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Global Marketing

Tenth Edition

Chapter 15

Global Marketing and the Digital Revolution

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Learning Objectives

15.1 List the major innovations and trends that contributed to the digital revolution.

15.2 Define “convergence” and give an example.

15.3 Define value network and explain the differences between sustaining technologies and disruptive technologies.

15.4 Identify current trends in global e-commerce and explain how global companies are expanding their presence on the Web.

15.5 Explain the key issues facing a company when designing and implementing a Web site.

15.6 Identify the most important new products and services that have been introduced in the past decade.

The Digital Revolution: A Brief History (1 of 2)

1937 to 1942: World’s first electronic digital computer was developed at Iowa State University

1947: The transistor was invented

1948: Information Theory established binary digits could encode information media using 1s & 0s

1950s: Invention of the silicon chip (integrated circuit)

1970s: The decade for companies like Atari, Commodore, and Apple

In 1947, William Shockley and two colleagues at AT&T’s Bell Laboratories invented a “solid state amplifier,” or transistor, as it became known. This was a critical innovation because the vacuum tubes that were used in computers and electronics products at that time were large, consumed a large amount of power, and generated a great deal of heat. Shockley and collaborators John Bardeen and William Brattain were awarded the Nobel Prize in physics in 1956 for their invention.

In 1948, a Bell Labs researcher named Claude Shannon wrote a technical report titled “A Mathematical Theory of Communication” in which he proposed that all information media could be encoded in binary digits, or bits. Earlier, in 1940, Shannon had argued in his doctoral dissertation that the logical values “true” and “false” could be denoted by “1” and “0,” respectively, and that streams of 1s and 0s could transmit media over a wire. Thanks to his pioneering work, Shannon is regarded as the inventor of information theory.

Also during the 1950s, Robert Noyce and Jack Kilby independently invented the silicon chip (also known as the integrated circuit or IC). In essence, the IC put the various parts of an electrical circuit—including resistors, diodes, and capacitors—on a single piece of material. The IC gave the transistor its modern form and allowed its power to be harnessed in a reliable, low-cost way.

The Digital Revolution: A Brief History (2 of 2)

1981: I B M introduced its first personal computer (P C); Bill Gates developed M S-D O S for I B M

1982: The 286 microprocessor was unveiled

1984: Apple introduced the Macintosh

1993: The creation of the Pentium processor

IBM brought its first PC to market in 1981; Bill Gates initially declined an offer to create an operating system—the software code that provides basic instructions—for IBM’s new machine. Gates later changed his mind and developed the Microsoft Disk Operating System (MS-DOS). In 1984, Apple introduced the revolutionary Macintosh, with its user-friendly graphical interface and point-and-click mouse. A few years later, Microsoft replaced MS-DOS with Windows. Meanwhile,

component manufacturers were innovating as well; Intel began marketing the 286 microprocessor in 1982. This chip was followed in quick succession by the 386 and 486 versions; in 1993, Intel unveiled the Pentium processor.

The Digital Revolution: Additional Milestones (1 of 2)

1969: The Internet can trace its origins (Defense Advanced Research Projects Agency)

1972: E-mail was sent for the first time

1973-1974: The creation of a cross-network protocol; the true birth of a network of networks or the Internet

1993: Tim Berners-Lee invented U R L, H T M L, and H T T P;

The rise of the Internet and the World Wide Web marks the next phase of the digital revolution. The Internet’s origins can be traced back to an initiative by the Defense Advanced Research Projects Agency (DARPA), which created a computer network that could maintain lines of communication in the event of a war. Robert Taylor, whose work at Xerox PARC has already been mentioned, was director of the Information Processing Techniques Office at the Pentagon in 1966. It was Taylor who secured the funding to create a single computer network that could connect separate computer research projects. In 1969, the ARPANET was unveiled; this network linked computer research centers at colleges and universities. E-mail within a computer network was made possible by the creation of a file-transfer program in 1972.

In 1990, a software consultant named Tim Berners-Lee invented the Uniform Resource Locator (URL), an Internet site’s address on the World Wide Web; Hypertext Markup Language (HTML), a format language that controls the appearance of Web pages; and Hypertext Transfer Protocol (HTTP), which enables hypertext files to be transferred across the Internet. These innovations allowed Web sites to be linked and visually rich content to be posted and accessed. In short, Berners-Lee is the father of the World Wide Web.

