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SMG IS 223 (35)
Lecture 6

SMG IS 223 Lecture 6: Notes - Strategic Market and Network Concepts
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Department
Information Systems
Course
SMG IS 223
Professor
Stephanie Watts
Semester
Spring

Description
Strategic Market and Network Concepts Digital Goods o Digital Goods: things that can be downloaded or streamed Made of 1s and 0s Books, videos, apps, software, music, etc. o This makes them potentially more profitable than hard goods Can be stored more cheaply (low cost of inventory) Can be delivered more cheaply (digital distribution) Produced differently Production Cost Structure of Digital Goods o Cost structure of information creates new business strategies o Information Products have a high fixed cost (first time setup), but can be replicated at almost zero cost Unlike physical goods, cost structure of digital goods allow digital good companies to: Give away product for free o Expose you to the product (create awareness) o Become the dominant standard o Create a (closed) platform; grow the understanding o Create switching costs tempt you to make purchase o Become more competitive o Increase network size o Internet PricingRevenue Models Freemium (Versioning): Flickr and Flickr protypically 1 actually pay Advertising models: Google is free to us but advertisers pay Sales revenue: iTunes etc., Aided by micropayments Subscription revenue: Netflix, NY Times Transaction fees: eBay, E*Trade Affiliate revenue: Epinions, YelpGet referral fees by sending a visitor to your website Cross subsidies: low cost for one thingbut high for another o Switching Costs Switching costs also called lockin costs Less likely to switch once accustomed to one format of technology because frustrating to learn how a new one works Difficult to switch vendors, or expensive to retrain employees on a new system
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