VERIZON, AT&T, AND SKYPE: WHICH DIGITAL STRATEGY WILL PREVAIL?

Verizon and AT&T are the two largest telecommunications companies in the United States. In addition to voice communication, customers use their networks to surf the Internet; send e-mail, text, and video messages; share photos; watch videos and high-definition TV; and conduct videoconferences around the globe. All of these products and services are digital. Competition in this industry is exceptionally intense and fast-changing. Both companies have tried to prevail by refining their wireless, landline, and high-speed Internet networks and expanding the range of products, applications, and services available to customers. Wireless services are the most profitable, and smartphone customers are the most desirable of all because they typically pay higher monthly rates for wireless data service plans. (Each iPhone owner pays an average of more than $90 per month to AT&T.) For a number of years, Verizon tried to blunt competition by making heavy technology investments in both its landline and wireless networks. Its wireless network was considered the most far-reaching and reliable in the United States. AT&T took a different path, partnering with other companies to capitalize on their technology innovations. The company contracted with Apple Computer to be the exclusive network for its iPhone. The iPhones streamlined design, touch screen, exclusive access to the Apple iTunes music service, and 500,000 downloadable applications made it an instant hit. Since its debut in 2007, the iPhone was AT&Ts primary growth engine. Now thats all changing. In February 2011, Verizon was allowed to sell a version of the Apple iPhone that worked on its wireless network. Verizon further hedged its bets by offering leading-edge smartphones based on Googles highly-popular Android operating system. AT&T countered in March 2011 by announcing its intention to buy TMobile USA, a deal that would make it the largest wireless carrier in the United States. The newly combined company, combining AT&Ts 95.5 million wireless subscribers with T-Mobiles 33.7 million subscribers, would account for 42 percent of all US wireless subscribers. (Verizon has roughly 31 percent.) And it looks like the competitive balance is about to shift again. In May 2011, Microsoft acquired Skype, a service that allows users to make voice and video calls over the Internet for free or for a very low cost. Skypes smartphone app allows mobile users to avoid paying higher fees to wireless carriers. Microsoft will be able to incorporate Skype into its other products, such as its Office productivity programs, Xbox video game system, and Windows Phone 7 mobile operating system, enabling its users to be seamlessly connected at work and at home. Industry analysts predict that the majority of consumers will eventually move from landline telephones or from paying for mobile phone calls by the minute, to communicating over the Internet using services like Skype. People wont need to spend so much on mobile phones o r land lines to make video calls. This will eat into the profits of Verizon and AT&T, which have been able to charge premium rates for their digital communication services.
Sources: Nick Wingfield, Microsoft Dials Up Change Wall Street Journal, May 11, 2011; Jenna Wortham, With Android Phones, Verizon Is in Position to Gain Lost Ground, New York Times, January 6, 2011, and "As Verizons IPhone Sales Begin, Gauging the Effects on AT&T, New York Times, February 9, 2011; Andrew Ross Sorkin, Michael J. De La Merced, and Jenna Wortham, AT&T to Buy T-Mobile USA For $39 Million, New York Times, March 20, 2011; Nick Bilton, "Skype, Even for $8.5 Billion, Could Be a Deal, New York Times, May 10, 2011; and Roger Cheng, For Telecom Firms, Smartphones Rule, Wall Street Journal, July 19, 2010.

Technology Helps Starbucks Find New Ways to Compete Starbucks is the worlds largest specialty coffee retailer, with more than 16,850 coffee shops in about 40 countries. For years, Starbucks has continued to grow throughout the United States and internationally, opening franchises at