In 1992, the U.S. government authorized the use of the Internet for commercial purposes. At the time, it was believed that programmers and scientists would be the heaviest users of this network. In the mid-1990s, however, a computer scientist at the University of Illinois named Marc Andreessen developed a Web browser; called Mosaic, it combined images and words together on the same screen and allowed users to search for and view resources on the Web. Andreessen joined

forces with Jim Clark, one of the founders of Silicon Graphics, to form Mosaic Communications. Renamed Netscape Communications, the company became one of the brightest stars in the dot-com era, as commercial demand for the Netscape browser software exploded. As Thomas L. Friedman notes, “Marc Andreessen did not invent the Internet, but he did as much as any single person to bring it alive and popularize it.”

The Digital Revolution: Additional Milestones (2 of 2)

The Father of the World Wide Web

Mid-1990s: First commercial browser, Netscape, was created

Web users: 1993 - 600,000, 1998 - 40 million; today - 3 billion

Search engines Google and Yahoo! Bing have improved security features

Google: You Tube, Google Glass, Android Op Sys

The Internet Revolution According to Steve Case, A O L Cofounder

First Wave: mid-1980s, companies like Cisco & Xilinx created core technologies (routers) that were the “on ramps” to the Internet

Second Wave: 2000-2014; focus shifted to building on top of the Internet: search engines, encryption & security, social media

Third Wave: A future when the Internet is seamlessly integrated into everyday life; already occurring with Lyft & Uber. An era of reinvention & disruption in key economic sectors

Case envisions the third wave as a time when the Internet is seamlessly integrated into everyday life. He also anticipates a period of reinvention and disruption in key economic sectors, with major changes in health care, education, financial services, and transportation. Some of this integration and disruption is already occurring, as evidenced by the popularity of ride-sharing services such as Uber and Lyft. And, as the controversy over Uber demonstrates, the third wave is likely to be characterized by an ongoing dialog between attackers and defenders of disruption and revolution.

Case’s Third Wave Trends

Capital for all: global crowdfunding (GoFundMe & Kickstarter)

Reemergence of partnerships where who a company partners with is as important as what it does

Social enterprise that links profit & purpose (Tom’s Shoes, Warby Parker, Tesla)

Rise of the rest: globalization of entrepreneurship becomes regional, not in startup hotbeds like Silicon Valley

Case foresees four trends during the third wave. Case describes the first trend as “capital for all,” with global crowdfunding sites such GoFundMe, Indiegogo, Kickstarter, and Quirky growing in importance. Second will be the reemergence of partnerships; whether in health care or education, who a company partners with will be just as important as what the company does. A third trend will be the emergence of the social enterprise that links profit and purpose. Warby Parker, Tesla, and TOMS are three examples. Case dubs the fourth trend the “rise of the rest,” as the globalization of entrepreneurship gains traction on a regional basis, far from startup hotbeds such as Silicon Valley.

Who Controls the Internet? (1 of 3)

The first Internet Governance Forum (I G F) held in Athens, Greece, 2006 was charged with:

“the development and application by governments, the private sector, and civil society, in their respective roles, of shared principles, norms, rules, decision-making procedures, and programs that shape the evolution and use of the Internet.”

The nonprofit Internet Corporation for Assigned Names and Numbers (I C A N N) in Marina del Rey, C A

Maintains a database of Web addresses

Approves new suffixes for Web addresses (.info & .t v)

Other actions for keeping the Internet functioning

Who controls the Internet? Good question! The first Internet Governance Forum (IGF) was held in Athens, Greece, in 2006. The IGF was charged with guiding “the development and application by governments, the private sector, and civil society, in their respective roles, of shared principles, norms, rules, decision-making procedures, and programs that shape the evolution and use of the Internet.” Some people in the global Internet community are concerned about the inclusion

of the word “governments” in this statement.

Who Controls the Internet? (2 of 3)

Many countries think the U.S. should not be in control because the Internet is global; China, India, Brazil, and the E U have sought to have the United Nations assume a role in Internet governance.

Policy makers and the general public have privacy concerns as Amazon, Facebook, Google, and others gather information about customers.

Russia and China require data about customers to be stored on servers in their countries.

Who Controls the Internet? (3 of 3)

Stringent guidelines for gathering, storing, and using data are covered by the General Data Protection Regulation (G D P R) and are mandatory for all companies doing business in the E U.

Over 2,000 U.S, companies have agreed to E U data protection by signing the Privacy Shield.

Industry Convergence (1 of 2)

“The 2000s were the broadband decade, the disintermediation decade, the file-sharing decade, the digital recording (and image) decade, the iPod decade, the long-tail decade, the blog decade, the user-generated decade, the on-demand decade, the all-access decade. Inaugurating the new millennium, the Internet swallowed culture whole and delivered it back-cheaper, faster, and smaller-to everyone who can get online.”

