Content vs Conduit content code and physical delivery code film producers decide what films to make Barnes and noble decides what books to put on shelf etc you have no control over that physical delivery sometimes you physically have to go to store and buy something sometimes you download it off your computer 10 16 12 Telephone systems landlines landline is a physical wire that runs into your house We do not put in that wire the phone company does It owns and controls that wire It controls physical delivery of signal from that wire To have that wire working you need to pay a fee so they control the code But when you call someone you can say anything you want so the content is free Cable TV physical thing is cable box Can t gain access without it They also control the coding of your tv You don t decide what shows up on the cable channels You buy a package that has 185 channels but they control the choices you have of shows coming up The Dark Ages before the internet copyright gov t is trying to find appropriate balance between on traditional media the new stuff from technology issues with digital info you paid for sheet music You d pay the artist Piano roll mechanical thing with roll of paper and would play music Resolution piano roll company had to pay a fixed fee which enabled them to make copies of the music on the piano rolls tv and VCR If people are copying tv and movies for home use okay but its not okay if its for commercial use You can create content but you still need to convince a publisher to distribute it Dark Ages Code layer slide The Internet has changed all the rules Eliminated the middle layer It eliminates the power of the middle code and moves it to the ends content creators consumers Media control everyone was concerned that a single organization was going to control everything you heard in a particular region owning all the tv stations radio stations and newspapers control of everything that people see and hear Big fear of media control you can t control everything so they had to prevent this Mickey Mouse first created in 1923 Traditional copyright was 50 years But before 1973 gov t changed rules and made the copyright good until 1993 70 years so then towards 1993 there was a Mickey Mouse copyright battle So the Copyright Term Extension Act took place Now Mickey Mouse copyright expires in 2019 What will happen then Will we actually let Mickey Mouse go into public domain People are angry with this because laws are being passed to protect Disney who doesn t need protecting There s no public benefit just benefit for Disney so the digital world has changed these rules mostly for the better but there are some things we still don t know what to do with Competitive Factors There s new ways to compete Cyberspace allows things like Katrina and the Waves to live forever otherwise she would ve sold her 1 hit wonder and that was it Small media small Internet radio stations all different types of small stuff Matt Drudge had a small blog called Drudge Report and he uncovered Monica Lewinsky scandal It wasn t a big newspaper it was small media Google Will It Blend blendtech website company that creates commercial grade blenders They do no print advertising can blend anything iPhone Blends all kinds of weird stuff His videos have gone viral and his company s grown enormously through the viral marketing over the internet Just because technology exists doesn t mean it will be a success Need a benefit for it to go anywhere Picture phones have been around for 40 years and no one wanted it people can see you when you re talking on phone leftiesonlygolf com can t survive in a golf store only selling to lefties but you can on the internet GPS why do you have Garmin if you have GPS on your phone NETWORK EFFECTS 10 18 12 Metcalf s Law Externality negative and positive and both Standards The owner of the standard usually obtains the most benefit Need to create a standard for railroads either narrow or wide so all trains can move across America Increasing Returns Increasing cell phone bills a network that will keep building forever and they have us on this because we will keep buying the cell phones Bethesda prices are so high because a network effect is going on there There s 250 ish restaurants in Bethesda Why do restaurants keep going there when there s so much competition Network effect A lot of people go there so more restaurants keep opening so more people keep coming and so on So restaurants keep raising their prices Why do people keep wanting to live in NY London Hong Kong and Shanghai More people show up more people want to show up What s the draw A lot of other people businesses leisure are there Whatever I want I can find in NY London and Hong Kong Tends to draw more people and the more people the more opportunities Winner Take Most Not quite winner take all Essentially natural monopolies occur when network effects lead to increasing returns Positive Feedback A network will not expand by itself You need to put some resources time and energy into the network Put more investment into it the network should expand Monopoly when you get a monopoly you can build houses and hotels on it The way to win is to get a monopoly and put houses and hotels on as fast as you can Tight Links If you have a tight feedback loop you ll get positive feedback and network grows If it s loose the network may not grow or grow very slowly Tight feedback vs loose feedback Tight is what you want Pricing Strategies Willingness to pay try to estimate what customers will pay Traditional Cost based pricing what does it cost me to make this car Add some defined profit margin to it and that is the price Price based costing what do I think my customer will pay And now can I build it for them If someone will buy a house for 350 000 can I build a house for less Price Discrimination Common technique used to increase firm s profit To have this you must have ability to control prices buyer power must be low To have this must have 2 classes of customers with diff willingness to pay Occurs when same product is sold at more than one price 1st degree Perfect price discrimination Example real estate negotiates for prices of a house Consumer pays maximum they are willing to pay Personalized pricing Very expensive and difficult to do because you have to negotiate with each buyer 2nd degree seller gives consumer a schedule of prices Quantity discounts Buy 1 its 5 bucks 10 its 7 bucks 20 its 15 etc 2nd most common 3rd degree
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