BADM 350 Lecture 7 Outline of Current Lecture I. Chapter 4 SummaryII. Chapter 7 SummaryIII. Business Models on the Web SummaryIV. Current Lecture NotesChapter 4 SummaryScale economies- when firms leverage the cost of an investment across increasing units of productionChurn rate- the rate at which customers leave a product/serviceBy going public, Netflix had to disclose its financial data and two large competitors, Blockbuster and Wal-mart, entered the marketLong Tail- large selection of products/content beneficial for internet retailersCollaborative Filtering- classification of software that monitors trends among customers and uses this data to personalize customer experienceBandwidth cap- limit imposed by the ISP on the total amount of traffic that a subscriber can consumeChapter 7 SummaryNetwork effects/ Metcalfe’s Law/Network externalities- the value of a product or service increases as the number of users grows.- Works because exchange creates value- They have a long term “staying power” - Experience early and fierce competition because once a bandwagon forms, new adopters begin to overwhelmingly favor the leading product over rivalsComplementary benefits- products or services that add to the value of the network- iTunes store to the iPod These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.One-sided market- a market that derives most of its value from a single class of users- Instant messaging usersTwo sided market- markets comprised of two distinct categories of participants, both of which are needed to deliver value for the network to work- People buying a videogame console and developers making games for a videogame consoleCross-side exchange benefit- when an increase in the number of users on one side of the market creates a rise in the other sideBlue Ocean Strategy- firms should seek uncontested, new market spacesConvergence- when two or more markets, once distinctly separate, begin to offer similar features and capabilitiesEnvelopment- when a firm seeks to make an existing market a subset of its product offering- Apple moved its media player iPod onto the iPhone- Antitrust authorities may consider product bundling by dominant firms to be anticompetitiveBackward Compatibility- making new products compatible with earlier offerings- ex. Super Nintendo was compatible with the firm’s earlier, highly successful prior generation modelThe Osborne Effect- named after the portable computer manufacturer Osborne Computer, they announced new models too early so customers opted to wait for the new models and their current offerings plummetedCongestion effects- when a network effect attracts too many users and the service becomes so overwhelmed that it becomes unusableBusiness Models on the Web SummaryBrokerage Model- bring buyers and sellers together to facilitate transactions (B2B or C2C)Advertising Model- A website provides content and services mixed with advertising messages Infomediary Model- a company has data about consumers that can be sold to other companies in order for them to understand a given marketMerchant Model- Wholesalers and retailersManufacturer/ Direct Model- using the internet to allow a manufacturer to reach buyers directlywhich compresses the distribution channelAffiliate Model- offering financial incentives to advertise on partner websites- There is no cost if the affiliate does not generate sales- Banner exchange, pay per click, revenue sharing programsCommunity Model- based on user loyalty and contextual advertising/ subscriptions for premiumservicesSubscription Model- Users are charged a periodic feeUtility Model- Based on pay as you go usageCurrent LectureA huge advantage of the internet is that it helps consumers locate, evaluate, and purchase a wide variety of products - Amazon’s data showed 30-40% of book sales wouldn’t typically be found in a physical store because holding so much inventory costs too much- Online consumers are more likely to buy niche products because there’s a wider variety availableProgress due to disruptive technologies increases at a faster rate than sustaining technologiesInnovative Dilemma: Do you make bigger, better products that are more expensive with higher margins to serve existing customers or do you make an inferior