impacts Economics Design on the Internet
 
 
The Law of Scarcity <ul><li>When there are insufficient goods and services to satisfy all the human needs and wants of a s...
 
 
Demand Curve, or How Consumers Think
Supply Curve, or How Companies Think
How Do We Decide?
Markets <ul><li>“ A market is ... a process by which buyers and sellers are brought together so that they may exchange goo...
What is a Good Market? <ul><li>Consumers (buyers) get what they want </li></ul><ul><li>Companies (sellers) get what they w...
What Makes a Good Market:  Property rights are protected from:  Reinventing the Bazaar, A Natural History of Markets ; by ...
What Makes a Good Market:  Competition is fostered from:  Reinventing the Bazaar, A Natural History of Markets ; by John M...
What Makes a Good Market:  People can be trusted to live up to their promises from:  Reinventing the Bazaar, A Natural His...
What Makes a Good Market:  Side effects on third parties are curtailed from:  Reinventing the Bazaar, A Natural History of...
What Makes a Good Market:  Information flows smoothly from:  Reinventing the Bazaar, A Natural History of Markets ; by Joh...
Market Transparency <ul><li>The more transparent a market is, the easier it is to find out things about it, including what...
 
 
 
Disintermediation <ul><li>The removal of intermediaries in a supply chain </li></ul><ul><li>i.e. cutting out the middle-ma...
 
 
Search is the  main means of  TRANSPARENCY   on the internet But data is the source of it.
“Laser focus on search” <ul><li>“ We are laser focused on search.  We are not doing valuations. We are not creating heat m...
Before After
 
 
 
 
 
The Semantic Web <ul><li>An evolving extension of the World Wide Web in which web content can be expressed not only in nat...
Impact on Transparency <ul><li>“ Customers would benefit from the higher market transparency [engendered by the semantic w...
one day soon maybe ... Semantic linkages  are the main means  of  TRANSPARENCY   on the internet But data is the source of...
Whatever can be  TRANSPARENT   will be TRANSPARENT Whatever can be  DIGITAL   will be DIGITAL
Search Good <ul><li>Goods or services that you already know the value of </li></ul><ul><li>examples: iPod, airline flights...
 
 
Experience Good <ul><li>Goods that need to be experienced before you know the value  </li></ul><ul><li>examples: wine, doc...
 
 
 
 
 
 
 
 
 
 
Presenting Experience Goods <ul><li>Rating systems make experiences discrete </li></ul><ul><li>Multivariate (more so than ...
possible variables: Date movie, chick flick, “mindless fun,” keep the kids busy, viewer age, anchoring biases, etc.
 
Information Good <ul><li>Goods whose main value is derived from the information it contains, not the means of distribution...
 
 
“ The internet is just one large copy machine”
Distribution costs are almost nill
Switching Costs <ul><li>Any impediment to a customer's changing of suppliers </li></ul><ul><li>for example : switching fro...
 
 
 
 
 
 
Commodification <ul><li>The transformation of goods and services into a commodity </li></ul><ul><li>And a  commodity  is a...
 
Perfect (Commodity) Markets Assume Cost to Produce Increases with Quantity Supplied
Information Goods and Markets <ul><li>“ Markets ... for information goods aren’t viable, since the cost of incremental pro...
In Information Markets Consumers Win! Cost to the Producer Does not Increase with Quantity Supplied
The Great,   Ongoing   Information Good  FIRE SALE the price of many information goods will be driven to zero ... or the c...
The Great,   Ongoing   Information Good  FIRE SALE some caveats: intellectual property rights fixed costs of production co...
 
Lock-In <ul><li>Lock-in makes a customer dependent on a vendor for products and services, and unable to use another vendor...
 
 
 
 
 
 
 
 
“The Attention Economy” <ul><li>“ The Attention Economy is about the consumer having choice - they get to choose where the...
The  GREAT  “Experience-ization” companies want their (information) goods to be valuable
Digital features and functionality ... ... are also information goods ... ... and subject to the same economic rules ... ....
 
 
 
Network Effect <ul><li>A network effect is a characteristic that causes a good or service to have a value to a potential c...
 
 
 
 
 
Network “Effect-scalation” <ul><li>Rapidly building (or attempting to build) network effects by asking users to import the...
 
 
Matching Problem <ul><li>How can groups of people (e.g. buyers and sellers) be brought together to create the most value <...
 
“ Long tail” aggregation of desire
Aggregation of buying power
Microsoft And Yahoo <ul><li>Microsoft has “a long way to go, and Yahoo seems to be a way to accelerate that because of the...
 
“Barriers to Entry” <ul><li>Obstacles in the path of a firm which wants to enter a given market </li></ul>
 
 
First Mover Advantage <ul><li>Being the first to enter a market or to introduce an innovation because the firm can erect b...
 
Transaction Costs (Risks) <ul><li>A cost incurred (or risk faced) in making an economic exchange </li></ul><ul><li>Include...
Information Costs <ul><li>The costs of acquiring information on prices, product qualities, and product performance </li></ul>
 
 
 
 
 
Asymmetric Information <ul><li>This situation is present when one party to a transaction has more or better information th...
 