an impressive rate. From 2002 to 2007 alone, the company tripled the number of stores it operated worldwide. Starbucks offers a unique experience: high-end specialty coffees and beverages, friendly and knowledgeable servers, and customer-friendly coffee shops. This was a winning formula for many years and enabled Starbucks to charge premium prices. During the economic downturn beginning in 2008 profits plunged. Customers complained that the company had lost its hip, local feel and had become more like a fast-food chain. Many coffee drinkers went in search of cheaper alternatives from McDonalds and Dunkin Donuts for their coffee fixes. Starbucks stock lost over 50 percent by the end of 2008. Major changes were in order. Starbucks used the opportunity to overhaul its business using several different strategies simultaneously. First, the company has revamped its in-store technology and sought to integrate its business processes with wireless technology and the mobile digital platform. Also, rather than copy the practices of competitors, Starbucks pursued a more aggressive product differentiation strategy, intended to emphasize the high quality of its beverages and efficient and helpful customer service. At the same time, however, Starbucks also focused on becoming lean, like many of its competitors, eliminating inefficiency wherever possible. When Starbucks set out to improve its customer experience, it found that more than a third of its customers are active users of smartphones. The company set out to implement several features and improvements that would appeal to this segment of its customer base. First, Starbucks implemented a technology that allows customers to pay using a smartphone app. The app is integrated with the Starbucks Card system, which allows regular customers to pay with a pre-paid and rechargeable card at any Starbucks branch. When customers make a purchase using the app, a cashier scans a bar code displayed on the phone, and the resulting sale is charged to the customers Starbucks Card account. Customers report that paying using this app, available for all major smartphone operating systems, is much faster than traditional forms of payment. Many of Starbucks most loyal customer s regularly spend time using the free Wi-Fi wireless network offered in each store. A majority of these customers also use mobile devices to connect to the in-store Wi-Fi networks. Recognizing this, Starbucks launched what it calls the Starbucks Digital Network, a portal designed specifically for mobile devices as opposed to traditional Web browsers. The site is optimized for all major smartphone operating systems (iOS, Android, and BlackBerry), and responds to the multi-touch capability of devices like the iPad. The Starbucks Digital Network site was developed in partnership with Yahoo and functions as a content portal. Starbucks customers using the site will receive free Wall Street Journal access, select free iTunes downloads, and a wide variety of other content. The site will integrate with Foursquare, a location-based social networking site for mobile devices. This arrangement will allow users to check in and receive award points using Starbucks site. Because Starbucks has the most Foursquare check-ins of any company to date, this feature has been popular with customers. Rather than serve ads on the site, Starbucks has opted to offer the site free of advertising, hoping that striking deals with content providers will make it a profitable venture. Even if the Starbucks Digital Network is not highly profitable, analysts suggest that the site is an effective way for Starbucks to improve its relationship with its most valuable customers and a creative use of the mobile digital platform to enhance customer satisfaction. In addition to revamping their business to better serve the needs of their mobile users, Starbucks has made a concerted effort to become more efficient, reduce waste, and use the time saved to provide better customer service. Starbucks set out to streamline the business processes used in each of its stores so that baristas do not need to bend down to scoop coffee, cutting down on idle time while waiting for coffee to drain, and finding ways

to reduce the amount of time each employee spends making a drink. Starbucks created a 10-person lean team whose job is to travel the country visiting franchises and coaching them in lean techniques made famous by automaker Toyotas production system. Store labor costs Starbucks about $2.5 billion, amounting to 24 percent of its annual revenue. If Starbucks is able to reduce the time each employee spends making a drink, the company can make more drinks with the same number of workers or with fewer workers. Alternatively, Starbucks could use this time savings to give baristas more time to interact with customers and hopefully improve the Starbucks experience. Wireless technology enhanced Starbucks business process simplification effort. Starbucks district managers use the in-store wireless networks to run store operations and to connect to the companys private corporate network and systems. Starbucks district managers were equipped with Wi-Fi enabled laptops for this purpose. Before the in-store wireless networks were implemented, a district manager who oversaw 10 stores had to visit each store, review its operations, develop a list of items on which to follow up, and then drive to a Starbucks regional office to file reports and send e-mail. Instead of running the business from cubicles in regional headquarters, Starbucks district managers can do most of their work sitting at a table in one of the stores they oversee. The time saved from going back and forth to regional offices can be used to observe how employees are serving customers and improve their training. Implementing Wi-Fi technology enabled Starbucks to increase the in-store presence of district managers by 25 percent without adding any extra managers. Dating to 2008, the weakened economy forced Starbucks to close 900 stores, renegotiate some rents, cut prices on some of their big ticket items, and begin offering price-reduced specials, such as a breakfast sandwich and a drink for $3.95. Cost reductions from procedural changes made it possible for Starbucks to offer these lower prices. Major fast-food chains already used these techniques. While some baristas have resisted the changes, and analysts were skeptical that the changes would take hold, Starbucks attributes much of its recent uptick in profits to its efforts to go lean. Starbucks CEO Howard Schultz said that the majority of cost reductions weve achieved come from a new way of operating and serving our customers, and also added that the time and money saved was also allowing the company to improve its customer engagement. By 2011, Starbucks had returned to profitability and continuing growth, with plans to open 500 new stores, in large part because of the success of each these changes.
Sources: Trefis Team, Starbucks Brews Up Smartphone Payment Platform, Forbes, February 7, 2011, http://blogs.forbes.com/greatspeculations/2011/02/17/starbucks-brews-up-smartphone-payment-platform/; Ryan Kim, Starbucks New Portal Designed with Mobile in Mind, Business Week, September 2, 2010; Starbucks Form 10-K for Fiscal Year ended October 3, 2010; Julie Jargon, Latest Starbucks Buzzword: Lean Japanese Techniques, The Wall Street Journal, August 4, 2009.