Jon Pareles, New York Times columnist

Originally, Sony was a consumer electronics company best known for innovative products such as transistor radios, Trinitron televisions, VCRs and other stereo components, and the Walkman line of personal music players. Then, Sony entered new businesses by acquiring CBS Records and Columbia Motion Pictures. These acquisitions themselves did not represent convergence, because they occurred in the early days of the digital revolution. Motion pictures, recorded music, and consumer electronics were still separate industries. Today, however, Sony is in the “bits” business: Its core businesses incorporate digital technology and involve digitizing and distributing sound, images, and data. Now, Sony’s competitors include Apple (music players), Dell (computers), Kodak (cameras), and Nokia (cell phones).

Industry Convergence (2 of 2)

Convergence: The coming together of previously separate industries and product categories.

The cell phone camera was invented in 1997; a key benefit was the ability to download digital photos from the camera and post them on the Web or e-mail them to friends. Ironically, Motorola, a key player in the cell phone business, could have been one of the first companies to market with a cell phone camera. However, management’s attention was distracted by the ill-fated launch of the Iridium satellite phone business. As a result, inventor Philippe Kahn took his idea to Japan where the first cell phone cameras were introduced in 1999. In 2010, annual sales of camera-equipped cell phones passed the 1-billion-unit mark.

Value Networks & Disruptive Technologies

Innovator’s Dilemma

Value Network

Sustaining Technologies

Disruptive Technologies

Innovator’s Dilemma

Staying committed to a current, profitable technology

Focus on established customers

Failing to provide adequate levels of investment to new and possibly risky technologies

In an era when environmental scanning, strategic planning, and other conceptual tools of the type discussed in Chapter 16 are widely known and used, how is it that managers at many companies have failed to respond to change in a timely manner? According to Harvard professor Clayton Christensen, the problem is that executives become so committed to a current, profitable technology that they fail to provide adequate levels of investment in new, apparently riskier technologies. Ironically, companies fall into this trap by adhering to prevailing marketing orthodoxy, namely, listening to and responding to the needs of established customers. Christensen calls this situation the innovator’s dilemma.

Value Network

Found in every industry

Cost structure that dictates the margins needed to achieve profitability

Boundaries are defined by the unique rank ordering of the importance of various product attributes

Each network has its own metrics of value

In every industry, companies are embedded in a value network. Each value network has a cost structure associated with it that dictates the margins needed to achieve profitability. The boundaries of the network are defined, in part, by the unique rank ordering of the importance of various product performance attributes. Parallel value networks, each built around a different definition of what makes a product valuable, may exist within the same broadly defined industry. Each network has its own “metrics of value,” e.g., for laptop computers, the metrics are small size, low weight and power consumption, and rugged design. For example, during the 1980s, customers who bought portable computers were willing to pay a premium for smaller size; buyers of mainframe computers did not value this attribute. Conversely, mainframe buyers valued (i.e., were willing to pay more for) memory capacity as measured by megabytes; portable computer buyers placed less value on this attribute. In short, the value networks for mainframe computers and portable computers are different.

Sustaining Technologies

Incremental or radical innovations that improve product performance

Most new technologies developed by established companies are sustaining in nature

The vast majority of innovations are sustaining in nature

As firms gain experience within a given network, they are likely to develop capabilities, organizational structures, and cultures tailored to the distinctive requirements of their respective value networks. The industry’s dominant firms—typically with reputations as “well managed” firms—lead in developing and/or adopting sustaining technologies, that is, incremental or radical innovations that improve product performance. According to Christensen, most new technologies developed by established companies are sustaining in nature; indeed, the vast majority of innovations are of this type.

Disruptive Technologies

Redefine performance

New entrants to an industry

Enable something to be done that was previously deemed impossible

Enable new markets to emerge

New entrants to an industry lead in developing disruptive technologies that redefine performance. The benefits associated with disruptive technologies go beyond enhancing product performance; disruptive technologies enable something to be done that was previously deemed impossible. Disruptive technologies typically enable new markets to emerge. As Christensen explains, “An innovation that is disrupting to one firm can be sustaining to another firm.” The Internet was sustaining technology to Dell Computer, which already sold PCs direct by telephone. But it was disruptive technology to Compaq, whose major distribution channel was retailers.

Five Principles of Disruptive Innovations

Companies are dependent on customers and many innovations are customer-driven. By listening to those long-established customers, opportunities may be missed.

