Economics

Write DQ  Responses for the followings

From an accounting perspective, it is inaccurate to value a company’s earnings simply by revenues. As there might be huge expenses such as marketing expenses or another cost of sales while the company had a great number of revenue. This does not necessarily mean that the company has earned a lot of gross profit/net income.

It is true that there is an inner connection between “hits” and revenues/profits. But more likely, the logic is that the dot-coms made great profits might have had good amounts of “hits”. And “hits” does not directly turn into profit in this industry. Especially it was the late 1990s, only half of U.S. adults used the internet, sharing personal information with special caution (James, 2019). It is a good idea to investigate one dot-com’s competition and position in the market, but it might not be an appropriate way to measure its potential revenue or profit gains. And what these dot-coms should do is to create a business strategy model to transfer these “hits” to ultimate sales.

It was twenty years ago in the dot-com era that limited numbers of customers using the internet to purchase. The merger’s strategy of paying a premium for orders of customers acquired is reasonable. James (2019) stated that the biggest cost for start-ups during the dot-com era was marketing. He pointed out that traditional print ads and broadcasts were inefficient and expensive. Compared with those methods to develop more customers, paying premium could be a shortcut for most dot-coms. As these existent customers might bring in their networks and accelerate the expansion of profits, which is called direct network externalities by Baye and Prince (2017).

I realize that the power of network externalities is well utilized in the brokerage business. Even though it is now twenty years after the first dot-coms era, the core of making new sales and gaining profits is to utilize every connection of existing customers. People might share their purchase experiences on Facebook, Twitter, Youtube, and so on as for now, most people are using the internet (James, 2019). In the process of sharing, a two-way star network is activated, together with the indirect network externalities are also participating in promoting potential gains from consumers’ connections.

References:

Baye, M., & Prince, J. (2017). Managerial Economics & Business Strategy 9th Edition. New York: McGraw-Hill Education.

James M. (2019). 20 years after the dot-com crash: Is this time different? Retrieved August 12, 2020, from https://venturebeat.com/2019/09/01/20-years-after-the-dot-com-crash-is-this-time-different/