1. Analyze Starbucks using the competitive forces and value chain models. 2. What is Starbucks business strategy? Assess the role played by technology in this business strategy. 3. How much has technology helped Starbucks compete? Explain your answer. Burton Snowboards Speeds Ahead with Nimble Business Processes When we hear "snowboarding," we tend to think of snow-covered slopes, acrobatic jumps, and high-fly-ing entertainment. We dont usually think of improving business process efficiency. But snowboarding is business for Burton Snowboards, an industry pioneer and market leader. Founded in 1977 by Jake Burton Carpenter and headquartered in Burlington, Vermont, Burton designs, manufactures, and markets equipment, clothing, and

related accessories for snowboarders. Today, Burton is a global enterprise that serves customers in 27 countries and has offices in Japan, Austria, and throughout the United States. At its peak, Burton controlled over 40 percent of the U.S. snowboarding market, and it remains the market leader amidst a growing number of competitors. Now, as Burton continues to expand into a global company, it has a new set of problems: improving its systems for inventory, supply chain, purchasing, and customer service. Stocking and managing inventory is a difficult problem for Burton, whose inventory changes dramatically depending on product line updates and the time of the year. Burton takes feedback from its customers very seriously, and will move quickly to meet their needs. For instance, if a rider tests a jacket and recommends repositioning a zipper, Burtons production line must be able to make this modification quickly and easily. Being dynamic and adaptable is a competitive necessity. Burton has implemented and currently maintains SAP enterprise software, an Oracle database, a SUSE Linux enterprise server, and commodity hardware. Thats a long way from a lone woodworking shop in Vermont. B efore making these upgrades, Burtons information systems were a hodgepodge of inconsistently implemented and underutilized software. The company had to manually allocate product to customers and orders. In 1997, Burton first deployed SAP to begin upgrading its IT landscape, and the company has continued to use SAP since that time. But Burton needed to do more with its systems. Two of Burtons IT goals, established by CIO Kevin Ubert, are to strengthen the foundation, and keep their systems simple, standard, (and) supportable. The foundation Ubert referred to is SAP Enterprise Resource Planning (ERP) software. Rather than buying new software to solve IT problems, Burton decided that it would explore basic functionalities of SAP enterprise resource planning (ERP) software that it had not used yet. Often, Burton could resolve problems this way without adding new layers of complexity to its IT infra- structure, and the company gained proficiency with SAP enterprise software in the process. Burton aims for standard, traditional versions of software whenever possible, realizing that with more bells and whistles comes increased maintenance costs and steeper learning curves to understanding the software. SAP analysts helped Burton identify the top five transactions that were the most critical to its business operations and that needed optimization from a systems standpoint. Burton had to identify unnecessarily complicated processes, backlogs, and design gaps in the flow of its business processes. For example, the available-to-promise process was taking hours to complete. (Available to promise, in response to customer order enquiries, reports on available quantities of a requested product and delivery due dates.) Burton wanted to speed up this process so that its dealers and retail customers would have more precise information about the availability of products not currently in stock. Completing this process now takes 20 minutes. Other processes in need of improvement included the order-to-cash process (receiving and processing customer sales, including order entry, fulfillment, distribution, and payment); the handling of overdue purchase orders in the procure-to-pay process, which consists of all the steps from purchasing goods from a supplier to paying the supplier; and the electronic data interchange (EDI) inventory feed extract transaction. Burton has an assortment of warehouses which pass inventory data to one another automatically using EDI systems. Thousands of items are moving from warehouse to warehouse and thousands of transactions occur each day at each warehouse. Burton found that the process of reporting inventory was inefficient, and both suppliers and customers could not easily determine up-to-date information on which items were in stock at which warehouse. SAP and Burton worked together to improve communication between warehouses and supply chain efficiency.

