network effects, and consumer expectations on the success of entrants in platform-based markets. We develop a theoretical model and find that an entrant's success depends on the strength of indirect network effects and on the consumers' discount factor for future applications. We then illustrate the model's applicability by examining Xbox's entry into the video game industry. We find that Xbox had a small quality advantage over the incumbent, PlayStation 2, and the strength of indirect network effects and the consumers' discount factor, while statistically significant, fall in the region where PlayStation's position is unsustainable.
Keywords: platform-based markets;
indirect network effects;
video game industry;
Market Entry and Exit;
Motion Pictures and Video Industry;
Group Size and Incentives to Contribute: A Natural Experiment at Chinese Wikipedia
In this paper, we examine the causal relationship between group size and incentives to contribute in the setting of Chinese Wikipedia, the Chinese language version of an online encyclopedia that relies entirely on voluntary contributions. The group at Chinese Wikipedia is composed of Chinese-speaking people in mainland China, Taiwan, Hong Kong, Singapore, and other regions in the world, who are aware of Chinese Wikipedia and have access to it. Our identification hinges on the exogenous reduction in group size at Chinese Wikipedia as a result of the block of Chinese Wikipedia in mainland China in October 2005. During the block, mainland Chinese could not use or contribute to Chinese Wikipedia, although contributors outside mainland China could continue to do so. We find that contribution levels of these nonblocked contributors decrease by 42.8 percent on average as a result of the block. We attribute the cause to social effects: contributors receive social benefits from their contributions, and the shrinking group size reduces these social benefits. Consistent with our explanation, we find that the more contributors value social benefits, the greater the reduction in their contributions after the block.
Motivation and Incentives;
Groups and Teams;
Government and Politics;
Information Technology Industry;
Strategies to Fight Ad-sponsored Rivals
We analyze the optimal strategy of a high-quality incumbent that faces a low-quality ad-sponsored competitor. In addition to competing through adjustments of tactical variables such as price or the number of ads a product carries, we allow the incumbent to consider changes in its business model. We consider four alternative business models, a subscription-based model, an ad-sponsored model, a mixed model in which the incumbent offers a product that is both subscription-based and ad-sponsored, and a dual model in which the incumbent offers two products, one based on the ad-sponsored model and the other based on the mixed-business model. We show that the optimal response to an ad-sponsored rival often entails business model reconfigurations. We also find that when there is an ad-sponsored entrant, the incumbent is more likely to prefer to compete through the subscription-based or the ad-sponsored model, rather than the mixed or the dual model, because of cannibalization and endogenous vertical differentiation concerns. We discuss how our study helps improve our understanding of notions of strategy, business model, and tactics in the field of strategy.
Impact of Online Consumer Reviews on Sales: The Moderating Role of Product and Consumer Characteristics
This article examines how product and consumer characteristics moderate the influence of online consumer reviews on product sales using data from the video game industry. The findings indicate that online reviews are more influential for less popular games and games whose players have greater Internet experience. The article shows differential impact of consumer reviews across products in the same product category and suggests that
firms' online marketing strategies should be contingent on product and consumer characteristics. The authors discuss the implications of these results in light of the increased share of niche products in recent years.
Keywords: internet marketing;
online consumer reviews;
word of mouth;
video game industry;
Marketing Reference Programs;
Video Game Industry;
What Is the Impact of Software Patent Shifts? Evidence from Lotus v. Borland
Economists have debated the extent to which strengthening patent protection spurs or detracts from technological innovation. This paper examines the reduction of software copyright protection in the Lotus v. Borland decision. If patent and copyright protections are substitutes, weakening of one form should be associated with an increased reliance on the other. We find that the firms affected by the diminution of copyright protection disproportionately accelerated their patenting in subsequent years. But little evidence can be found for any harmful effects on firms' performance and incentive to innovate: in fact, the increased reliance on patents is correlated with growth in measures such as sales and R&D expenditures.
