Strategies to Fight Ad-Sponsored Rivals

58 Pages Posted: 22 Sep 2009  

Ramon Casadesus-Masanell

Harvard University - Strategy Unit

Feng Zhu

Harvard University - Harvard Business School

Date Written: September 21, 2009

Abstract

We analyze the optimal strategy of a high-quality incumbent that faces a low-quality ad-sponsored competitor. In addition to competing through adjustments of tactical variables such as price or advertising intensity, we allow the incumbent to consider changes in its business model. We consider four alternative business models, two pure models (subscription-based and ad-sponsored) and two mixed models that are hybrids of the two pure models. We show that the optimal response to an ad-sponsored rival often entails business model recon figurations, a phenomenon that we dub \competing through business models." We also find that when there is an ad-sponsored entrant, the incumbent is more likely to prefer to compete through a pure, rather than a mixed, business model because of cannibalization and endogenous vertical differentiation concerns. We discuss how our study helps improve our understanding of notions of strategy, business model, and tactics in the fi eld of strategy.

Suggested Citation

Casadesus-Masanell, Ramon and Zhu, Feng, Strategies to Fight Ad-Sponsored Rivals (September 21, 2009). NET Institute Working Paper No. 09-09. Available at SSRN: https://ssrn.com/abstract=1476530 or http://dx.doi.org/10.2139/ssrn.1476530

Ramon Casadesus-Masanell (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States
617-496-0176 (Phone)
617-496-5859 (Fax)

HOME PAGE: http://www.people.hbs.edu/rmasanell

Feng Zhu

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 431
Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=14938

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