Starting an internet business may be easier than ever, what with cheap computers, free software and bandwidth out the wazoo, but that just means it’ll he harder than ever to make money. The latest evidence: Om Malik reports that VOIP provider SIPphone will announce 1-cent-per-minute PC-to-phone calls tomorrow, matching Yahoo’s promotional rate and undercutting eBay’s Skype. Also tomorrow, Malik notes, Microsoft will enter the market. “This is turning into a brutal price war,” he says.
Low barriers to entry, microscopic marginal transaction costs, a commodity service and a bunch of competitors fearful that a rival may gain market share. Do I hear a half cent a minute?
Free for All
Nicholas Carr writes about the downside of this being a cheap time to start an online business, something I also recently blogged.
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Starting a new business might be easier than ever, but getting new ideas is, on the contrary, getting more and more difficult.
those who get new ideas will make money, but they’d better be fast!
its like my economics professor used to say . . . in a perfectly competitive market, marginal revenue = price = marginal cost . . . . ofcourse that doesnt prevent companies to “price dump” to gain marketshare in the short run . . . just lower and lower . . .
Selling PC-to-phone connections may have become brutal, but imagine if you wanted to start an internet business that used PC-to-phone as a platform to build entirely new services on.
For instance, imagine an automated service that calls elderly at predefined times. When the person doesn’t answer the phone, it triggers a warning signal and a responsible (i.e. the elderly’s child) is notified in order to check up on the person. It’s easy to see how this business just got affordable to consumers because of that price war.
I guess it’s comparable to the electricity utility. The commodity enables entirely new business opportunities.