Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
Internet
Economics
Paolo Cellini LUISS 2015
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET ECONOMICS
Paolo Cellini
@cellinip
Venture Partner @ Innogest SGR
Board Member @ LVenture Group SPA
Previously he had wide ranging, but related experience in many parts of the world:
• Executive Vice-President of the Internet and Business Sales Divisions of SEAT,
the publisher of the Italian Yellow Pages.
• Vice-President in London of the Disney Internet Group responsible for Europe,
Middle East and Africa
• Vice-President in Paris of the Disney Interactive Group
• CEO in Tel Aviv of AOL/Time Warner’s mobile services
• Program Manager at Microsoft in Seattle
• Senior Advisor, based in London, for Hutchison’s 3G mobile venture in Europe
• Advisor to the European Commission in Brussels and Luxembourg, for its R&D
programme in media and advanced telecommunications
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET ECONOMICS
Ciro Spedaliere
@CiroSpedaliere
Investment Manager @ LVenture Group
Professional Experience: Seat Pagine Gialle, Innogest
Education: Politecnico di Torino, UC Berkeley
Alessandro Angeletti
Investment Analyst @ LVenture Group
Professional Experience: LUISS ENLABS
Education: LUISS, HEC Montreal
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET ECONOMICS
• To understand the reasons and motivations that
make the Internet so important
• To get a complete overview of the phenomenon
• To understand economic specificities of online
markets
Why a book of Internet Economics?
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
WHY INTERNET IS SO IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
WHY INTERNET IS SO IMPORTANT?
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
BECAUSE THERE ARE OVER 2 BILLION PEOPLE
ONLINE
2,4
34% 39%
2,8 2,1 1,0
2012 2013*
2010
30%
2005
16%
Billion Billion Billion Billion
% of
Global Pop.
*Estimated
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
BECAUSE IT CONNECT US SOCIALLY
1.26 billion registered users
728 million users connecting each day
4.5 billion each day
10 billion messages sent daily
1 billion registered users
100 million active users every day
500 million messages sent daily
TWITTER the record: 143 thousand tweets per second
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
BECAUSE WE CREATE AND SHARE CONTENT
8 2
2015*
2011
ZETTABYTE
S *Estimated
ZETTABYTE
S
How much is a Zettabyte?
1.000 Megabytes = 1
GB 1.000 Gigabytes = 1 TB
1.000 Terabytes = 1 PB
1.000 Petabytes = 1 EB
1.000 Exabytes = 1 ZB
1 Zettabyte
250 Billions of DVD =
DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD DVD
Amount of digital information
created and shared
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
SOME EXAMPLE? VIDEO...
YouTube
6 billions of hours of video watched. ... every
month! almost an hour for every person on
Earth
100 hours of video uploaded ... every
minute!
1 Billion unique users every month
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
SOME EXAMPLE? PHOTO...
350 Millions
50 Millions
400 Millions
Number of photos uploaded and shared on a DAILY BASIS for platform
SNAPCHAT INSTAGRAM
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
BECAUSE WE ARE ALWAYS CONNECTED
67% of active daily user of Facebook
connects via mobile
More than 1.2 billion people accessing the
web with their mobile device
The data traffic generated by mobile is the
15% of all internet traffic
The 26% of all emails are opened by the
telephone, 10% from a tablet
Mobile searches are the 25% of all online
searches
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
WHY HAS SPREAD IN A FEW YEARS
Informativ
e
Platform
Searchabl
e Platform
Social
Platform
Mobile
Platform 5.000
4.000
3.000
2.000
1.000
1990 1995 2000 2005 2010 2015
Scientific
Platform
DESKTOP
MOBILE
Inte
rnet
Users
(Millions)
Key Platforms
INT
ER
NE
T O
F T
HIN
GS
Next?
Yahoo Google Facebook Apple, Android Mosaic
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
BECAUSE IT HAS A BIG ECONOMIC BURDEN
% GDP from Internet 2009 (Source: McKinsey)
• If the Internet was an
economic sector would have
a higher percentage weight
to agriculture
• $ 1,670 Billion GDP
produced by the Internet in
13 countries analysed
€ 29 Billions
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
BECAUSE IT HAS SO MANY BIG PLAYERS
$ 5,1 Billions of revenue
2012
$ 3,7 Billions in 2011
$ 50 Billions of revenue
2012
$ 38 Billions in 2011
$ 14 Billions of revenue
2012
$ 11,7 Billions in 2011
$ 61 Billions of revenue
2012
$ 48 Billions in 2011
Acquired: $ 715 Millions
from Facebook - No
Revenues
Denied $ 3 Billions from
Facebook - No Revenues
Acquired: $ 966 Millions
from Google
$ 18 Billions IPO
revenue 2012: $ 317 Millions
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
WHY INTERNET IS SO IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET IMPACTS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
WHAT ARE THE ECONOMIC IMPACTS?
For Companies
• Reducing supply costs
• Improved supply chain management
• Better inventory control (Just in time management)
• Development of outsourcing practices
For Consumers
• Reducing information asymmetries
• Increased consumer surplus
For Markets
• Lowering transaction costs
• Pricing mechanisms (e.g. auctions)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
WHAT ARE THE IMPACTS ON PRODUCTIVITY?
Ability to reduce transaction cost and time
Ability to simplify procedures
Possibility of working, collaborating and co-ordered remotely
What if:
Online tools, broadband and web processes
were adopted?
+ 10% productivity in the
service sector
+ 5% productivity in the
manufacturing sector
All procurement of Italian PA became
virtual?
Benefit of resources and
time in excess of 50%
Source: European Commission Study
Source: Politecnico di Milano
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
WHAT ARE THE SOCIAL IMPACTS?
Employment: 2.7 posts created by the new economy for each place destroyed
in old economy (McKinsey )
Social inclusion: digital divide may bring disadvantages to individuals who are
cut off from services
Social behaviour: multiplication of social contacts (social networks); new
opportunities for crime (identity theft, fraud, etc.)
Democracy and involvement: Open Government; l’Open Data; Arab springs;
Risks to personal privacy
Learning and thinking : accessibility for anyone to our knowledge; information
overload
Enviroment: dematerialization; SmartGrids; Cloud Computing
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
WHAT ARE THE IMPACTS ON INNOVATION?
Creation and dissemination of unprecedented innovation
Collaborative platforms for innovation: knowledge is shared and people
cooperate with each other to experiment, find solutions and share knowledge
Dissemination of knowledge markets for intellectual property rights
APIs and Mash-ups: recombination of content and technologies originating new
innovation
User centric innovation: direct contact of companies with customers using
social platforms to improve its products
Great innovation created by established internet companies like Google,
Facebook, etc.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
WHY INTERNET IS SO IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET AS META-PLATFORM
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
EVOLUTION OF THE CONCEPT OF PLATFORM (1/4)
First use of the term in the Product Development in the years ' 90
Wheelwhright and Clark (1992) introduced the term "platform product" meaning the platforms like
products that meet the need for a set of types of customers but that are designed to be easily
modified by adding, replacing, or removing features.
Subsequently the term extends to the Supply Chain
The term comes from productive platform of single company. The platform becomes a set of
subsystems and interfaces that form a common structure from which a group of derivative
products can be efficiently produced and developed by partner companies along the supply chain
(Gawer 2010)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
EVOLUTION OF THE CONCEPT OF PLATFORM (2/4)
In technology strategy, we find the definition of industry platform
Gawer (2010) defines "industry platform" as products, services or technologies that are
developed by one or more undertakings, and which serve as the Foundation on which other
companies can build products, services or complementary technologies (Windows, the Intel
microprocessors, Apple's iPhone, the Google search engine, Facebook).
The term platform is also used by business economists
Afterwards the platform concept has been adopted by business economists to refer to products,
services, technologies and companies able to mediate transactions between two or more groups
of users (Rochet and Tirole, 2003), highlighting in particular the context of two-sided market and
multi-sided, in which most of the ICT platform fits.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
EVOLUTION OF THE CONCEPT OF PLATFORM (3/4)
A distinction within the multi-sided platforms is made by Evans (2005)
distinguishing between:
• matchmakers, help the members of one or more sides of the platform in
their search for coupling on the other side of the platform
• audience-makers, make match advertisers with audience
• transaction-based businesses, count and they charge for transactions
that occur between different sides of the market
• shared-input platforms, where participants of a high need access to the
platform to provide value to the participants of another side
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
EVOLUTION OF THE CONCEPT OF PLATFORM (4/4)
Ballon and Van Heesvelde (2010) set a categorization of platforms based on
the concept of control over customers and control over assets,
distinguishing between:
• neutral platform, where the owner of the platform does not control most of
the assets necessary for the creation of value, and furthermore has no
control over customers(es. Paypal, Google);
• broker platform, where the platform doesn't have the assets to create value
but does have control over customers (es. Facebook, eBay);
• enabler platform, where the platform has the asset but not control
customers (eg. Intel);
• system integrator platform, where the platform has both on asset control,
both on customers (es. Microsoft Windows, Apple iPhone)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE INTERNET AS A PLATFORM (1/3)
Platform
META
OPEN
UNIVERSAL
NEUTRAL
MULTI-SIDED
MULTI-LAYERED
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE INTERNET AS A PLATFORM (2/3)
• Meta: The Internet doesn't look like a single platform, but it appears as a platform on
which are built the other platforms, a meta-platform. In support of this thesis, there are
numerous examples including the basics: Google, Facebook, eBay, Amazon,
Wikipedia, the free encyclopedia.
• Open: The Internet is open in the sense that it is a decentralized, distributed, dynamic
and multi-directional, able to develop and evolve independently, where users from the
users themselves become creators of technology.
• Universal: The Internet is a platform that is "universal" in that it can be accessed from
various devices (PC, mobile, tablet, mp3 players, etc.), by different access platforms
(Windows, Mac, Android, Explorer, Firefox, etc.), from any place and at any time and
giving all those who connect the same capabilities. The Internet is becoming the
standard for the exchange of information.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE INTERNET AS A PLATFORM (3/3)
• Multi-sided: The Internet is by its nature a multi-sided platform because it allows or
facilitates the inter-connectivity between people/things/information otherwise
unconnected or connected but with room for improvement in efficiency.
• Multi-layered: The Internet is a multi-layered platform, that is composed of several
combined layers: we then Internet connection platform, technological platform, access
platform, brokerage platform and content creation platform.
• Neutral: The Internet is a platform "neutral" as it is defined by Ballon and Van
Heesvelde (2008), in the sense that it has no control over their assets and does not
control customers.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MODEL TO IDENTIFY THE STAGES OF THE INTERNET
Defined Internet as meta-platform, we can create a model to track the evolution,
identifying key variables that have characterized the stages.
In particular, we observe that:
• Has increased the speed of the Internet connection bandwidth and at the same time
they declined the cost.
• Has increased the amount of information online, this phenomenon is inversely
proportional to the cost of putting information online
• Has increased the installed base of Internet enabled devices.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
EVOLUTIONARY MODEL OF META-INTERNET
PLATFORM
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE PHASES OF META-INTERNET PLATFORM (1/2)
• Scientific Platform: birth of the Internet, very few users logged on, very limited bandwidth
speed, few content, high access costs only sustainable in the search scope. At this stage were
made of the fundamental innovations that have created the foundations on which is then born the
success of Internet and its wide circulation.
