- Yichi Zhang
In this newspaper, I will compare the economic content of three companies in different areas - Google, Lenovo, and AT&T. I am going to focus on type of good dished up, market structure, market vitality and author conversation.
Google was founded in 1998 by two students from Stanford University, which was starting as search engines only. Now, more than 70% of world online search requests are treated by Google, positioning it at the heart of all Internet users' experience. Although Yahoo began as an online search firm, it now offers more than 50internet products, frome-mailand online document creation tosoftwarefor cell phones, tablet and computer systems. Also, Google is building their own infrastructure-Fiber, which cost $84 million, and providingbroadband internetandcable televisionto a small and gradually increasing amount of locations, which is cheaper than traditional service providers.
Lenovo was founded in 1984 by ChuanZhi Liu. It is a Chinesemultinationalcomputer technology company. In December 2004, Lenovo received the non-public computer division of the US-based IT large IBM, which was a breaking media for the globe. The purchasing made Lenovo Group get an total annual revenue exceeding 10 billion US dollars.
AT&T is a multinationaltelecommunicationscorporation, which is the second large specialist of mobile phone and the largest provider of fixed phone in United States. AT&T was founded in 1876 by Alexander Graham Bell, and called as "Bell Telephone Company". You can find more than 120 million customers in cellular business segment and 90% United States which includes been covered by AT&T 4G LTE. Customers can use AT&T's service in 225 countries surrounding the world.
- Private goods: Nexus and Google Glass;
- Open access common property: Digital Identity
- Impeded general public good: Fibers that customer pay to have service of Internet
- Public good: Open source free applications, i. e. Gmail;
Nexus is a category products of mobile device and tablet from Google, which is private good belong to its owner. It's in the perfectly competitive market that there are enormous retailers and buyers in the same market. Also, Yahoo has Google eyeglasses, which is popular wearable device. Wearable devices are disruptive creativity, which means improvement that threatens to displace the old product or industry. Clearly, Google glasses can be an outstanding one in the market. Now Yahoo makes glasses not only an item, but a good wearable device: people can take pictures and research online via this couple of glasses. Relating to Schumpeter's point, Pattern of Creative Devastation is the energetic development process inherent in a free market economy that creates scientific advances, new products and industries, triggering old existing systems and business to wither away and become obsolete. The impressive winners of the creative destruction process scale up to dominate their market. Eventually they become vulnerable to the next technology of innovators. Here I think Google Goblet is a harmful innovation stuff lately, and the similar product will be produced to compete with Google Goblet if the client accept it. During this time period, according to Brynjolfsson and McAfee's point for tangible goods that when there are offline seed capacity constraints or significant travel costs, the best vendor in market can only satisfy a small small fraction of the global market. So, the Google Glass will never be in the monopoly market though it is a descriptive advancement right now. Wearable device, like Yahoo Wine glass, as an creativity product of 21 century is defeating with the traditional industry, but in future, other development which is cooler than Yahoo Glass will appear and contend with Google Glass.
Google's search engine organize the world's information and almost know everything in the world, so that aiding google attracting significant users and collecting unlimited intangible data placed. These personal data can be transformed by merging data sets to create a "digital identification" for online consumers, which includes huge demand on the market to review customer inclination. Google use data mining technology to scrape what their users want for, what they would like to buy, and then Google press their clients' advertisings to the very best of effect list. This is Google Ads, the top revenue reference of Yahoo right now. The internet search engine is free, but users are paying for this service using their eyes so when they purchase a good that is promoted on research engine motor. In search engine global market, the HHI is 5122. 2. This means this is a higher awareness market and oligopoly market in global. You will find few suppliers in market, but unrestricted users are using them round the world.
Applications in play stores are public goods with fragile rivalry and poor exclusion, this means anyone can use applications but this does not limit the application available to anyone else. Because of the network effect, a lot more users on the market, the more applications waiting for you. Applications are also in the completely competition market. Rosenberg brought up Google open some sources for developers, this means releasing and actively aiding code that helps develop the Internet, to encourage more improvements. For example, Google's "copy left" is ways to incentive innovation, which is a special strategy weighed against other companies. The copy left attracts more users in every place of the world to fulfill various needs in different functions, since the more users in their pool, the greater revenue they earn in future. Copy left is an optimistic action for customers, creators and Google, which is also this is of network effect. In addition, it becomes Google's market electricity and that is also why Rosenberg feels that Google's future is determined by the Internet remaining an available system. Google is incorporating a public good, the open source software with advertising, creating an information compliment.
