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The Internet has changed a great many ways about not only how we inter-react socially with each other mainly through Live Chat Facilities etc. but also how we can economically interact with each other in the number and range of goods and options available to us and these have increased exponentially .
In theory this is explained by an analysis of three basic so called laws that makes the Internet possible. First up there is Moore’s Law as stated by the one of the founders of Intel who postulates that the technology and the processing power of computers effectively doubles every two years. This is followed very swiftly by Metcalfe’s Law who states that the use of technology and the Internet means that it very quickly becomes possible to see increased costs of production becoming marginal more quickly via the Internet than through conventional businesses. An example of this is the sale of E-books. It might cost $5,000 to produce and publish one e-book and therefore to breakeven with one sale you would have to charge $5,000. However it might only cost $5,001 to produce 100 E-books therefore you would only have to charge $50 or so to breakeven.
The final theory that makes up how the Internet works is Ronald Coase’s Theory of the Firm whereby he analyzes transactional cost theory and states that it is much easier when you get to a certain cost base to subcontract certain services because it is cheaper for specialist suppliers to provide the service than it would for the purchaser to provide the service internally. An example of this would be the leasing of capital equipment and the subcontracting of basic services.
So how does this affect the Internet of today and the modern E-Trader? One good example of this is that the Internet makes it possible for so called small and specialist suppliers is to take their goods and an open up whole new markets to hit that hitherto would it not have been possible to tap in to. Suppliers and manufacturers such as specialist Insurance Suppliers can now compete via online showrooms with much larger online marketplaces such as eBay and supply much larger markets than would have been possible in the past.
The benefit to smaller companies in reduced sales and marketing costs is tremendous. Because of these economies of scale and a greater chance of profitability the opportunity to be more flexible with sales and affiliates increases. By using this technique it means that companies like Amazon can establish a large network of affiliates and thus increase their exposure to the marketplace almost exponentially but still retain a greater degree of profitability than they would have retained had they established their own network of direct sales.
Thus you now get affiliate sites established almost everywhere where you can buy from direct sources via their affiliates anything from services such as Travel Insurance or Car Insurance from the same source. The World Wide Web has made all of this possible and much more achievable for the smaller competitor.
Stephen Morgan writes regularly on Financial and Insurance based issues on the Internet and more on the above can be found at Travel Insurance and also at http://www.themoneyalert.com