Internet Traffic, Information Overload, Switching Costs
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What is the primary reason for the prevalence of images in internet traffic, according to the content?

  • Images are used to display corporate logos and brand names. (correct)
  • Images are smaller in size and easier to transmit.
  • Images are primarily used for entertainment purposes.
  • Images are essential for displaying textual information.

According to Herbert Simon, a wealth of information leads to an abundance of attention.

False (B)

What fundamental problem exists in the information economy regarding information distribution?

The tension between giving away information for exposure and charging for it to recover costs.

The real value produced by an information provider comes in locating, __________, and communicating what is useful to the consumer.

<p>filtering</p> Signup and view all the answers

Match the following concepts with their descriptions:

<p>Information Overload = The state of being overwhelmed by the amount of available information. Economics of Attention = The study of how attention is allocated in an environment of abundant information. Search Engines = Tools that help users locate specific information and avoid irrelevant content. Brand Image = The perception of a product or company that is conveyed through visual elements.</p> Signup and view all the answers

What can be inferred from Amazon.com's agreement with AOL?

<p>Access to a large customer base is valuable in the information economy. (C)</p> Signup and view all the answers

Establishing a web presence guarantees visibility to potential customers.

<p>False (B)</p> Signup and view all the answers

What is the purpose of the Wal-Mart Television Network?

<p>To broadcast commercials on television sets in Wal-Mart stores.</p> Signup and view all the answers

What is the primary reason individuals were hesitant to switch from LPs to CDs, according to the content?

<p>They had a valuable collection of LPs and a working turntable. (C)</p> Signup and view all the answers

Switching costs only involve the expense of new hardware and not the cost of retraining employees.

<p>False (B)</p> Signup and view all the answers

What term is used to describe the knowledge and skills employees have that enable them to use hardware and software effectively?

<p>wetware</p> Signup and view all the answers

A cellular telephone provider invested in Qualcomm's technology and is now _____ into that technology, even if Qualcomm raises prices.

<p>locked</p> Signup and view all the answers

Match the following scenarios with the type of lock-in they represent:

<p>Individual consumer with a large LP collection = Individual Level Enterprise using Cisco's networking technology = Company Level Widespread use of Microsoft's Windows operating environment = Societal Level</p> Signup and view all the answers

What was the legal dispute between Lotus and Borland about?

<p>Borland copying the 1-2-3 command structure in Quattro Pro. (D)</p> Signup and view all the answers

Lock-in can only occur at the company level and not at an individual or societal level.

<p>False (B)</p> Signup and view all the answers

What assets are typically included when replacing an old system with a new, incompatible one?

<p>data files, durable hardware, training or human capital</p> Signup and view all the answers

Which of the following best exemplifies a product that benefits significantly from network externalities?

<p>A social media platform (C)</p> Signup and view all the answers

Positive feedback in network effects always guarantees long-term market dominance for the initial product.

<p>False (B)</p> Signup and view all the answers

Explain how network externalities contributed to the widespread adoption of fax machines in the 1980s.

<p>As more businesses adopted fax machines, the value to each existing user increased, leading to a rapid increase in demand and supply.</p> Signup and view all the answers

Technologies subject to strong network effects tend to exhibit long lead times followed by ______ growth.

<p>explosive</p> Signup and view all the answers

Match the following technologies with the type of network externality they primarily exhibit:

<p>E-mail = Direct network effect Macintosh computers = Indirect/Virtual network effect</p> Signup and view all the answers

What is the significance of 'critical mass' in the context of network externalities?

<p>The threshold number of users required for a product to become self-sustaining and experience rapid growth. (D)</p> Signup and view all the answers

Network externalities are only applicable to communication technologies, not to software or virtual networks.

<p>False (B)</p> Signup and view all the answers

According to the content, what contributed to the rapid growth of Internet traffic from 1989 to 1995?

<p>Traffic doubled every year due to positive feedback. (B)</p> Signup and view all the answers

Why might a company choose to make 'openness' commitments regarding their technology?

<p>To accelerate the adoption of the technology and achieve critical mass. (C)</p> Signup and view all the answers

Companies with de facto standards always ensure backward compatibility in their new products.

<p>False (B)</p> Signup and view all the answers

What is one way companies can achieve critical mass for a new technology, besides backward compatibility?

<p>assemble a powerful group of strategic partners</p> Signup and view all the answers

According to the content, having competitors aboard when launching a technology can assure customers that they will not be _____ once they are locked in.

