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AGENDAAGENDA

Final Thesis

Free economy

Christian Dahlhausen

Prof. Dr. Rainer Clement

Prof. Dr. Dirk Schreiber

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FachhochschuleBonn-Rhein-SiegUniversity of Applied Sciences Fachbereich InformatikDepartment of Computer Science

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INTRODUCTIONINTRODUCTION

Picture: Anderson, Chris: http://www.longtail.com/the_long_tail/2008/02/wired-cover-sto.html [01.09.2008]

4Picture: Alex Mitrani (2007): http://flickr.com/photos/travellingslowly/479994983/ [15.09.2008]

Limited supply

Unlimited demand

Law of demand and supply

Market mechanism of coordination & ownership

Price takers vs. price makers

Figure: Craven, John (1990): Introduction to Economics, p.615

TRADITIONAL ECONOMYTRADITIONAL ECONOMY

Supply, Demand & EquilibriumSupply, Demand & Equilibrium

Choice under scarcity

Self interest vs max profit

Max Utility with limited budget

Substitute & Income effect influence demand

Figure: Mankiw, N. Gregory and Taylor, Mark P. (2006): Microeconomics: Microeconomics, p.4326

TRADITIONAL ECONOMYTRADITIONAL ECONOMY

Consumer BehaviorConsumer Behavior

7Picture: Donna Bogatin, (2007) CNET: http://blogs.zdnet.com/micro-markets/?p=154 [15.06.2008]

High first-copy costs (Fixed costs)

Low marginal costs

Declining infrastructure costs (processing, storage, bandwidth)

Economies of networks

Abundance rather than scarcity Amazon: 2,3 Mio books Bookshop: 40-100.000 books

Figures: compiled by author, based on Stahler (2001): Geschaftsmodelle in der digitalen Okonomie, p.1978

DIGITAL ECONOMYDIGITAL ECONOMY

DIGITAL GOODS HAVE…DIGITAL GOODS HAVE…

Network effects

Switching costs &

lock-in Durable purchases

(e.g. printer) Specialized suppliers

(e.g. ERP software) Search costs

(e.g. cell phone plans) Loyalty programs

(e.g. Tesco, real, etc.)

System effects

Standards

Figure: compiled by the author, based on Aufderheide, et al. (2006): Internet Okonomie, Wettbewerb und Hybriditat beiEssential Facilities, p.1459

DIGITAL ECONOMYDIGITAL ECONOMY

CHARACTERISTICSCHARACTERISTICS

10Illustration by Jeff Mermelstein

Over-supply Increasing storage & processing

capacity at decreasing costs Unlimited “shelf-space” of digital

businesses

Demand Irrational behavior with free

products No cost-benefit analysis at zero price Difficult to map utility No-cost = no disadvantage

Power of competition Webmail: Google & Yahoo

Critical mass crucial

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FREE ECONOMYFREE ECONOMY

CHARACTERISTICSCHARACTERISTICS

Pictograms: Anderson, Chris (2008): 12

FREE ECONOMYFREE ECONOMY

BUSINESS MODELSBUSINESS MODELS

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FREE ECONOMYFREE ECONOMY

BUSINESS MODELSBUSINESS MODELS

P/CC C

laborlabor

FREE

C Product

Benefit

CFREE FREE

Contribution

BenefitContribution

PC FREE

C

C

C

$

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CONCLUSIONCONCLUSION

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