A management dashboard developed with the help of SAP shows how smoothly a critical process is running at a certain point in time. Information from the dashboard helps Burtons key users discover inconsistencies, gaps, or other areas that they should be monitoring more closely. All of these process improvements proved especially valuable during what Burton calls its reorder season. Burtons dealers place orders to stock their stores well before winter sets in. As consumers start buying the merchandise, the dealers reorder with Burton to replenish their stock or to buy new products. Now they are able to see more timely product availability data, and receive orders more rapidly.
Sources: Lauren Bonneau, How Burton Snowboards Remains as Nimble as Its Riders, SAP InsiderPROFILES, April-June 2011 and Burton Snowboards Inc. Company Profile, Reference for Business, accessed May 2011.

1. Analyze Burton using the value chain and competitive forces models. 2. Why are the business processes described in this case such an important source of competitive advantage for Burton? 3. Explain exactly how these process improvements enhance Burtons operational performance and decision making. Soundbuzz's Music Strategy for Asia-Pacific Soundbuzz is Asias largest online and mobile music company, providing downloadable music and videos, digit rights clearances, and acquisition of licenses from music publishers and recording companies. It operates in 13 markets under its own brand and in partnership with digital music player manufacturers, broadband providers, and telecommunications carriers. Its online music stores are distributed via soundbuzz.com, Creative Technology (bundled with Creatives MP3 players) and Windows Media Player 10. With its headquarters in Singapore, Soundbuzz has more than 750,000 tracks and 500,000 mobile music derivatives in its database, sourced from about 60 local and independent record labels. These include all major labels SONY, BMG, Warner Music, EMI and Universal as well as independents from the U.S., Europe, Australia, and Asia. Soundbuzz content is secured using digital rights management technologies and delivered from its back-end infrastructure in Singapore, consisting of Web servers, license servers, database servers and media servers. A group of four professionals spanning the music, Internet and finance industries founded Soundbuzz in November 1999. Commenting on the launch of the portal, Shabnam Melwani, co-founder and Director said, Soundbuzz.com will not only augment record company sales and promotion methods, but also provide a new platform for unsigned artists to showcase and sell their music.. At that time, the soundbu zz.com site featured an artistupload interface site that allowed musicians and music producers to add their music and information about themselves to the soundbuzz.com music archives. Soon after the launch, in February 2000, Soundbuzz signed a digital music deal with an Internet portal Lycos Asia to distribute its digital music on Lycos Asias networks of localized portals in Singapore, Malaysia, China, Hong Kong, Taiwan and India. By March 2000, Soundbuzz had signed licensing agreements with 13 record labels across Asia including Synchronized, The Phiz & Psychic Scream from Malaysia, Viva records from the Philippines, and Music Studios etc. from Indonesia. These deals allowed their artists music to be offered for downloading and sale on soundbuzz.com in encrypted MP3 format. In October 2000, Soundbuzz signed the first major record label agreement with EMI Music Asia, a division of EMI Recorded Music. Commenting on the partnership, Sudhanshu Sarronwala, co-founder and CEO said, This is a