Fiber is infrastructure belong to impeded open public goods, which are manufactured through legislation, licenses, expectations and regulations. Google builds the infrastructure and charges consumers for his or her choice of Internet access, TV and Cellphone, which is a new ISP in U. S market. Here Fiber is within an oligopoly market and learning to be a real ISP now. You will find few vendors, but lot of customers in market; the admittance hurdle is high because the original type is high; vendor is the purchase price setter; they get long-term revenue in maximum. Google input the resolved cost in building data centers; purchasing fiber optic backbone; and building out FTTH ISP service in selected cities. Google fiber content is a good interposition for the current U. S online sites market, where users are paying almost the highest rate, but only getting the middle level of download speed. Google want to provide better individual experience, but charge the same or even less payment which is wanting to diminish the deadweight damage. So, Yahoo is looking at 150 megahertz of range in the 3. 5 gigahertz band that traditional providers are not interested in it because signs are only best for delivering heavy loads of data in city vast, but not an extended distance service.
Google is a leader in web Conglomerate. Google attained the thermostat and smoke alarm programmer Nest for $3. 24 billion, Waze, a traffic monitor application, for $1 billion, and Motorola's cellular phone business for $12. 5 billion. Google in addition has developed the merchandise Google A glass for the wearable processing tendency. Now, these services provided by Google practically cover all area of ICT system, which made Google become a one closed system. Corresponding to Wu's separations theory, we should create a salutary distance between each one of the major functions or levels of the info economy: Those that develop information; those who own network infrastructure; those who control the tools or venue of access. So, in Wu's ideas, this shut ecosystem is poor for ICT economy in long term.
Except network effect which is one of way to obtain market power I discussed earlier, Google also offers other sorts of market ability as IPR and Economies of Scale. Intellectual Property Right includes: Copyright, Patent, Trade top secret. Yahoo bought Motorola Flexibility mostly to grab its 17, 000 patents and 7, 000 patent applications. It has also purchased more than 1, 000 patents from IBM and found others from phone companies and automobile parts. Yahoo says it now control buttons more than 51, 000 patents and patents pending. Economies of scales means a sizable firm can produce or service a good at a lower unit cost than a little firm. Google has more users than other search engine companies, which lessening its marginal cost in long term.
Now, the effectiveness of the Google isn't just the strong patent portfolio I described in previous paragraph, but also the available source products and service and the culture of advancement. As the Google's mission which is to arrange the world's information and make it universally accessible and useful, in addition they do that in their products: Google's products can be utilized with any Operating-system or mobile device and free. Many unique and interesting products and services are made available from Google annually in their gross annual I/O meeting. In these 20 years innovation development, Yahoo is the second patent creator on the globe in 2012 since Google stands its ground breaking culture as you of its major competitive advantages and market electric power for now and future business. But, there are still some weakness in Google's business design, that the revenue source of Google is solo: A lot more than 90% of Google's income comes from internet marketing. So in future, Google shouldn't only provide free innovated products and service, but also develop multiple income sources, for example, Google must do more campaign on Google eyeglasses. Now Google eyeglasses sales volume is lower than the expected amount due to the high price. That means Google should pay more attention in changing the customers' shopping behavior what Steve Careers did 10 years earlier: Make customers think Google spectacles are the necessary things in their life.
Lenovo is an IT giant Conglomerate in China, but also a main player in global market now. Based on the left graph, we find out the marketplace talk about of Lenovo has exceed that of Dell and Acer in the global market. This success is based on one decision: Lenovo acquiredIBM's personal computer business in 2005, including theThinkPadlaptop and tablet lines, which aiding Lenovo's earnings climbing sharply. This acquisition is the most important strategy changing in Lenovo's record and aiding them get into the global market, like North America and European countries. Also, Lenovo bought Motorola from Yahoo in cash and stock offer in 2014, but Google still wthhold the ownership of the greater part Motorola's patents. Motorola already has certain reputation and market show in USA, so Lenovo's new acquisition decision can help them to start the gate of smartphone market in US, where is the greatest smartphone market in world. In recent 10 years, Lenovo paid a lot of attention and money in acquisition in global market, especially in US. Here I've a graph from Bloomberg to short what Lenovo does in last decade: Traditionally, Chinese manufacturers make huge amounts of computer systems and other devices sold by other companies, for example, Foxconn is only the maker of Apple, but Lenovo is different because it sells under its own name. To be a manufacturer, Lenovo is the owner of rich patent profile right now, since Lenovo has the DNA of technology in their bloodstream, rendering it become the first Chinese language global consumer brand. Based on the statistics, there is a designated increase of the progress of Lenovo's patents from being received and internally developed that happen to be covered from cellular to cloud in 20 years. Lenovo's products are mainly in private goods like notebook computers, tablets and smartphones, but they provide IT service, which is actually small part in their income stream. And these products are mainly in a perfect competition market with clear price information in global, that HHI is leaner than 1000, which is a low attentiveness market. So, Lenovo to be always a China structured company is trying to change their brand to an awesome innovator rather than a cheaper product service provider to appeal to more customers. Lenovo's sources of market ability are vertical integration and IPR which I talked about before. According to the term, vertical integrationis a technique to gain control over its suppliers or vendors in order to increase the firm's power in the marketplace, reducing transfer costs and protecting supplies or circulation channels. Once the competitions are employing out sourcing, vertical integrationis a substantial source of competitive benefit of Lenovo, which is assisting the supply string better.
