Diffusion of 3G Products and Technologies - Essay Example

Diffusion of 3G products and technologies Abstract New products are innovated in the technology sphere with higher capabilities using internet. The market penetration and success of these innovations can be assessed by understanding diffusion theory, its models and further co-relating it to the latest addition of 3G (Third Generation) technology and products. The diffusion process of 3G technology products is studied and analyzed with data from secondary sources. Its driving forces, the potential adopters, the communication channels for advertising, marketing and sales, over a particular period are identified from the secondary sources and further analyzed based on the diffusion theory. It is observed that 3G technology has evolved over the existing enhanced 2G and with this market as the base, the potential for 3G sales will be analyzed by using the data identified from the diffusion theory. Table of contents – 1. Introduction 2. Diffusion theory and 3G 3. Driving factors for 3G products sales 4. Diffusion models and diffusion curve 5. Analysis 6. Conclusion 1. Introduction The product or technology that is a new innovation and has to be marketed successfully needs effective planning for developing, marketing and sales and enhancements to reach out to the potential customers and further find a place for itself in the market, thus avoiding failure. This can be deduced from the popular theory of diffusion of products and technology where the process is understood in general and the technology and product’s trends and their market is identified by studying the driving factors of the market with reference to the product. Key elements like the communication channels and the market segment for the product over a certain period of time are discussed and used to assess the success of the product in the market and also the potential enhancements that can be made are traced. The two major diffusion models by Rogers and Bass are discussed and used to understand the diffusion process of 3G technology products. The advantages and the limitations are analyzed for the technology or products and the future potential for its success is predicted. 2. Diffusion theory and 3G The process of diffusion of an innovation is primarily concerned with the communication of its characteristic traits to the potential market segment over a certain period of time. It is related to the extent of penetration of the product in a certain time and the specific channels of communication adopted after identifying the characteristics of the market segment. The success of any new product or innovation is assessed initially before the innovation itself by identifying the various factors that influence its success in future. Two basic models for understanding the diffusion process are Rogers model and Bass model. While both these models provide an adoption curve where interpersonal influences are the major learning factors, Rogers model is based on the normal distribution curve with a two stage diffusion process of categorizing the adopting market segment and further using the moving target market approach over the identified adopting segment to gain a deeper penetration. Hence, Rogers model does not predict the innovator and early adopter relation and also cannot be implemented until the diffusion process is complete. Bass model on the other hand, stresses on actually predicting the shape of the adoption curve or the time and magnitude of the peak of the curve, thus giving a clear idea of the success of the innovation as the role of the innovators is represented better than with Rogers model (Wright, Charlett, 1995: 7). Bass model as a tool is used to describe the spread of innovation in a market and also helps predict the sales over a period of time, based on the external and internal influences on the innovation. The Bass formula for predicting the market penetration of an innovation uses the three parameters- which are the total actual users of the innovation, the parameter representing the probability of users adopting due to external factors like the advertising for mass market coverage, etc, also known as coefficient of innovation and the third parameter which is known as the coefficient of imitation which is based on word-of-mouth publicity and other influences by existing users (Wright, Charlett, 1995: 7). Various other tools are also used to describe and interpret the rates of diffusion of new technologies or innovations across various industries. However, Bass model is the preferred tool over Rogers model and others due to its predictive characteristics. As firms need to assess the market potential of an innovation before investing, these tools, particularly the Bass model finds wide application for predicting the diffusion rate of the innovation. Also, as a firm competes in the market for a strong hold with its innovation, its promotional activity for its market penetration is of importance and determines the interconnectivity between its communication channels and the users using these channels to learn and advertise, as is the case with mobile communication technology. The mobile communication industry has been an evolving one and constant innovations have seen the light of the day with phenomenal success and also the market penetration is identified to be very high, with the use of external influences like mass media advertising and internal influences like word-of-mouth through social networking and other social interactions. The presence of the innovation in the market can be assessed by the existing users of the technology, the external and internal influences and the same can be used to understand the present market for Third Generation (3G) technology. 3G technologies offers services with a basic goal of mobile communication standardization (Karjaluato, 2006: 4) and after ‘2G’s killer applications like the text messaging, ring tones and logo downloads, 3G services like internet browsing, email, instant messaging, video-conferencing, digital television, location-based services, cameras and personal time management systems are more in demand, particularly by users on the move’ (Karjaluato, 2006: 2). To cater to the 3G market, the firms are required to ‘understand the needs of the users by understanding the mobile communication system and interpret the influences on the user in the situation and social-spatial context with reference to open parameters like user, place, process and time’ (Karjaluato, 2006: 4). The 2G market maturity and the sustained innovation in the 2.5G (GPRS) and 2.75G (EDGE) can be considered as the major factors resulting in the demand for 3G services, particularly by the users on the move. Also, there is the vested interest of the telecom operators and the large mobile communication equipment manufacturers in pushing the 3G innovation with huge investments in licenses and development of new infrastructures. This exercise has led to the speedy rollout of 3G in the short and medium terms (Dahl, Dalum, Pederson, 2005: 9-10). It is observed that 3G is a disruptive entrant into the mobile telephony and the crisis in Information and Communication Technology (ICT) in 2000 and the spectrum auction in Europe in 2001 have fuelled its diffusion into the market (Dahl, Dalum, Pederson, 2005: 8). However, there have been delays in its rollout like with 2G and there is an ‘exaggerated optimism’ and pushing of the technology ultimately ignoring the user needs to an extent. 