Technology, standards and embedded products

Accounting Ahead | Original study resource | accountingahead.com.au

Technology, standards and embedded

products

MODULE 4 | 4.5.2 | STUDENT COMPANION

Data helps organisations start from customers' pain points rather than from what they can make. Machine

learning finds patterns and segments nobody thought to test, and combining demographic and geographic

data reveals unserved niches. Failure, warranty and service records show where products disappoint;

clicks, searches and social media reveal interest. Data must be collected and used lawfully, ethically and

securely.

The long tail

Sales of each product

Products, from best seller to slowest seller

The head: a few best sellers

The long tail: thousands of niche products, each selling a little, together a large

market

Data and online distribution make the tail profitable

Imagined example: an online store selling replacement parts for older household appliances. Each part sells

only a few times a year and no shop could stock them all, but tens of thousands of parts add up to a large, loyal

business, and search data shows which parts to add next.

Testing ideas quickly

Method How it works Benefit

Rapid online releases (lean) Build a simple version in days, release, measure,

adjust, repeat

Speed, low cost, early fit with

needs

Landing page Describe a product that doesn't exist yet; invite

pre-orders or sign-ups

Evidence before spending

much

Crowdfunding People pledge money before the product is made Tests demand, raises funds,

creates committed early

customers

GLOBAL STRATEGY AND LEADERSHIP | M4 | 4.5.2 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Worked example: a landing-page test (imagined)

A start-up tests an app for booking school-holiday activities before building it.

Item Working Result

Visitors to the page Given 2,000

Sign-ups at $9 a month Given 140

Conversion rate 140 / 2,000 7%

Monthly revenue if all sign-ups subscribe 140 x $9 $1,260

Two kinds of standard

A standard is a format, interface or system that lets products work together, such as chargers, payment cards or

web pages.

De facto standard Public standard

Emerges from competition in the market Agreed by an industry body or required by law

Owner can earn large, lasting returns Open to all, so no single organisation gains an

advantage

Can take years to emerge; investment duplicated;

customers hold back

Avoids uncertainty and speeds up the market

Winning a standards war

Winning a standards war

Build a bigger bandwagon of users and

complements

Installed base

Control of a base of existing customers

IP rights

Patents and other rights in the

technology

Ability to innovate

Keep extending and adapting the

technology

Early-mover advantage

Get to customers first

Strength in complements

Products that work with the standard

Reputation and brand

Trust that the standard will last

The trade-off: tight control captures more value per user; openness wins more users

GLOBAL STRATEGY AND LEADERSHIP | M4 | 4.5.2 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

The trade-off: imagine a company that has designed a charging connector for electric scooters. Keeping it

closed collects every royalty, but rivals may rally around an alternative; licensing it cheaply may win the market

but earn less per scooter. Customers also buy a whole system, so overall quality matters, and approaches that

still work with what customers already own usually beat ones that make them start again.

Case note: the Qi wireless charging standard

In the early 2010s, rival groups promoted competing ways to charge phones without cables. The Wireless Power

Consortium backed a standard called Qi, while rival groups backed other approaches, two of which later merged.

The Qi group built a large membership and licensed its standard widely, and when Apple adopted Qi for its

iPhones in 2017, the contest was effectively settled. Apple later contributed its magnetic design to the next

version of the standard.

Sources: Wireless Power Consortium announcements; Apple product releases, 2017; technology press coverage.

Case note: Michelin's tyres as a service

Michelin offers truck fleets the use of tyres as a service: the fleet pays according to the distance its trucks travel,

and Michelin manages fitting, checks, maintenance and replacement. Customers get predictable costs and fewer

breakdowns; Michelin gets long-term relationships, steady revenue and a reason to make tyres that last.

Launched around 2000, the service at first grew far more slowly than planned and struggled to make a profit:

pricing and running a service proved much harder than selling tyres.

Sources: Michelin company publications; IMD case study on Michelin Fleet Solutions.

For the CPA: revenue arrives monthly over the contract instead of at the point of sale.

The tyres remain Michelin's assets, on its own books.

Pricing per kilometre needs reliable data on wear, maintenance and repair costs; underpricing locks in losses.

Building products into services

Dedicated team

Independent enough to work differently,

connected enough to meet real business

needs

Mixed skills

Information technology, operations,

marketing and business analysis

New measures

Ideas generated, prototypes created,

share of work automated; accept a

long-term payoff

Full backing from leaders

Structure and culture must both change

Judge it only on this year's profit, and it will never get started

GLOBAL STRATEGY AND LEADERSHIP | M4 | 4.5.2 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Practice questions

MODULE 4 | 4.5.2 | TRY THESE BEFORE THE WORKED ANSWERS

Question 1 - Three landing-page tests

The founders will build an idea only if conversion is at least 8% or monthly revenue from the sign-ups is at least

$5,000. Calculate both measures, then decide what to do with each idea.

Idea (imagined) Visitors Sign-ups Monthly price Conversion and monthly

revenue

A. Meal kits for shift workers 3,000 90 $60

B. Dog-walking subscription 1,200 132 $40

C. Language tutoring app 5,000 150 $12

Question 2 - Open or closed?

Imagine VoltDock has patented a charging connector for electric scooters and supplies 30% of public scooter

chargers. Two rival connectors compete, and city councils want a single standard. Should VoltDock keep its

design closed or license it widely? Explain the trade-off and the resources that would help it win.

GLOBAL STRATEGY AND LEADERSHIP | M4 | 4.5.2 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Question 3 - Buying tyres or paying per kilometre

Compare the fleet's annual cost under each option, then list two non-financial factors.

Item Imagined fleet of 40 trucks

Distance per truck 150,000 km a year

Buying tyres Tyres $9,000, fitting and maintenance $2,500, breakdown costs $1,500 per truck

a year

Tyres as a service 8 cents per kilometre, covering tyres, fitting, maintenance and replacement

GLOBAL STRATEGY AND LEADERSHIP | M4 | 4.5.2 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Worked answers

MODULE 4 | 4.5.2 | WORKED ANSWERS - ATTEMPT THE QUESTIONS FIRST

Question 1 - Landing pages

Idea Conversion Monthly revenue Decision

A. Meal kits 90 / 3,000 = 3% 90 x $60 = $5,400 Build cautiously; work on

raising conversion

B. Dog walking 132 / 1,200 = 11% 132 x $40 = $5,280 Build: passes both tests

C. Tutoring app 150 / 5,000 = 3% 150 x $12 = $1,800 Drop or rethink: fails both

Question 2 - VoltDock

Trade-off: keeping the design closed captures more value per charger but risks councils and rivals backing

another connector; licensing it widely, at a modest royalty, speeds adoption and could make it the standard. With

councils wanting one standard and VoltDock already holding 30% of chargers, license widely and seek

adoption by an industry body. Resources that help: its installed base of chargers, its patents, the ability to keep

improving the design, early-mover advantage, partnerships with scooter makers (complements) and a reputation

for reliability.

Question 3 - Tyres

Option Working Annual cost

Buying tyres ($9,000 + $2,500 + $1,500) x 40 $520,000

Tyres as a service 150,000 km x $0.08 x 40 $480,000

Saving $520,000 - $480,000 $40,000 (about 8%)

Non-financial factors: predictable costs and fewer breakdowns; Michelin-style data on tyre wear; dependence

on one supplier; and costs that rise if trucks travel further.

GLOBAL STRATEGY AND LEADERSHIP | M4 | 4.5.2 | WORKED ANSWERS

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