Small markets don’t solve the growth needs of large companies.

Markets that don’t exist can’t be analyzed.

An organization’s capabilities define its disabilities.

Technology supply may not equal market demand.

1. Companies depend on customers and investors for resources. As management guru Rosabeth Moss Kanter points out, the best innovations are user-driven; paradoxically, however, if management listens to established customers, opportunities for disruptive innovation may be missed.

2. Small markets don’t solve the growth needs of large companies. Small organizations can most easily respond to the opportunities for growth in a small market. This fact may require large organizations to create independent units to pursue new technologies, as IBM did in developing its PC.

3. Markets that don’t exist can’t be analyzed. Christensen recommends that companies embrace agnostic marketing. This is the explicit assumption that no one—not company personnel, not the company’s customers—can know whether, how, or in what quantities a disruptive product can or will be used before they have experienced using it.

4. An organization’s capabilities define its disabilities.

5. Technology supply may not equal market demand. Some products offer a greater degree of sophistication than the market requires. For example, developers of accounting software for small businesses overshot the functionality required by the market, thus creating an opportunity for a disruptive software technology that provided adequate, not superior, functionality and was simple and more convenient to use. This was the opportunity seized by Scott Cook, developer of Quicken and QuickBooks.

Global E-Commerce (1 of 2)

E-commerce is the general exchange of goods and services using the Internet or a similar online network as a marketing channel.

$1.3 trillion market

In 2014, China surpassed the U.S. as the world’s largest e-commerce market due in part to smartphone shopping. In 2016, Chinese online retail sales were $750 billion.

Between 2003 and 2014, the number of Internet users in China increased from 68 million to 640 million; 600 million + Chinese shop online; Alibaba and JD.com dominate.

Online retail in Western Europe will grow at a C A G R of 11.3% between 2017-2022; By 2018, 85% of European mobile phone owners access the Internet at least weekly.

Global E-Commerce (2 of 2)

Divided into three broad categories:

Business to Business (B2B) largest share of the Internet economy

Business to Consumer (B2C) - i Tunes

Consumer to Consumer (Peer to peer) -eBay

Web Sites

Promotion sites: marketing communications

Content sites: news and entertainment; support P R

Transaction sites: online retail operations

Web sites can function as all three

Can be categorized by content and audience focus

International students look at college web sites for study abroad

Pandora serves only American listeners

Deezer, a French music service, is in 160 countries

iTunes & Netflix are now in many countries

Web sites can also be categorized in terms of content and audience focus. For example, international students at your college or university may have learned about your school via the Internet, even though home-country prospective students constitute the primary target audience for the Web site.

Similarly, Pandora, the online music service, serves only American listeners; Deezer, the French online music-streaming company, is operational in 160 countries. Prior to 2015, Deezer was not available in the United States. Why? For one thing, international copyright laws make it difficult to license performance rights for songs. However, in 2015, Deezer launched a partnership with hi-fi marketers Sonos and Bose, making Deezer Elite available for U.S. customers. As former Pandora CEO Joe Kennedy once remarked, “The good news is that the Internet is global, but the bad news is that copyright law is country by country.” Apple’s iTunes Store began as a U.S.-only retailer. During the next decade, the service was rolled out in dozens of countries. Netflix, the online movie distributor, has evolved from domestic to international in a similar way.

Internet as a Communications Tool

Products not viable for Internet sales or firms limit sales to support off-line sales

Lack of infrastructure

Cost of e-commerce site can be $20-$30 million

Some product-specific factors may limit online sales

Some products are inherently not suitable candidates for sale via the Internet; for example, McDonald’s doesn’t sell hamburgers from its Web site. In addition, some global marketers make the strategic decision to establish a presence on the Web without offering transaction opportunities, even though the product could be sold that way. Instead, such companies limit their Web activities to promotion and information in support of offline retail distribution channels.

Companies may pursue this strategy for several reasons. First, they may lack the infrastructure necessary to process orders from individual customers. Second, it can cost anywhere from $20 million to $30 million to establish a fully functioning e-commerce site. Other, product-specific factors may also underlie the decision to forgo Web-based sales. The Web site for Godin Guitars, for example, provides a great deal of product information and a directory of the company’s worldwide dealer network. But company founder Robert Godin believes that the best way for a person to select a guitar is to play one, and that requires a visit to a music store.

