The MIT Center for Digital Business A Partnership in Research


Focused Sponsor Projects
One of the primary missions of the MIT Center for Digital Business is to conduct research in all aspects of Internet-enabled business. Each of our Founding and Research sponsors directly support one or more "Focused Research Projects", which are conducted by our faculty and their graduate students on a topic agreed between the sponsor and the faculty principal investigator. Many of these projects have active involvement from the sponsor.


A Digital Postal Platform
Professors Geoffrey Parker and Marshall Van Alstyne
Sponsor:  IPC

Common products such as personal computers, cell phones, gaming systems, streaming media, and telecommunications infrastructure can be described in terms of systems where developers build “applications on top of a “platform”. Such systems have become an important way in which firms organize innovation. For platform innovation systems to function, the rules governing access and intellectual property must be carefully analyzed, designed, and enforced. With this project, we seek to better understand platforms that organize innovation within and across firms. The longer term goal is to develop this understanding through a rigorous research program of model building, data collection, tool development, and direct intervention. One of the platforms that we intend to study is Cloud Computing. The initial phase of this research would be an extension of our previous thought piece on Networks as Platforms.

Entering New Business Areas with Enterprise 2.0
Dr. Andrew McAfee
Sponsor:  British Telecom

The key objective of this addition to the existing Enterprise 2.0 research effort is to identify, analyze, and better understand the dynamics that lead to success and failure when attempting to enter new business areas. The business case is BT’s entry into new businesses by leveraging opportunities offered by Enterprise (or Web) 2.0. The methodology will include utilizing Professor Ed Roberts' "familiarity matrix" framework - high/low familiarity with the enabling technologies; and high/low familiarity with the market to categorize opportunities for BT to enter new business areas (Roberts and Berry 1985). We will then build a System Dynamics model to understand the dynamics of each quadrant, to test potential strategies, and to identify typical success and failure scenarios. The effort will include an analysis of partnership vs. acquisitions strategies (Roberts and Liu 2001).

Digital Leadership – Transforming Business Through Technology
Dr. George Westerman and Dr. Andrew McAfee
Sponsor:  Capgemini

The Center for Digital Business at MIT engages in fundamental research on the effects of IT and Technology on business. Previous work by the research team involves rigorous research on the impact of IT on the organization, and the measure of success of these “digital organizations”. Not surprisingly, IT and technology were not the only determinants of success. Changes in business processes, distribution of decision making, performance incentives, and even hiring were very significant indicators of highly productive firms. Nearly a decade since that research, the question of why and how technology contributes to competitive advantage continues. Is success a matter of developing the 'killer app' for a business? Of being the first to deploy each new innovation that comes out of the high tech industries? Can differentiation come from using commercial, widely available technology? Is technology an important factor in just a few industries like publishing and electronics manufacturing, or are its effects felt throughout the economy? Answers to these questions are obviously important, yet have been lacking.

Business Implications of Enterprise 2.0
Dr. Andrew McAfee and Professor Erik Brynjolfsson
Sponsor:  Cisco Systems, British Telecom

A new wave of IT innovation is now gathering energy and is leading to fundamental changes in the way businesses interact with customers, suppliers, competitors and their own workforce. This wave, which has been labeled “Enterprise 2.0,” is about facilitating new modes of collaboration and tapping into every company’s ‘cognitive surplus’ – the brainpower that exists up and down the value chain and can be harnessed to bring higher productivity, innovation, and agility. The 2.0 wave will make collaboration, distributed interaction, and knowledge creation and sharing even more important than they are at present, and further separate winners from losers in competitive battles. We propose a major research effort to investigate this wave, and to deepen our understanding of two fundamental issues: (1) What is the impact of IT on business and competition? How much does IT matter? (2) What makes a company “good at IT”? In other words, what makes one company better than its competitors at selecting, adopting, and exploiting technology, in particular the new technologies of collaboration? What is the best “shape” of a company to optimize the 2.0 wave? Companies today are faced with a rich mix of new tools, novel business practices that make use of them, and possible strategies for encouraging people to participate and contribute in novel ways.

