The power of sharing in business

"Ignore basic economic principles at your own risk. Technology changes. Economic laws do not."

Carl Shapiro and Hal R. Varian in Information Rules

Agenda

• Why should I care about sharing in business?

• Microeconomics 101– Microeconomics of traditional goods (the past)– Microeconomics of shared goods (the present)– Microeconomics of incentives (the future)

• Public and private goods theory• So what the bleep can I share?• How many potential clients can I get if I

share?

Agenda

• Why would I care about sharing in business?

• Microeconomics 101– Microeconomics of traditional goods (the past)– Microeconomics of shared goods (the present)– Microeconomics of incentives (the future)

• Public and private goods theory• So what the bleep can I share?• How many potential clients can I get if I

share?

Wikipedia: The free encyclopedia

WikipediaApproximately 55 million visitors per month

Google: Free search engine

GoogleApproximately 130 million visitors per month

Facebook: Free social networking

FacebookApproximately 33 million visitors per month

Agenda

• Why would I care about sharing in business?

• Microeconomics 101– Microeconomics of traditional goods (the past)– Microeconomics of shared goods (the present)– Microeconomics of incentives (the future)

• Public and private goods theory• So what the bleep can I share?• How many potential clients can I get if I

share?

Agenda

• Why would I care about sharing in business?

• Microeconomics 101– Microeconomics of traditional goods (the

past)– Microeconomics of shared goods (the present)– Microeconomics of incentives (the future)

• Public and private goods theory• So what the bleep can I share?• How many potential clients can I get when

I share?

Microeconomics of traditional goods(the past)

Price

Quantity

SupplyDemand

P1

Q1

• You pay and receive a good

Microeconomics of traditional goods(the past)

Observations:

• Price = P1 (Price > 0)

• Quantity = Q1

• Benefits of the Consumer = Green area

• Benefits of the Producer = Yellow area

• Typical for physical goods

Price

Quantity

SupplyDemand

P1

Q1

www.dell.com

Microeconomics of traditional goods(examples)

www.travelocity.com

www.jcpenney.com

Agenda

• Why would I care about sharing in business?

• Microeconomics 101– Microeconomics of traditional goods (the past)– Microeconomics of shared goods (the

present)– Microeconomics of incentives (the future)

• Public and private goods theory• So what the bleep can I share?• How many potential clients can I get if I

share with this strategy?

Microeconomics of shared goods(the present)

You receive a free good in internet, such as free search engine service, free calls from PC to PC, free social networking, etc.

Price

Quantity

Demand

P2Q2

Microeconomics of shared goods(the present)

Observations :

• Price = P2 (P2 = 0)

• Quantity = Q2

• Benefits of the Consumer = Green area

• Benefits of the Producer = 0

• Typical for digital goods

Price

Quantity

Demand

P2Q2

Microeconomics of shared goods(examples)

www.wikipedia.org

www.google.com

www.skype.com

Agenda

• Why would I care about sharing in business?

• Microeconomics 101– Microeconomics of traditional goods (the past)– Microeconomics of shared goods (the present)– Microeconomics of incentives (the future)

• Public and private goods theory• So what the bleep can I share?• How many potential clients can I get if I

share with this strategy?

Microeconomics of incentives (the future)

Price

Quantity

Demand

P3Q3

0

You receive an incentive in a social currency such as ringtones, music, videos, minutes of calling, text messaging, SMS, etc. for using or buying a good, mainly advertising

Microeconomics of incentives

(the future)

Observations:

• Price = P3 (P3 < 0)

• Quantity = Q3

• Benefits of the Consumer = Green area

• Benefits of the Producer = 0

• Will be typical in the mobile world

Price

Quantity

Demand

P3Q3

0

Microeconomics of incentives

(examples)

search.live.com/cashback

www.virginmobileusa.com/stuff/sugarmama.do

Incentives is a new business model.

This model will be used widely in the mobile world.

Free ringtones, music, videos, minutes of calling, text messaging, SMS, etc. for watching advertising

www.yourexample.com

Microeconomics 101conclusions

Microeconomic of traditional goods(web 1.0)

• Price = P1 (P1 > 0)

• Quantity = Q1

• Shared benefits between consumers and producers

• Typical in the physical world

Microeconomic of shared goods(web 2.0)

• Price = P2 (P2 = 0)

• Quantity = Q2 (Q2 > Q1)

• Consumer gets all the benefits

• Typical in the internet world

Microeconomic of incentives(web 3.0?)