Internet Retail Sales

U.S online retail sales over $400 billion in 2017, including orders from abroad

Companies like A&F, Saks, Timberland, and Coach trying to attract foreign buyers

Strong U.S. dollar has Americans ordering from abroad

Delivery companies like FedEx, U P S, & D H L are acquiring & partnering with other firms from seamless delivery

Online retail in the United States passed the $400 billion mark in 2017, including orders from abroad. Abercrombie & Fitch, Aéropostale, J. Crew, Macy’s, Timberland, and Saks Fifth Avenue are just some of the U.S. retailers targeting foreign buyers by adding international shipping services to their Web sites. The dollar’s strength, which translates into higher prices for shoppers paying in euros or other currencies, has prompted more U.S. consumers to order from abroad. Delivery giants FedEx, UPS, and DHL are making key acquisitions and partnering with other firms to help ensure seamless, frictionless ordering and delivery experiences for online shoppers.

The Long Tail

Use of efficient economics of online retail to aggregate slow-selling products

eBay, Amazon.com., Netflix, i Tunes

“…The Long Tail is really about the economics of abundance…what happens when the bottlenecks that stand between supply and demand in our culture start to disappear and everything becomes available to everyone…These millions of fringe sales are an efficient, cost-effective business…hits and niches are on equal footing.”

Chris Anderson, Author and Editor of Wired

One of the most interesting aspects of the digital revolution has been noted by Chris Anderson, the editor of Wired magazine and author of The Long Tail. The title of Anderson’s book refers to the use of the efficient economics of online retail to aggregate a large number of relatively slow-selling products. The Long Tail helps explain the success of eBay, Amazon.com, Netflix, and iTunes, all of which offer far more variety and choice than traditional retailers can. As Anderson explains, “The story of the Long Tail is really about the economics of abundance—what happens when the bottlenecks that stand between supply and demand in our culture start to disappear and everything becomes available to everyone.” Anderson notes that “below-the-radar” products—for example, obscure books, movies, and music—are driving revenues at e-commerce merchants such as Amazon.com, Netflix, and iTunes. He says, “These millions of fringe sales are an efficient,

cost-effective business. . . . For the first time in history, hits and niches are on equal economic footing.

Web Site Design

Internet potential requires using interactive media

Key issues

Arranging payment-credit card usage rate, fraud, postal money order, or bank check

Localizing sites-reflect local culture, language, aesthetics

Addressing privacy issues-E U laws more stringent

Setting up distribution-local sales tax issues

A critical first step is registering a country-specific domain name. Thus, Amazon.com has a family of different domain names, one for each country in which it operates. Although it is certainly possible for European consumers to browse Amazon.com’s U.S. site, they may prefer a direct link to a site with a local domain name.

While registering a “.com” domain name is a relatively straightforward procedure in the United States, requirements can vary elsewhere. In some countries, a company must establish a legal entity before it can register a site with a local domain-name extension. Cybersquatting—the practice of registering a particular domain name for the express purpose of reselling it to the company that should rightfully use it—is also a problem. Avon, Panasonic, and Starbucks are some of the companies that have been victims of cybersquatting.

Payment can be another problem; in some countries, including China, credit card use is low. In such situations, e-commerce operators must arrange payment by bank check or postal money order; cash on delivery is also an option. Another issue is credit card fraud; Indonesia, Russia, Croatia, and Bosnia are among the countries where fraud is rampant. Extra identity measures may have to be taken, such as requiring buyers to fax the actual credit card they are using as well as photo IDs.

Ideally, each country-specific site should reflect local culture, language usage, customs, and aesthetic preferences. Logos and other elements of brand identity should be included on the site, with adjustments for color preferences and meaning differences when necessary. For example, the shopping cart icon is familiar to online shoppers in the United States and many European countries. However, online companies must determine whether that icon is appropriate in all country markets. Subtle but important language differences can also occur even in English-speaking countries. For example, www.figleaves.com and www.figleaves.com/uk are, respectively, the American and British Web addresses for a UK-based lingerie marketer. However, the U.S. site refers to “panties,” whereas the UK site has a listing for “briefs.” When two or more different languages are involved, translators should be used to ensure that copy reflects current language usage.

Another critical global e-commerce issue is privacy. The EU’s regulations are among the world’s strictest; companies are limited in terms of how much personal information—a customer’s age, marital status, and buying patterns, for example—can be gathered and how long the information can be retained. In 2012, EU Justice Commissioner Viviane Reding announced an overhaul of the EU’s data collection rules (see Exhibit 15-5). The rules will apply to companies based outside the EU—Apple, Google, and Facebook, for example—if they offer services to EU citizens. Customers living in the EU have the “right to be forgotten”—that is, they can request to have their personal data deleted.