Knowledge Management, Productivity and Two-Sided Markets
Professors Marshall Van Alstyne and Erik Brynjolfsson
Sponsor:  Cisco Systems

This project involves combining the theory of “two-sided networks” and “price theory” in a real company environment with a knowledge management system. Through this project we will track knowledge creation, flow, and effects on information worker productivity. Our intervention into this knowledge management system will be the addition of a currency market which will reward people in the same organization for helping to solve complex (or simple) issues elsewhere in the company. The change in behavior from “trading information” can potentially provide stronger evidence of changes in results that indicate causal relationships and not just correlations. The currency market should give us much additional insight into whether we can promote additional adoption, whether we can get questions answered sooner, whether answers improve in quality, whether answers can be generated from farther away in the company, and how valuable is the information generated.

Trends in Technology, Work and Leadership Development in the CIME Sector
Drs. Andrew McAfee and George Westerman
Sponsor:  Cognizant

Technology is having an effect throughout the economy, but nowhere more than in the communications, information, media, and internet industries, or the CIME sector. Companies in this sector exist to produce and/or transmit bits, and these two activities have both been deeply and permanently transformed by digitization -- the advent and spread of powerful computing and communications tools. Digitization has given rise to a number of phenomena important for CIME, including network effects, platform strategies, an explosion of content, zero marginal cost replication and distribution of information products, and rapidly changing revenue models and cost structures. It has also changed the way companies organize themselves, make decisions, set strategy, and execute core processes. In short, digitization is affecting CIME firms' products, prices, processes, internal organization, and competitive landscape. Much excellent research has been done on elements of CIME's digitization, but no comprehensive picture of this hugely important transformation yet exists. Firms in these industries are currently without a playbook to guide their strategies, and great uncertainly exists about industry-shaping trends and their likely implications. Coherent and comprehensive frameworks are lacking. The Center for Digital Business (CDB) proposes a three-year research program to understand the major forces driving the future of work (FoW) in the CIME industries. In identifying these major forces, we hope to provide a framework for players within these industries that will enable them to better produce their products, serve their customers, and compete with other firms.

Application Marketing to Gen Y
Professor Glen Urban
Sponsor:  General Motors

With over 250,000 apps (and growing) available on the iPhone and Android based phones these days, coupled with the “instant gratification” needs of Gen Y, the challenges for marketers are many. Today’s young population has many opportunities for information – for any reason – entertainment, shopping, research. This young population uses smart phones, the internet, social networks et al and are used to "technology" for all forms of communications. And they use their mobile devices simultaneously while working on their PC and/or watching TV. These are the multi-taskers and when you couple this with the fact that they are "anti-marketing" and do not respond well to traditional advertising and promotion, we clearly have our challenges. Understanding Gen Y and their use of technology is really a lens on the “Future of Marketing”. It is not going away. It will be adopted by older and younger cohorts and constantly evolving. The goal of the project is to design and build Apps that will integrate across media and into the connected world of Gen Y by increasing trust, empathy, consideration, awareness, and ultimately sales.

The Future of Prediction
Professor Erik Brynjolfsson
Sponsor:  Google

Traditional economic and business forecasting has relied on statistics gathered by government agencies, annual reports and financial statements. However they are often published with significant delay, which limits their usefulness for predictions, especially novel predictions. Now, due to the widespread adoption of search engines, social media and related information technologies, it is increasingly possible to obtain highly disaggregated data on literally trillions of economic decisions almost the instant that they are made. Furthermore, query technology has made it possible to obtain such information at nearly zero cost, virtually instantaneously and at fine-grained level of disaggregation. Each time a consumer or business decides to search for a product via the Internet, valuable information is revealed about that individual’s intentions to make an economic transaction (Moe & Faber, 2004; Choi & Varian, 2009). In turn, knowledge of these intentions can be used to predict demand, supply or both. This revolution in information and information technology is well underway and it portends a concomitant revolution in our ability to make business predictions and ultimately a sea change in business decision-making. This new use of information technology is not a mere difference in degree, but a fundamental transformation of what is known about the present and what can be known about the future.