• Informative Platform: The Internet began to spread in the corporate scope, begin to appear in
the market of access equipment for the consumer market. Bandwidth speed is still low, this
limited information and usability allows only textual and graphic content. The web is dominated by
portals that organize content and absorb most of the time spent online by users.
• Searchable Platform: the amount of information begins to be significant given the decrease in
the cost of creating content, bandwidth speed rises and access costs are lowered further,
allowing further expansion of the user base. The explosion of content leads to a change of
paradigm: the web is no longer the closed world of the portals but becomes an expanding galaxy
in which search engines are the entry point for the network.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE PHASES OF META-INTERNET PLATFORM (2/2)
• Social Platform: the lower costs and increased speed of bandwidth, online door more and more people. This
combined with the new online technology platforms creates an explosion of users generated content: photos,
video, text, audio. The network becomes the new media, where everyone can say their thanks to social
platforms and we have a new paradigm shift in relation to previous phases: information is no longer one to many
and many to many.
• Mobile Platform: access costs are reduced significantly, now you can access the Internet even with the low
cost terminals, the Internet also has become a need in mobility is to access content for both stay connected
within their social networks. At this stage we see an explosion of installed base data from the sales of
smartphones, tablets, e-book reader and other mobile devices connected. At this stage we see the emergence
of mobile platforms like Apple's iOS and Google's Android.
• Things Platform: is the next evolution of the Internet, the Internet of Things, the lowering cost of access and
speed of the Internet mean that you claim as a reference framework for the exchange of information. Not only
people, but also sensors, objects and things connect to the Internet to exchange information. At this stage there
will be a further explosion of devices connected to the network and content created, as it will no longer be just
humans to create information but also the objects.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
EVOLUTION OF THE INTERNET PLATFORM
Informativ
e
Platform
Searchabl
e Platform
Social
Platform
Mobile
Platform 5.000
4.000
3.000
2.000
1.000
1990 1995 2000 2005 2010 2015
Scientific
Platform
DESKTOP
MOBILE
Inte
rnet
Users
(Millions)
Key Platforms
INT
ER
NE
T O
F T
HIN
GS
Next?
Yahoo Google Facebook Apple, Android Mosaic
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SCIENTIFIC PLATFORM (1/2)
• The origins of the Internet are in ARPANET, a computer network established in 1969
in the United States by the United States Department of Defense
• There were three main radical innovations that led the ARPANET to become what we
know today as the Internet:
• the development of TCP/IP in 1973, a protocol that allows different networks to
communicate and Exchange data packets
• language development of writing HTML and HTTP protocol at CERN in
Switzerland in 1991. HTML has allowed the introduction of items such as
photographs and movies pages within that first contained only text
• the introduction of Mosaic, the first Web browser, "browser", which allowed them
to find, retrieve and display HTML documents, even to those who had no
technical skills
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SCIENTIFIC PLATFORM (2/2)
1991
HTML
1992
MOSAIC
1973
TCP/IP
1969 1982 1990
334 online
user
255.000
online users
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE INFORMATIVE PLATFORM (1/2)
• The first phase of the Internet originated in function of the founding principle of
allowing anyone to have access to any document type.
• The portals were the key product of this phase, HTML and PHP were the major
technologies, and access to information was the primary use.
• The more information available, the greater the possibility that other individuals may
take a personal and collective benefit from the information that they collect on the
net.
• Originally, the web was structured to promote the dissemination of scientific
information within the different communities of researchers from reference
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE INFORMATIVE PLATFORM (2/2)
• Since the mid-90 's, the portals have formed an essential resource of widespread use
• After the rapid and dramatic spread of browsers in those years, many companies, in order to
control a share of the Internet market, they built or acquired a portal, taking into account the fact
that there are many users who began their voyages from that site
In 1994 two boys of Stanford University, David Filo and Jerry
Yang, created almost for fun, a repository of links can keep
track of their personal interests on the Internet. The list soon
became very long and decided to organize it into categories
and sub-categories. From this hobby is Yahoo!, one of the
main worldwide web portals
Yahoo! for the first time reached one million hits per day in
the autumn of 1994, counting 100 thousand unique visitors.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SEARCHABLE PLATFORM (1/2)
• The navigation was very "Wizard" and "targeted" by portals. In the first part of
Internet streams this approach seemed correct, but it was necessary to take into
account two elements:
• The Internet accounted for users a something new; users were at a stage of
exploration of the medium itself and not yet fully aware of the potential available
• The content contained on the Internet grew exponentially: information in and of
itself does not have a cost, what it really does is their research and their
cataloging
• So to increase the content and to proceed user learning faces a significant innovation
in the field of the web: the rise of search engines
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SEARCHABLE PLATFORM (2/2)
In 1998 Larry Page and Sergey Brin, two brilliant
Stanford University students, having developed the
theory that a search engine based on the
mathematical analysis of the relationships between
websites would produce better results than
empirical techniques used previously established
Google debuted with a minimal design your page to
emphasize only looking
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SOCIAL PLATFORM (1/3)
• The revolution of the new millennium is the introduction of what everyone knows as
Web 2.0 and which marks a sharp distinction between the Internet as it was
conceived in the years ' 90 and how today we conceive and use the network
• The approach, defined as Web 1.0, requires the user to exploit the network passively
through a one-way (from the network to the user) information sharing.
• Afterwards, thanks to the integration with databases and content management
systems (CMS), the Internet has evolved with dynamic sites (such as forums or
blogs) which greatly mitigated the creation of content and allow users to create
content on sites we visited; This dynamic web was by some referred to as Web 1.5
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SOCIAL PLATFORM (2/3)
• Afterwards, thanks to subsequent innovations such as cascading style sheets (CSS)
and scripting languages, it has come to creating full-fledged web applications that
deviate from the old concept of simple Hypertext and pointing to resemble traditional
computer applications
• The mode of receiving information is no longer one-way (from network to user) but
becomes first bidirectional and directly from user to user in the most advanced and
mature stage of Web 2.0
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SOCIAL PLATFORM (3/3)
• In the year 2005 is coined the term User-Generated Content or UGC or user-
generated content, to indicate the material available on the web produced by users
rather than from specialized companies
• Hand in hand takes hold even the definition of Social Media that refers to Internet
applications based on ideological assumptions and Web 2.0 technologies that allow
the creation and exchange of user-generated content
• In them there is a fusion between sociology and technology that transforms the
monologue (one to many) into dialogues (many to many) and is a democratization of
information transforms people from content consumers to publishers
• Social Media have become very popular because they allow people to use the web to
establish personal relationships or work, in this case we speak of Social networks
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: TREND
• Analysts estimate that the mobile Internet will be a very impressive trend
• Main trends:
• slowing sales of fixed at the expense of PC laptops
• exponential growth of smartphones and tablet coming to estimate for 2020 ten
billion Internet-connected mobile devices against the installed base of one billion
PCS in 2008.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: SMARTPHONE ADOPTION
May 2011 Febbruary
2012
May 2013
• By the end of 2013 were expected on Earth, more
mobile devices that people
• Increases the penetration of smartphones
Other Mobile Other Mobile Other Mobile No Mobile No Mobile No Mobile
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: USE OF MOBILE INTERNET
• The 50% of global mobile web users use the mobile internet as their primary or
exclusive tool to go online
• The average consumer uses actively 6.5 app in one month
• 80% of the time consumed on mobile is spent in app
Web Browsing
18%
Games
32%
18% Entertainment
8%
Utility
8% Social
Network
6%
News
6% Productivity
2%
Other
2%
TIME SPENT ON IOS AND ANDROID DEVICES
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: NOT ONLY SMARTPHONE
• The devices responsible for the growth of mobile data traffic are different:Notebook, netbook,
tablet, smartphone, e-book reader, …
• Notebooks and netbooks will continue to generate a significant amount of traffic, but categories
for newer devices, such as tablet and M2M (machine to machine) will begin to represent a
significant portion of the traffic by 2016.
Traffic growth per device 2016 forecast Mobile device Traffic
Dispositivo - Dati in MB per mese 2010 2011 2016
Non Smartphone 1,9 4,3 108
E-reader 0,5 0,7 2,8
Smartphone 55 150 2.576
Portable gaming console 244 317 1.055
Tablet 405 517 4.223
Laptop e Netbook 1.460 2.131 6.942
Moduli M2M 35 71 266
Device –MB data per month
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: MOBILE DEVICES
Source: IDC 2013
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: SOFTWARE PLATFORMS
• The sale of non-terminals is driven by hardware features ("what the terminal can do") as above,
but the user interface and applications available ("what can I do with the Terminal").
• The two leading smartphone platforms are iOS and Android, are guided by the demand
economy, where demand is generated (including the number of applications), it has a much
greater effect on sales compared to pure efficiency of the supply chain.
• As iOS and Android platforms are able to attract large financial investments by developers,
investors and brand.
• Taking as an example the IOS, and estimating that an app costs averaged $ 30,000 for the
development, the 500,000 app available for iOS represent an average investment of $ 15 Billion
in iOS ecosystem. This investment directly contributes to sales of iOS devices, estimated to be $
71 billion for the year ended in September 2011.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: OPERATING SYSTEM
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: FROM PC TO THE APP ERA
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: APP STORE ECOSYSTEM
• The business of the application store is the exact opposite of the content business
telco.
• As such, the application stores as Apple's App Store and Google's Android Market are
not to be confused with profit centres.
• Instead, the store of Apple and Google, are as checkpoints of the ecosystem.
• With over 85% of the downloads coming from free apps in iOS and Android store, the
revenue from the 30% on the price of the paid applications funding operating costs of
acquisition and distribution applications, which is about $ 1.2 billion today in the case
of Apple.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: APP STORE ECOSYSTEM
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: SIZE OF APP ECONOMY
In the EU28 estimates the App Economy has the following impacts::
• 794.000 jobs in the economy as a whole
• 529.000 jobs in the economic App, 60% of developers
• 22% global production of products and services connection to the app comes from the Europe .
• More than $ 10 Billion in revenue per year
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MOBILE PLATFORM: APPS DOWNLOAD
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE THINGH PLATFORM
• The characteristics of universal Internet access combined with open protocols, enable a larger
number of devices to connect to the network.
• The Internet is emerging as the primary means of exchanging data between different types of
devices.
• No mention of Internet only of people but also of the Internet of things.
• Internet of things (or IOT IoT, or acronym of English Internet of Things) is a neologism that refers
to the extension of the Internet to world of concrete objects and places.
• Internet of Things, the Internet of things, is a new network revolution.
• The objects are recognizable and acquire intelligence thanks to being able to communicate data
about themselves and access to aggregated information from other.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE THINGH PLATFORM
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
WHY INTERNET IS SO IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET ECONOMICS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MAIN MODELS OF ECONOMIC LITERATURE
• General Models: definition and
classification of the
phenomenon of the Internet
according to General driver
(economic, social and
technological exchange)
• Specific Models: specific
definition of Internet industry
going to locate the parts that
make up the industry and how
these are related between them
The main models that seek to define and structure the internet industry can be classified into:
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET AS COMPLEX ADAPTIVE SYSTEM (CAS)
• The nature of the Internet can be parsed as a CAS – Complex Adaptive System
• Plesk e Greenhalgt (2001):
• “an Adaptive complex system is a collection of individual agents, who have the
freedom to act in ways that are not always totally predictable and whose actions
are interconnected so that an agent's actions change the context for other agents
• An Adaptive complex system is an open system, which consists of several
elements which interact with each other in non-linearly and that constitute a single
entity organized and dynamic able to evolve and adapt to the environment
• Examples are the immune system, a colony of termites, the financial market, and
practically every group of humans eg. a family, a Committee, or healthcare staff.”