landmark moment for the Asian music industry as Soundbuzz becomes the only digital music retailer in Asia to partner with a global record label for the sale of secured, downloadable content for digital distribution. Soon after, Soundbuzz signed a digital music distribution agreement with BMG Asia-Pacific. These deals made Soundbuzz the first and only digital music retailer in the Asia-Pacific region to sign digital distribution deals with two global major record labels. Licensing agreements with Sony, Warner Music and Universal followed shortly. To provide its customers with multiple billing channels, Soundbuzz formed a partnership with Trivnet Ltd, a payment technology infrastructure provider, in early 2001. Using Trivnets payment solution, Soundbuzz could offer multiple-billing channels through Internet Service Provider bills and mobile operator bills to its customers. By late 2000, the crash of the technology bubble and the increasing use of peer-to-peer networks took a toll on the music industry, as well as Soundbuzz. Sales of CDs in retail music stores started declining, while MP3 songs, shared freely through sites encouraged by Napster and the like, started escalating. Though the traffic to Soundbuzz was in the millions of unique users, the customers were not buying the fee-based content. Their main attraction to the site was the free-download content. Despite all the effort by Soundbuzz, it was faced with becoming irrelevant due to its the flawed business model. In 2001, the Soundbuzz management decided to abandon the B2C model and instead focus back on a B2B model that was based on the deal they had closed with Lycos almost a year earlier. Aligned with the change in business model, a new B2B revenue model was also established. This model saw Soundbuzz aggregating record labels music content and providing a technical platform and content management service to other portals. In November 2001, Soundbuzz provided an end-to-end digital music solution for Hewlett-Packards (HP) digital music service that included developing a customized on-line music store, aggregation of digital music content and creation of unique promotions for HP with applications to its products. Soon after, Soundbuzz closed deals with other regional and local portals to provide them with digital music. In early 2002, Soundbuzz decided to diversify in the wireless and device area. The company began developing software that integrated music entertainment as part of text and multimedia messaging, ring tones, and other digital services for mobile devices. Commenting on the technolo gy focus of Soundbuzz, Sarronwala said, Our skills are very much about music, licensing and music delivery. We have not dropped the idea of the music downloads/consumer model. I imagine we will get back to that at some point but I think it will take a few more years. In July 2004, Soundbuzz decided to relaunch the B2C model and announced the rollout of its Asia Pacific digital music retail strategy with the launch of its digital music service in Singapore. Soundbuzz did not keep the entire margin in its B2B business and, with high sales volume, more was being distributed to clients. It was getting more difficult for white label services like Soundbuzz to acquire content, as the record companies were seeking to license their music catalogues to companies, which sell directly to consumers. In the face of this uncertainty, Soundbuzz decided to implement both B2B and B2C models. Soundbuzz continued to form alliances with music device manufacturers to integrate Soundbuzz store in their devices. By August 2005, Soundbuzz had formed partnerships with Creative Technology and Reigncom, manufacturer of MP3 players, to deliver Soundbuzz music store through their digital music players. Alliances with ISPs were also forged to provide consumers with another option for making micro-payments. In Singapore, Soundbuzz formed partnerships with SingNet and Pacific Net as part of its retail strategy. With such partnerships, Soundbuzz was able to make use of their billing systems. The subscribers of these ISPs were able to download digital music from the Soundbuzz Web site and had the exclusive facility to charge their purchases to their monthly ISP billing statements.

In late 2005, Soundbuzz ventured into the U.S. In the same year, the company launched a new product segment music video. Music video stores were launched in Singapore and Hong Kong in November 2005 and January 2006 respectively. On January 6, 2008 Motorola signed an agreement to acquire Soundbuzz, with the aim to expand its MOTOMUSIC service beyond China, into India, SouthEast Asia, Australia and New Zealand. Commenting on the acquisition, Sudhanshu Sarronwala, CEO of Soundbuzz said, Motorolas dedication to enhancing the digital music experience in Asia complements our own objectives and makes it the id eal partner.
Sources: Soundbuzz.com New Portal Launched to Pioneer Downloadable Music in Asia, soundbuzz.com, December 10, 1999; Lycos Asia Signs Digital Music Deal with Soundbuzz, soundbuzz.com, February, 2000; Soundbuzz Announces Strategic Partnership with EMI Recorded Music, soundbuzz.com, October 2000; Soundbuzz Announces Asia-Pacific Digital Music Rollout, soundbuzz.com, July 2004; Soundbuzz Blazes a Trail Through Hong Kongs Music World, soundbuzz.com, October 2005; Motorola to Enhance Music Delivery Capabilities in Asia through Acquisition of Soundbuzz, motorola.com, accessed November 2008.

Case Study Questions 1. Analyze Soundbuzz and its business strategy using the competitive forces models. What strategies did it develop for dealing with competitive forces? 2. What are the critical elements for an online music service? Using the value chain model, analyze Soundbuzzs business processes. 3. Why did Motorola acquire Soundbuzz? What synergies will be created through this partnership? 4. Explore the Soundbuzz Web site (www.soundbuzz.com). Briefly describe its products, technology platform, payment methods and revenue model. 5. Do you think Soundbuzz is successful? What are the things it can do to improve its business model? What can it learn from iTunes?