Platform Driven Innovation
Professor Marshall Van Alstyne
Sponsor:  IPC

Common products such as personal computers, cell phones, gaming systems, streaming media, and telecommunications infrastructure can be described in terms of systems where developers build “applications on top of a “platform”. Such systems have become an important way in which firms organize innovation. For platform innovation systems to function, the rules governing access and intellectual property must be carefully analyzed, designed, and enforced. With this project, we seek to better understand platforms that organize innovation within and across firms. Moreover, we intend to develop this understanding through a rigorous research program of model building, data collection, tool development, and direct intervention. The International Post Corporation is in a unique position to help its Member Organizations by supporting research on platform driven innovation. Posts have used a physical platform for decades in order to deliver mail and packages directly to the door step of their customers. With the advent of electronic communication, as well as competition for last mile delivery, a whole new platform must be developed to enable Posts to maintain and grow their businesses.

The New Era of App Marketing
Professor Glen Urban
Sponsor:  Liberty Mutual

With the advent of smart phones, mobile technology is rapidly emerging as a critical means for large brands to understand how to use this new marketing channel of communication. Firms have an opportunity to create new applications that are useful to potential and existing customers as a way of generating trust and goodwill that helps sell products. The problem is how to design such customer interactions, and measure their impact on media/information use, attitudes, and buying behavior. “App marketing” is a state of the art area for innovation in marketing. This project will include the design, implementation, and testing of an application for the sponsor that serves to build trust/empathy, consideration, positive attitudes/preferences, and increased sales along with positive word of mouth communication in social networks. This effort will exploit the unique attributes of the mobile device to fashion an app that helps customers solve insurance related problems.

Deriving Competitive Advantage from IT
Professor Erik Brynjolfsson and Dr. Andrew McAfee
Sponsor:  McKinsey & Co.

The project addresses the specific question of “What distinguishes organizations that are able to successfully exploit information technology from those that are not?” or, more simply, “What makes a company good at IT?” Recent research has revealed a strong positive correlation between an industry’s IT intensity and its levels of concentration growth, turbulence, and performance spread – in short, its pace of competition. This work provides evidence that IT matters, and that modern corporate information technologies have the effect of increasing the difference between leaders and laggards in a sector.

Using Systems Modeling to Simulate the Evolution of Applications
Dr. Michael Siegel
Sponsor:  SAP

The last decade has seen a dramatic rise in the quantity of corporate data that is collected by organizations. Creating value from this new found wealth of data requires the development of applications to serve specific organizational requirements. As each organization faces these new requirements, an opportunity exists to develop industry-wide applications that can be used by multiple organizations. The business model for the strategy, development, sale, and maintenance of these applications is the focus of this research. We will develop simulation analysis to examine the short- and long-term implications of these emerging business models. Our research will utilize the System Dynamics Modeling (SDM) methodology to develop and simulate quantitative models that link business dynamics, key actors, and management systems to estimate the costs and benefits of various business models. The project will utilize complementary research techniques, including onsite interviews with multiple constituencies, to develop a holistic view of the business approach and challenges. We believe the interactions and results of this research will have a direct effect on the evolution in SAP’s new business direction.

The Competitive Impact of IT
Dr. Andrew McAfee
Sponsor:  SAP

Recent research conducted at the MIT Center for Digital Business and elsewhere has shed a great deal of light on the competitive impact of IT. There is now a substantial body of theory and evidence about the extent to which IT is a driving force in competition. This research shows that IT's impact is both broad and deep – that it is directly contributing to greater separation between winners and losers, and doing so in a surprising range of industries. This work also reveals why this is the case, showing why technology is such a powerful tool and how it contributes to greater disparities in performance, concentration, and turbulence. The goal of this project is to bring together his research and its findings and conclusions, along with those from other scholars and fields, and thus develop a complete description of how and how much IT impacts competition. This effort will fill a huge gap, since there is currently no single resource about IT and competition written for general managers and line executives.