Information Technology Industry;
Frenemies in Platform Markets: The Case of Apple's iPad vs. Amazon's Kindle
We study the compatibility decisions of two competing platforms that generate profits through both hardware sales and royalties from content sales. We consider a game-theoretic model in which the platform hardware may offer different standalone utilities to users who have different preferences over the two platforms. We find that incentives to establish one-way compatibility—the platform with smaller standalone value allows users of the competing platform to access its content—can arise from the difference in their profit foci. As the difference in the standalone utilities increases, royalties from content sales become less important to the platform with greater standalone value but becomes more important for the other platform. Compatibility increases asymmetry between the platforms' profit foci and, when the difference in the standalone utilities is sufficiently large, yields greater profits for both platforms. We further show that social welfare is greater under one-way compatibility than under incompatibility, and there exist no incentives for either platform to establish one-way compatibility the other way round. We investigate as well how factors such as different platform production costs, exclusive content, and endogenized royalty rates affect compatibility incentives.
Competing with Complementors: An Empirical Look at Amazon.com
Platform owners sometimes enter complementors' product spaces to compete against them directly. Prior studies have offered two possible explanations for such entries: platform owners may target the most successful complementors so as to appropriate value from their innovations, or they may target poor performing complementors to improve the platforms' overall quality. Using data from Amazon.com, we analyze the patterns of Amazon's entry into its third-party sellers' product spaces. We find evidence consistent with the former explanation: that the likelihood of Amazon's entry is positively correlated with the popularity and customer ratings of third-party sellers' products. We also find that Amazon's entry reduces the shipping costs of affected products and hence increases their demand. Results also show that small third-party sellers affected by Amazon's entry appear to be discouraged from growing their businesses on the platform subsequently. The results have implications for complementors participating in various platform-based markets.
Do Experts or Collective Intelligence Write with More Bias? Evidence from Encyclopædia Britannica and Wikipedia
Which source of information contains greater bias and slant—text written by an expert or that constructed via collective intelligence? Do the costs of acquiring, storing, displaying and revising information shape those differences? We evaluate these questions empirically by examining slanted and biased phrases in content on US political issues from two sources—Encyclopædia Britannica and Wikipedia. Our overall slant measure is less (more) than zero when an article leans towards Democrat (Republican) viewpoints, while bias is the absolute value of the slant. Using a matched sample of pairs of articles from Britannica and Wikipedia, we show that, overall, Wikipedia articles are more slanted towards Democrat than Britannica articles, as well as more biased. Slanted Wikipedia articles tend to become less biased than Britannica articles on the same topic as they become substantially revised, and the bias on a per word basis hardly differs between the sources. These results have implications for the segregation of readers in online sources and the allocation of editorial resources in online sources using collective intelligence.
Prejudice and Bias;
The Impact of Patent Wars on Firm Strategy: Evidence from the Global Smartphone Market
We examine how patent wars affect firm strategy. We hypothesize that, as patent wars intensify, firms shift their business foci to markets with weak intellectual property (IP) protection due to increased litigation risks. This shift is attenuated for firms with stronger technological capabilities and is more pronounced for firms whose home markets have weak IP systems. Using data from the global smartphone market, we find support for these hypotheses. Interestingly, we also find that the patent war intended to hamper the growth of the Android platform may have merely shifted the sales to weak IP countries. This study sheds light on the emerging patent enforcement strategy literature by highlighting the heterogeneity in the efficacy of national patent systems in explaining firm strategy in platform-based markets.
Keywords: patent litigation;
Lawsuits and Litigation;
Globalized Markets and Industries;
Upwork: Reimagining the Future of Work
Upwork, the world's largest freelance talent platform, was the result of a merger between the two leading online freelancing companies in 2014, Elance and oDesk. After the merger, the company operated as Elance-oDesk and continued to manage two online platforms—Elance.com and oDesk.com—independently of one another. However in 2015 the company relaunched as Upwork, with both a new brand and a new platform. The company began to migrate Elance.com members and functionalities over to the new platform, which was based on the technical infrastructure of oDesk.com. This case helps students consider the challenges and opportunities associated with such a platform merger, from strategy to implementation.
