Technological change Flashcards
How technology changes business models
- Print magazines and newspaper readership
> Falling as more consumer prefer to browse online
> Impact is lower print circulation and subscription revenues and a knock-on effect on advertising
> The independent has stopped their print edition - now only only - other newspapers will probably follow suit - Data storage devices
> Demand for memory sticks and other storage devices surged as consumers and businesses created so much more data
> Now most businesses consumers want to store their data on the Cloud rather than a single device
Innovation and creative destruction
- Innovation is putting a new idea or approach into action.
- Innovation is ‘the commercially successful exploitation of ideas’
- Innovation has demand and supply-side effects in markets and the economy as a whole
- Product innovation
> Small scale and frequent subtle changes to the characteristics and performance of a good or a service - Process innovation
> Changes to the way in which production takes place or is organised
> Changes in business models and pricing strategies - Schumpeter’s “creative destruction”
> Gambling (Coral shops –> Bet 365)
> Sharing economy (Taxi –> Uber)
Disruptive technology
Technology change that is applied to challenge the existing business models of competitors in a market
Pure-play e-commerce
An e-commerce business that online operates using digital channels (e.g. no physical distribution)
B2C
Business to consumer (e.g. John lewis)
B2B
Business to business (e.g. Amazon web services)
Dynamic pricing model
Where firms set flexible prices for product or services based on current market demands/ price elasticity of demand
Mass customisation
Non-price competition - offers a big range of choice to customers in how a product is configured and delivered
First-mover advantage (technological leadership)
The advantage (if any) gained by the initial (“first moving”) significant occupant of a market segment or industry
What is e-commerce
E-commerce involves digitally enabled commercial transactions between and among organisations and individuals
E-commerce and market structures
- A rise in e-commerce is causing changes in many industries
- 25 years ago these business did not exists:
> Facebook
> X
> YouTube
> Uber
> Airbnb - Is e-commerce leading to increased competition and enhanced economic efficiency and welfare
- Or are we seeing the rapid emergence of new digital monopolies who will be super profitable
Has E-commerce CUT barriers to entry (YES)
YES
- Widespread availability of smartphones and the associated app “eco-system” has created new ways of delivering existing products and services
- Global e-commerce platforms such as Amazon, eBay and google have made it much easier and cheaper for small businesses to access their target customer base
- E-commerce has made it much easier to expand into international markets
Has E-commerce CUT barriers to entry (NO)
NO
- Most successful new markets entrants have to invest heavily in e-commerce systems
- Existing players have the resources to protect their market position - e.g. Argos and John Lewis have invested heavily in omnichannel retailing
- The best performing e-commerce businesses are increasingly the best too - network economies of scale now more important
- Amazons market dominance has become a competition issue
Sharing economy - Platform business
Platform business and competitive advantages
- Many of the “sharing economy” e-commerce businesses own no substantial assets
- This reduces the capital they need to operate
Does price transparency aid competition
- It is hard to argue that consumers don’t benefit from price comparison sites
Network economies
- Network economies exist where the extra cost of adding one more user to the network is close to zero but the resulting benefits may be huge
- Each new user to the network can then interact and/or trade with all of the existing members or parts of the network
- The expansion of e-commerce is a great example of network economies of scale - it doesn’t cost Amazon much to add another 100,000 customers or another 100,000 product to its systems, but the revenue and profit effect can be significant
Impact of E-commerce
- The development of e-commerce has affected almost all of these factors below in most industries and markets:
> Size (revenues, quantity)
> Size distribution of firms
> Distribution channels
> Number of and closeness of substitutes
> Nature of costs in the short and the long run
> Extent of vertical integration
> Barriers to entry and exit
> Profitability of businesses
> Openness to international competition