3G is finding potential disrupters in the form of low-cost, high-speed, short-distance Wireless Internet Access systems (WLAN) (Dahl, Dalum, Pederson, 2005: 5) and is increasingly dependent on internal influences after initial dependence on external influences as when pushed. As the key elements in diffusion of a product or technology include time, communication channels and the social system along with the innovation itself, the reasons for the 3G technology rollout, the time for the same, the channels for communication and the social system where the users and the firm are increasingly taking advantage of social networking and need for faster communication and while on the move all influence the diffusion of the 3G innovation services and hence determine the life cycle of the technology which in turn determines the life cycle of the products and finally determines the life cycle of the mobile communication industry as a whole. The upside of this innovation is that the fact that it is an evolutionary technology based on existing 2G makes it indispensable as the existing users of 2G are more comfortable with the technology and can find many innovator adopters along with early adopters due to increase in the need for high speed data access on the move. Also, the standardization of the technology has greater advantage as there is uniformity in services and access along with pricing across the globe. However, the disruptive innovations like WLAN, WiFi, etc. which operate on open communication standards and are much faster compared to 3G communication when accessed near terminals also need to be considered when assessing the diffusion of 3G technology. 3. Driving factors for 3G products or technology sales – There are various driving factors for the 3G innovation and adoption in the mobile market. Different users and their needs, the services provided, the regulatory bodies governing the markets in different due to the presence of different standards in the existing infrastructure for 2G and 2.5G all need to be considered to understand the holistic picture in underpinning the driving factors of 3G mobile communication. There is a need to understand the holistic picture and context based innovation and adoption to understand the driving forces for 3G in each different context. Infrastructure- With 2G, text messaging service has grown rapidly and resulted in the evolution of 2.5G and 2.75G technologies which involve data communication. New standards for enhanced 2G evolved as a result and enabled WAP and other data traffic communication. The demand for data communication increased the need for technology innovation and resulted in 3G innovation. With the increased data communication, faster access and also access on the move are seen as the key driving forces of 3G. As 3G innovation increases, adoption also increases based on the availability and reachability of aggregate infrastructure bundled with handset, operating system, etc. License and bandwidth - Also, with 2G networks at their peak and becoming crowded (Dahl, Dalum, Pederson, 2005: 8-10) and the European countries auctioning their bandwidth in 2000-2001, any major players in the industry entered the market for 3G to provide high-speed data access to private and business users. The mobile service providers have invested huge amounts in this technology and are to an extent pushing the technology (Burns, 2000: 2) to realize their revenue targets against their investments. Its is observed that sales of 3G services are primarily focussed on the vision of adopting enhanced technology rather than giving priority to user needs (Dahl, Dalum, Pederson, 2005: 8). Standardization- Although the 3G innovation is evolutionary based on the existing 2G technology, there exist localized patterns of diffusion of innovation. It is observed that China had pushed 3G to cater to the increasing number of users and need for bandwidth demand as a consequence and in the process has overlooked infrastructure incompatibility of existing 2G and new 3G implementations. What needs to be done in such cases is that the infrastructure has to be developed based on the innovation being implemented. However, 3G’s main focus of innovation has been standardization of technology. If we study the relation between the diffusion rate and the user needs, faster data access and access on the move are the primary factors for the evolution of 3G innovation. Since different protocols are sued in different locations, particularly in the three major regions, which are Latin America, Asia-Pacific and Europe (Lehrer, Dholakia, Kshetri, n.d.: 2), 3G’s diffusion of innovation will depend on the compatibility of standards of communication in these regions and the adoption of the same by the different service providers. Also, since the existing networks of 2G are already present extensively and also offer language based services, it is of seen that the standardization of networks becomes imperative. Rivalry- Often, the rivalry between the various service providers and the social network they operate and provide services fuels new innovations and aggressive diffusion activity by way of reduced costs, increased number of services, etc. It is to be seen how the high rivalry between UK and Germany in the 3G market segment results in development of new services or even new technology. Consumer- The diffusion of innovation depends primarily on the services catering to the user needs and their adoption by the users. Services developed based in user preferences, income, cost, etc are important driving factors for the diffusion of 3G (Lehrer, Dholakia, Kshetri, n.d.: 2). Among user preferences, the superiority of new technology to existing technology drives the users initially to adopt the innovation. Further, the availability of supporting infrastructure is also preferred service for the adoption of the innovation by the user (Jan, Ping, n.d.: 2). As the different vendors for 3G work based on an agreed business model, a bundled or aggregate service is provided to the user, thus resulting in infrastructure innovation. This in turn results in continuous changes and enhancements in the properties of innovation which lowers the risk of adoption and increases stability of the technology. This lowering of risk of adoption of newer technology and its stability in the market place drives the diffusion rate further. Also, the innovators (Wright, Charlett, 1995: 5) who initially adopt the technology though small in number trigger the learning of technology and the reduction of costs and complexity, which also influence peer groups in social interactions, thus enabling diffusion into early adopters and late adopters. Peer groups are observed to adopt an innovation for the sheer compulsion of playing it safe by adopting tested technologies. This category of users is more in number. Social networking of providers, users and institutions greatly determines the diffusion of innovation and is seen as a complex process of interconnectivity and interdependence. These three different actors or stakeholders of the industry and their inter-related actions determine the evolvement and diffusion on innovation. 4. Diffusion models an S-Curve – Bass diffusion model is used to predict the diffusion of 3G innovation. The mobile telecommunication industry life cycle is dependent on the product life cycle which in turn depends on the technology life cycle. The 3G technology life cycle has different features like compatibility, user needs, applications, etc, which determine the evolution of technology and hence the industry, which follows an S-curve over time. The industry life cycle model has three phases, and the development trajectory is related to the technology life cycle. According to Bass model, the number of adopters of an innovation at nay time is predicted b the three parameters, the number of actual users, coefficient of innovation and coefficient of imitation. These three parameters can be predicted from the three phases of the mobile telecommunication industry life cycle. While the coefficient of innovation is also the external influence in the market, the coefficient of imitation is observed to be the internal influence of the user group. Relating the actual number of users to the fluid phase of innovation, where a critical mass of users is to be achieved for the diffusion of the innovation into the market, it can be seen that the driving factor for these users is the need for the enhanced capabilities of the innovation and these are ready to risk the instability and experimental nature of the quality and nature of services being provided (Dahl, Dalum, Pedersen, 2005: 3). From the S-curve, it can be predicted that in the fluid phase that lasts for a short period of time of 18-24 months, the diffusion of innovation is about 10% - 20% of the total estimated market potential. In this stage, there are a higher number of innovations with fewer users. Also the cost is high (Sharma, 2006: 27). As the development trajectory progresses to the second stage, called transitional stage, a dominant innovation emerges and which is already tested by a small group of users. Stability of the technology increases and uncertainty decreases with the rate of product innovation decreasing and process innovation increasing. In this stage, the production increases and scale of business grows drastically due to various factors like reduced costs, high performance, increased learning and influencing of peer group and hence diffusion shifts to the early adopters who are the majority of the target segment. According to Chetan, these constitute 80%-90% of the target user segment (Sharma, 2006: 28). The third phase of technology or industry life cycle is called the mature phase where rate of innovation fades and innovation becomes standardized. In this stage, production becomes more efficient and integrated and there is an increased activity to penetrate the market to establish monopoly. In this stage, the late adopters and sometimes the laggards usually adopt the innovation either because of word-of-mouth or due to the influence of those already using. Hence, based on the S-curve, the Bass model can be applied to predict the diffusion of 3G innovation. 5. Analysis- The Bass model of diffusion theory used it predicting the diffusion of 3G technology is helpful to an extent where it sis observed that the majority if the adopters or users of 3G are during the second or long-term diffusion period which is typically 4-5years for mobile telecommunication industry. However, the diffusion of 3G innovation has to successfully transit fro the initial instable fluid stage with limited but crucial users into the second and highly user concentrated stage, where it gains hold in the market. Hence, the success of the innovation is determined at the end of the fluid stage where a certain critical mass of users is needed to adopt the innovation, which is the innovator group. 6. Conclusion- It is observed that the short term diffusion of an innovation determines the success of the product or technology and the long-term diffusion rate determines the innovation establishing its hold ion the market. Also, Bass model applied to predict the rate of diffusion of 3G innovation can be generalised to the mobile industry where the user needs and patterns are almost the same across the globe. As the standardization of 3G is achieved, the diffusion rate further increases with high stability and reduced costs. References – 1. Wright, Malcolm, Charlett, Don, “New Product Diffusion Models in Marketing: An Assessment of Two Approaches”, Marketing Bulletin (1995), Article 4. 2. Karjaluato, Heikki, “An Investigation of Third Generation (3G) Mobile Technologies and Services”, Contemporary Management Research, September 2006, Vol. 2, No. 2. 3. Dahl, Michael, Dalum, Bent, Pederson, O.R. Christian, “Technological Change and the Life cycle of the Mobile Communication Industry- Will ‘Linearity’ Continue to Prevail?”, CIFT Workshop on Beyond 3G/4G, May 07th, 2005. 4. Burns, John, “3G Mobile Overview”, Aegis Systems Limited, April 18th, 2000. 5. Lehrer, Mark, Dholakia, Nikhilesh, Kshetri, Nir (n.d), “National Sources of Leadership in 3G m-Business Applications: A Framework and Evidence from Three Global Regions”. 6. Jan, Damsgaard, Ping, Gao (n.d) “Mobile Telecommunications Market Innovation: The Transformation From 2G to 3G”, Research conducted by Mobiconomy Project, Supported by Danish Research Agency, Grant No. 2054-03-0004. 7. Sharma, Chetan, “3G: Hitting the Mass Market”, Published by WIRELESSWORLD, Jan-Feb 2006. Read More