Measuring the Value of Intangible Assets
Professor Erik Brynjolfsson
Sponsor:  SAP

The motivation behind our research is that, for most companies their market value exceeds the sum of the values of their tangible assets. This suggests the presence of significant intangibles. We will seek to more accurately and precisely measure the nature of these intangibles, drawing on our earlier research methods and data sets. Our previous securities market research Brynjolfsson, Hitt, and Yang (2002) found that each dollar of IT assets was correlated with an average of more than $10 of market value, suggesting the presence of up to $9 of intangibles. These intangibles were correlated with IT and not with ordinary capital because they were highly complementary to technology. When proxies were used for IT-related business practices, the authors found that it was firms that had both computers and these practices in place that had higher market value. In the current project, we will expand the definition of capital in the standard market value analysis to include a variety of intangible assets. Specifically, our analysis encompasses two projects:

  •       first, a study to value a broad collection of intangible digital assets in a cross-section of U.S.-based firms, and ........

  •       second, a more focused study of intangible assets. In this project, we will primarily study the intangible organizational assets associated with SAP’s Human Capital Management (HCM) software. If are able to acquire more data, we would also expand our analysis and study the value of Intellectual Property (IP) and brand.

    Morphing Web Sites and Mobile App Marketing
    Professor Glen Urban
    Sponsor:  Suruga Bank

    This project extends previous web morphing work – with a focus on application marketing via mobile phones. The new work will focus on a modeling and measurement methodology to build a mobile phone application that attracts new customers and cross sells existing customers by building trust in the sponsor. The results are expected to improve customer consideration, and purchase share. The result will be a proven web morphing system for a new mobile card loan application. Future work in 2010/2011 will field test the app and determine its sales impact and ability to attract new customers.

    Behavioral and Neural Investigation of Trust Building in Online Banking
    Professor Drazen Prelec
    Sponsor:  Suruga Bank

    This is a project to investigate the neural correlates of website “personalization” and trust building in online transactions. Over the last 12 months we have created an fMRI-compatible paradigm involving online loan and investment decisions with the specific aim of investigating whether facial attributes of bank representatives affects investment behavior. Using face-morphing software specifically adapted for this study we can now generate self-resembling images by morphing the standard face of the “advisors” (bank representatives) with the face of the actual experimental participant. Functional images will be acquired as participants play a series of investment games with what they believe are real bank representatives. Overall, this study will give the sponsor a unique position of understanding how to optimize the design of advisor for bank products and services and will contribute to MIT’s research in advancing the neuroscience of trust in a novel and expanding domain.

    The Future of Prediction: How Search Engines Foreshadow Markets
    Professor Erik Brynjolfsson
    In our previous work, we leveraged the Internet queries from Google Insights for Search to make reliable predictions about both prices and quantities of the real estate market. Our model using these digital traces was able to make more accurate predictions about the housing demand than market-based predictions (Wu, Brynjolfsson, 2009). Our initial analysis focused on predicting real estate trends at the state level. However, real estate market trends are more meaningful at local markets such as in metropolitan statistical areas (MSA). To make our predictions more meaningful to home buyers, sellers, home construction industry as well as policy makers, we are currently conducting our study at the MSA level. Furthermore, we are incorporating data from other social media such as twitter to predict real estate trends, as the collective intelligence from social media can be used to predict real-world outcomes. For example, Asur and Huberman (2010) have shown that twitter can be used to predict box-office revenues and they are shown to outperform market-based predictions.

    Optimal Pricing and Aggregation of Digital Information
    Professor Erik Brynjolfsson
    Although the initial creation of digital information such as news, data or software can be expensive, the marginal cost of delivering copies of digital information goods is close to zero. This creates interesting and valuable opportunities for creative pricing strategies. In particular, research on optimal bundling, subscriptions, sharing and site licensing provides a framework for maximizing profits, revenues or consumer’s surplus from a given collection of information goods, by creating aggregating them appropriately. The theory predicts that optimal pricing will be affected by a number of factors, including the correlation of consumer valuations across different goods, their marginal production, distribution and transaction costs, and other factors. Simulations indicate that optimal aggregation strategies can increase profits by up to 100% compared selling information goods a la carte. In addition, the creators of information goods that are sold in bundles can be rewarded optimally to maximize their incentives for innovation. Of particular relevance in business-to-business (B2B) settings is the use of site licensing. In this project, we propose to empirically assess the power of these theories via a series of field experiments.

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