High-technology markets are complex and are always evolving. They are based on knowledge to create innovation and evolution. Some characteristic of knowledge markets can thus be noticed in this kind of markets. We are going to focus our analysis on the product I studied with my working team: smart cars.
First of all, developing a new high-technology product requires research and development, financial and marketing means in order to be commercialized on the market. It means companies must invest a lot in the product design and production processes. In this manner, the first unit this vastly costly. Indeed, developing a high-technology product is quite risky (is there going to be a demand for this technology and product? Is there any need for it?). For example, the American electric manufacturer Tesla must have invested a tremendous amount of money to design, develop and market its models. Their technological breakthrough was to incorporate an autopilot system, a powerful electric engine and brand new smart dashboard in their cars and market them at a relatively low price (the new Model 3 will have a starting price of $35.000), in order to launch a trend around electric cars for other automakers. The consequence of these huge investments is that the company is not profitable until 2020. Thus, producing the first unit of the Model 3 will be extremely costly for Tesla, as the firm had to develop all the build-in technologies.
Since Tesla marketed its electric cars, other brands have launched their own electric models and have implemented their own “smart” technologies in order to increase competition on the market. Audi has designed its own smart dashboard called “Virtual Cockpit, BMW launch its electric cars range with the i3 and the i8, Volkswagen has launched the eGolf, Mercedes is developing its self-driving car and more brands are developing their electric models (Peugeot, Mazda, Renault …).
So, the high ‘unit one’ cost is relevant in the automotive industry, especially when dealing with smart cars. The auto business is moving toward new technologies, faster because of the environment and climate-changing challenges. Developing the first unit of a new smart and environment-friendly model is highly costly, as R&D team have to design and incorporate these new technologies into new cars that have to respect international standards (Euro 6 norms in the UE for instance). This is why high-technology companies have to design relevant marketing programs so that their product meets customer’s needs and create an evolution in transporting means and moving people.
Then, externalities are the second characteristic of knowledge market that is present in high-technology markets. Externalities are consequences of a party’s action, where the action of party A leads to benefits or costs for party B, without A having to, or being able to, account for these benefits/costs. They can be either positive (rising employment rate, noise reduction, higher productivity) or negative (pollution, noise, harm). In knowledge markets, externalities are more often positive. High-technology markets created positive externalities, such as improvement of access to information (internet, high-speed service). Some high-technologies had negative externalities on media, such as AdBlock, which reduces newspaper revenues from advertising on their websites.
Externalities comes either from the demand or the supply. Demand-side externalities have an effect on the market: if a product is more demanded than another one, the less demanded product is giving a bad reputation to its brand. Some effects can also be noticed on societies, such as social contagion (example: the fashion industry). In the automotive industry, demand for smarter and cleaner cars is growing, this is why more and more automakers are commercializing their own high-tech models. When demand comes from the supply, technology is more diverse. For instance, if new systems of software and hardware are launched on the market, it can benefit to the whole sector (improvement of components or software update can lead to better productivity).
Externalities are relevant to study when analyzing the smart cars market. As detailed earlier, the automotive industry must face new challenges with climate change. Electric cars have a clear positive externality on a global scale: reducing CO² emissions and create a cleaner air to breathe. However, they created a negative externality: the quantity of lithium on Earth, used to produce batteries, is going to decrease more and more. When Tesla announced the imminent launched of its affordable Model 3 sedan, 350 000 cars pre-orders have been recorded. The company does not know if it will be able to produce them all. Smart cars have created positive externalities too: increase of safety in cars, drivers are more informed about the surrounding environment (blind spot alarm, speed signs sensors, self-driving). The negative outcome is that drivers may not be focused on the road and may be distracted by all the information the car gives him or her. Car brands must market their cars by thinking about all consequences that this product may have on stakeholders and public safety.