Strategies to Fight Ad-sponsored Rivals

Ramon  Casadesus-Masanell; Feng  Zhu

Article | Management Science | September 2010

Strategies to Fight Ad-sponsored Rivals

by Ramon Casadesus-Masanell and Feng Zhu

Abstract

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.

Keywords: strategy; business models; tactics; advertising; pricing; Business Model; Advertising; Competition; Quality; Price; Product Marketing;

Format: Print

16 pages

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Citation:

Casadesus-Masanell, Ramon, and Feng Zhu. "Strategies to Fight Ad-sponsored Rivals." Management Science 56, no. 9 (September 2010): 1484–1499.

Case | HBS Case Collection | September 2020

Uber at a Crossroads (2017)

Ramon Casadesus-Masanell and Karen Elterman

This case describes the history of Uber, its business model—including the ways it differed from that of the traditional taxi industry—and its competition with Lyft. The case is set in 2017, a year in which Uber was plagued by even more scandals than usual, though its behavior had frequently sparked controversy ever since its launch in 2010. By June 2017, Uber had a valuation of $70 billion, making it the most valuable venture-funded tech startup in the world, but a shadow hung over its reputation, due in part to recent revelations about its toxic and sexist corporate culture, and to its tendency to ignore local regulations when expanding into new markets. In June 2017, Uber’s co-founder and CEO Travis Kalanick resigned, and in August 2017, Dara Khosrowshahi, formerly the CEO of Expedia, was hired in his place. Meanwhile, Lyft, which presented itself as the “nice guy” alternative to Uber’s bad-boy image, seemed to be gaining ground. The case asks what Khosrowshahi might do to fix Uber’s broken culture and improve its public image, and how he could best ensure Uber’s dominance in the years to come.

Keywords: Business Startups; Business Model; Customer Satisfaction; Fairness; Values and Beliefs; Price; Profit; Revenue; Investment; Government Legislation; Business History; Compensation and Benefits; Resignation and Termination; Employment; Wages; Lawfulness; Leadership Style; Leading Change; Management Style; Market Entry and Exit; Two-Sided Platforms; Product Design; Organizational Culture; Problems and Challenges; Attitudes; Strategy; Competitive Strategy; Expansion; Transportation Networks; Mobile Technology; Technology Platform; Valuation; Transportation Industry; Technology Industry; United States;

Citation:

Casadesus-Masanell, Ramon, and Karen Elterman. "Uber at a Crossroads (2017)." Harvard Business School Case 721-376, September 2020. View Details

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