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET AS COMPLEX ADAPTIVE SYSTEM (CAS)
• The CAS are a product of their environment while at the same time the influence.
• CAS properties:
• emergence
• co-evolution with the environment
• self-organization
• connectivity / feedback
• iteration and nesting
• The dynamics of the Internet may be analyzed through these properties, and change
and the influence it has on the physical world can be analyzed using the theory of
social networks.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET AS GENERAL PURPOSE TECHNOLOGY
Internet is a General Purpose Technology Technologies that affect an
entire economy
The GPT have the potential to drastically alter societies through their impact on
economic and social structures existing
Other GPT
Railway Steam Engine
Electricity Electronic Car PC
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET AS GENERAL PURPOSE TECHNOLOGY
The introduction of a new GPT in an economic system before it can increase
productivity, actually decrease due to:
• The obsolescence of old technologies and skills
• Learning costs
• The time required for the development of new infrastructures
• The adaptation to new industries, causing temporary unemployment
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET AS LARGE TECHNOLOGICAL SYSTEM
• According to Davies ' model, a process of innovation is fostered in her grow and
expand if, the technology on which is based the process, is a modular technology,
where each module has a consistent structure and capable of facilitating the
interconnection between different modules interactively (Davies, 1996)
• The Internet consists of a series of parts or components (complementary with each
other) which are in their entirety the technological facility in which to calculate the
State of innovation
• The Internet is composed of a series of tools with its functional attributes that can be
divided into transmit and receive devices, switching systems, and signal distribution
components
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET AS LARGE TECHNOLOGICAL SYSTEM
• Each of these parts is connected in such a way as to form a network of components
in which the Assembly mode determines the development of the network in different
ways, according to the different assembly options available
• The evolution of configuration of the components determines the development of a
distinctive technological architecture that can grow both vertically and horizontally
(innovation or system contamination and inserting new technological paradigms)
• In the case of the Internet, being itself already an evolved system, composed in turn
from other systems, it is difficult to find a distinctive base element
• This is certainly another reason why until now to give a unique and exhaustive
definition of the Internet meme is complicated.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE FOUR LAYERS INTERNET MODEL (CREC, 1998)
• One of the first major studies carried out on the economics of the internet was conducted by the
Center for Research in Electronic Commerce (CREC) of the University of Texas, commissioned
by Cisco in 1998
• The most original part of this study was the innovative Internet economy split into four layers
• The conceptual model provided for two categories, each split into two layers
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE INTERNET MONEY FLOWS (O’DONNELL, 2002)
• In 2002 Shawn O'Donnell of M.I.T. performs a new internet economy measurement using a new
conceptual model
• The peculiarity of o'donell is moving the attention purely economic flows that occur between
elements or segments of the Internet
• The model identifies blocks 7:
1. Companies active in the market of Backbone Networks and Internet Services Provider
(ISP)
2. Application services provider (ASP)
3. Content delivery companies
4. Web hosting companies
5. Portals and content sites
6. Advertising companies
7. E-commerce wesites
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE INTERNET MONEY FLOWS (O’DONNELL, 2002)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE INTERNET ECOSYSTEM (HAMILTON, 2007)
• In 2007 the Hamilton
consulting firm,
commissioned by the us of
the IAB (Internet advertising
bureau), create a new
template to define the
internet economy, starting
as a basis the work of
O'Donnell and updating it in
the light of the new Internet
scenario
• The model sees 13 blocks
that define the internet
ecosystem
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET ECONOMY (IDC, 2011)
• The IDC uses then another conceptual schema to represent the internet industry, understood as
the set of the main actors providing technologies, applications and services that make up the
internet infrastructure and allow its use, from vendors like Alcatel Lucent networks emerging
social networking platforms like Facebook
• Unlike the O'Donnell template or Hamilton, IDC model does not reflect all interactions between
actors
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET ECONOMY (IDC, 2011)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET INTERMEDIARIES (OECD, 2010)
• On OECD model focuses on Internet seen as brokerage technology
• The OECD defines internet brokers as facilitators of transactions between third
parties over the Internet
• Intermediaries give access, host, transmit and index content, products and services
sourced from third parties on the Internet or provide Internet-based services to third
parties
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET INTERMEDIARIES (OECD, 2010)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET VALUE CHAIN (A.T. KEARNEY, 2010)
A.T. Kearney analyzes the
Internet economy with the logic of
value chain by creating a
framework divided into 5
segments:
• Content rights,
• Onlines Services,
• Enabling Technology/Services,
• Connectivity,
• User Interface
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
L’INTERNET “STACK” (BCG, 2011)
• BCG's study offers an
interesting view of the
Internet industry by
using a representation
that takes its cue from
IT, the stack
• The stack is a layered
representation of
hardware and software
where each layer
communicates with the
superior and inferior
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
WHY INTERNET IS SO IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
IL FRAMEWORK LIIF
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE PROPOSITION OF A NEW FRAMEWORK
• An analysis of the literature shows the lack of a framework of analysis that would guide the
study of Internet parts from General views also very specific views but still embedded in a
general framework
• It was decided therefore to
create a multi-dimensional
model, that starting from a
specific analysis model of the
Internet industry, will evolve
by adding a dimension
composed of elements of
economic analysis
• Result is the framework LIIF
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
LIIF RELATIONSHIP AND PREVIOUS MODELS
• Wanting to represent the relationship between the three types of models, specific and
General LIIF, we can use a globe, where representation from outside to inside we
have a specificity greater than the Internet industry analysis.
• The outside of the globe is the General models, which, in fact, are the best
models for the overall vision of the Internet and for colluding to other systems.
• The next layer is given by the specific models which give a vision of what is
inside Internet.
• The core consists of the LIIF, i.e. shooting every item in the Internet industry
decomposed according to various dimensions of economic analysis.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
LIIF RELATIONSHIP AND PREVIOUS MODELS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
LIIF FRAMEWORK COMPOSITION
To achieve this type of framework was necessary to identify a specific pattern Internet industry
friendly and dimensions of analysis to apply.
• Internet industry model
• The layered model has the advantage, very important in our view, highlight the reader as
the upper layers exist thanks to the existence of lower layers, highlighting especially as
Internet has consolidated in time for subsequent layers. Initially it was necessary to spread
and infrastructure developments which gradually reached and users allowed to access the
Internet. The availability of infrastructure has enabled then the development of upper layer:
most applications are created, more services and user-generated content, more users.
• Economic analysis Layer
• The analysis layer has been defined empirically determining major topics of analysis that
we find in the literature on the Internet.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET INDUSTRY – 5 LAYERS MODEL
• To describe the Internet industry we have developed a layered model consists of 5
levels, where each level is connected to adjacent ones:
• Internet Infrastructure layer, all manufacturers of equipment and materials needed to
ensure the functioning of the Internet.
• Internet Access Layer, all operators that allow access to the infrastructure of the Internet.
• Internet IT Layer, all operators who develop software and Internet services.
• Internet Intermediary Layer, all operators involved in promoting mediation processes
between supply and demand of services, or that they pose as individuals who provide
services that facilitate exchange of other services or products on the Internet.
• Internet Content Layer, all operators that interact directly with users of the Internet, where
direct interaction takes place in an offer of services, goods and consumer content.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET INDUSTRY – 5 LAYERS MODEL
Internet Access Layer
Internet Infrastructure Layer
Internet IT Layer
Internet Intermediary Layer
Internet Content Layer 5°Layer
4°Layer
3°Layer
2°Layer
1°Layer
Inte
rnet IT
&
Netw
ork
s In
dustry
We
b
Ecosyste
m
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
DETAIL OF INTERNET INDUSTRY MODEL OF LIIF
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET INFRASTRUCTURE LAYER
The 1° layer of our reference framework consists of the following sub-layers:
• Internet Equipment – Represents all manufacturers of equipment and
materials required for the Internet infrastructure. Inside you will find:
• Manufacturers of optical fiber
• Online hardware accelerator vendors
• IP networking hardware vendors
• Server vendors
• Core Network – Represents all operators involved in the creation and
management of the Internet-based infrastrututra. There you will find:
• Project designers and construction companies of the Core Network
• Core Network maintenance companies
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET ACCESS LAYER (1/2)
In this layer there are operators who allow access to Internet infrastructure
• Access Services – Represents all operators that provide access to the
infrastructure:
• Wired ISP – Operators who provide wired Internet access:
• Telecom operators – traditional phone companies that offer broadband
• Cable operators – cable TV operators that offer access to the Internet
• Power line operators – operators that provide Internet access through electrical cables
• Wireless ISP – Operators who provide access to the Internet without using wiring:
• Mobile operators – the classic mobile phone companies that offer Internet access via
mobile phone
• Satellite operators – operators who offer free Internet via satellite
• Wireless ISP operators – operators who offer Internet access via hotspot
• WiMax operators – operators that provide Internet access through the new technology
of WiMax
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET ACCESS LAYER (2/2)
• […]
• Access equipment – Manufacturers of devices that can connect to the
Internet
• PC manufacturers and Internet dedicated Hardware (computers, IP
camera, etc.)
• Manufacturers of smartphones and mobile internet enabled
• Producers of other internet enabled device (internet radio, car stereo, etc.)
• Operating systems and access software – Producers of software through which you can
access the Internet
• Manufacturers of operating systems – Classic operating systems on which they access
software such as browser (Windows, Mac OS, Linux, Chrome OS, etc.)