• Price = P3 (P3 < 0)

• Quantity = Q3 (Q3 > Q2 > Q1)

• Consumer gets all the benefits

• Will be typical in the mobile world

Agenda

• Why would I care about sharing in business?

• Microeconomics 101– Microeconomics of traditional goods (the past)– Microeconomics of shared goods (the present)– Microeconomics of incentives (the future)

• Public and private goods theory• So what the bleep can I share?• How many potential clients can I get if I

share?

Public and private goods theory

• Definition:“In economics, a public good is a good that is non-rivalry and non-excludable”

• Non-rivalryThe consumption of one good by one individual does not reduce its availability for others consumption.

• Non-excludability. No one can be effectively excluded from consumption of one good.

Rivalry

• Non-rivalry goods – Goods never run out (not scarce)– Examples:

• The fact that one use a search engine does not reduce its availability

• The fact that one watch an online video does not reduce its availability

• Rivalry goods – Goods can run out (scarce)– Examples:

• The fact of installing a software in a computer with a license key prevents to installing in an other computer (artificial rivalry)

• The sales of theatre tickets online is a signal of rivalry

Excludability

• Non-excludability – Difficult control of distribution or consumption– Examples:

• The fact that one can use a search engine does not prevent other to use it

• The fact that one watch a video does not prevent other to watch it

• Excludability– Easy control of distribution or consumption– Examples

• The fact of installing a software in a computer with a license key prevents to installing in an other computer

• The fact of accessing a website with password is a signal of excludability

Public and private goods theory

Type of goods

Excludable Non-excludable

Rivalrous Private goods Common goods / (Common-pool resources)

Non-rivalrous Collective goods

Public goods

Public and private goods theory

Private goods• They are scarce and the producer can control their

distribution and consumption• Almost any physical good• In internet: password protected services

Private goods (examples)

www.dell.com

www.travelocity.com

www.jcpenney.com

Public and private goods theory

Common goods / (Common-pool resources)• They are scarce and control of distribution and consumption are difficult• Examples:

– Hosting data transfer – Disk space

Public and private goods theory

Collective goods• Also know as artificially scarce goods, they are goods

that can be scarce or not and distribution is controlled• Examples:

– Copyrighted goods– DRM goods– Patents– Commercial software– “Walled garden” communities or social networks

Collective goods(examples)

iTunes Store

www.diamondlounge.com

www.aol.com

Public and private goods theory

Public goods• They are not scarce and the producer can not control the

distribution or consumption• Examples:

– Information in general– Digital goods– Wikipedia– Google– Yooutube– MySpace– Facebook– Etc.

Public goodsExamples

www.wikipedia.org

www.google.com

www.facebook.com

Agenda

• Why would I care about sharing in business?

• Microeconomics 101– Microeconomics of traditional goods (the past)– Microeconomics of shared goods (the present)– Microeconomics of incentives (the future)

• Public and private goods theory• So what the bleep can I share?• How many potential clients can I get if I

share?

So what the bleep can I share?

• Share something valuable for a large group• Share when you can not control distribution• Share when there is not scarcity problems• Turn private goods into public goods (if apply)• Make collective goods public goods (if apply)• Share when your business model is not clear• Share information• Always share digital goods (no physical ones)• Make flexible your copyright (use creative

commons)

In the hyper connected world free riders are welcomed!!!

Agenda

• Why would I care about sharing in business?

• Microeconomics 101– Microeconomics of traditional goods (the past)– Microeconomics of shared goods (the present)– Microeconomics of incentives (the future)

• Public and private goods theory• So what the bleep can I share?• How many potential clients can I get

if I share?

How many potential clients can I get if I share?

• Wikipedia 55 million visitors average• Britannica2.5 million visitors average

• Yahoo 130 million visitors average• AOL 60 million visitors average

How many potential clients can I get if I share?

• MySpace 33 million visitors average• aSmallWorld 50 thousand visitors

average(a social networking site for rich people)

How many potential clients can I get if I share?

Coming soon:What to sell in the hyper

connected world

Still need more help?

Marcelo HonoresEconomist, Master in E-Business, 15 years experience in IT

“The billion business model” consultant

marcelo.honores@gmail.com (511) 9924-22131

The Billion Business Model saga