<p>exploited</p> Signup and view all the answers

Match the role to the benefit it provides when forming strategic partnerships for a new technology:

<p>Large, visible customers = Directly building up critical mass and creating a bandwagon effect. Suppliers of complements = Making the overall system more attractive. Competitors = Assuring customers they won't be exploited once locked in.</p> Signup and view all the answers

Which of the following actions demonstrates a company's effort to gain competitive advantage and royalty income through formal standards?

<p>Having patented technologies incorporated into formal standards. (A)</p> Signup and view all the answers

According to the content, content providers such as Time Warner can also be seen as customers.

<p>True (A)</p> Signup and view all the answers

What is the role of the Federal Communications Commission (FCC) in the emergence of digital television in the United States, according to the content?

<p>To drag broadcasters along by offering them free spectrum for digital broadcasts. (D)</p> Signup and view all the answers

Which factor primarily drives the cost structure of information goods like encyclopedias and movies?

<p>Significant first-copy costs incurred before mass production. (C)</p> Signup and view all the answers

The cost of distributing information is increasing due to advances in information technology.

<p>False (B)</p> Signup and view all the answers

What economic concept arises as a result of the cost structure of information goods, where fixed costs are large and variable costs are small?

<p>Economies of scale</p> Signup and view all the answers

Information delivered over a network in digital form exhibits the first-copy problem in an extreme way: once the first copy of the information has been produced, additional copies cost essentially ______.

<p>nothing</p> Signup and view all the answers

Match the media type with its associated cost characteristics.

<p>Traditional Printed Book = High printing, selling, and distribution costs for each copy. CD Version of Encyclopedia = Lower reproduction costs compared to print, but still involves physical media. Online Version of Encyclopedia = Minimal reproduction costs; distribution is primarily network-based. First copy of a Movie = High development costs.</p> Signup and view all the answers

Britannica faced challenges in the market due to what primary factor?

<p>Inability to sell to a large enough market to recover costs. (D)</p> Signup and view all the answers

How did Microsoft's Encarta compete with Britannica in the encyclopedia market?

<p>By matching Britannica's price and offering an additional rebate. (C)</p> Signup and view all the answers

Fixed costs of production are small,but the variable costs of reproduction are large.

<p>False (B)</p> Signup and view all the answers

What primary strategy has enabled Reuters to succeed despite the commoditized nature of news?

<p>Packaging news items tailored to specific industries, adding value through filtering and sorting. (C)</p> Signup and view all the answers

Reuters avoids product commoditization by organizing information in ways that offer utility to customers, setting itself apart from competitors.

<p>True (A)</p> Signup and view all the answers

What percentage of the foreign exchange information market is controlled by Reuters?

<p>68 percent</p> Signup and view all the answers

Reuters supplies news stories to web-based news providers, such as ______.

<p>PointCast</p> Signup and view all the answers

Which of the following is NOT mentioned as an industry covered by Reuters' customized news services?

<p>Technology (B)</p> Signup and view all the answers

Reuters initially struggled to make a profit from supplying news to online platforms.

<p>False (B)</p> Signup and view all the answers

Besides news stories, what does Reuters provide as part of its data services?

<p>Data services</p> Signup and view all the answers

Match the following companies with their roles in the news/information service:

<p>Reuters = Dominant news service providing customized industry news. Associated Press = News service offering similar material to Reuters. PointCast = Web-based news provider using Reuters' news feeds. Dow Jones = News service offering similar material to Reuters.</p> Signup and view all the answers

Flashcards

Internet Traffic

The volume of data sent and received over the Internet, primarily through websites.

Image Dominance

Images account for nearly three-fourths of Web traffic in the modern information economy.

Brand Image

The perception a brand creates through its visual elements.

Information Overload

A state where excessive information makes processing difficult.

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Herbert Simon's Quote

A wealth of information leads to a poverty of attention.

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Value of Information Providers

The real worth lies in filtering and communicating useful information.

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Search Engines Importance

Essential tools that help users locate valuable information on the Internet.

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Attention Economy

A marketplace where attention is a scarce resource, often purchased or traded.

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Lock-in

A situation where users become dependent on a product or technology, making switching to alternatives costly or difficult.

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Switching Costs

Expenses incurred when moving from one system or technology to another, including monetary, time, and effort costs.

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Wetware

The human knowledge and skills related to using hardware and software effectively.

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Legacy System

An outdated computer system that is still in use, often because it is too costly to replace.

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Proprietary Technology

Technology that is owned by a specific company and not available for public use or modification.

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Open Standard

An expectation whereby products are made to be compatible with other products, allowing multiple suppliers.

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Technology Lock-In Examples

Examples of reliance on specific technologies, like LPs leading to fewer CD purchases due to incompatibility.

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Impact of Training on Switching

The knowledge of employees that can create resistance to changing systems, due to investment in previous training.