TSG Hoffenheim: Football in the Age of Analytics
In 2015, Dietmar Hopp, owner of Germany's Bundesliga football team TSG Hoffenheim and co-founder of the global enterprise software company SAP, was considering how to ensure long-term sustainability and competitiveness for TSG Hoffenheim. While historically a small team from bottom rungs of the league, TSG Hoffenheim, with revenues of €60 million to €70 million, reached the top division of the Bundesliga in the 2008–2009 season thanks to a deliberate strategy focused on enhanced scouting, strong youth programs, and innovative technology and analytics that improved player development. In 2014 Hopp, who had personally invested €300 million in the club, built a "footbonaut," an automated training environment that collected data on players' skills and strengths. The tool, one of three in the world, helped scouts and coaches better assess and develop each player. Yet some managers felt the technology was a distraction, an investment too expensive for a team that was not yet cash-flow positive. The team finished the 2014–2015 season in eighth place, below the top division, and Hopp wondered whether the focus on technology and analytics was the right strategy to grow the club. He wondered if the "moneyball" approach—when a smaller team competed with wealthier teams by using statistical analysis to buy undervalued assets and sell overvalued assets—could work in football and if investments in technology could lead the team to financial independence.
Keywords: platform strategy;
business model innovation;
Chinese Internet market;
Information Technology Industry;
Zhu, Feng. "Qihoo." Harvard Business School Teaching Note 616-011, August 2015. View Details
SF Express: From Delivery to E-Commerce
Shunfeng Express (SF), China's leading express delivery firm, in May 2014 opened the first 500 of several thousand Heike stores, which allowed consumers to buy and try out SF's own e-commerce offerings, in addition to other services. As an example of China's "online-to-offline" trend in e-commerce, Heike stores allowed SF to leverage its logistics and IT expertise to differentiate itself from its rivals in express delivery. As yet unclear was whether Heike stores offered consumers an irresistible value proposition.
Keywords: Shunfeng Express;
From Correlation to Causation
To make sound business decisions, managers must be comfortable with the concepts of correlation and causation. This background note provides an overview of correlation and causation using examples and explains why the former does not imply the latter. It also describes several methods for gaining insights into causal relations, including randomized experiments, panel data, matching, and regression discontinuity. The note is intended for a general audience and does not require advanced statistics knowledge.
Forecasting and Prediction;
Baidu, Alibaba, and Tencent: The Three Kingdoms of the Chinese Internet
This note provides an overview of the Chinese Internet by describing its leading three companies: Baidu, Alibaba, and Tencent (BAT). While BAT had previously focused their respective businesses on distinct sectors of the online economy—Baidu for search, Alibaba for e-commerce, and Tencent for games and instant messaging—the proliferation of mobile devices in China introduced new territory to be conquered. By the end of 2014, BAT had each made a series of investments and acquisitions to aggressively compete with each other and with other competitors in the emerging mobile space. This note can be used as background for any discussion related to the Chinese Internet industry.
HomeAway: Organizing the Vacation Rental Industry
In less than 10 years, cofounders Brian Sharples and Carl Shepherd had transformed HomeAway from just another Internet startup into the world's leading vacation-rental marketplace—a global online platform that links customers seeking vacation-home rentals to the property owners and managers who supply them. The case traces HomeAway's founding and acquisition-led growth, its 2011 IPO, and the core elements of its subscription-based business model. By 2014, incumbent travel giants like TripAdvisor and high-profile startups like Airbnb had begun to enter the vacation-rental sector. To stay ahead, HomeAway initiated a pilot cross-platform collaboration to list some of its properties on Expedia's site. More momentously, Sharples was also weighing a new commission-based revenue model that promised to attract a broader array of property listings but at the risk of undermining HomeAway's existing business.
