1AGENDA
Final Thesis
Introduction
Free economy
Traditional Economy
Christian Dahlhausen
Prof. Dr. Rainer Clement Digital Economy
Prof. Dr. Dirk Schreiber
Free Economy
Fachhochschule
Bonn-Rhein-Sieg
University of Applied Sciences Conclusion
Fachbereich Informatik
Department of Computer Science
2INTRODUCTION
ƒTechnology -driven change
in economics
ƒPotentially unlimited supply
of digital goods
ƒAttention becomes scarce
resource
ƒGiven rise to free business
models
3Picture: Anderson, Chris: http://www.longtail.com/the_long_tail/2008/02/wired-cover-sto.html [01.09.2008]4
Picture: Alex Mitrani (2007): http://flickr.com/photos/travellingslowly/479994983/ [15.09.2008]TRADITIONAL ECONOMY
Supply, Demand & Equilibrium
ƒLimited supply
ƒUnlimited demand
ƒLaw of demand and supply
ƒMarket mechanism of
coordination & ownership
ƒPrice takers vs. price
makers
5
Figure: Craven, John (1990): Introduction to Economics, p.61TRADITIONAL ECONOMY
Consumer Behavior
ƒChoice under scarcity
ƒSelf interest vs max
profit
ƒMax Utility with limited
budget
ƒSubstitute & Income
effect influence demand
6
Figure: Mankiw, N. Gregory and Taylor, Mark P. (2006): Microeconomics: Microeconomics, p.4327
Picture: Donna Bogatin, (2007) CNET: http://blogs.zdnet.com/micro-markets/?p=154[15.06.2008]DIGITALECONOMY
DIGITALGOODSHAVE
å
ƒHigh first-copy costs (Fixed costs)
ƒLow marginal costs
ƒDeclining infrastructure costs
(processing, storage, bandwidth)
ƒEconomies of networks
ƒAbundance rather than scarcity
àAmazon: 2,3 Mio books
àBookshop: 40-100.000 books
8
Figures: compiled by author, based on Stahler (2001): Geschaftsmodelle in der digitalen Okonomie, p.197DIGITALECONOMY
CHARACTERISTICS
ƒNetwork effects
ƒSwitching costs & lock-in
àDurable purchases
(e.g. printer)
àSpecialized suppliers
(e.g. ERP software)
àSearch costs
(e.g. cell phone plans)
àLoyalty programs
(e.g. Tesco, real, etc.)
ƒSystem effects
ƒStandards
9
Figure: compiled by the author, based on Aufderheide, et al. (2006): Internet Okonomie, Wettbewerb und Hybriditat beiEssential Facilities, p.14510
Illustration by Jeff MermelsteinFREE ECONOMY
CHARACTERISTICS
ƒOver-supply
àIncreasing storage & processing capacity
at decreasing costs
àU
ò•-•'Š‡ Žˆ †‹‰
businesses
ƒDemand
àIrrational behavior with free products
‚ No cost-benefit analysis at zero price
‚ Difficult to map utility
‚ No-cost = no disadvantage
ƒPower of competition
àWebmail: Google & Yahoo
ƒCritical mass crucial
11FREE ECONOMY
BUSINESS MODELS
Razor-and-blades model
Freemium 1% Rule
Flickr, Wikipedia (7.4mio users 0.9% writers)
Old-media Business model
Washington Post: Increasing viewers after free
Advertising
acccess, decreasing viewers with competitor
Google AdSense, Amazon Affiliates
Loss leader strategy
Cross
Signaling/marketing function in online music
subsidies
Cell phone contracts, technobrega, DVD Hits
12
Pictograms: Anderson, Chris (2008):FREE ECONOMY
BUSINESS MODELS
Zero Digital distribution almost costless (P2P)
marginal Disintermediation = saving unnecessary cost
Online music
costs
Reciprocal behavior
Labor
Shift of production to the crowd (Crowdsourcing)
exchange
GMX, Yahoo answers, Wikipedia, Goog-411
Mutual benefit through increasing utility
Gift
Altruism as motivation
economy
Freecycle, Open Source Software
13

FREE
C
P/C C
laborlabor

Benefit Contribution
C Product FREE CFREE
BenefitContribution

C $
C C F PREE
CCONCLUSION
Economies of Economies of Economies of
scale networks attention
Communication Information Collaboration
networks networks networks
Web not Read-only web Free Economy
available Digital Economy Read-write web
Traditional economy Diminishing Three processes:
State & Market barriers through
as coordinators internet Peer Production
Peer Governance
Peer Property
1415FREEECONOMY
RADIOHEAD
17FREEECONOMY
WIKIPEDIA
18FREE ECONOMY
TERRA BITE
*Graphic by Dr. Gholam Khaleghi, Hawaii Pacific University 19