Signaling <ul><li>The idea that one party in a transaction conveys some meaningful information about themselves to the oth...
 
 
 
 
Creative Destruction <ul><li>The process of transformation that accompanies radical innovation </li></ul><ul><li>(i.e. a l...
Top 10 Reasons Why Markets Love The Internet <ul><ul><li>10. Couchville </li></ul></ul><ul><ul><li>9. Kozmo </li></ul></ul...
Thank you for attending (and thanks to Wikipedia and The Economist for my MBA).  Questions ...?
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Why Markets Love The Internet (Or the 1 Hour MBA for Experience Designers and Other Layabouts)

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This talk discusses basic economic concepts and their impact on design, using examples from the internet to illustrate.

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  • I was a little indecisive about what to name the talk
  • Why Markets Love The Internet (Or the 1 Hour MBA for Experience Designers and Other Layabouts)

    1. 2. impacts Economics Design on the Internet
    2. 5. The Law of Scarcity <ul><li>When there are insufficient goods and services to satisfy all the human needs and wants of a society </li></ul><ul><li>from: An Introduction to the </li></ul><ul><li>Market System , by Kalman Goldberg </li></ul>!
    3. 8. Demand Curve, or How Consumers Think
    4. 9. Supply Curve, or How Companies Think
    5. 10. How Do We Decide?
    6. 11. Markets <ul><li>“ A market is ... a process by which buyers and sellers are brought together so that they may exchange goods. The process may occur at a particular place or by any number of convenient methods ...” </li></ul><ul><li>... like, ahem, the internet </li></ul><ul><li>from An Introduction to the Market System , by Kalman Goldberg </li></ul>!
    7. 12. What is a Good Market? <ul><li>Consumers (buyers) get what they want </li></ul><ul><li>Companies (sellers) get what they want </li></ul><ul><li>Nobody gets hurt </li></ul><ul><li>Win-Win Situation </li></ul>from: Reinventing the Bazaar, A Natural History of Markets ; by John McMillan
    8. 13. What Makes a Good Market: Property rights are protected from: Reinventing the Bazaar, A Natural History of Markets ; by John McMillan
    9. 14. What Makes a Good Market: Competition is fostered from: Reinventing the Bazaar, A Natural History of Markets ; by John McMillan
    10. 15. What Makes a Good Market: People can be trusted to live up to their promises from: Reinventing the Bazaar, A Natural History of Markets ; by John McMillan
    11. 16. What Makes a Good Market: Side effects on third parties are curtailed from: Reinventing the Bazaar, A Natural History of Markets ; by John McMillan
    12. 17. What Makes a Good Market: Information flows smoothly from: Reinventing the Bazaar, A Natural History of Markets ; by John McMillan
    13. 18. Market Transparency <ul><li>The more transparent a market is, the easier it is to find out things about it, including what types of products or services are traded, their prices, and where they can be purchased </li></ul><ul><li>Generally speaking, the more transparent the better </li></ul>!
    14. 22. Disintermediation <ul><li>The removal of intermediaries in a supply chain </li></ul><ul><li>i.e. cutting out the middle-man </li></ul>
    15. 25. Search is the main means of TRANSPARENCY on the internet But data is the source of it.
    16. 26. “Laser focus on search” <ul><li>“ We are laser focused on search. We are not doing valuations. We are not creating heat maps. We are doing high-performance search.” </li></ul><ul><li>Alex Chang, CEO of Roost, a real estate search engine </li></ul>
    17. 27. Before After
    18. 33. The Semantic Web <ul><li>An evolving extension of the World Wide Web in which web content can be expressed not only in natural language, but also in a format that can be read and used by software agents, thus permitting them to find, share and integrate information more easily </li></ul>
    19. 34. Impact on Transparency <ul><li>“ Customers would benefit from the higher market transparency [engendered by the semantic web] and could make their buying decisions based on solid, computable information basis. Manufacturers ... are interested in informing as many potential buyers as possible about the existence of their products.” </li></ul><ul><li>from: On the Move to Meaningful Internet Systems 2003 by R. Meersman, Zahir Tari </li></ul>
    20. 35. one day soon maybe ... Semantic linkages are the main means of TRANSPARENCY on the internet But data is the source of it.
    21. 36. Whatever can be TRANSPARENT will be TRANSPARENT Whatever can be DIGITAL will be DIGITAL
    22. 37. Search Good <ul><li>Goods or services that you already know the value of </li></ul><ul><li>examples: iPod, airline flights, etc. </li></ul>
    23. 40. Experience Good <ul><li>Goods that need to be experienced before you know the value </li></ul><ul><li>examples: wine, doctor’s visit, trip to Antarctica, etc. </li></ul>
    24. 51. Presenting Experience Goods <ul><li>Rating systems make experiences discrete </li></ul><ul><li>Multivariate (more so than search goods) and multi-situational analysis </li></ul>
    25. 52. possible variables: Date movie, chick flick, “mindless fun,” keep the kids busy, viewer age, anchoring biases, etc.