Qihoo, one of the largest Internet companies in China today, was founded in 2005. The company started its business by offering a security software product, and quickly dominated the market in China after its unusual move of giving its product away for free in 2009. Later, it expanded its offering to cover a broad spectrum of Internet and mobile security products. In 2012 the company launched its own Internet search engine called So.com. By August 2013, So.com captured 18% PC market share, and had posed a threat to Baidu, China's largest and most established search engine provider. Yet to compete against Baidu and other Chinese Internet giants in the long run, Qihoo needed to find a way to replicate its PC market success in the mobile market. How could Qihoo continue to evolve its search engine business and what was the best mobile strategy to help the company grow?
Professor Zhu’s research interests center on technology strategy and innovation in platform-based markets, which represent a large and rapidly growing share of the economy. He examines the challenges in managing and growing platform-based businesses. Platform-based markets—ranging from operating systems to ad-sponsored media—must bring on board multiple groups of participants and effectively manage these groups in order to be successful. In his work, Professor Zhu developed a model to determine conditions under which a new platform can successfully enter a market where the incumbent has a significant installed-based advantage and empirically tested these conditions using data from the video game industry. He also empirically examined how open-content platforms such as Wikipedia can take advantage of the multi-sidedness of the market to overcome free-riding problems as they grow. In several other projects, he studied how platforms can dynamically adjust their strategies on each side of the market in response to the entry of a competitor. His latest research looks at how patent wars in the smartphone industry affect market shares of platform providers such as Apple’s iOS and Google’s Android system.
In a related stream of research, Professor Zhu studies firms’ choices between multi-sided, platform-based and one-sided business models. Choosing between a multi-sided business model and a one-sided business model involves trade-offs. For example, it is not always optimal for firms to choose ad-sponsored business models, as advertisers produce a negative effect on the consumers’ side. In several projects, Professor Zhu has analyzed firms’ choices of fee-based and ad-sponsored business models. His analysis demonstrates the importance to an incumbent firm of considering modifications to its business model when competing with new entrants. In another study, he considers how the adoption of ad-sponsored business models affects content providers’ incentives. His empirical evaluation, using data from blogs, finds that ad revenue results in more popular content—and further that about half of the shift is based in more emphasis on the stock market, celebrities, and salacious content—but that it does not result in less niche content. Professor Zhu’s latest work in this area examines whether open-content platforms that are based mostly on voluntary contributors (e.g., Wikipedia) help achieve a neutral point of view better than traditional forms of content production (e.g., Britannica, an encyclopedia authored by experts).
Digital Innovation and Transformation – MBA Elective Curriculum
Digital Innovation and Transformation is designed to equip students to confidently help conceive, lead and execute digital innovation initiatives and develop new business models for existing and insurgent organizations. The basic premise of the course is that the digital revolution is rapidly transforming the fundamental nature of many companies in a wide range of industries and executives, entrepreneurs and general managers need to understand the economics, technology paradigms and management practices of innovating in digital-centric businesses to ensure corporate and personal success. The course is intended for students pursuing business careers in which digital technologies will be critical to the development of new products and services, e.g., entrepreneurial start-ups, consulting and venture capital, and senior positions in marketing, R&D, and strategy. Visits by case protagonists and industry experts will enable students to understand the career options in this rapidly evolving space.
Related Link: http://www.hbs.edu/coursecatalog/2134.html
Awards & Honors
Winner of the 2013 Past Chairs' Emerging Scholar Award from the Technology and Innovation Management (TIM) Division of the Academy of Management.
Winner of the 2013 Ascendant Scholar Award from the Western Academy of Management.
Winner of the 2013 Distinguished Paper Award from the Business Policy and Strategy Division of the Academy of Management for his paper with Victor Bennett and Robert Seamans, "Value Appropriation, Search Frictions, and Secondary Markets."
Winner of the 2013 Best Conference Paper Prize for Practice Implications from the Strategic Management Society at the SMS Annual International Conference for his paper with Victor Bennett and Robert Seamans, "Value Appropriation, Search Frictions, and Secondary Markets."
Runner-up for the Best Conference Paper Prize from the Strategic Management Society at the SMS Annual International Conference in 2013 for his paper with Victor Bennett and Robert Seamans, "Value Appropriation, Search Frictions, and Secondary Markets."
Received the Meritorious Service Award from Management Science in 2013.