Information Systems Exam One The Digital Business All goods are combinations of both atoms and bits o Beer A b p Mainly atoms the bits the taste Information barrier for craft beers hard to describe the taste hard to reproduce can come up with reviews to give an idea of the taste but cant really make it explicit too small for mass advertising Atoms components o Music a B p Mostly bits information behind it The ever shifting equation Products Atoms Bits o As time goes by in more and more product categories new products have fewer atoms and more bits o Instead of moving atoms we are busy creating moving deleting and digesting bits information Digital information goods o Digital anything that can be expressed as a string of 1s and 0s bits Collection of symbols Utility depends on the arrangement of the symbols not on the material form that they take anything that can be digitized value isn t in the print but in the concept ex Mona lisa value is the idea and attribution o Digital goods information goods New technologies make it possible to get rid of the physical component of more and more products o Cd vs ituesn o Dvd vs Netflix o Books vs kindle o Can fundamentally change the structure of an industry Ubiquitous computer networks make it easier and easier for people to connect and exchange all sorts of information o New opportunities for wealth creation google facebook etc Why do we observe the rule of big 3 in many physical product markets meaning that 3 big entities exist in an industry because they cant please all the demand o These types of companies eventually have diseconomies of scale The marginal cost to produce one more product is larger than the Three properties of an information good marginal revenue MC MR o Experience good Consumers cannot tell their quality value before consuming them Ex Movie book o Returns to scale Information typically has a high fixed cost of production but a low marginal cost of reproduction No diseconomies of scale MC 0 High and sunk fixed costs Sunk costs incur befor production and risk being lost in case of failer Very low marginal costs Expensive to produce and cheap to reproduce Information goods are very differentiated and price discrimination occurs o Public good Must be nonrival and nonexcludable Nonrival one person s consumption doesn t diminish the amount available to another value is constant and always there Nonexcludable It is costly to exclude people who do not pay from consuming the good cant prevent someone else from consuming the benefit of the good o Ex Lighthouse national defense TV radio broadcasts Problem with information goods how to get people to buy it advertise sample reputation reviews Specific problem intellectual property rights o Laws that prevent others from using profiting from intellectual property ex Information you have created Four Principal forms of intellectual property protection o Patent protects any new and useful process machine article of manufacture compositions or matter or any new useful improvement thereof typically 20 year term Criteria novelty and usefulness o Trademark protects designations used to distinguish items from one manufacturer from another infinite term with renewal Criteria distinctive o Copyright protects works of original authorship fixed in tangible form for authors life 70 years Criteria original work of authorship o Trade secret protects any valuable intellectual property Criteria secret o all ways to incentivize How Analog and Digital Recording Works Article o Thomas Edison created the phonograph first recording device o Diaphragm directly controlled a needle and needle scratched an analog signal onto a tinfoil cylinder themselves into the tin As diaphragm vibrated so did needle and vibrations pressed To play the sound back needle moved over the grooves scratched during recording Lot of scratchy noise stored with intended signal eventually wears out o Analog Wave represents the vibrations creates o CD creates recording with high fidelity high similarity between original signal and reproduced signal as well as perfect reproduction sounds the same every time you play it no matter what Turns analog wave into a stream of numbers and records the numbers instead of the wave done by ADC anolg to digital converter To play music back stream of numbers is converted back to an analog wave by DAC digital to analog converter Sampling rate controls how many samples are taken per second Sampling precision controls how many different gradations are possible when taking a sample o Digital converts height to numerical coding and you can store numbers easily reproduced o Analog the wave representing the vibrations of the sound Markets for Information Goods o Value of the Web lies not in the quantity of information but rather its accessibility o Digital information can be indexed organized and hyperlinked easily Strategy Maintainable sustainable competitive advantage what business is seeking o What we can do in perpetuity even if someone does the exact same thing we still have the advantage Two ways to increase profits Revenue Expenses o Operational Efficiency continuing to improve without tradoffs o Strategic Positioning process by which firm identifies niche in a market and sees that it can exploit make firms compete with us and thus make tradeoffs Operational Efficiency o Goal Reduce cost by pushing the productivity frontier Firm becomes leaner faster better Most efficient with resources you have highest possible outcome with lowest costs o Problems rasing the bar for everyone o Increases the homogeneity in an industry Anything you do that cuts cost can be imitated without fixed costs Profits in industry go to 0 b c there is no value to buying 1 over another If every firm is producing same thing why chose our firl Strategic Positioning o Delivering a specific set of value enhancing activities to create a unique mix of value o How can we position our firm or segment based on needs Ex Google vs yahoo Variety based positioning specialization in servce not in customer o In different segments of the market Needs based positioning segmentation of the market to meet the specific needs of a customer better based on high income vs low income Access based positioning servicing the market baesd on geographical or demographical characteristics This position can be awkward imitation occurs o Repositioning by the incumbent dominant firm options are to drop and just do one thing o Straddling by the incumbent do
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