A number of issues are related to physical distribution decisions. As online sales increase in a particular country or region, it may be necessary to establish local warehouse facilities to speed delivery and reduce shipping costs. In the United States, such a step has tax implications, meaning that the marketer may have to collect sales tax. To allay consumer concerns about ordering merchandise online, companies may opt to waive shipping fees and offer free returns and money-back guarantees.

Broadband

Has sufficient capacity to carry multiple voice, data, or video channels simultaneously

Bandwidth determines the range of frequencies that can pass over a transmission channel

South Korea has the world’s fastest Internet speeds

Streaming audio and video

Apple Music, Pandora, Spotify, Tidal, i Tunes, Netflix, YouTube

48 million players on Xbox live worldwide

A broadband communication system is one that has sufficient capacity to carry multiple voice, data, or video channels simultaneously. Bandwidth determines the range of frequencies that can pass over a given transmission channel. For example, traditional telephone networks offered quite limited bandwidth compared with state-of-the-art digital telephone networks. As a result, a traditional telephone call sounds “lo-fi.” Bandwidth is measured in bits-per-second (Bps); a full page of English text is about 16,000 bits. For example, a 56Kbs modem connected to a conventional telephone line can move 16,000 bits per second; by comparison, a broadband Internet connection that utilizes coaxial cable can move up to 10 gigabits per second.

South Korea currently boasts the world’s fastest average Internet speeds. However, technology upgrades currently underway will mean even higher speeds: The government has declared that, by the end of 2012, every Korean household will have a one-gigabit Internet connection. As Choi Gwang-gi, the engineer overseeing the project, explains, “A lot of Koreans are early adopters, and we thought we needed to be prepared for things like 3D TV, Internet protocol TV, high-definition multimedia, gaming and videoconferencing, ultra-high definition TV, and cloud computing.” Consumers won’t be the only beneficiaries of the upgrade; corporations will also harness gigabit Internet connections for high-definition global video conferencing and other applications.

Why are policymakers following the broadband race so closely? Broadband offers multiple marketing opportunities to companies in a variety of industries. It also allows Internet users to access streaming media such as streaming audio and streaming video. Personalized radio services such as Apple Music, Pandora, Spotify, and Tidal allow users to list their favorite artists and songs; Pandora then uses a proprietary technology called the Music Genome Project to make recommendations for new music that are similar to a listener’s current favorites. Streaming media are also having a profound impact on the television industry, with Amazon.com, iTunes, Netflix, YouTube, and other services offering movie and TV show downloads and streaming as viewing options.

Cloud Computing

Cloud Software will not be installed on a computer hard drive but through a web browser

Google’s Chrome O S is designed for the cloud

Amazon Web Service provides cloud-computing resources for business

A W S will be used by thousands of companies like Netflix and Foursquare instead of running their own data centers

Growth rate of 25% over next several years

In the preceding section, cloud computing was referenced as one driver of higher broadband speeds. This term refers to next-generation computing that is performed “in the cloud.” With this approach, rather than installing software such as iTunes or Microsoft Office on a computer hard drive, such applications are delivered through a Web browser. Cloud computing means that archives—including music and movie files, photos, and documents—are stored on massive remote

servers and data centers rather than on individual users’ computers. Computer files can be accessed remotely, via the Internet, from any location and from any computer.

Google’s Chrome operating system, which has been described as “a new computing paradigm,” is designed to exploit the opportunities of cloud computing. Amazon.com’s Amazon Web Services (AWS) provides cloud-computing resources for businesses. AWS is a variation on the outsourcing trend that was discussed in Chapter 8; Netflix, Foursquare, and thousands of other companies use the service instead of running their own data centers. Cloud computing is expected to grow at an annual torrid pace of 25 percent over the next several years.

Smartphones

1.5 billion shipped in 2017

Conventional cell phones (feature phones) allow texting via short message service (S M S)

S M S will be integrated with other digital channels like interactive digital TV, the Internet, and email.

Smartphones have features that rival computers

Smartphones have much greater functionality than feature phones, incorporating many of the capabilities of computers. Case in point: Apple’s wildly successful iPhone comes equipped with a full-blown version of the company’s iOS and Web browser. Worldwide, smartphones represent about one-fourth of all cell phone sales. The popularity of smartphones is due, in part, to the availability of apps such as Action Movie FX, Angry Birds, Pinterest, and Uber. In 2013, Apple’s iTunes store sold its 50 billionth iPhone app. Apple commemorated the milestone with a “50 Billion Apps Download Promotion”: The lucky person who downloaded the 50 billionth app won a $10,000 gift card—to be redeemed on iTunes, of course! Many of Apple’s rivals use Android, a mobile operating system developed by Google.