Lenovo's talents: 1. Vertical integration 2. Strong patents profile 3. Competency in mergers and acquisitions. Each one of these three points I have discussed in last paragraphs. So let's go to weakness straightly. First, poor brand understanding in US. Lenovo's key market is China, where it offers most of its products, but it is hard for Lenovo to access US markets as its brand conception is low here even people know IBM ThinkPad. In the foreseeable future strategy, Lenovo should manage their brand in U. S. to contend with Dell, HP, Samsung and Acer. There is the other troublesome face Lenovo facing: The slowing expansion rate of the laptop computers market with declining profit margin. So, Lenovo's CEO is talking about that they can convert themselves "from a Laptop or computer market-share head into a PC-plus innovation innovator" to keep suffered growth and success. But what PC-plus development means here? I think it means software and applications in laptop. Lenovo has to follow the change of market to provide value-added products for their customer, however, not always give attention to the traditional creation and product sales. In Wu's "the second machine age", he talks about computing bounty that inventions in technology and new techniques of production will lead to huge increases in production and prosperity, and a country's potential to improve its quality lifestyle is determined by its ability to raise productivity by raising its end result per worker. It is an important point for China: China to be one of the most important economic entities on earth, but still a producing country, so that it needs more prosperity which is established by digital process. Because Development of goods and services in the foreseeable future will count less on physical equipment and physical buildings and much more on intangible property of intellectual property, organizational capital, customer generated content and real human capital; in other words, Lenovo has to consider to boost the automation technology to take the place of the manual employed in their creation process.
AT&T's a mainly cordless ISP in U. S market and its service is impeded goods, which is in the same category of Fiber from Yahoo. Impeded general public good which really is a public good provided with the right of exclusion. This exclusion happens by charging charges for service but this does not discriminate against every other person from wanting to use the service so that anyone in the market can use AT&T's service by paying to become a individual but this will not limit the service available to anyone else. Also, AT&T's variety licenses, privately owned or operated cell towers and other equipment provide AT&T with the ability to exclude people that choose never to pay their ISP service of Access to the internet. AT&T is in an oligopoly market with few competition as Verizon, Sprint and T-mobile. These 4 companies occupy almost 99% market show in the U. S market, which means HHI is 2964, this means a high attentiveness market. Inside the oligopoly market, because the set cost of infrastructure building is higher, it leads high access hurdle for outsider. So, the players in this market have ability to create price to maximize their profit. The market vitality is from: IPR, variety advantage, network effects, and price discrimination. AT&T Intellectual Property is one of the world's major IPR operations, with a traditions of innovation that dates back greater than a century to Alexander Graham Bell. Matching to AT&T's inside report, AT&T is the owner of one of the most powerful patent portfolios in the telecommunications industry and is consistently top placed in new patents creator. And AT&T shares LTE patent pool with Horsepower, ZTE and other operators to raise the entry barrier. The patent pool is an contract among business to talk about patents, lowering the chance and litigation costs. A variety auction is a process whereby a federal government uses an public sale system to market the licenses to transfer signals having data in the air from your smartphone to the internet. Spectrum is also known as the lifeblood of the wireless industry because more spectrum means faster and more-reliable cordless service. Now, range is a restricted resource controlled by the government. Before, AT&T and Verizon Wireless, sum with their market show reach to 70%, led the country's most profitable spectrum auction ever, helping them maintain the market advantages suppressing smaller rivals. FCC reveled that U. S cordless carriers were at the top of the heap for bids in range auction. So, in Google's Fiber content plan, they are simply lobbying FCC to open up unused spectrum to market, so they provides alternative cordless services. Network results are the effects that one consumer of the good or service is wearing the value of that product to other people. Here, AT&T owning the connections of the very most phone users helps them to boost their service and products better. Price discrimination is the work of offering the same product at different prices to different potential buyers, in order to optimize sales and profits. Cell phone plans provide a limited quantity of phone minutes monthly. These minutes are divided between peak time and off-peak hours. Peak time for cellular phone usage are during the day of the task week and off-peak hours are during the nighttime and on weekends. During off-peak hours, there is extra capacity from the mobile phone companies, and they can provide a cheaper way to obtain minutes. A discount emerges for minutes during non-peak hours, because the cellphone companies want to encourage more use at this period.
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