Classroom Companion: Business

6.8 · Conclusions

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Answers
1. The following are digital services: The NY Times web page, Internet access, and 
an HBO subscription. The following are not digital services: a CD and an 
iPhone. The NY Times web page is considered a digital good. The content 
available on HBO is a digital good.
2. The number of copies sold must cover the fixed costs. If MC = 0, the number 
of copies sold to cover the fixed costs is 100,000,000 / 50 = 2,000,000 copies. If 
MC = 10, the number of copies sold to cover the fixed costs is 100,000,000 / 
(50 - 10) = 2,500,000 copies. The MC = 0 if the trade is completely digital. That 
is, ordering, payment, and delivery are all digital. On the other hand, the 
MC > 0 if the trade includes a physical product (e.g., DVD containing the 
game, a box, or a user manual).
3. Of these services, only cloud storage is fully commoditized. Social media is not 
commoditized. This is because the social media networks available (e.g., 
Twitter, Facebook, and Google+) have very different functionalities, and they 
do not communicate with one another. This is because of missing standards in 
the social media industry. E-mail clients are close to being commoditized. This 
is because e-mail as a service is standardized (SMTP). Hence, the functional-
ities of different e-mail clients are the same. The major difference between 
various e-mail clients is the design and interoperability with other applications 
(such as a calendar). Web browsers are close to being fully commoditized. This 
is because the web service is standardized (through the protocols HTML, 
HTTP, and URL). The major differences between web browsers are the design 
and, to some degree, the interoperability with other digital services (such as 
Flash and JavaScript). Cloud storage is fully commoditized. The only differ-
ence between various cloud storage services is their price. Wi-Fi Internet access 
is close to being fully commoditized. However, there are quality differences in 
Wi-Fi access (e.g., different bandwidths).
4. Bitcoin has the potential to significantly reduce transaction costs in the digital 
economy. Current third-party payment services—such as VISA, MasterCard, 
and American Express—charge transaction fees of 1.4–3.5%. Bitcoin, on the 
other hand, can charge as little as 0%. It is no wonder why the established 
financial industry views Bitcoin and other cryptocurrencies as a threat to their 
operations. It is VISA, MasterCard, American Express, and, to a certain 
degree, the banking industry, which are the competitors of Bitcoin.
5. The main competitor of Internet Explorer was Netscape. Netscape was the 
largest web browser in the mid-1990s. However, when Internet Explorer was 
launched in 1995, it started to increase its market share until it had almost a 
monopoly in 2002. The main reason for Internet Explorer’s success was because 
it was free and bundled with Microsoft Windows. Few consumers took the 
extra trouble of installing another web browser on their PC when Internet 
Explorer was already installed and ready for use. This, combined with the large 
market share of PCs using Microsoft Windows, fueled Internet Explorer’s 
growth. In addition, Microsoft—which provided Internet Explorer—was a 
much larger company than Netscape, with significantly more financial 
resources.