• Browser producers – companies that create the navigation software for the Internet
(Microsoft Explorer, Mozilla Firefox, Apple Safari)
• Other manufacturers access software – companies that create specific access software
(eg. Microsoft Outlook for e-mail)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET IT LAYER
Layer where opera who create software for Internet or forneisci IT services
• Internet Software – Represents all the operators who produce basic software:
• Producers of multimedia applications (eg. RealNetworks, Macromedia)
• Manufacturers of software for web development (eg. Adobe, Microsoft)
• Producers of internet commerce applications (eg. Sun, IBM, Magento)
• Producers of content management system (eg. Wordpress, Joomla)
• Search engine manufacturers (eg. Autonomy)
• Producers of web oriented database (eg. Oracle, MySQL)
• Companies with products and services in the field of computer security on IP networks (Avira,…)
• Internet Services – Operators that provide Internet-related services
• Internet IT consulting companies
• Companies that provide Hosting
• Companies that create web sites
• Companies that make training on Internet issues
• Companies that make market research and business intelligence
• Communications companies on the Internet
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET INTERMEDIARY LAYER (1/2)
In this layer there are operators who allow access to Internet infrastructure
• Navigation Intermediaries – Represents all users who intermediano web
browsing:
• Search Engines
• Portals
• E-commerce Payment Intermediaries – Represents all users who intermediano online
payments
• Payment systems that rely on a credit or bank account to enable e-commerce transactions
(eg. Banca Sella Gestpay)
• Payment systems provided by non-banking institutions that operate on the Internet and
which are only indirectly associated with a bank account (eg. Paypal)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET INTERMEDIARY LAYER (2/2)
• eCommerce Intermediaries – represents all operators that provide
enabling platforms the transaction between sellers and buyers
• Marketplace – environments in which sellers have their own online
shop within the platform (eg. Alibaba)
• Auction weebsites – auction sellers put their products on the platform (eg. Ebay)
• Daily Deals websites – sellers are selling goods at a discount (e.g. Groupon)
• Advertising Intermediaries – are operators intermediating advertising spaces
• Classified – sites that collect advertisements
• Advertising Networks – aggregate different editors making spaces available to advertisers
• Advertising Exchange – advertising space brokerage between advertising networks
• Partecipative Network Platforms – represent platforms that help create content and
intermediano social interaction between users (Facebook, LinkedIn, YouTube)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET CONTENT LAYER (1/2)
In this layer we group operators have a direct interaction with customers by
offering their goods, services or content
• Content Sites – Are operators who provide users with various types of
content
• News websites – Thematic News, local news, national or international
• Entertainment – sites with multimedia content (text, photos, video) entertainment
• Verticals – thematic content sites specializing on a particular topic
• Content Platforms – Represents operators who provide their own content or third parties using
managed by highly technological platforms
• Aggregators
• Comparators
• Geo platforms
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
INTERNET CONTENT LAYER (2/2)
• eCommerce – Represents the eTailers who offer products and services
sold over the Internet
• Physical Goods – online stores that sell physical products
• Services – eshop of services, es. Travel
• Digital Goods – eTailers selling digital content such as songs or
videos
• Online Services – Represents operators who offer various online
services
• Productivity services
• Comunication services
• Entertainment services
• Creative services
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
LAYER OF ECONOMIC ANALYSIS OF LIIF
The following dimensions were chosen for the economic analysis layer:
• Characteristics – We find in the literature a number of studies that analyze the distinctive
features of the Internet or parts of the Internet.
• Demand – We refer to the study of the application over the Internet, from bases set up by
device connected, the number of users online.
• Supply – We refer to the study of the Internet offer, from the types of operators present,
services offered, the phenomenon of startup.
• Economic models – There are many studies in the literature regarding the economic theories
that insist on Internet domain.
• Business models – a topic much debated in the literature is the study of business models that
exist in the Internet industry, as there are many specifics.
• Markets – the studies concerning the Internet abound of analysis on industrial markets such as
advertising or E-Commerce.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE LIIF FRAMEWORK
• Defined the Internet industry's
layers and layer composed of
dimensions of analysis, we
can now define the framework
of reference for the study of
the Internet industry as a
whole.
• By combining the industrial
model with the analysis model
emerges the multidimensional
LIIF framework for studying
the Internet.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
LIIF DETAILS: CONTENT LAYER
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
THE DISTINCTIVE
CHARACTERISTICS
WHY INTERNET IS SO IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE DISTINCTIVE
CHARACTERISTICS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE DISTINCTIVE CHARACTERISTICS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS INTERNET INFRASTRUCTURE
INTERNET INFRASTRUCTURE
Cumulative
Open
Programmable
Eraser of time and space
CHARACTERISTICS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 1°LAYER: CUMULATIVE
• The Internet is a cumulative infrastructure because it can grow is by integrating other networks
inside, either extending with other infrastructure technologies which do not conflict with previous
• In fact, in recent years we have seen the development of wireline networks «» IE cable based
and wireless network support
Examples of Internet technologies
Technologies less
used
Obsolete
technologies
Technologies more
used today
Dial-up DSL
Satellite
Broadband
ISDN Fiber to Home
WiFi
Wireless ISP
Cable Modem
Power line
Mobile
Broadband
LAN WiMax
IP over DVB
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 1°LAYER: CUMULATIVE
Evolution of fixed connection technologies Evolution of wireless technologies
• Wireless networks have lower investment costs, if measured in relation to coverage
• Wireline networks are economically more efficient in urban areas with high population density
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 1°LAYER: OPEN
• Networking architecture must be open, decentralized, distributed and multi directional in its
interactivity
• All communication protocols and their implementation must be open, distributed and modificated
(although some manufacturers maintain networks exclusively on part of their software)
• Government institutions must be built according to the principles of openness and cooperation
that are embedded in Internet
INTERNET
Indipendent Managed by no-profit
organizations Open
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 1°LAYER: ERASER OF TIME AND SPACE
• In Internet the physical distances have not any influence on communications
• The Internet operates on copper cables and optical fibre that are 1/3 the densest of emptiness,
so the signals travel at speeds close to that of light (200 thousand km/s)
• On a planet the size of Earth equals practically to the Real Time
• With the optimal transmission rate fixed, are only two ways to make the Internet even faster:
• increase the number of bits traveling on connecting
• increase the switching speed of the connection in the joints between a connection and
another.
• The routers become ever faster allowing instant switch while the fiber optics and wireless
technologies allow you to send a much larger number of bits at a time
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CARATTERISTICHE DELL’INTERNET ACCESS
INTERNET ACCESS
Universal Access
Mobility
Multi-platform
Multi-device
Cumulative
CHARACTERISTICS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 2°LAYER: UNIVERSAL ACCESS
• The Internet provides universal access, giving the same powerful capabilities to anyone with
access to the network regardless of where you are
• The Internet is based on a common standard, TCP/IP, which provides to all computers that
connect to the Internet the same technical interface and functionalities
• These common foundations make all Internet technologies equally available to anyone who is
connected
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 2°LAYER: MOBILITY
Use of the web evolved from working remotely with wired connection to full mobility
usage with 3 g and Wi-Fi
Mobility
Indoor WLAN
Outdoor
Wi-Fi spots
3G
4G
WiMax
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 2°LAYER: MULTI-PLATFORM
The universality of standards and
the establishment of multi-
platform technologies (such as
HTML, Flash, ...) allows the use
of Internet experience even on
different operating systems such
as Windows, Mac or Linux and
other navigation software such as
Explorer, Firefox, etc.
Multi Platform
PC OS
Windows
Mac
Linux
Chrome OS
Mobile OS
Microsoft mobile
Apple
Android
RIM
Linux
Web browser
Firefox
Explorer
Safari
Chrome
Opera
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 2°LAYER: MULTI-DEVICE
The universality of access combined
with the growing importance of the
Internet has allowed the use of the web
do not remain connected to the PC but
that evolve on new devices that can
enrich the enormous content on the
web (like home enterteinement
devices) and also mobility access
Multi-Device
Fixed
PC
Home devices
Mobile
Laptop
Netbook
Tablet
Portable Media Player
Smartphone
Car devices
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 2°LAYER: CUMULATIVE
• This layer is cumulative, since the
user base of the Internet expands
thanks to new internet enabled
device that capture new user
groups
• The increase in the spread of the
Internet is related to the diffusion of
broadband, especially in the
consumer, and to the spread of
mobile internet
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS OF INTERNET IT LAYER
INTERNET IT
FAST EVOLVING TECH BASED MEDIA
CENTRALIZED COMPUTING & SOFTWARE AS A SERVICE
INFINITE STORAGE CAPABILITY
CHARACTERISTICS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 3°LAYER: FAST EVOLVING TECH BASED
MEDIA • The new uses of the technology, as well as actual introduced changes in technology, shall be
communicated from time to time to the whole world, in real time
• The time that elapses between the processes of learning-by-using and producing by using
appears remarkably shortened new paradigm: learning by producing
• For this reason the Internet has grown and continues to evolve at an unprecedented speed, not
only for the number of its networks but also for the range of its applications
Learning by using
Producing by using
Learning by producing
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 3°LAYER: CENTRALIZED COMPUTING &
SAAS • Internet-based computing allows sharing of computing, software, and information resources that
are provided by your computer to other computers upon request
• Users don't have to worry about technical details and information access with their Internet
browser and receive the information and content they need
• You can offer over the net using very
complex software that require a great deal
of processing, which is done by the
servers that provide the service through
so-called "cloud" architectures and not
impact user's computer
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 3°LAYER: INFINITE STORAGE
CAPABILITY • Since the introduction of the first disk drive in 1956, the density of information they can store has
grown from 2 thousand bits to 100 billion bits (gigabits) per inch (2.54 cm2)
• Also the storage price declines
year after year: we go from 700
dollars to a MB of 1981 to 0.002
cents per a MB of 2010
• This allowed the creation of
storage in the web with virtually
infinite storage and use thereof at
any time, such as services like
YouTube or Flickr
The cost per Megabyte in dollars
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS OF INTERNET INTERMEDIARY
LAYER
INTERNET INTERMEDIARY
INFORMATION ASYMMETRY REDUCER
FLEXIBLE MEDIATING TECHNOLOGY
INCREASING MANAGEMENT EFFICIENCY
CHARACTERISTICS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 4°LAYER: INFORMATION ASYMMETRY REDUCER
• The web reduces these asymmetries because the other party can seek information on the
Internet that the missing
• In the media of digital communication, the vast majority of participants are active creators of
information and at the same time, recipients
• Applications for computer networks such as mailing lists, web conferences, forums, social media
makes the internet a media communications group's many-to-many
• The new communication tools used by the computer networks are great levelers and
organizational hierarchies reducers
• Each user has, at least in theory, access to every other user and an equal opportunity to be
heard
• Economically this impact by making the markets more competitive thanks to the transparency
that you create
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 4°LAYER: FLEXIBLE MEDIATING
TECHNOLOGY
• The Internet is a technology that acts as a link connecting parts that are independent of each
other or they want to be
• The interconnection can be:
• business to business (B2B)
• business to consumer (B2C)
• consumer to consumer (C2C)
• consumer to business (C2B)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 4°LAYER: INCREASING MANAGEMENT
EFFICIENCY
• The use of the Internet as a tool for management, improves efficiency in many sectors of the
economy causing far-reaching restructuring in business processes
• Efficiency derives especially
from the use of web
technologies to better
manage the supply chain, in
particular companies can
plan with better results,
better share the information
within the structure, interact
better with suppliers and
customers
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS OF INTERNET CONTENT LAYER
INTERNET CONTENT
TRANSACTION COST REDUCER
SUPPLY OF CREATIVE CONTENT
CONTENT UNBUNDLING
CHARACTERISTICS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 5°LAYER: TRANSACTION COST
REDUCER
• Transaction costs are looking for sellers and buyers, to find product information, to
negotiating, writing and monitoring contracts
• The Internet reduces transaction costs, in terms of time and money by reducing costs
related to find information about the market and definition of agreements
• In addition routine transactions that include the execution of payments, the track, the
processing and communication of financial information, can be handled in less
expensive with Internet technologies
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 5°LAYER: SUPPLY OF CREATIVE
CONTENT
• The Internet is an extraordinary content collector
• Allows the use of on-demand content with a one-to-many logic, also virtually infinite
storage and immediate access, has meant that were dumped on the Internet
awesome content piers
• The advent of web 2.0 with user generated content has seen the explosion of user-
created content, not only created out from the Internet and then poured on the net as
it can be a picture or video, but also created online as discussions, blogs, reviews,
articles
• This impacts very traditional content creators who see enrich your competitive
scenario such as specialized newspapers which must reckon with amateur bloggers
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CHARACTERISTICS 5°LAYER: CONTENT UNBUNDLING
• The web search has changed the publishing and management of content marketing
• The old saying in use among publishers "Content is King" was replaced by the new web 2.0
phrase "The User is King"
• Just like iTunes, allowing music buyers to get a single song broken down from the whole album,
so even Google allows any researcher to identify very quickly and download all kinds of articles
and from thousands of sources
• This ability to get a single article, song or other piece of information has wide repercussions both
for users and for the business
• For users it is no longer necessary to buy or consume more than you really want
• For content owners, this disaggregante trend is obviously worth considering very seriously
as it cannibalizes sales of newspapers, books and CDs
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
THE DEMAND
WHY INTERNET IS SO IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE DEMAND
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE DEMAND
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
SIZING THE INTERNET INDUSTRY
• Major consultancy companies (BCG, McKinsey, Deloitte, etc.) use this
method to calculate the expenditure weight of Internet economy
• After you've located the internet economy sectors, it is estimated the
expenditure as:
• private consumption – the total consumption of goods and services by consumers via the
internet or that are required in order to gain access to the internet, including electronic
equipment, the turnover of the telecommunications operators to market retail broadband, the
mobile Internet market, consumption of hardware and software, and the consumption of
smartphones.
