Managing Networked Businesses

Course Number 1760

Assistant Professor Peter A. Coles
Assistant Professor Benjamin G. Edelman
Winter, 29 Sessions
Option of exam or paper
Peter Coles and Benjamin Edelman will share teaching of both sections.

Career Focus

MNB examines management challenges in markets with network effects, which comprise a large and rapidly growing share of the world economy. The course is designed for students whose careers as managers, entrepreneurs, investors, or consultants will focus on networked businesses.

Educational Objectives

Payoffs can be spectacular in winner-take-all-markets, but strategic errors are common when companies strive to create new networks. When network effects are strong, industries have room for only a few platforms; often, just one prevails. Rivals sometimes persist in fighting too long, as in the recent battle over high-definition DVD formats. Likewise, firms miss chances to profitably share their platforms with rivals, as with Sony's failure to license its MiniDisc media format. MNB offers a perspective and frameworks to capture these opportunities and avoid similar mistakes.

Winner-take-all dynamics have profound implications not only for strategic decisions, but also for managers' choices about how to raise capital, design organizations, and manage government relations. From MNB, students learn how to cope with boom-bust valuation cycles engendered by the explosive growth of networked businesses. Students will also see how organizational structures influence the odds of success when managers must "bet the company." Finally, in some sessions, students view networked businesses from the perspective of government authorities worried about monopoly and market power.

Course Content and Organization

MNB focuses on new markets and on mature industries facing radical technological change. Most cases are set in information industries, including the computer, consumer electronics, telecommunications, media, and Internet sectors. However, we will also study credit cards, package delivery, fuel cell-powered cars, stock exchanges, transportation, and electricity transmission.

After an introduction to core concepts, the course proceeds in four modules.

1. Platform Control: When should an aspiring provider fight for proprietary control versus sharing the market with rivals? What problems do firms encounter when competing on a common platform?
2. Mobilization: How can a platform attract users? We cover strategies including a) penetration pricing; b) permanently subsidizing one set of users; and c) securing exclusive relationships that preclude marquee users from affiliating with rival platforms.
3. Evolution: When should incompatible, well-established rivals allow cross-platform interoperability? When should a platform provider absorb complements previously supplied by third parties?
4. Entrepreneurial Market Design: This new module considers marketplaces - platforms that connect many buyers to many sellers - from the perspective of an entrepreneur. We examine the specific mechanisms behind new online marketplaces for advertising, job search, patents, dating, and other areas. How should information flow between participants? How should prices be set? (An auction? If so, what kind?) What market institutions facilitate "thickness" of available transactions? What institutions ensure that users find it safe to participate? How can a market designer profit from building such institutions?