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Backward Compatibility

The ability of a system to work with previous versions or formats.

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Critical Mass

The minimum size or amount needed to start a successful initiative.

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Java Coalition

Group of partners, including customers and competitors, supporting Java technology.

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Complementers

Entities that provide products or services that enhance the value of a core product.

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De Facto Standard

A standard that is widely used and accepted but not officially sanctioned.

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Formal Standard-Setting

A structured process where companies agree on a standard for technologies.

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Intellectual Property

Creations of the mind that are legally protected, like patents and copyrights.

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Openness Commitments

Promises to share technology standards to foster synergy and adoption.

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First-Copy Costs

The high initial costs involved in producing the first unit of an information product.

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Economies of Scale

The reduction in average production costs as the volume of output increases.

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Fixed Costs

Costs that do not change with the level of goods produced.

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Variable Costs

Costs that change directly with the level of production.

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Information Pricing

The strategy of setting prices for information products based on production costs and market demand.

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Digital Distribution

The delivery of information products via electronic means, often reducing costs.

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Reproduction Costs

The minimal costs incurred to produce additional copies of an information product.

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CD Version Pricing

The competitive pricing of CD versions of encyclopedias, often much lower than print versions.

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Reuters Market Control

Reuters controls 68% of the foreign exchange information market.

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Equity Market Share

Reuters holds 33% of the equity market.

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Fixed Income Market Share

Reuters has 24% of the fixed income market.

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Commodity Business

Reuters operates in a commodity business selling similar news products.

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Customized News Services

Reuters provides tailored news for specific industries like shipping.

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Web-Based News Providers

Reuters sells news feeds to online providers like PointCast.

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Volume-Based Strategy

A strategy focusing on cost leadership by adding value to information.

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Network Externalities

Benefits that increase as more users adopt a product or service.

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Positive Feedback

A process where an increase in users leads to further growth due to increased demand.

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Explosive Growth

Rapid increase in the adoption of a product or service.

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Lead Times

The time it takes for a product to gain market acceptance after its introduction.

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Virtual Networks

Networks formed by users of compatible software or hardware systems.

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Demand-Supply Explosion

A dramatic increase in both demand and supply for a product in a short time.

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Market Takeover

When a product becomes the dominant choice in a market.

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Study Notes

Internet Traffic and Images

  • Internet traffic is heavily skewed towards images, comprising nearly three-fourths of web traffic.
  • Corporate logos and other visual branding are significant contributors to this image-heavy traffic.
  • The balance between providing information/branding and charging for it is a key economic challenge in the information economy.

Information Overload

  • The abundance of readily available, inexpensive information contributes to information overload.
  • The value added by information providers lies in intelligently locating, filtering, and communicating relevant information to users.
  • Search engines are highly successful providers of value by enabling users to find desired information while filtering out the rest.
  • The concept "a wealth of information creates a poverty of attention" is notable for its description of this problem.

Switching Costs and Lock-in

  • Switching costs associated with transitions to new systems/technologies (e.g., computer hardware, software) can be substantial.
  • This lock-in phenomenon applies to individual users, companies, and even societies.
  • The use of incompatible systems or technologies can lead to significant costs associated with switching over to a new system/technology.
  • Examples include transition from LPs to CDs, Lotus 1-2-3 to Quattro Pro, and Apple to Intel.

Network Externalities and Positive Feedback

  • Network externalities exist when a product's value to a user increases with the number of other users using it.
  • This positive feedback loop encourages wider adoption as the user base grows, leading to rapid growth and eventual market dominance.
  • Fax machines and the internet are prime examples.
  • Virtual networks, such as Macintosh users, also experience network externalities due to compatibility.

Achieving Critical Mass

  • Partnering (with customers, complementers, or even competitors) is a strategic way to gain critical mass and drive adoption of a new technology.
  • Examples include Sun's "Java coalition" ads and the collaborative rollout of DVD.
  • Formal standard-setting efforts also provide a means to achieve critical mass, as seen with the adoption of digital television standards.

Information Pricing

  • The production costs of information goods are primarily upfront "first-copy costs."
  • The cost of reproducing/replicating information is low after the first copy is made.
  • Information distribution costs are falling due to advances in technology, making upfront production costs relatively larger than historically.
  • The cost structure of information goods leads to economies of scale.
  • Reuters is a notable example of a business leveraging value-added features (filtering and sorting of news) to avoid issues of commoditization despite offering a large volume of news.

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Related Documents

Information Rules: A Strategic Guide to the Network Economy PDF

Description

Exploration of internet traffic dominated by images and branding. Addresses information overload challenges and the economic value of filtering relevant data. Discusses switching costs and lock-in effects when adopting new technologies.

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