• public spending – These include Internet charges for consumption and investment by the
Government (software, hardware, services and telecommunications) to pro-rata of the Internet.
• private investment – It is private sector investment in internet-related technologies
(telecommunications, extranets, intranets, web sites, etc.)
• Balance of Payments - includes exports of goods, services, equipment and Internet in addition
to B2C and B2B e-commerce, from which were deducted all imports associated with
• Electronic equipment are calculated on a pro-rata for dedicated internet usage
DEMAND
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE WEIGHT OF THE INTERNET IN THE MAJOR ECONOMIES
GDP in% resulting from the Internet in various countries, 2009
• McKinsey stima nel 2009
l’impatto dell’economia
Internet nelle principali
economie globali
• You switch from Sweden
and the United Kingdom
virtuous, where the Internet
has a weight percentage of
the GDP respectively by
6.3% and 5.4%, reaching up
to Russia where the
contribution is equal to 0.8%
of the GDP
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ITALIAN INTERNET ECONOMY
• According to BCG Italian Internet economy in 2009 was equal to € 28.8 billion and US $ 31.6
Billion in 2010, with a positive trend of growth compared to the previous year by about 10%.
• We can see that McKinsey estimated a 1.7% in 2009 while BCG the 1.9%.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
TRAFFIC GROWTH PER CAPITA • Globally, Internet traffic will reach 9 Gigabytes per capita in 2015,
compared to 2 gigabytes per capita in 2010
• Not long ago, in 2008, for Internet traffic per capita was 1 gigabyte per
month
DEMAND
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
FORECASTS OF TRAFFIC GROWTH
• Le previsioni del Visual Networking Index di Cisco stimano il traffico
quadruplicherà dal 2010 al 2015
• IP traffic is expected to
grow by 20 exabytes per
month of 2010 up a 81
exabytes per month in 2015
(CAGR of 32 percent)
DEMAND
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
DEMAND OF INTERNET DATA DEMAND
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
DEMAND OF INTERNET DATA
• The last years saw a slowdown in sales of fixed at the expense
of PC laptops
• Expected exponential growth of smartphones and tablets
DEMAND
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
DEMAND OF INTERNET ACCESS
• According to a study commissioned by
Ericsson, the total mobile subscriptions
reached about 6 billion in 2011 and is
expected to reach about 9 billion by the
end of 2017
• The number of mobile broadband
subscriptions reached 1 billion, surpassing
the number of fixed broadband
subscriptions, and is expected to reach 5
billion in 2017
DEMAND
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
DEMAND OF INTERNET IT SERVICES
Total 1996-2011 web sites
To try to give a dimension to
this question we can take into
account the number of web
sites currently, in that each of
them needs technology and
services in order to exist and
continue to be disbursed
Millions
DEMAND
Domains Active websites
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
GROWTH OF INTERNET USERS • Users in 2009 were 1.73 billion in 2011 amounted to two billion, with a penetration compared
to the population of the globe amounting to 30%:
• 922 Millions – Asian users
• 272 Millions – users in North America
• 476 Millions – users in Europe
• Cisco estimates that in 2015 the people connected to the web will be 3 billion (> 40% of world population)
DEMAND
RegionP opulation
(2014 E s t.)
Internet
Us er
31/12/2000
Internet
Us er
30/06/2014
P enetration
(%P op.)
Growth
2000-2014
Dis tr ibutio
n of
Internet
Us ersAfrica 1.125.721.038 4.514.400 297.885.898 26,5% 6499% 9,80%
As ia 3.996.408.007 114.304.000 1.386.188.112 34,7% 1113% 45,70%
E uropa 825.824.883 105.096.093 582.441.059 70,5% 454% 19,20%
Medio Oriente 231.588.580 3.284.800 111.809.510 48,3% 3304% 3,70%
Nord Am erica 353.860.227 108.096.800 310.322.257 87,7% 187% 10,20%
Am erica L atina 612.279.181 18.068.919 320.312.562 52,3% 1673% 10,50%
Oceania/Aus tralia 36.724.649 7.620.480 26.789.942 72,9% 252% 0,90%
T OT AL E 7.182.406.565 360.985.492 3.035.749.340 42,3% 741% 100%
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
THE SUPPLY
WHY INTERNET IS SO
IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE SEARCH INDUSTRY
• The search platform are multi-sided platforms arising from Internet meta-
platform and took a key role in the landscape of the Internet economy
Estimated gross value created by Search by country 2009
According to McKinsey study (The
Impact of Internet Technologies:
Search, 2011), about 90% of
global Internet users use search
engines and in 2009, the gross
value created by the search was $
780 Billion globally
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
SEARCH-BASED ADVERTISING
• Is the ability for an advertiser to advertise contextually to show the
results of a search engine.
• The "trigger" of (possible) ad exposure is given by "match" between
the keywords (keywords) chosen by the advertiser and that for which
the Alert Viewer on the search engine.
• The advertisement exposed it is generally text-type (a sign and 2 lines of text "promotional" in
the most common version) on which are highlighted words that they done by "trigger" in the
exhibition itself. There may be other forms of graphical displays (banners, multimedia, etc.).
• The most popular systems of management of keyword advertising (typically consist of: creating
ad, budget management, distribution, reporting) are Google-AdSense/AdWords and Microsoft
Bing Ads.
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
SEARCH-BASED ADVINNOVATIONS
Keyword bidding system
CTR
• The search advertising platform generally use an auction system, where
advertisers are bidding to win the most visibility slots associated with
looking for certain keyword
• The auction alone does not determine the position of the ads. The search advertising platform to
maximize its profits estimate a quality score of the ad, the click through rate (CTR)
• Combined with straight-line mechanism determine the Cost per Click (CPC) and the slots where
the advertiser. In this way the Search Platform will ensure better allocation of slots
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
HOW THE SEARCH CREATE VALUE (1/2)
I modi in cui la search crea valore sono:
• Best match. Helps consumers research, individuals and
organizations find the information that is most relevant to their needs
• Time saving. The search speeds up the process of searching for information, which in turn can
streamline processes, such as decision-making and purchase
• Raising awareness. The research helps all types of people and organizations to raise
awareness about themselves and about their offerings
• Price transparency. Search helps users find the information they need, but in this case, the
focus is on how to get the best price
• Deals on Long Tail. These are objects of niche that relatively few customers might want. With
the help of search, users can search for offers of this kind, that they now have greater potential
profit for suppliers
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
HOW THE SEARCH CREATE VALUE (2/2)
• Correspondence of people. This involves the combination of
information, but this time focused on people, whether for social or
business purposes
• Problem solving. Search tools facilitate every type of solution of problems, from how to build a
Chair, to identify if the plant that has just swallowed the child is poisonous, or advanced scientific
research.
• New business models. New businesses and business models are popping up to capitalize on
online research. Without research, many business models recently developed would not exist.
Price comparison sites are a case in point.
• Show. Given the amount of available digital video and music, research creates value by helping
to navigate through content. For a generation of teenagers who spend from watching TV to
watch videos on YouTube, the search has resulted in a completely different way of
entertainment.
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
WHO BENEFITS FROM SEARCH (1/2)
Those who benefit from the value created by the search are:
• Advertisers. Having grown rapidly over the past five years, online
advertising now accounts for a significant share of total advertising expenditure, that
is, 18 per cent in the US, 20 percent in Germany, 16 percent in
France, 16 percent in Brazil, and 3 percent in India. Of that online spending, advertisers allocate
about 40 percent to the engine advertising (search advertising), so spending about 6 percent of
their total advertising spending for advertising online search.
• Resellers. Research creates value for resellers: increasing consumer awareness for their
products and stores online and offline; improving the matching of products to customer needs;
creating the possibility to sell better and to a greater number of consumers, long tail articles. In
addition to retailers that compete based on price, price transparency is also a source of value.
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
WHO BENEFITS FROM SEARCH (2/2)
• Entrepeneurs. Entrepreneurs are big users of search tools and benefit in
various ways while starting the business. It helps them solve problems
when you try new business ideas, find suppliers, investors and
customers, and to identify key talent
• Content creators. With so much content available on-line, research allows a better match
between consumer demand and the content providers. It also increases awareness of traditional
content creators and directs traffic to them, and makes searchable the contents scattered along
the long tail
• Companies. Firms benefiting from research in a multitude of ways, including: the ability to find
the right information, the supplier or the employee through a better match; the employee save
time using online research; Research also allows collaborative problem solving
• Consumers. Consumers primarily benefit from research through greater price transparency,
better matching, including access to the long tail of products and search for people, and the time
savings
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
SEARCH-BASED ADV: ECONOMIC FACTORS
Keyword pricing - The platform that attract few advertisers tend to have
a lower CPC. Even the platform they have auction mechanisms
inefficient or that generate less value, contacts tend to have low CPC.
Indirect Network effect - A greater number of user determines an increased number of
search that attract more advertisers, increasing the likelihood of a profitable match between
the search and ads. The increase of actors in a "side" of the market brings benefits to the
whole system.
Fixed cost - Advertisers incur fixed costs in the use of search-ad platform such as setup costs
(sw installation, learn to use it...), campaign management and monitoring. These costs
discourage advertisers from launching their campaigns on small platforms
• Revenue per search - Several search-ad platform, with the same traffic and keyword bids, can
differentiate themselves on revenue-per-search (RPS). This happens if a platform do best of
the other to extract value from the advertiser, having an auction mechanism more efficient or
better CTR estimating. This allows you to have higher CPC
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKET STRUCTURE EVOLUTION
• The search based advertising was born in 1995 with Infoseek, one of the
first web search engine, starting to profile banner advertising based on
keyword typed by the user
• The Cost per Click (CPC) was first introduced in a negotiation of Proctor
and Gamble with Yahoo in 1996
• In 1998 the first introduced GoTo.com ads alongside the search results by charging advertisers
according to the model of CPC.
• Go.To.com was acquired and later became the platform for search of Yahoo
• Other engines followed the pattern of the CPC and in 2000 Google launches Adwords
• Although Infoseek beginning before, there was a leader in the search advertising market until
1999 that saw the emergence of Yahoo that rest leader until 2002
• In 2003 Google, born later than Yahoo, the search leader unseats and begins its unstoppable
ascent
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CONCENTRATION IN SEARCH (1/2)
• A search platform that has reached a scale advantage and an advantage
in extracting value from their research is hard to beat.
• This explains how a platform like Google has reached such levels of
market dominance. The market capitalization of Google went from zero to
about 200 billion dollars over a decade.
