GAFAM and Media Economics

Question 1

Eight observations about GAFAM

Answer 1

1. 5 of the world’s richest companies
2. Have combined IT, telecom, hardware devices and online services to create an oligopoly in the digital info economy
3. Each practice “winner-takes-all economics with little or no gov regulation)
4. Google and Facebook control 70% of online advertising
5. GAFAM has developed a global market platform, forcing traditional media actors to adapt/close operations (makes dev of alternative very difficult)
6. Practice algorithmic strategies using big data to identify consumer preferences, have created a new economic model
7. In top 20 companies in the world that spend most money on research dev of new tech
8. This oligopoly has taken place in a globalized and deregulated economy at odds with the original vision of the internet as: democratic, participatory and decentralized

Question 2

What is the business model of GAFAM companies?

Answer 2

Dual-sided platform model: To monetize their market power by charging users/advertisers, which leads to sustained supernormal profits/growth

Question 3

Features of winner-takes all economics?

Answer 3

• Cost and revenue economies of scale, scope, learning
• High switching costs

Strategies:
1. crating proprietary standard + platforms
2. Building large scale infrastructure
3. Branding + intellectual property
4. Litigation
5. Regulatory + tax arbitrage
6. Political lobbying

Result: dominance of one product/service category

leads to sustained high profits

therefore hard to displace dominant, well-managed tech business from leadership of core product market

Question 4

What is the threat the GAFAM companies fear?

Answer 4

Being eclipsed by another new company

Question 5

What is platform capitalism?

Answer 5

The economic and business model where digital platforms act as intermediaries, connecting users, workers and services provides through technology-driven marketplaces

Question 6

Examples of companies with platform capaltism:

Answer 6

Information companies:

Google: search engine dominance, advertising
Amazon: E-commerce platform and AWS cloud services
Meta: Social media and advertising
Apple: hardware and app ecosystem
Microsoft: Software and cloud services

Sharing companies:
Airbnb: short-term lodging between hosts/travelers
Uber/Lyft: connects riders with drivers using digital platform

Ride sharing industry decentralises ownership (change something by taking control, power etc) and creates gig-based opportunities for individuals

Many of these workers are supplemental workers- do not enjoy same benefits and protections as traditional, real wage employees (labor precarity)

Question 7

What is the gig labor market

Answer 7

Jobs provided on a temporary/freelance basis

Question 8

2 arguments for and against GAFAM

Answer 8

For: this is the optimal way to target resources into the necessary developments (by creating profit and incentives)

Against: there is too much private commodification and control by GAFAM- leads to economic imbalances and social inequalities e.g. gig workers

Question 9

What is the disruption thesis?

Answer 9

Disruptive innovation
Making a plus out of a minus
New software that needs to be get used to e.g. Canvas

Displacement: people will be dislodged from their traditional role
Empowerment: people will be given new status, money and power based on their ability to navigate the digital economy
Pushback factors vary: A) resistance to digitisation (online education) and B) Ready acceptance

Question 10

Characteristics of GAFAM

Answer 10

1. Winner Take-All Economics
2. High Switching Costs
3. Locked-in Users

4 Network Effects

5. Big Data-–Amazon knows your preferences—AI will make their knowledge even more penetrating

Question 11

Six axioms of economics?

Answer 11

• All firms are profit maximisers
• The number of buyers and sellers determine the market
• Three market positions:
  Monopoly
  Oligopoly (market is controlled by 4 or 5 firms)- hard leave/enter the market
• Alternatives or substitutes exist for all economic choices
• Changes in price (elasticity) affect the percentage of the product consumed
• Cost controls heavily influence the production decisions in mass communication
• Special media problems:
  Free riders: people that dont have to pay for the services. e.g. paid for by advertising

Question 12

What are the five major types of costs?

Answer 12

1. Fixed costs
2. Variable costs
3. Sunk costs
4. Transaction costs
5. Conversion costs

Question 13

Info about Twitter?

Answer 13

1. Started on March 21, 2006
2. Originally had a 140 word limit; doubled to 240 words in 2017, IPO in 2013

22% of Americans say they have used Twitter

Challenges of Twitter:
1. Slow ad revenue
2. Slow new user growth

central idea: keep in touch with your friends using short messages