Mobile Advertising and Mobile Commerce

Terms for delivering advertising messages and conducting product and service transactions using cell phones

Use Wi-Fi to access the Internet

Cellular data plans via 3G, 4G networks

Mobile ad spending: $1 billion in 2007; $43 billion in 2014; over $100 billion in 2016

G P S on phones led to location-based advertising

Mobile advertising and mobile commerce (m-commerce) are terms that describe the use of cell phones as channels for delivering advertising messages and conducting product and service transactions. Most smartphone and tablet users can access the Internet via Wi-Fi, a type of wireless network; in addition, cell phone service providers typically offer data plans that allow Internet connections via 3G or 4G networks. This allows Apple, AOL, Crisp Media, Google, Medialets, Mobext, and other companies to offer clients mobile ad services. For example, Unilever, Nissan, and other companies use Apple’s iAd service to place interactive ads inside iPhone and iPod Apps.

Mobile search and mobile display advertising are growing in importance as consumers migrate away from their desktop computers and spend more time on mobile devices. In fact, Google recently announced that it was tweaking its vaunted search algorithms to favor “mobile-friendly sites” with text that can be read on small screens and content that fits the screen. Web sites that are not optimized for mobile use will be demoted in the search process.

This capability has created new opportunities for location-based mobile platforms, such as Foursquare and Uber. The popularity of GPS-equipped mobile devices is also driving interest in location-based advertising. For example, Alcatel-Lucent, the French telecommunications equipment manufacturer, has launched a service that sends tailored text messages when smartphone users are near a specific location, such as a store, hotel, or restaurant. The service, which is managed by San Francisco–based 1020 Placecast, provides addresses and telephone numbers of the businesses and can also provide links to coupons or other types of sales promotions. Users “opt in” by signing up to receive ads.

Mobile Commerce and Autonomous Mobility

Bluetooth-uses less power than Wi-Fi, works well with cell phones, and covers shorter distances than Wi-Fi.

The Internet of Things is coming into being as refrigerators, lighting systems, and microwave ovens are connected to the Internet.

As Internet-connected cars become reality, automakers are creating apps that enable drivers to check on their cars.

With self-driving and electric cars coming to market soon, most automakers have research facilities in Silicon Valley.

Bluetooth mobile communication technology has the advantage of consuming less power than Wi-Fi. This makes Bluetooth well suited for use with cell phones. However, Bluetooth works over shorter distances than Wi-Fi. Both Bluetooth and Wi-Fi technology are being incorporated into automobiles and home appliances such as refrigerators, lighting systems, and microwave ovens. In short, the “Internet of things” is rapidly coming into being.

Likewise, the Internet-connected car is becoming a reality as automakers rush to incorporate technology into their vehicles. Indeed, many drivers view their cars as the “ultimate mobile device” that is an extension of their digital selves. Apps now permit drivers to interact with their vehicles in new ways. For example, several automakers have developed Apple Watch apps that enable drivers to remotely check, say, whether the doors are locked and the windows are up. Electric car owners

can also check whether their cars’ batteries are fully charged. With a new era of self-driving “robocars,” electric vehicles, and shared-mobility services rapidly approaching, most global automakers and suppliers have established research laboratories in California’s Silicon Valley tech hub. Tesla seized the industry lead in 2015 with the launch of Autopilot functions that include Autosteer.

Mobile Music

i Tunes downloads in 2006 reached 1 billion; cumulative total of 25 billion downloads today

Market for paid downloads has matured due to streaming services like Sportify and Pandora.

Mobile Gaming revenues of $17.6 billion in 2015

Cloud-based music services like i Tunes Match or Google Play offer “music lockers” for access from multiple devices

The market for paid downloads matured rapidly, however, as consumers opted for streaming services such as Spotify and Pandora. According to figures compiled by the International Federation for the Phonographic Industry (IFPI), annual global download revenues peaked in 2012 at approximately $4 billion. Streaming revenues totaled about $3.9 billion in 2016 and, with streaming’s robust growth as the driver, global recorded music revenues rebounded to $15.7 billion.

Mobile Gaming & Payments (1 of 2)

Mobile gaming revenue was $3.77 billion in 2010; over $100 billion in 2017.

Pokémon Go with augmented reality became the most downloaded app in the U.S., Australia, and New Zealand, then launched into Japan, world’s largest market for mobile games in 2016.