• Total Google revenues have exceeded 22 billion dollars at the end of 2010 and is expected to
grow to more than $ 36 billion in 2013. The market share of U.S. searches Google is over 66%
in 2010.
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CONCENTRATION IN SEARCH (2/2)
Market share of search engines in USA
Source: ComScore, Explicit Core Search, 2015
SUPPLY
dic -14 J an-15 delta
T otale 100,0% 100,0% 0,0%
Google S ites 65,4% 64,4% -1,0%
Yahoo! S ites 19,7% 19,7% 0,0%
Mic ros oft S ites 11,8% 13,0% 1,2%
As k Networks 2,0% 1,8% -0,2%
AOL Network 1,2% 1,1% -0,1%
C ore S earc h E ntity C ore S earc h S hare
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ECONOMICS OF ONLINE PUBLISHING (1/4)
• The explosion of Internet use in the last decade, has led to a huge growth
of online advertising.
• As people spend more time with online content, it is natural that
advertising investment moving online too.
• The intersection of sloping demand curve downward sloping supply curve upwards represents
the equilibrium price that, in a free market, all available supplies would sell.
• In the online ad market, this price is the average CPM, or cost per thousand ad impressions.
• Given this economic paradigm classic, with the increasing demand and the consequent arrival
on the market of advertising larger budget online, you should see an increase of CPM. Actually
this is more moderate than you might expect.
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ECONOMICS OF ONLINE PUBLISHING (2/4) SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ECONOMICS OF ONLINE PUBLISHING (3/4)
• In digital media, the marginal cost of adding a new ad space is very low,
and recorded a declining trend for several years, as the cost of computer
processing and data storage have collapsed.
• In this case, the offer could be endless as long as the price exceeds marginal cost per unit. In
this case, an increase in demand, implies a shift of the demand curve to the right, but does not
increase the price, i.e. the price remains constant at any level of demand, and despite efforts to
stimulate demand do not create supply imbalance that leads to rising prices associated with.
• To increase the price of inventory should therefore create digital shortage on the supply side.
• But this is not happening in terms of inventory available. Rather it is shifting attention to the
audience, going to create scarcity on it with two main methods: vertical content creation and
targeting technologies.
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ECONOMICS OF ONLINE PUBLISHING (4/4) SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE PHENOMENON OF STARTUP
The Internet has allowed a lowering of entry barriers to starting a business:
• The Internet provides technologies and services at less cost and with a
low implementation complexity (es. EN, IT-enabled accounting, cloud
computing). Google has estimated, for example, a saving by 50% to 70%
by using its cloud-based applications compared to traditional solutions
• Search engines, portals and social networks allow you to advertise their goods and services to
significantly lower budget compared to traditional promotion channels
• The Internet offers potentially global distribution channels and low running cost (eg. eBay app
store, etsy)
• E-Commerce platforms and the search engines have also allowed the creation of micro-
enterprises (e.g. people selling full-time on eBay)
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
COST TO LAUNCH A WEB STARTUP
Cost to launch an Internet startup technology
All this has created the
conditions to ensure
that there was a real
boom of
entrepreneurship and
to create thousands of
those who are called
"startup".
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
NEW METHODOLOGIES FOR STARTUPS
• Lean Startup is a business approach coined by Eric Ries, which aims to
change the way in which companies are built and how new products are
launched. The Lean Startup is based on validated learning about
scientific experimentation, on iterative releases of the product in order to
shorten development cycles, on the measurement of progress and about
obtaining customer feedback.
• Customer Development is a technique widely used by web startup to iterate and test quickly
each part of their business model. This methodology was developed by Steve Blank (Four
Steps to the Epiphany. K&S Ranch Press), ex-serial entrepreneur and current Professor in the
heart of Silicon Valley, Stanford University.
• Business Model Innovation is a methodology created by researcher Alex Osterwalder, which
makes it easy to understand the current Business Model of a company but which is also the
means by which make existing Business Model innovation or creation of new ones.
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE ROLE OF VENTURE CAPITAL
• Venture Capital has played a key role in the creation and development of
web startups
• According to the latest MoneyTree report by PricewaterhouseCoopers
(PwC) and the Naztional Venture Capital Association (NVCA), the 2011
saw the highest level of VC investments in Internet startups over the past
ten years Investments in startup Internet
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
VENTURE CAPITAL IN ITALY
• Venture Capital promotes economic growth, managing capital flows in
innovative startups that create jobs and drive the development of industry
• The amount of money spent in one country can be
a rough indicator of the potential for growth of the
economy and its sustainability
• The Italy with a Venture Capital spending of just $ 1
per capita is the last places of comparison, well
below the $ 35 average EU
Venture Capital spending per capita
SUPPLY
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
THE ECONOMIC MODELS
WHY INTERNET IS SO
IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE ECONOMIC MODELS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE ECONOMIC MODELS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ECONOMIC THEORIES APPLIED TO NEW ECONOMY
• Exist in the world a big debate about whether the New Economy and the
Internet Market cannot be understood, explained, and measured using
the same tools as far to the so-called "old economy", but should be
analyzed through the development of new economic theories or new
paradigms or through the adaptation of existing ones in different areas of
application or new industry.
• In general the Internet Economy did not need new rules but on the contrary there are effects or
forces that in the "old economy" had no relevance but instead in the Internet Economy are of
particular emphasis.
• Here we analyze:
• the elements of traditional economic theories in the analysis of Internet markets acquire an
importance amplified.
• the importance of economic theories on multi-sided markets on the Internet.
• the dynamics and structure of Internet markets referring to the theories of the new markets
and theories about designed markets.
• specific elements of the Internet markets compared to traditional markets.
ECONOMIC MODELS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
COST STRUCTURES
• Vengono definite le spese che l'impresa deve prendere in considerazione per la produzione di
un prodotto o per fornire un servizio. I principali “cost structures” includono i costi di transazione,
i costi non recuperabili (o “sunk cost”), i costi marginali ed i costi fissi. La struttura dei costi
dell'azienda è il rapporto tra costi fissi e costi variabili.
• Web farms and also ICT if you consider software development, once the software has been
developed, the cost of electronic distribution via the Internet is virtually null.
• This is an example of how the curve of total costs of production may change on hold and in the
new economy.
Fixed Costs
Variable Costs
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
NICHE MARKETS
• To niche or Market "Niche Market" we call that small but lucrative segment of a market where
consumer needs that form the niche are distinguished for their specialty.
• Niche markets in general do not exist in absolute but come at a time when needs are identified
and/or desires of potential "customer" who have not been so far faced by competitors, offering
products that meet.
• The Internet by providing a global audience has allowed the creation of many niche markets
focused on very specific needs.
• While mainstream media niche market could be very limited, today with internet niche market
can be large.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
NETWORK EFFECTS
• The "Network Effects" (Network Effects) relate to positive effects, for example, data from a
situation where the more people that use an asset, the greater the usefulness for the individual
user.
• When the value of an asset for an individual increases with people who have the same right, the
network externalities is defined directly, if increases with complementary products is called
indirect network externalities.
• For example, Social Networking platforms, these effects are very felt: you choose the platform
according to the number of users or friends who are already on that platform as will a major
plus.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
SWITCHING COSTS AND LOCK IN
• The "Switching Cost" or switching costs are those costs associated with the transition to a
different version of the same type as well as for example the change in technology or standard.
• An illustrative example: switching from Windows to Linux on a PC. In this case the switching
cost is the time it takes to learn how to use the new operating system, the cost (economic or
temporal) in search of other compatible software.
• Another example is the passage from Facebook to Google +, in this case the switching cost is
given by the possible loss of positive externalities (my friends are on facebook and not on
google +).
• To "Lock In" means a situation where the "cost" or switching switching costs are so high that a
potential competitor-good used by consumer-is not able to offer a price low enough to convince
the consumer to switch to other goods.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MULTISIDED MARKETS
• Multisided markets are defined as «A double/multiple market areas is based on a
platform that allows interactions and exchanges among different groups of consumers
(or "sides" of the market), whose aim is precisely to keep them connected via an
appropriate price structure».
• More specifically, the Two-sided (or multi-sided) markets are markets with particular
characteristics:
• There are two or more distinct groups of customers;
• There are benefits in putting in contact or coordinate the members of different
groups;
• An intermediary can make each group richer through the coordination of their
application;
• The value of platform is derived from its ability to reduce transaction costs or
asymmetric information between sellers and potential buyers;
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MULTISIDED PLATFORMS
• The Multisided Platforms are platforms that are multisided market contexts, they are satisfied
with 2 or more groups of customers and where customers of at least one group need customers
of other group for several reasons.
• The Multisided Platform can generate profits for themselves and for their clients if they manage
to capture and increase indirect network externalities:
• Acting as match makers;
• Building an audience. The Advertising-supported media doing this: using content to attract
"eyeball", i.e. those who abide by the message, and then selling access to these eyeball
advertisers;
• Reducing costs by providing shared facilities for customers of each group;
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MULTISIDED PLATFORMS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
DISTINCTIONS WITHIN THE MULTI-SIDED PLATFORMS
• A distinction within these multi-sided platforms is made by Evans (2005)
distinguishing between:
• matchmakers, help the members of one or more sides of the platform in their
search for coupling on the other side of the platform;
• audience-makers, matching advertisers with audience;
• transaction-based businesses, count and they charge for transactions that occur
between different sides of the market;
• shared-input platforms, where on the one hand, participants need access to the
platform to provide value to the participants of another side;
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
NETWORK EFFECTS IN MULTISIDED PLATFORMS
You define two categories depending on the internal or external influence to the group:
• Cross-Side Network Effects – We talk about these effects when a group shows interest to the
number of members or to the activities of the other group; in this case we can have both positive
and negative effects:
• Example of positive characterization: number of buyers and sellers on eBay;
• Example of negative characterization: consumer reaction to an increase of advertising;
• Same-Side Network Effects – We talk about these effects when what happens in a group does
not influence what happens in the other group; in this case we can have both positive and
negative effects:
• Example of positive characterization: the number of participants to systems Peer-To-Peer
(P2P) systems;
• Example of negative characterization: the presence of more competitors in the same
marketplace.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
PRICING IN MULTISIDED PLATFORMS
• In a Single/One Sided Market pricing analysis starts from the marginal cost of the product there
is a close connection between marginality and cost.
• In a Two-Sided Multi Market pricing is very complicated because of the strong network indirect
effects among the distinct groups of customers.
• In a single-sided business there is the principle that those who cause the cost should pay it, for
example, the buyer of a car because the car's production cost and therefore pays the full cost.
• This principle in Two/Multi Sided Market often makes no sense. Often a product cannot exist
unless different customers participate simultaneously. All are responsible for the cost and
benefits.
• To determine the best prices, from the point of view of maximizing profits and social welfare,
keep cooto of the complex relationships between the price sensitivity of each side,
interdependencies between applications (the price for a group not only affects demand for that
group, but also of the other group and vice versa), and the marginal costs.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
SIDE TO SUBSIDIZE
• The economy of the Two markets/Multi Sided shows that it makes sense to charge
little or nothing a group (or even remunerarlo) to take the product.
