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103 86 Part One Industry Dynamics of Technological Innovation networking site) was in its infancy. The number of members rapidly grew to seven million, but the company did not have sufficient servers to support the traffic, causing severe page load delays. The company began to receive thousands of customer service complaints, and soon members (and would-be members) were fleeing to other sites that had learned from Friendster s mistakes. One of those sites was MySpace. Also founded in 2003 (by Brad Greenspan, Chris DeWolfe, and Tom Anderson of community website conglomerate euniverse), MySpace mimicked some of the more popular features of Friendster, but also leveraged the 20 million subscribers and users of euniverse to jumpstart its membership. Unlike Friendster, MySpace made all members profiles viewable by any user, which reduced the computational burden of figuring out who was able to look at which profile. MySpace also made user profiles very customizable, and offered spaces for blogs, places to display photos, and the ability to play music. MySpace was acquired in July of 2005 by media conglomerate New Corporation for $580 million, and from 2005 to 2008 was the most popular social networking site in the world. A threeyear advertising deal with Google for $900 million was a cash windfall, but it also lead to heavy amounts of advertising on the site, which annoyed many users. Meanwhile, in 2004, college students Mark Zuckerberg, Eduardo Saverin, Dustin Moskovitz, and Chris Hughes had launched Facebook, initially as a service available only to Harvard University students, but later as a service for the general public in A growing awareness of social networking (and the large News Corp. acquisition of MySpace) made it relatively easy to find investors for the company, and Facebook quickly raised nearly $50 million in venture capital. This enabled the company to avoid advertising sales in its early years, helping the site to retain a cleaner looking design. Facebook also had a reputation for better security than MySpace, and had a platform that allowed outside developers to create features for the site. While MySpace was being run by corporate managers who attempted to develop all of its applications in-house, Facebook was letting the marketplace determine what it would become, leading to a huge proliferation of social games, product reviews, and self-created groups. Facebook also made it easy for users to restrict who could see their information, which (according to Zuckerberg) made them more likely to share more personal information on the site. Whereas MySpace had been the social networking site of choice for teenagers, Facebook began to dominate the year old crowd, rapidly becoming the number one site in the world for exchanging photos and information. Corporations began setting up their own Facebook pages, and the site began to be an important vehicle for developing brands. In 2007, Facebook began offering advertising sales, which it could closely target to users based on demographics, geographical location, and other preferences. In the spring of 2008, Facebook overtook MySpace in terms of overall number of users. From that point on, MySpace suffered a rapid decline in users. By 2010, MySpace had all but conceded defeat and announced that it would focus on the niche of social entertainment. After losing a reported $350 million in 2010, it laid off half its staff in early e Facebook, on the other hand, continued to grow at a staggering pace, accumulating 901 million users by f

42 Theory in Action Birth of the Snowboarding Industry The first snowboards were not developed by major sports equipment manufacturers seeking to leverage their capabilities by developing a new sport. Instead, they were developed by individuals who sought new ways of fulfilling their own desires for gliding over snow. Snowboarding traces its history to the early 1960s, when a number of individuals developed an assortment of snowboard precursors, whose designs would ultimately give rise to the modern snowboard. a Some of the most notable of these individuals included Tom Sims, Sherman Poppen, Jake Burton Carpenter, Dimitrije Milovich, Mike Olson, and Chuck Barfoot. In 1963, Tom Sims, an avid skier and skateboarder, made his first ski board in wood shop class. Sims and Bob Weber would go on to design snowboards and found the company known as Sims. Another very early developer was Sherman Poppen. In 1965, to make a toy for his daughter, Poppen attached two skis together into what he called a snurfer. The toy turned out to be so popular that Poppen began organizing informal competitions for snurfer enthusiasts. Jake Burton Carpenter was one such enthusiast, and he began developing a version of the snurfer with rubber straps to act as bindings, giving the user greater control. This led to the founding of his Vermont-based company, Burton, which rose to become a dominant force in snowboarding. It is notable that the primary motive for most of these innovators was to develop a product for their own use; however, over time they received so many requests for their innovations from other would-be users that they subsequently founded firms. b By the early 1970s, several other individuals were developing snowboards, often driven by a desire to more closely replicate the action and feel of skateboarding or surfing rather than skiing. In 1975, Dimitrije Milovich set up one of the earliest snowboard companies, Winterstick, to sell his swallowtailed snowboards based on a surfboard design. He gained considerable exposure when Newsweek covered him in March of that same year, and Powder magazine gave him a two-page photo spread. c About the same time, Mike Olson and Chuck Barfoot were also developing their own snowboard proto types, which would evolve to become the snowboard lines of Gnu and Barfoot. By the mid-1980s, snowboarding was beginning to be allowed in major ski resorts, and ski manufacturers such as K2 and Rossignol were eyeing this FIGURE 2.2 U.S. Snowboarding Participants (in millions, ) Millions of Participants continued 25

