The Internet as a Disruptive Force: How is Economics Affected by the Web
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Bruce Ledesma is a digital marketing strategist with over 15 years of experience helping companies with their online positioning. The document discusses how the internet has disrupted economics by enabling customization, user data monetization through targeted ads, and new pricing models like freemium. It also covers issues around data privacy and how the internet has increased competition by reducing information asymmetry between buyers and sellers.
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The Internet as a Disruptive Force: How is Economics Affected by the Web
- 1. THE INTERNET AS A DISRUPTIVE FORCE DIGITAL MARKETING HOW IS ECONOMICS AFFECTED BY THE WEB Bruce Ledesma Digital Marketing Strategist October 2014
- 2. BRUCE LEDESMA Bruce is a big data researcher and speaker and digital marketing strategist with over 15 years of experience helping companies position themselves efficiently online. He has developed work for Coca-Cola FEMSA, AmBev, Petrobras, Grupo Bimbo, GOL Linhas Aéreas, TAM, Cosan, Lojas Renner, TIM, VIVO, Bradesco, CSN, Homex, Maxcom, Marisa, Natura, Net Serviços, Santander, Sulamérica, TOTVS, and others. His main activities include developing digital marketing strategic plans, internet business models, social media marketing, content/video marketing, SEO, SEM, professional websites/blogs, and analytics strategy. Bruce holds a bachelor's degree in Business Administration from Universidade Mackenzie, an MBA in Digital Marketing from Fundação Getúlio Vargas, and a specialization degree in Social Media Marketing from New York University. He has traveled around the world twice, visiting 40+ countries, and speaks Portuguese, English, Spanish and Russian. Contact bruce@datafy.com.br @ledesmabruce br.linkedin.com/in/bruceledesma/ www.datafy.com.br www.slideshare.net/bruceledesma1
- 3. ECONOMICS IN THE 19TH AND 20TH CENTURIES HENRY FORD’S T-MODEL “You can choose any color, as long as it is black” DURING 200 YEARS IT WAS ALL ABOUT UNIVERSALS MASS PRODUCTION The single best way of offering a product or a service ECONOMIES OF SCALE > Economically feasible > Assembly line (lower cost) > Prices affordable for the general public HOW HAPPY WERE WE WITH UNIVERSALS ?
- 4. THE REVOLUTION OF THE END OF THE 20TH CENTURY UNDERSTANDING VARIABILITY!
- 5. WHAT IS ECONOMICS? “A social science that studies how individuals make choices on allocating scarce resources to satisfy their unlimited wants. ” IT IS A BEHAVIORAL SCIENCE “INDIVIDUALS” IS THE BIG WORD CAN WE PRODUCE GOODS AND SERVICES THAT ARE CUSTOMIZED FOR EACH INDIVIDUAL?
- 6. CHRIS ANDERSON’S “THE LONG TAIL” The forces of the web democratize and shift the control in supply and demand.
- 7. THE LONG TAIL IS THIS THE END OF BRICK AND MORTAR?
- 8. THE DIFFERENCE BETWEEN PRICE AND VALUE PRICE DEFINED BY THE COMPANY VALUE DEFINED BY THE CONSUMER THE WEB IS REDUCING THE GAP LESS INFORMATION ASSYMETRY
- 9. INFORMATION ASSYMETRY information asymmetry deals with the study of decisions in transactions where one party has more or better INFORMATION than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure in the worst case. WEB DRIVES PRICES MORE COMPETITIVE MARKET
- 10. NETWORK EFFECT & LOCK-IN At some point Windows had a 95% market share because of its ecosystem (users and partners) and not because of the software itself. A virtuous circle iPhone is enriching its ecosystem through developers who create apps, making its environment more valuable than the iPhone itself.
- 11. CLOUD TECHNOLOGIES OWNERSHIP USAGE NEW MODELS AFFECTING THE ECONOMY
- 12. FREE: THE FUTURE OF PRICES FREMIUM (FREE + PREMIUM)
- 13. FREE: THE FUTURE OF PRICES TARGETED ADS BASED USER DATA IS THE NEW CURRENCY! “THERE’S NO FREE LUNCH” MILTON FRIEDMAN (1912 – 2006) ECONOMIC SCIENCES NOBEL PRIZE IN 1976
- 14. DATA SENSITIVITY & PRIVACY Sold user data to the government. Police sent speeding tickets to Tom Tom users. CEO publicly apologized. Predicted client pregnancy to market baby products. Accused of violating clients’ privacy. Bad press in the U.S.
- 15. YOU ARE WHAT YOU LIKE BIRDS OF THE SAME FEATHER FLOCK TOGETHER
- 16. HOW IS ECONOMICS AFFECTED BY THE WEB THE INTERNET AS A DISRUPTIVE FORCE QUESTIONS? COMMENTS? COMPLAINTS? THANK YOU!
- 17. BIBLIOGRAPHY Adolpho, Conrado. Os 8 Ps do Marketing Digital. São Paulo, SP: Novatec Editora Ltda, 2008. Anderson, Chris. “Free: The Future of A Radical Price”. New York, NY: Hyperion – HarperCollins, 2009. Bruce Ledesma Anderson, Chris. The Long Tail: Why the Future of Business is Selling Less of More. New York, NY: Hyperion – HarperCollins, 2008. Digital Marketing Strategist Gladwell, Malcolm. Choice, happiness and spaghetti sauce. TED 2004. http://www.ted.com/talks/malcolm_gladwell_on_spaghetti_sauce?language=en Kosinski, M., Stillwell, D., and Graepel, T. Private traits and attributes are predictable from digital records of human behavior. Proceedings of the National Academy of Sciences of the United States of America. http://www.pnas.org/content/110/15/5802.full Mayer-Schönberger, Viktor and Cukier, Kenneth. Big Data: A Revolution that Will Transform How We Live, Work, and Think. New York, NY: Houghton Mifflin Harcourt Publishing Company, 2013. Newman, Jared. TomTom Caught Selling Speed Data to Dutch Police. PCWorld, 2011. http://www.pcworld.com/article/226527/TomTom_Caught_Selling_Speed_Data_to_Dutch_Police.html Siegel, Eric. Predictive Analytics: The Power to Predict Who Will Click, Buy, Lie, or Die. Hoboken, NJ: John Wiley & Sons Inc., 2013
Notas do Editor
- During the 19th and 20th centuries humankind was obsessed about “universals”. Question commonly raised were: What is the most economically efficient way of producing goods and services? How can we scale up production and bring down costs? What is the best product or service for everybody? The question is, “how happy were we with the ‘one-size-fits-all’ model?
