T207 1st Edition Lecture 2 Outline of Last Lecture I Distribution of Signal or Media in Telecommunications II Basic Telecommunications III Miscellaneous Telecommunications IV Internet Telecommunications Outline of Current Lecture V Basic Business Brief Tips VI Telegraph History Business Model Current Lecture Basic Business Brief Tips o The Company s Business Model Profits Revenues Costs Does it change over the course of time Does it require complimentary goods Example Xbox console and games o The Competitors Direct vs indirect Degree of substitutability Each competitor will have different strategies o Customers the real battleground Demographics Psychographics Culture attitude style values beliefs etc Previous purchases o The Legal Issues Intellectual property Patents copyrights trademarks trade secrets etc Competition regulation Some markets have to be regulated Torts Privacy publicity product consequences etc 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 o The Cultural Issues Attitudes towards products and competitor s products Cultural integration Cultural consequences Example For Facebook the 55 demographic is growing o The Technological Issues Evolution of product Cost dynamics Functionality and quality Adoption patterns Complimentary products Their evolution Telegraph History Business Model o Could only send stuff by Pony Express postal service and trains Could only send via normal transportation mode News was costly With the telegraph messages could be sent at the speed of light o Needed other things to be successful before the telegraph could take off Batteries had to be invented first There was a growing knowledge of electricity and things through wires o Samuel Morse took 5 years to really get the telegraph polished Started to try and make it known by attempting to convince the US government to fund it After 3 years they funded 40 miles of these wires o To Function Needs interconnected wires Value is dependent on the cost of sending it in a traditional way vs using this new way o Important Definitions Externality a cost or benefit that results from an activity or transaction and that affects an otherwise uninvolved party who did not choose to incur that cost or benefit Example a company doesn t pay for the negative outputs o Putting regulations on it causes them to internalize what they are doing Can have both positive and negative externalities Network effect the effect that one user of a good or service has on the value of that product to other people When present the value of a product or service is dependent on the number of others using it Economies of scale the cost advantages that enterprises obtain due to size with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output Often operational efficiency is also greater with increasing scale leading to lower variable cost as well o Telegraph Business Model Competitors o o o o US postal service was its main competitor o Wasn t bound by any sort of issues like the telegraph was o Cheaper to send messages via the postal service even though it took longer o Everyone was already using the postal service and transportation was increasing Customers Military Newspapers Banks o Transmitted loan and stock numbers Businesses o They were all growing o Lowered coordination costs o Regional companies started popping up Legal Cultural and Technological Issues Patent o Used it to control the rollout of technology o When it was up companies started popping up There was no interconnectibility o People weren t sure if messages were being delivered properly Larger telegraph companies started to buy up the smaller ones o Economies of scale took place o Western Union Rose up in the North Did great business during the Civil War Anywhere troops went they set up wire lines Southern Telegraph companies started to fail The telegraph technology was increasing o It was getting more efficient Natural Monopoly in telegraph Western Union entered into exclusivity agreements Made a partner in the associated press Early abuse of market powers Exclusivity of news was part of the telegraph And later the associated press Patent was granted in 1840 Western Union achieved national monopoly in 1866 No antitrust regulation at this time The telegraph necessitates the rise of competition regulation