• For a platform that operates on both sides of the market with cross-sided network
effects, is optimum subsidise the side that generates bigger Externality that is most
valuable:
• Lowering the price on the side it generates more value stimulates demand and
increase sales; but for Cross-Sided Network Effefts, demand on the other side
will grow over-proportionally;
• The lower profits obtained from the side that was "supported" will be offset by
greater profits obtained on the other hand, even with a policy of increasing the
original price.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE COMPETITION IN THE MULTI-SIDED MARKETS
• Different types of competition experienced by the markets "Two Sided".
• Internal competition occurs between individuals who interact on the same platform; external
competition occurs between 2 or more different platforms.
• The platforms can compete by working on two aspects:
• Platform Differentiation: Platforms "Two-Sided" will offer services that will be perceived
as being different from other consumers;
• Agent Differentiation: In general there are two ways to get a seller to be part of the
platform:
• Low pay Commission if not null or negative (a gain for him);
• A base of potential buyers high enough.
• Other aspects to be considered:
• Multihoming: Customers that belong to at least one side of a Two/Multi Sided Market
often belong to different networks.
• In order to create a market "Two/Multi Sided" you need to solve the long-standing problem
of "chicken and egg".
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE EGG AND THE HEN
• Starting a new business on the internet is particularly difficult when the initiative is based on the
deployment of a multi-sided platform.
• Entrepreneurs must ensure a sufficient number of customers on both sides, and in the right
proportions, to ensure a satisfactory value for both sets of customers and to achieve sustainable
growth of the platform. The inability to reach critical mass quickly causes the implosion of the
platform.
• We must take on board before the customer group A or B? or both at once? How many
customers must have the platform that a customer B revenue value from the participate
platform, by tackling the costs arising therefrom? And the other way around?
• These questions allow you to understand that there is a minimal amount of customers in each
group that, if achieved, provides a market dynamic enough to allow for sustainable growth of the
platform. This amount is referred to as a "critical mass".
• Google Video, for example, failed to reach critical mass because they don't generate enough
content to attract enough visitors, which in turn would stimulate the creation of user generated
content.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CASES Prima di analizzare le principali strategie che le multisided platform start-ups possono adottare, vediamo quali
sono i casi che possono ritrovarsi di fronte:
• Sequential entry – In some cases you can bring a group of customers on board and then make available this
group to another group of customers, later in time. This is the situation that happened with multi-sided
platforms in advertising.
• Admission with significant pre-investment commitment – In other cases, a group of customers needs to
make investments over time in order to participate in the platform. This is the case with software-based
platforms such as operating systems. The platform must convince developers there will be in the future an
appropriate number of clients, or provide them with some financial guarantees that buyers will appear, or self-
publish games until the platform is launched.
• Simultaneous entry – Finally, there are cases in which groups of customers take the decision to join the
platform at the same time and we must participate at the same time that the platform can provide them value.
Some platforms require a simultaneity almost perfect. Straight men would quickly a new nightclub where there
are women and vice versa. Similarly, in an online dating platform men you would form if there were women
already enrolled and vice versa. Other platforms can provide a little more latency. Buyers cannot abandon a
trading platform immediately if there are no sellers, but there is the prospect that they arrive soon.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
TRIGGERING (1/2)
The key challenge for the new platforms is to understand how to quickly reach critical
mass. We go now to illustrate the main strategies to achieve the critical mass:
• Zig-Zag – A basic strategy to achieve the critical mass you build participation on both
sides incrementally. The platform begins with a small number of economic agents on
both sides. He convinces then the officials on both sides to join. Due to indirect
network effects, the platform becomes more valuable for each subsequent group of
potential customers.
• Zig-zag with self-supply – The founders may be able to start their platforms,
replacing one of the same parts, at least initially.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
TRIGGERING (2/2)
• Pre-commitment on both sides – More commonly the platforms need to have more
members of the two parties to start the process of zig-zag above. They then need to
convince a minimum number of early adopter on both sides so that the platform is
present at the start so believable. This requires getting to believe that on both sides
when the platform opens, there will be also the members of the other party.
• Single or dual strategy influencer – The strategy aims to acquire an influential or
distinguished member on one side. The ad can attract a sufficient number of
members on the other side at the beginning.
• The two phases – The two-step strategy always involves the lead before enough
members of a party aboard the platform, and then bring the other side after members
on board. As mentioned previously this works when the first side is not interested in
the value of the second side.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
DRIVER FOR CREATING NEW MARKETS
• The Internet also has mostly created new markets with new player.
• For the birth of a market need at least 2 agents: a Buyer and a Seller and 2 forces or drivers that
interact with each other: Question ("Demand") and offer ("Supply").
• The question is often declined in the following two categories:
• “Inchoate o General Demand” – “Wouldn't it be useful if this "thing" was available?”
• “Articulated o Specific Demand” – “You'd buy that particular well at that price?”
• The offer ("Supply") can be broken down into two different groups of people:
• Scientists and Innovators – those who have actually done the research and have
developed new technology/innovation;
• “Non-Scientists” – those who dwell on the commercial opportunities of new
technology/innovation, organizing others in the development of products and services by
exploiting new technologies and bringing them to the end on the market.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE TYPES OF NEW MARKETS
• The types of markets that could arise from two drivers are defined:
• Demand Pull Market;
• Supply Push Market.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKET CLASSIFICATION
• Market by Evolution – arise through an evolutionary phase that leads in most
cases to the creation of new markets or the development of old.
• Market by Design – although based on the same general theoretical principles,
have a distinctive feature: these markets are "drawn" from scratch or modified in
some specific function.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKETS BY EVOLUTION: STAGES OF NEW MARKETS
• In the early years the structure of the new markets in General is very fluid and that this fluidity
showing with respect to two different areas:
• The number of entrants is very high and some of them will tend to exit the market with a
high enough frequency;
• The number of products introduced in the market is high and each of they is notable for the
large number of new features ("Features") offers. Also, as companies, will come and will
come out in the market with high frequency.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKETS BY EVOLUTION: COLONIZATION OF NEW
MARKETS The dynamics leading to colonization of new markets or radical markets stems from the
combination of several forces working under the surface for the birth and growth of the market.
These forces are:
• Combination of "Information Cascade" & "Wave of Enthusiasm"; The first new market entrants agree to be part
of why are profitable Business opportunities and why speculate they could effectively manage the risks
associated with the assumption that you are wrong and that the opportunity is there (Wave of Enthusiasm).
The next entrants or Would-be Entrants "await some confirmations because, unlike the first, do not have the
same level of acceptance of the risk and because they want to be sure that there are real opportunities
(information Cascade).
• “Provision of Infrastructure”; New markets can take advantage of the existence of existing infrastructures
adapted and used in different ways provide the breeding ground for her establishment and colonization. Or if
the infrastructure is missing key turns on providers, because it will identify business opportunities.
• “Capture the First Mover Advantages”; The first entrants to win the benefits that derive from their status as
first; this opportunity to have the advantages often pushing some companies to get up-front of the birth of a
market, to try to develop skills and acquire control over essential resources for that market or develop
technological leadership.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKETS BY EVOLUTION: CONSOLIDATION OF NEW MARKETS
• With the passage of time and the interest from other consumer groups, the market began to
expand and the choices made by the market (Consumer) and agreements between competitors,
is a "Dominant Design" that will lead to the consolidation of the market and its evolution from
market niche to the mass market.
• Market consolidation will lead to a boost in increased investment in infrastructure for new
products, creating greater appeal to consumers with pre-existing and new.
• The Dominant Design in the consolidation phase of the market tends to be the vehicle that,
through standardization, leads to:
• the costs, for an effective improvement of production processes and network factors;
• economies of scale – other driver that will lead to a reduction in costs and resulting lower
prices
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKETS BY DESIGN
• The Market Design is the new discipline of the economy that recognizes that the proper
functioning of the markets depends on precise rules.
• The market designers are like engineers, they seek to understand the differences that you have
and the rules that exist, procedures that lead to better or worse to work different types of
markets.
• Their purpose is to know the operation and the needs of particular markets well enough so that
you can "fix" when something starts to not work or have the tools to be able to build new ones
from scratch.
• The framework of market design is based on two key points:
• Game theory (where we study the "game rules" and that is taken as a basis in order to
draw the rules for interaction).
• Strategic behavior that the "rules of the game" excite.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKET BY DESIGN: SPONSORED SEARCH AUCTION
• Early Internet Advertising (1994): Before the advent of the Internet the most common pricing
model for advertising was based on "cost-per 1000 impressions (CPM) bidding," where an
"impression" represented a shift of ad. This model was used by traditional media such as
television, newspapers and the newspapers. In early 1994, the "Internet content provider"
began to use the same template.
• Generalized First-Price Auctions (GFP - 1997): In 1997 Overture (later Yahoo! Search
Marketing) introduced a new model for selling Internet advertising:
• Instead of selling large and expensive ad space packages, each keyword or keyword was
sold via his auction (with prices less than $ 1 per slot);
• The payment was determined by the method of Pay-per-Click (PPC) instead of CPM.
• Generalized Second-Price Auctions (GSP - 2002): Google in 2002 introduced "AdWords
Select program" trying to eliminate the problems that were encountered with the previous
model, that is:
• Volatile prices
• Allocative inefficiencies
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
OTHER SPECIFIC WEB MARKETS • Scalability (intended as incremental returns) – Many Internet platforms operate on very large scales, one
thinks of Facebook that has over 700 million subscribers, or Google that operates on auction search billions
sponsored ("Sponsored search auctions").Most of them has been designed (planned) to be easily scalable,
and at relatively low cost. The high scalability at low cost may lead to high incremental returns.
• Customization (intended as matching between users and opportunities) – User experience can be
personalized. The cost of customizing an Internet Market is paltry compared to what you would have in a
traditional market. An illustrative example can be advertising on TV or on the Internet. On TV is all the same
while on the web can be adapted to individual users.
• Potential for innovation (intended as new products, new B.M. etc) – Internet platforms operate experiments,
often many, throughout the year, because the search cost is minimal and if innovation or product/service does
not have a high rating by users, within seconds you can go back without any cost.
• Measurability – This characteristic is the high degree of control and extending it on the various actions that
can be done on a platform: from the structuring of research for users to control and monitor transactions until
the new testing rules and parameters.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
THE BUSINESS MODEL
WHY INTERNET IS SO
IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE BUSINESS MODEL
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE BUSINESS MODEL
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE BUSINESS MODEL OF THE INTERNET
• We will try to identify the models used today by companies that do business with the online.
• In 1998 for the first time there was talk of Business Classification Model for electronic commerce
and from there developed a substantial literature in respect of internet business model.
• There is, however, a universally accepted taxonomy of business models, as well as on the
concept of business model there a definition or a universally shared framework.
• To give the reader a good overview of existing templates on the Internet we first analyzed the
existing literature and then on the basis of the conclusions that we came we drafted our
classificatory system.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MAIN INTERNET BM CLASSIFICATIONS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CLASSIFICATION OF INTERNET BUSINESS MODEL It is used as a criterion for classification of the manner in which the Exchange takes place between
supply and demand, going to identify three families of business model:
• Transaction based, the business models that are based on direct transaction between supply
and demand.
• Advertising based, the business models that are based on an indirect transaction between
supply and demand.
• Free based, the models where the exchange between supply and demand is free or at least in
part, or at least for a certain period of time.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
TRANSACTION BASED MODELS
Transaction based models supply and demand are interested each other reciprocally and mutually.
Exchanging an asset or a product directly or with the aid of a third item enabler.