Asia-Pacific has more than half of the world market; China’s 600 million players spend over $25 billion a year.

Some games, including Pokémon GO, are available on a free-to-play basis; others, such as Super Mario Run, are available for free on a trial basis while the full game costs several dollars. How can a marketer monetize a free game? For a small fee, free games can be upgraded to premium versions. In addition, many games offer users the opportunity to make in-app purchases of virtual goods. Game of War is a case in point: It generates $1 million in revenue every day for parent company Machine Zone. Similarly, Honor of Kings is available as a free download, but players spend freely to customize their characters. Indeed, the word “free” can be misleading, as network operators typically charge fees for downloading the games.

In the past few years, online gaming has morphed into a spectator sport. In fact, the term e-sports has been coined to describe video game competitions in which professional gamers and teams compete for cash prizes that can reach $10 million. E-sports revenues total nearly $700 million annually; the industry’s business model includes money from media rights, advertising, sponsorships, and ticket sales. Fans of e-sports—some 200 million of them—log 6 billion viewing hours each year.

Mobile payments—that is, payments made via smartphones—received a major boost when Apple launched Apple Pay in conjunction with the iPhone 6 in 2014. To make these payments, users first link their smartphones to their bank accounts; a technology called near-field communication (NFC) then allows users to “swipe” their phones near a point-of-sale terminal to complete a purchase.

Mobile Gaming & Payments (2 of 2)

E-sport: video game competitions where pro gamers compete for cash prizes; 200 million fans watch 6 billion hours a year in an industry valued at $700 million revenue.

Mobile payments exploded with Apple Pay with i Phone 6 in 2014; near-field communication allows users to connect smartphones to their bank accounts.

Streaming Video

YouTube

1.3 billion people watch daily

5 billion videos viewed daily

300 hours of content uploaded every minute

Global penetration of broadband Internet service has fueled the growing popularity of global digital video services such as Facebook, Instagram, Twitter, Netflix, and Meerkat

Streaming Video

Global penetration of broadband Internet service has fueled the growing popularity of global digital video services such as YouTube. Other players operating in this space include Facebook, Instagram, Twitter, and, as discussed in the “Global Startup” sidebar, Netflix. One recent innovation is Meerkat, a streaming app that allows users to stream live video using their Twitter accounts. Some industry observers predict that Meerkat and similar apps will lead to major changes in the way people consume news and live events such as sports.

Internet Phone Service

The “next big thing” for the telecommunications industry

V o I P-Voice over Internet Protocol

Has the potential to render the current telecommunications infrastructure obsolete

Currently only accounts for a small percentage of total global calling

Skype acquired by Microsoft for $8.6 billion in 2011

Thanks to a technology known as voice over Internet protocol (VoIP), the human voice can be digitized and broken into data packets that can be transmitted over the Internet and converted back into normal speech. If a call is placed to a conventional phone, it must be switched from the Internet to a traditional phone network; local telephone companies generally own the lines into residences and businesses. However, if the call is made between two subscribers to the same VoIP provider, it bypasses the traditional network altogether.

Digital Books & Electronic Reading Devices and Wearables

Amazon’s Kindle, Barnes & Nobles’ Nook, and Apple’s iPad may help newspapers & magazines

Textbooks are a huge market opportunity for publishers

Piracy is a concern for many authors

Wearables like Google Glass & Apple Watch are reaching a tipping point in fashion and sales

6 million units in 2013

113 million units in 2018

The digital revolution has had a dramatic impact on traditional print media such as newspapers and magazines. Publishers are experiencing dramatic downturns in readership as people spend more time online. At the same time, the global recession has forced many companies to cut back on print advertising. Caught in a squeeze, magazines are folding and newspapers are declaring bankruptcy. However, electronic readers (e-readers), such as Amazon.com’s Kindle, Barnes & Noble’s Nook, and Apple’s iPad, may help lure subscribers back.

Wearables

When supermodel Karolina Kurkova attended the Metropolitan Museum of Art’s Met Gala in 2016, she made quite a fashion statement. Her “cognitive dress,” by high-end womenswear brand Marchesa, was connected to IBM’s Watson supercomputer. When people attending the gala tweeted, the dress changed colors! Some observers noted that the event marked a moment when wearable technology including fitness bands, the Apple Watch, and other products and brands—reached a tipping point in terms of fashionability and sales growth. Technology research firm IDC predicts that annual sales of such products will reach 113 million units by 2018, up from 6 million units in 2013.

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