AGENDA Final Thesis Free economy Christian Dahlhausen Prof. Dr. Rainer Clement Prof. Dr. Dirk Schreiber Fachhochschule Bonn-Rhein-Sieg University of Applied Sciences Fachbereich Informatik Department of Computer Science

Final Thesis

Free economy

Christian Dahlhausen

Prof. Dr. Rainer Clement

Prof. Dr. Dirk Schreiber

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

Picture: 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.61 TRADITIONAL ECONOMY Supply, Demand & Equilibrium

Limited supply

Unlimited demand

Law of demand and supply

Market mechanism of coordination & ownership

Price takers vs. price makers

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.432 TRADITIONAL ECONOMY Consumer Behavior

Choice under scarcity

Self interest vs max profit

Max Utility with limited budget

Substitute & Income effect influence demand

Picture: 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.197 DIGITAL ECONOMY DIGITAL GOODS HAVE…

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

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.145 DIGITAL ECONOMY CHARACTERISTICS

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

Illustration 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 FREE ECONOMY CHARACTERISTICS

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

Pictograms: Anderson, Chris (2008): FREE ECONOMY BUSINESS MODELS

FREE ECONOMY BUSINESS MODELS

CONCLUSION