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Home arrow Communication arrow How Digital Communication Technology Shapes Markets: Redefining Competition, Building Cooperation
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Consumption Side

Digitization has enabled increasing granularity of products by responding to consumer demand for functionality of products and unbundled product offerings. Production and sales at a granular level lowers the cost of marketing to the appropriate demographic group. Consumers find it cheaper to consume since the initial outlay is minimal and therefore less risky. The sunk cost of making a purchasing error is thereby lowered, enabling a greater sampling of products. The best example of this is the music industry. The music album is unbundled so that music lovers needn’t purchase an entire album: they can download, and pay for, individual songs, or they can stream songs. Streaming music is basically a rental service where listeners are paying for temporary access to the music. This allows greater sampling of songs, increasing the market for smaller artists who cannot sustain an entire album. As awareness of smaller bands increases, there may be a concomitant increase in ticket sales and attendance at concerts. For established artists, this effect may not be as pronounced. Apple’s new Apple Music service consists of streaming music, a radio station and a platform for artists to upload music and videos. This service provides many smaller pieces.

Amazon, by contrast, started out as a simple online bookstore. Using the information provided by customers using its service, Amazon branched out into ancillary operations that could utilize that information. If I purchased a book on gardening, then it would be useful to connect me to a garden store that sold me seeds and other equipment. Amazon would be the connector or link that brought all my consumption under one umbrella. And so it mushroomed into an enormous company, beyond its startup roots. Can this happen to the other granular companies today? “A small fraction of young firms exhibits very high growth and contributed substantially to job creation,” where high growth is defined as firms are increasing their employment by more than 25 % in a year. However, “the evidence shows that most startups fail, and most that do survive do not grow. But among the surviving startups are high-growth firms that contribute disproportionately to job growth” [36]. So Uber could become the next Amazon, but there aren’t many such Uberazons.

Recent startups such as TaskRabbit, Airbnb and Uber are examples of small product offerings where the intermediaries and supply chains have shrunk. These firms are software platforms offering unbundled consumption of housekeeping, residential or transportation products. Uber, for example, can be considered a software platform for transport and logistics. Note that, for a company like Uber, the data collected from, and the software created for, daily operations can be leveraged across multiple consumer offerings. Knowing the transportation patterns of frequent users of the car service gives the company detailed information about an individual’s lifestyle and possibly the lifestyle of a similar demographic. This information can be utilized or sold for other retail purposes. Such a development gives Uber the opportunity to morph from a startup to a much larger company.

Similarly, in the news media, users can access content via author blogs or via social media sites such as Reddit.com. Facebook’s News Feed has a specialized algorithm that feeds you exactly the news that aligns with your profile, so you get to read a customized newspaper. There are also tailored newsletters, delivered via email, such as Ozymandias, which scour the globe for interesting stories that are likely to be of interest to a user’s demographic. According to the Pew Research Center, 26 % of Americans get news from a mobile device, 40 % of Internet users favor the ability to customize their news and 75 % of online news consumers get their news from social networking sites or emails [42].

While there is value in getting news stories related to the user’s profile, there is noisiness in the information since no editorial supervision is present. While the curator of a blog can actively monitor information, news feeds on social media have no curator. The political implications of this customization feature on news sites are profound - there is limited overlap between individuals with ideological differences. Prior choices reveal preferences and new information flow is sorted based on these choices, thereby reinforcing the insularity and consistency of content. Individuals are grouped into silos and the overall population can become segmented along philosophical and ideological lines, polarizing society. Much of this separation can be attributed to social media, an issue I discuss in Chap. 5.

There is also an unbundling of currency. Whereas public currency, backed by sovereign nations, serves as a payment mechanism and a store of value, private currency unbundles these two functions. Digital currencies or private currencies, such as Bitcoin, serve as a means ofpayment, but do not serve as a store of value due to their volatility, as discussed in Chap. 6. TRR&R is vital in maintaining a core network of users who will accept this currency as payment and allow it to be sustainable as a standalone currency without the backing of any sovereign government or gold.

 
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