The Internet Economy (Business Models and Strategies) 15.5.- 15.8.2019

Instructor

VilleV Saarikoski

Reviews (6)

Tuyen Thi Tran
Jemutai Gladies
Anne Ålander
Haianh Nguyen

Overview

Learning goals

  • identify the role of information and data in a value creation process e.g. the relevance of marginal cost zero and the non-rivalry of goods in creating digital services.
  • apply the skill of vicarious thinking in everyday negotiations and decision making
  • solve basic competition problems using the game theory framework
  • able to measure the position in a network and understand the value of different positions in a network
  • understand value creation in network environments
  • analyze the competitive strengths of companies working in a digital environment providing digital services
  • work with disruptive innovations

The title of this course is short and also bold. Many would argue that there is no such thing as internet economics and that well established economic principles also apply in the internet age. I do not argue with this. I agree with it. However there are some economic principles, which need to be underlined, which stand out and help us understand what is happening in the world around us.So if you like, I could have called this course Economics at the Internet Age. But I wanted to be bold and I gave the course the name the Internet Economy.

Scarcity is a central concept in Economics. The Internet is in many ways challenging what we formerky considered to be scarce resources.  In many respects there seems to be an abundance of resources including computing power and communication capacity. One should at least ask, what is scarce in the Internet Age and where and how should one apply established economic principles.

During my career I have worked in the telecommunications environment both as a sales director and a director in charge of R&D. My native Finland was the first country in the world to deregulate the telecom arena and partly because of this Nokia was a pioneer in the mobile industry and mobile handsets through 1985 all the way to 2005.

At the end of the century, when living in Japan,  I witnessed the Japanese success with their mobile internet - the I-mode. The west, Finland included, struggled with kick starting the mobile internet market. In 2004 I came up with a novel discovery and argument, which was later in 2006 accepted as my PhD thesis. I was the first in the world to argue for a logical reason referring to the mathematics of networks, why mobile operators should move away from transaction based pricing (pay per minute, pay per message, pay per megabyte of data). I also argued, at the time, that the text message is a barrier to growth.

Today in 2018, in Finland a flat rate business model dominates the market and applications like WhatsApp have taken over from the traditional text message.In the summer of 2017 the EU regulated and set a price cap on international roaming between the EU countries. For the first time toursits will instead of closing their mobile data, start to use their mobile data to find good tourist locations.  In the Autumn of 2017 I visited both the US and India. Flat rate type business models were picking up in both countries.Today the mobile internet and flat rate has established itself and around a billion people have moved away from transaction based pricing plans toward flat rate.

In the past 12 years data consumption in mobile has increased perhaps a thousand fold. Instead of talking about megabytes per day, we are now talking at Gigabytes per day (the average in Finland is c 11 Gigabytes per month (0,35 G per day) and there is room to move away toward other business models.I am expecting a step by step price to emerge  e.g. X Euro per gigabyte.

Since 2011 I have been working to revolutionize education. It is my belief that online learning will change the way we both teach and learn.

Looking back at my career, my interest is in building new information age markets. I have been deeply involved in changing the mobile paradigm and in changing education. This course is all about building new markets in the internet age and understanding some of the basic theoretical concepts related to why digital is a different to a physical (or service) product.

In the course I build from my exprience, I try to include cases and stories to aid understanding, but above all I build also from an understanding of theory. I build from an understanding of the economic character of information, interdependencies (game theory) and networks. This is an understanding which I have found to be both immensly interesting and of a lot of value, when trying to implement change in practice.

The first five chapters will give you a theoretical understanding of the internet economy including an understanding of what a market is and how markets emerge.

Information has some very interesting properties. In the first chapter "Earning with information", we will discuss some of these properties. Be warned some of the characteristics of information and in particular the implications of these characteristics might challenge some of your deeply embedded beliefs. You will possibly need to question at a very fundamental level some of the ideas you hold to be true. For this reason I have a slightly overpopulistic way to express myself. The sole purpose is to help you understand and encourage you to question the surrounding world and study the arguments further. I root my arguments in academic literature.

The skill of vicarious thinking is important. We live in a world in which it is not only our decissions that matter but also what others wil do. There is a structured way to think of these interdependencies. It is known as game theory. I will in the second chapter discuss some simple examples. If this is the first time you are introduced to game theory, it might take some practice to master the way of thinking even though I have tried to keep the examples at a basic level.

In the third chapter we will discuss networks. The most simple way to measure a position in a network is to count the amount of friends one has. Most of us stop there. We rarely think about other ways. However, there are a huge variety of other ways to also measure position and characteristics of networks. I will intoduce you to some. Businesses locate themselves into networks with other businesses. In these environments value creation, value division and value capturing become important and are essential to understanding why some businesses succeed and others fail..

The internet is a huge network. One of its key features is that it is a very connected network. We will discuss characteristics of this connectedness. In particular we will talk about the the myth of six degrees. The connectedness of the internet, the availability of both computer capacity and transmission capacity, has changed the fundamental business logic of many businesses.  We will discuss the phenomenon of the Long Tail in the connection of web-commerce and issues dealing with the reorganisation of rights.

The next step is to discuss what markets are and how they emerge.This we will do in the chapter I have named "Markets". The purpose here is that the course participant will look at markets from the market perspective and not from the perspective of an individual actor (e.g. company) in a market.

Once this market perspective has been achieved, I encourage the course participant to move back to the individual actor perspective and with this I mean the perspective of a e.g. a start up company acting in the market or that of the incumbent trying to implement change in a market. For this reason I have titled the chapter "creating new markets". The idea is that the actor (e.g. the start up) is also an active player in redefining the marketplace and also in possibly creating a new market place.

The Business Model Canvas (Osterwalder & Pigneur) is a great tool to put all the pieces of this course together. You might also want to look at Strategyzer.com . In Particular the business model canvas is great when one designs a business model or when one decides to test out a new possible change in the present business model. In a business model all the pieces of a company have to fit together and one has to be careful not to give away for free something which is core to keeping the business intact. In many case when working with business models you will for example need to understand the connection of daily tasks to the core business model of the company. The Business model canvas however is not the best possible tool to understand the business model of an existing company. The Business Model Navigator (Gassmann, Frankenberger, Csik 2014) is an interesting approach to understand the business models of existing companies.

Enjoy the course

Ville

 

 

Course content

  • Practical Information - how to pass the course and grading

  • Optional Learning Paths - How to deepen your learning and review what you have learnt

  • Chapter 1. Earning with Information

  • Chapter 2. Understanding Interdependencies - Game Theory Basics

  • Chapter 3. Networks - Value creation, Value Division and Value Capturing

  • Chapter 4. The Internet - A Huge Network of Interdependencies and Information

  • Chapter 5 How it works - The Google Search Engine and Pricing Google advertisements

  • Chapter 6. Markets

  • Chapter 7. Creating New Markets - How Theory Helps

  • Chapter 8. Business Models - Why They Matter

  • Chapter 9 Work in Progress

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