1. Group Case-Studies

An integral part of class; each case-study will be on a single internet company (from any of the 4 categories of companies). Each study will provide a brief history of the company, what market and cost structure it falls under (the economic analysis), a financial performance analysis and – most importantly – a business plan to expand, improve, and grow. Approximate length – 20/25 pages.

Logistics – each case-study will be done by a group of 5 students; formation of a group and choice of company yours (but has to be cleared with me). Group needs to form by end of Week 3 (so every student must be in a group by then), choice of company by end of Week 6, an outline ("Executive Summary") by end of Week 9 and final draft by end of week 13. Communicate formation of group and choice of company via email, Exec Summary will have to be handed in and will be "graded".

To ensure that material is being understood, periodic (fortnightly?) problem sets. May get graded; will not count towards course grade.

Grade distribution: Final 40%, Mid-term 20%, Case-Study 40% (as a group).

2. Goods Sold on the Internet (Ecommerce) Sector

Two kinds of goods sold: information (goods) and physical goods and services.

An information good is a non-exclusive (can be accessed and used by many consumers at the same time) and non-depletable (one person’s usage does not reduce the amount for the others) product. Good may or may not be non-excludable (a consumer can be prevented from using it). Examples – software (Netscape browser, BusinessPro, Clickanalyzer, …), consulting/advice (investment advice, investment analysis, legal services, …), newspapers (NYTimes, WSJ). Excludable example – newspapers (WSJ) [How can copying and pasting URLs be prevented?), non-excludable (?).

A physical good or service is something that is depletable. (Note the Internet still has an informational role but now it points to the physical good/service. Innovation of WWW (as opposed to email, FTP, etc.) Recent big story of Internet is growth in range and number of physical g/s that can be purchased online. Examples – books (amazon.com), airline tickets (priceline.com), furniture (furniture.com), music (CDNow.com), computer equipment, brokerage, travel and other retail services …

** Story from NYT’s Home Section for today on furniture – range of products, range of sites, quickness of entry, many new & some old, specialized search engine; high-end, big items

** Story from WSJ’s Marketplace Section for 9/7 on groceries – ditto, except for small items.

Questions: Will the Net engender more choice (in quality, selection) for customers? How will the additional choice affect consumer search? How will it affect traditional business outlets (examine and then buy on Net)? Search and Certification Intermediaries

3. Cost Side

1. For information goods, very low (essentially zero) marginal cost; e.g., browser, server software, investment advice. There may be a substantial fixed costs but need not be. Examples – Netscape, YellowPages, Whispers, Motley Fool, etc. Some physical goods and services also have near zero MC.

** Story from NYT’s Cover Page for today on College classroom notes – Facts, fixed costs, price for service, effect on original producer of idea..

Questions: Is it profitable to give away information for free (note role of MC as well as the anticipated advertising volume? What incentives does the producer of information have (why should I stay up all night producing these notes – or why should Columbia invest in me to do that – if Student U can simply copy the idea? Will universities disappear (and stock analysts, and R&D labs etc.) Free Information

 

2. For non-information goods, production costs may be no different than they would be without the internet; in particular, same issues of inventory management, returns to scale, distribution network arise. However, lower selling and advertising costs.

** Story from WSJ’s Marketplace Section for 9/8 on warehouse building and back office structure – Facts

Questions: Can the sellers simply sub-contract with producers? What is the difference in costs when goods are sold online versus traditionally in stores? Why is it particularly important to build the best distribution network for e-commerce? Cost Advantage

1. Demand Side

1. Increases the market (e.g. Blair Witch Project, amazon.com)

** Story from NYT’s Circuits Section for today on selling at auction sites – Facts, auction sites as a group

Questions: What is the effect on quality? Search and Certification Intermediaries

1. Market Competition

1. Price competition can be ferocious – Because price information is readily available, Selling at or near MC means losses on account of fixed costs - examples:
2. Entry is easy – sometimes entry is not easy

** Story from WSJ’s Marketplace Section for 9/9 on Microsoft’s entry into priceline.com’s turf – Facts

Questions: Is location very important? How can advertising help? Product Differentiation

1. Other trends

1. Globalisation
2. Network externalites – chat groups, email groups
3. Financial Market fascination

1. Basic Thesis

Search and Certification Intermediaries