10:08 PM - Beer, Peanuts And Cash Around the Net
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shoes sale,Some internet gurus would still have you believe
that free access to the Net is really a fundamental right of man.
They're incorrect. As economists prefer to say, there is no totally
free lunch, not even in cyberspace.To know why, consider the free
lunch itself. Bars offer free (often salty) food to encourage
individuals to drink more. This really is what economists call
selling complements. Other examples are razors and blades, left
footwear and right footwear, or phone and Internet service.
Consumers care only about the total price of the package, so giving
away 50 cents of peanuts to offer an additional dollar of beer
makes financial sense.The logic is clear when complements are sold
by one business, like a bar. But what happens when they are sold by
various companies? Then you will find offers to be made, and this
really is happening all more than Europe. For telephone companies,
free Internet Service Providers (ISPs) are like salty peanuts,
luring customers. So the phone businesses are willing to share a
fraction of local-calling revenue using the ISPs, as much as 30 %
in some European nations.The question is whether or not that income
is sufficient to give individuals the service they want. Most
likely not. Most clients aren't satisfied with peanuts: they want
the complete Internet buffet (e-mail, calendars, search engines,
directories, customer assistance and the like). So how do free
solutions spend for all that?Cheerleaders for your New Economic
climate frequently argue that network enterprises operate under new
rules, with special price advantages. However they do not. An ISP
enjoys traditional supply-side economies of scale: as soon as it
has spent the cash to create content material, the cost of
distributing it's small. If ISPs can bring in plenty of customers,
they do not need to make extremely much cash on each customer to
break even. This phenomenon is often baffled by New Economy gurus
with demand-side economies of scale or network effects, which raise
the value of a good to customers. Telephones and fax machines are
classic examples--the much more clients have them, the much more
useful they are to any one consumer.There is nothing truly new
concerning the Web enterprises in any of this. There are not even
large demand-side economies of scale in promoting fundamental Web
access, unless you add on services. For example, consider AOL's
Immediate Messaging service. The more individuals use Instant
Messaging, the much more likely other people will adopt it. The
largest ISPs can benefit from both supply-side and demand-side
economies of scale, but only if they develop the proper solutions.1
technique would be to get big quickly by providing away totally
free Web access and create services later. This is what Tiscali is
attempting to do in Europe. Nevertheless, it will be hard to pull
this off since the company's share of income from local phone calls
caps the price of solutions Tiscali can offer. Furthermore, as
telecommunications deregulation spreads in Europe, local-calling
rates are most likely to plummet. For-fee ISPs like AOL are
lobbying hard for flat-rate nearby calling, which would be
excellent for their business. (If you sold only razors, wouldn't
you want to cap the price of blades?)So Tiscali has its function
cut out. Flat-rate local calls would be the norm in the Usa and
nobody has been able to create the free-ISP model work there. A few
companies hoped advertising revenue would cover costs, but which
has failed. AOL costs other companies (like Bloomberg monetary
solutions) for your correct to appear on its Websites and acquire
access to its loyal consumer base. Why are they loyal? Simply
because AOL has sufficient cash from its consumer fees to keep its
customers happy.Still, reduced costs really are a traditional way
to jump-start an Web company. AOL built its base within the United
states by providing 200 hrs of totally free service. Microsoft
upped the ante and now provides two years of totally free
access--in the hope of hooking customers on Microsoft services like
greeting cards and maps. So the race to grab subscribers is in full
stride, and those companies that construct consumer loyalty will
win in the long term. There is no way a free, barebones ISP can
keep the pace. So grab the totally free lunch while you are able
to. It will not be around forever.I found
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