- The great breakthrough of the 20th century was understanding that there is no such thing as the “best product of service for everyone” Rather, the question is “what is the best product or service for you?” Each and everyone has his/her individual preferences. When an individual’s demands are met, the individual is happier. Not everyone is happy with plain vanilla. There is demand for other flavors.
- Because economics is a behavioral science, it is not precise. Each individual wants to satisfy his/her wants. Is one-on-one mass marketing possible? An iPhone is produced as a standard product from the assembly line, but is it customized into individual products once it is purchased by consumers. The power of the web enables such phenomenon. No two iPhones are the same because of the different apps installed by each user.
- The Long Tail, in a nutshell “The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of "hits" (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into one-size-fits-all containers. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly-targeted goods and services can be as economically attractive as mainstream fare.” ~ Chris Anderson, author of the bestseller “The Long Tail: Why the Future of Business is Selling Less of More”.
- Amazon.com and iTunes are some of the most successful examples of companies that realized that unlimited shelf space allows them to supply niche markets, in an economically feasible way. Many brick and mortars businesses (Virgin Records, Tower Records) either went or are going out of business. Brick and mortar will not disappear completely but is surely experiencing substantial transformation because of the disruptive force represented by the internet.
- There is a gap between price (set by a company) and value (set by a consumer). When the value is higher than the price, a consumer will buy a product or service.
- The internet is reducing this gap between price and value. With a bigger supply of products and services online and the availability of tools such as price comparison engines, product/service demo videos, consumer reviews, and seller reputation rankings, information asymmetry is being drastically reduced. These forces are driving prices down, making the market more competitive.
- Often, the value of a brand is determined by the size of its ecosystem (network effect). The more players involved in the ecosystem (network), the richer the brand. Companies attempt to lock the consumer in their ecosystem so that they purchase more of its products and/or services. This becomes a barrier to entry for competitors.
- Cloud Technologies are enabling the creation of new business models which create substitute products and services. Cloud Technologies are expanding fast because of two main factors: prices for this service are plummeting they provide superior processing power than regular services (and more data security) There is great demand for services using cloud technologies which, in certain cases, create bottlenecks in internet services (Netflix) More and more people are going online.
- New business models “Free: The Future of Prices” by Chris Anderson Freemium is the original creator of the Free Price model. Freemium consists of an internet business model in which a small base of users paying for premium services allow a bigger base of users to use a basic version of the service for free. Again, the value of the service is determined by the size of the ecosystem, in this case made up of paying and non-paying users (people and companies).
- Facebook and Google are apparently free services for the users. They make money from advertisements targeted at individuals according to their online behavior and preferences. However, there is a currency involved, and that is “user data”. Often, data is referred to as the petroleum of the 21st century. Remember: there is no free lunch. If you are getting a service for free, either someone else’s is paying for it or you are paying in currency other than money.
- How OK are you with having companies collecting, compiling, manipulating and reselling data about you and your online behavior? Two Cases Providing Food for Thought Tom Tom, a GPS company, was losing money because smartphone apps were substituting their GPS devices. In search for other sources of revenue, the company decided to sell anonymous user mobility data to the Dutch government in order to optimize traffic flow. Such information resulted in the creation of speed traps, and Tom Tom users started getting tickets for speeding from the Dutch police. Tom Tom’s CEO had to apologize publicly for such consequence. Target, one of the largest retailers in the US, devised a predictive analytics system that could predict which clients were pregnant, based on the products they bought. The purpose of the system was to direct marketing materials for baby products early on during each client’s pregnancy. A teenager in her third month of pregnancy started receiving baby product coupons at home, infuriating her father who complained to Target that they were encouraging her to get pregnant. When he later learned her teen daughter was actually pregnant, he apologized to Target. How does this affect the economy? Are these cases of invasion of privacy or not? Where should we draw the line?
- According to a study published in February 2012 in the Proceedings of the National Academy of Sciences of the United States, liking “Curly Fries” on Facebook is a predictor of high intelligence. Obviously there is no connection between “Curly Fries” and intelligence and liking “Curly Fries” on Facebook will certainly not make you smarter. However there is correlation. Apparently, the first few people who liked “Curly Fries” were highly intelligent people. And because intelligent people tend to hang around other intelligent people, friends started liking “Curly Fries” as well. This confirms the “birds of the same feather flock together” theory. In other words, people with certain traits tend to present similar online behavior and like the same things on Facebook. Such findings will certainly transform credit and insurance industries, for example. How likely would a health insurance company be able to predict a person’s health condition and discriminate the price of his/her health insurance plan based on his/her online behavior? Would it be ethical to discriminate prices based on user online behavior? These and other questions still remain open. The Psychometrics Centre of the University of Cambridge developed a website (www.youarewhatyoulike.com) in which anyone can submit his/her Facebook likes and get an estimate of his/her personality. Try it. How accurate are the results?