    26. 54. Information Good <ul><li>Goods whose main value is derived from the information it contains, not the means of distribution </li></ul><ul><li>examples: music, news, photos, etc. </li></ul>
    27. 57. “ The internet is just one large copy machine”
    28. 58. Distribution costs are almost nill
    29. 59. Switching Costs <ul><li>Any impediment to a customer's changing of suppliers </li></ul><ul><li>for example : switching from Verizon to ATT </li></ul>
    30. 66. Commodification <ul><li>The transformation of goods and services into a commodity </li></ul><ul><li>And a commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a given market </li></ul>
    31. 68. Perfect (Commodity) Markets Assume Cost to Produce Increases with Quantity Supplied
    32. 69. Information Goods and Markets <ul><li>“ Markets ... for information goods aren’t viable, since the cost of incremental production is zero, your competition can sell for a lower cost and still make a profit.” </li></ul><ul><li>from Information Rules by Hal Varian and Carl Shapiro </li></ul>
    33. 70. In Information Markets Consumers Win! Cost to the Producer Does not Increase with Quantity Supplied
    34. 71. The Great, Ongoing Information Good FIRE SALE the price of many information goods will be driven to zero ... or the cost of looking at advertising
    35. 72. The Great, Ongoing Information Good FIRE SALE some caveats: intellectual property rights fixed costs of production complimentary goods fidelity paying for a hard copy no ads etc.
    36. 74. Lock-In <ul><li>Lock-in makes a customer dependent on a vendor for products and services, and unable to use another vendor without substantial switching costs </li></ul>
    37. 83. “The Attention Economy” <ul><li>“ The Attention Economy is about the consumer having choice - they get to choose where their attention is 'spent'. Another key ingredient in the attention game is relevancy. As long as the consumer sees relevant content, he/she is going to stick around - and that creates more opportunities to sell.” </li></ul><ul><li>Alex Iskold (Read Write Web) </li></ul><ul><li>related concepts: experience economy, surprise economy, expectation economy </li></ul>
    38. 84. The GREAT “Experience-ization” companies want their (information) goods to be valuable
    39. 85. Digital features and functionality ... ... are also information goods ... ... and subject to the same economic rules ... ... namely that someone can do it cheaper.
    40. 89. Network Effect <ul><li>A network effect is a characteristic that causes a good or service to have a value to a potential customer which depends on the number of other customers who own the good or are users of the service. In other words, the number of prior adopters is a term in the value available to the next adopter </li></ul>
    41. 95. Network “Effect-scalation” <ul><li>Rapidly building (or attempting to build) network effects by asking users to import their networks from other social networking sites </li></ul>
    42. 98. Matching Problem <ul><li>How can groups of people (e.g. buyers and sellers) be brought together to create the most value </li></ul>
    43. 100. “ Long tail” aggregation of desire
    44. 101. Aggregation of buying power
    45. 102. Microsoft And Yahoo <ul><li>Microsoft has “a long way to go, and Yahoo seems to be a way to accelerate that because of the critical mass that’s required to compete.” </li></ul><ul><li>Steve Ballmer, CEO of Microsoft </li></ul>
    46. 104. “Barriers to Entry” <ul><li>Obstacles in the path of a firm which wants to enter a given market </li></ul>
    47. 107. First Mover Advantage <ul><li>Being the first to enter a market or to introduce an innovation because the firm can erect barriers to entry and discourage potential rivals </li></ul>
    48. 109. Transaction Costs (Risks) <ul><li>A cost incurred (or risk faced) in making an economic exchange </li></ul><ul><li>Includes information costs, and managing risks (i.e. issues of trust, issues of price) </li></ul><ul><li>The higher these costs (risks), the less likely a transaction will occur </li></ul>!
    49. 110. Information Costs <ul><li>The costs of acquiring information on prices, product qualities, and product performance </li></ul>
    50. 116. Asymmetric Information <ul><li>This situation is present when one party to a transaction has more or better information than the other party </li></ul><ul><li>for example: I know I’m selling a fake, and the buyer does not </li></ul>
    51. 118. Signaling <ul><li>The idea that one party in a transaction conveys some meaningful information about themselves to the other party </li></ul><ul><li>for example: I tell you my real name </li></ul>
    52. 123. Creative Destruction <ul><li>The process of transformation that accompanies radical innovation </li></ul><ul><li>(i.e. a lot of people go out of business) </li></ul>
    53. 124. Top 10 Reasons Why Markets Love The Internet <ul><ul><li>10. Couchville </li></ul></ul><ul><ul><li>9. Kozmo </li></ul></ul><ul><ul><li>8. Audrey </li></ul></ul><ul><ul><li>7. iSmell </li></ul></ul><ul><ul><li>6. Flooz.com </li></ul></ul><ul><ul><li>5. CueCat </li></ul></ul><ul><ul><li>4. CyberRebate.com </li></ul></ul><ul><ul><li>3. iLoo </li></ul></ul><ul><ul><li>2. FuckedCompany </li></ul></ul><ul><ul><li>1. Microsoft ...? </li></ul></ul>
    54. 125. Thank you for attending (and thanks to Wikipedia and The Economist for my MBA). Questions ...?
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