50 Chapter 2 Sources of Innovation 33 right is primarily made up of organizations in electronics-based industries. If the size and density of the collaboration network influences the amount of information available to organizations that are connected via the network, then the difference between the network shown for 1995 and the network shown for 2000 could have resulted in a substantial change in the amount of information that was transmitted between firms. (The strategic implications for a firm s position within the network are discussed in Chapter Eight.) Technology Clusters Sometimes geographical proximity appears to play a role in the formation and innovative activity of collaborative networks. Well-known regional clusters such as Silicon Valley s semiconductor firms, lower Manhattan s multimedia cluster, and the Modena, Italy, knitwear district aptly illustrate this point. This has spurred considerable interest in the factors that lead to the emergence of a cluster. City and state governments, for example, might like to know how to foster the creation of a technology cluster in their region in order to increase employment, tax revenues, and other economic benefits. For firms, understanding the drivers and benefits of clustering is useful for developing a strategy that ensures the firm is well positioned to benefit from clustering. Stressgen Biotechnologies Corp. Seven-Eleven Japan Co. Ltd. Elan Corp. PLC Bayer AG Hitachi Ltd. Matsushita Electric Industrial Sun Microsystems Inc. Monsanto Co. Microsoft Corp. CSIRO Magazine House Co. Ltd. Qualcomm Inc. Toyota Motor Corp.

27 10 Chapter 1 Introduction 5. While government plays a significant role in innovation, industry provides the majority of R&D funds that are ultimately applied to technological innovation. 6. Successful innovation requires an in-depth understanding of the dynamics of innovation, a well-crafted innovation strategy, and well-developed processes for implementing the innovation strategy. Discussion Questions Suggested Further Reading 1. Why is innovation so important for firms to compete in many industries? 2. What are some advantages of technological innovation? Disadvantages? 3. Why do you think so many innovation projects fail to generate an economic return? Classics Arrow, K. J., Economic welfare and the allocation of resources for inventions, in The Rate and Direction of Inventive Activity: Economic and Social Factors, ed. R. Nelson (Princeton, NJ: Princeton University Press, 1962), pp Mansfield, E., Contributions of R and D to economic growth in the United States, Science CLXXV (1972), pp Schumpeter, J. A., The Theory of Economic Development (1911; English translation, Cambridge, MA: Harvard University Press, 1936). Stalk, G. and Hout, T. M. Competing Against Time: How Time-Based Competition Is Reshaping Global Markets. (New York: Free Press, 1990). Recent Work Ahlstrom, D., Innovation and growth: How business contributes to society, Academy of Management Perspectives, (2010) August, pp Baumol, W. J., The Free Market Innovation Machine: Analyzing the Growth Miracle of Capitalism (Princeton, NJ: Princeton University Press, 2002). Friedman, T. L., The World Is Flat: A Brief History of the Twenty-First Century (New York: Farrar, Straus and Giroux, 2006). Kim, W. C. and Mauborgne, R., Blue Ocean Strategy. (Boston: Harvard Business School Press, 2005). Wallsten, S. J., The effects of government-industry R&D programs on private R&D: The case of the Small Business Innovation Research program, RAND Journal of Economics 31 (2000), pp Endnotes 1. Barczak, G., A. Griffin, and K. B. Kahn, Trends and Drivers of Success in NPD Practices: Results of the 2003 PDMA Best Practices Study, Journal of Product Innovation Management 26 (2009), pp J. P. Womack, D. T. Jones, and D. Roos, The Machine That Changed the World (New York: Rawson Associates, 1990). 3. W. Qualls, R. W. Olshavsky, and R. E. Michaels, Shortening of the PLC an Empirical Test, Journal of Marketing 45 (1981), pp