Inside transaction based models we distinguish:
• Brokerage Model – Model that involves bringing
together sellers and buyers, or facilitate
transactions.
• Merchant Model – Direct meeting between seller
and buyer.
• Subscription model – The exchange between
seller and buyer through recurring fee to get into the
good/service.
• Utility model – The exchange between seller and
buyer with payment of effective use by the buyer of
the goods/services in question.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ADVERTISING BASED MODELS
Advertising-based models are multisided models — are present and involved more than two
operators, and the exchange between supply and demand cannot take place without a third
operator that serves as an enabling entity.
Inside advertising based models we distinguish:
• Advertising Models - Supply of content and services in free mode but with the inclusion of
advertising content.
• Advertising Intermediary Models - Model based on advertising, or brokerage on the
aggregation of property and audience.
Advertising based
Advertising Model
Adv Intermediary Model
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
FREE-BASED MODELS
Free-based models are models that are based on the provision of a product or service for free or at
least in part.
Within the free-based models distinguish:
• Community model – Model based on the loyalty of people who invest time and emotion in the
development of good/service.
• Free model - Model based on the benevolence of good/service, initial or permanent.
Free based
Community Model
Free Model
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
AGENDA
THE MARKETS
WHY INTERNET IS SO
IMPORTANT?
INTERNET IMPACTS
INTERNET AS META-PLATFORM
INTERNET ECONOMICS
LIIF FRAMEWORK
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MARKETS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MARKETS
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ADVERTISING • The online advertising market began as a transposition of the concept of offline advertising.
• Advertising allows the advertiser to convey a message to other people (the "eyeballs"). The attraction between
advertiser and eyeball is asymmetric because advertisers want to reach potential customers (direct attraction)
while users are attracted by content and not by the advertisement (indirect attraction).
• Although the advertising has as goal the generation of sales of goods and services it can be done in different
ways:
• A type of advertising is designed to generate sales directly by creating contacts, "leads". Advertising
in the yellow pages is one example. Advertising listing in the yellow pages is designed to create
strong sales prospects for the advertiser.
• Another type of advertising is informative, providing description of products and prices. Informative
advertising of supermarkets with their products and their offerings is an example of this type of
advertising.
• Still another kind of advertising is branding, in order to alter the perception of the people about a
product or service. Television advertising of Mastercard ("there are things that you can't buy, for
everything else there's Mastercard") is an example of this.
Online advertising has made innovative technologies primarily for publicity-generating leads
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MEDIA FOR GENERATING LEADS
• Advertising, as the main commercial tool to connect suppliers with potential customers
(business or consumer), has the media as main channels.
• The profitability of the business in the market of media depends on the ability to
balance and enhance the two offering features: average sale to end users (readers,
viewers, users) and the sale of advertisers (traders).
• Content, Distribution and technology are instruments with which the Media trigger
potential contacts between Advertiser and Customers.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ADVERTISING ONLINE
• The web advertising model is based on a website (publisher) that provides content (usually, but not necessarily,
free) and services, combined with advertising.
• The ads may be the main or only source of income. The publisher may be a content creator or a distributor of
content created elsewhere.
• The advertising model works best when the volume of visitor traffic is very broad or extremely specialized.
• Online advertising is similar to offline regarding the use of the ads because it allows you to display text (like
ads), graphics (such as magazines) and video (TV).
Technology Distribution Content Users
Advertisers
Platform Clienti
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ONLINE ADVERTISING RADICAL INNOVATIONS
• The Internet provides a highly efficient mechanism for delivering ads to individual
users and to gather information for targetizzare the ads.
• The Internet allows a more efficient advertising market brokerage, think of the auction
mechanism for the keyword.
• Economies of specialization: the Publisher online are increasingly selling the
advertising space through specialized platforms.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ONLINE ADVERTISING FORMATS AND PRICING
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ONLINE ADVERTISING SEGMENTS
• Search Advertising - The market of keyword advertising
on search engines
• Display Advertising - Tabular advertising market
• Advertising Network – Advertising intermediation market
through technological platforms
• Classified Advertising – Classified advertising market
(ads, directory)
• Email Marketing – Advertising market based on sending
• Lead Generation – Advertising market based on
generation of contacts
• Affiliation Marketing – Advertising market based on
affiliations for the good/service that promotes itself
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKET SIZE USA
• Online advertisng market as a whole grows very quickly, as you can see from the evolution of
the American market in the last decade.
Annual US revenues from 1999 to 2011 • We note that the 2009 had a
slight decline, this due to the
global economic crisis, but that
since 2010 there was shooting.
• In general we can say that the
online advertising market is
what has ruled the recession
better than any other type of
advertising.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CONCENTRATION OF U.S. MARKET
• The American market is affected by phenomena of concentration around the main ten
operators, which together cover 71% of the market value in the fourth quarter of 2011.
Annual u.s. revenues from 1999 to 2011
• The next fifteen operators
raise the 11% of the total
market, while the following
25 operators 8%.
• In total we have 90% of the
American market of online
advertising in the hands of
the top 50 companies.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
TOP 5 ONLINE ADV OPERATORS
• According to research by eMarketer, in the coming years we will see an increase in
concentration in both search and display.
• Since the two segments are worth a total of more than 65% of the total online
advertising market, it can be said that the entire market will see a greater
concentration.
2011-2014 projections internet advertising market USA
2011 2012 2013 2014
Google 41,0% 44,9% 46,6% 47,4%
Yahoo! 9,5% 7,4% 6,2% 5,6%
Facebook 5,4% 6,5% 7,1% 7,1%
Microsoft 5,7% 5,7% 6,0% 6,5%
AOL 2,8% 2,4% 2,2% 2,1%
Total top 5 64,4% 66,9% 68,1% 68,7%
Total internet adv (Miliardi) 32,0$ 39,5$ 46,5$ 52,8$
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKET SHARE OF THE ONLINE MARKET ADV USES
• In 2011, the online advertising in the United States, advertising revenue has surpassed cable
TV, positioning itself as a second media advertising investment size.
• From 2005 to 2011 only two forms of
media have had on American
advertising market, a compound
annual growth rate (CAGR) positive:
cable television to Internet to 4.0% and
16.7%.
• In every year since 2005, the growth
rate of online advertising has
exceeded that of any other advertising
medium.
2011 U.S. advertising market-Market share for Media Data in billions of $
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
ADV FORMAT SHARE US ONLINE ADV MARKET
Advertising format share online US advertising market
• The most important market segments for economic clout are the search and display,
that weigh in the u.s. market, respectively, the 46% and 22%.
• Declining in recent years,
however, classified, mainly
due to erosion of revenue
online yellow pages by
search engines due to the
increase of local searches by
users.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MARKET SIZE ITALY
In Italy the internet advertising market is still behind in terms of development compared
to other countries, but the online advertising still showed growth rates even in times of
crisis, and from 2005 to 2011 the market grew at a CAGR of 21 percent.
Italian market of online advertising
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MAJOR ONLINE ADV MARKET SEGMENTS, ITALY
Italy Search and Display market 2010-2011 Weight of Search and Display advertising market
of the total Italian online
• The Italian market sees the prevalence of two market segments: the search and
display
Millions
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE MARKET OF E-COMMERCE
• The origins of e-commerce dates back to the early seventies in Electronic Data Interchange
(EDI) system that permits the transfer of information and commercial documents in an electronic
format.
• With the advent of the Internet everything changes: the Internet is everything that is not EDI, it is
convenient, it's easy to use, is everywhere and anyone can use it.
• Before the era of the Web, e-commerce was a task almost unknown in the business-to-
business, main followed the dotcom gold rush brought e-commerce to the limelight.
• A press release of February 19, 1996 Olivetti Telemedia announced the opening of
Cybermercato, the first Italian virtual store and one of the first in Europe.
• Certainly the first generation of companies that are venturing into the world of Commerce moved
to attempts: with virtually non-existent, sought to obtain profits and above all as quickly as
possible, so as to gain more advantageous positions.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
TYPES OF E-COMMERCE
• Electronic commerce occurs in modes and different environments according to subjects that
take part, citizens, companies, institutions, etc.
• Here are the most common:
• E-commerce business to business (B2B)
• E-commerce business to consumer (B2C)
• E-commerce business to employee (B2E)
• E-commerce business to administration (B2A)
• E-commerce consumer to business (C2B)
• E-commerce consumer to consumer (C2C)
• E-commerce pear-to-pear (P2P)
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
BENEFITS OF E-COMMERCE
The main benefits and advantages arising from e-commerce are:
• Greater breadth of choice – The Internet allows for interplanetary shopping, we can buy not just digital
products but also primary needs products, niche products and unique products hardly available on the local
market.
• Improvement of the quality level of the services – E-commerce technologies allow you to extend the range
of services before and after the sale.
• Cost reduction – The development of e-commerce extends the benefits of automation of the production and
distribution of goods and services, with significant cost savings both to production and distribution, resulting in
a lowering of prices paid by the final purchaser.
• Knowing own clients directly – The development of the information economy makes possible the acquisition
of more detailed information on the needs, characteristics, and behaviors of individual customers.
• Reduction of market access barriers – The costs of setting up an online business are considerably lower
compared to a traditional activity, also the global communications networks also allows businesses to limited
dimensions to access wider markets.
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
E-COMMERCE MARKET SIZE
European Market size of E-Commerce
• According to the Institute of ECommerce research Europe, the European market of E-Commerce products and
services in 2012 is expected to reach $ 305 Billion shares, an increase of 20% from €254 billion in 2011.
• The United States follows with $ 280 Billion estimated
for 2012.
• Then there is the Asia-Pacific market with revenues of
€216 Billion.
• In Latin America, on the other hand, the E-Commerce
market is expected to grow in 2012 of 25-30%, driven
mainly by Brazil, reaching a total of about $ 43 Billion.
• As regards the region MEA (Middle East and Africa) is
expected to reach $ 12 billion in 2012.
• The global market of E-Commerce is expected to grow
over 20% of 2012.
Billions
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
THE E-COMMERCE MARKET VS. RETAIL SALES
EUROPE
The penetration rate of the total Retail sales
rose from 2.2% in 2011 to 2.6% in 2012
thanks to the excellent performance of the
online channel operators and negative
economic context of offline channels, being
higher for services (7%) than for products
(1.2%) but still lag behind in UK (14
percent), Germany (9%) or France (6
percent).
E-commerce fee on total estimated retail for 2012
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
CONCENTRATION OF THE ECOMMERCE MARKET ITALY
The E-Commerce market Italian is a
phenomenon of concentration around
the main player. In 2011 the 70% of the
market was generated by the top 20
player, declining share compared with
past years but still consistent.
E-commerce fee on total estimated retail for 2012
Internet Economics – Paolo Cellini www.interneteconomics.it, @cellinip
MAJOR MARKET PLAYERS ITALIAN ECOMMERCE
• In the top 20 in the Italian market operators are operators in services 16 and 4 in part products.
• Attendants in there services are:
• 9 in tourism (Alitalia, eDreams, Expedia, Lastminute, Meridiana, Trenitalia, Venus,
Volagratis, Windjet);
• 4 in Insurance (Directline, Genertel, Genialloyd, Linear);
• 1 in Mobile Recharge(Vodafone);
• 1 in Couponing (Groupon);
• 1 in Ticketing (TicketOne);
• Operators in the field of products we:
• eBay;
• Amazon;
• Yoox in Apparel;
• Esselunga in Grocery;