A Revolution in Mobile Computing - Research Paper Example

Running Head: ECONOMICS FOR BUSINESS Economics For Business in APA Style by Introduction: Oqo Company Profile With the vision of providing a revolution in mobile computing, Oqo was founded in 2000 by Jory Bell and Betts-LaCroix, together with Andrew Popell, Michael Prichard, Nick Merz and Robert Ford, "who set out to shrink a Windows XP personal computer into a pocketable device" (About Us 2007). Currently, Oqo has gained popularity and wide acceptance in the market where it operates by its commitment in product innovation which highlights the importance of offering new features within its line. Since its establishment, the main goal of Oqo has always been to "transform personal computing in the same way that mobile phones revolutionized telecommunications" (About Us 2007). With this in mind, the company has been in the forefront of creating subnotebook computer named ultra Personal Computer (UPC) which the Guiness World Records describes as "the smallest full-powered, full featured personal computer" (Oqo 2007). Demand Unlike most of the products in the global business arena, the UPC which is offered by Oqo has not been driven by the demand of customers in the market. In fact, the creation of the product is through the company's effort of determining the evolving computing needs of the high-end clientle (Oqo 2007). Thus, the UPC is a product where the supply is generated first before demand. The demand curve for the UPC can be drawn as a downward sloping demand curve. Though the UPC is generally targeted to individuals who posses higher purchasing power through their level of disposable income, the product also appeals to the mid-level consumers who also wants mobile computing (About Us 2007). However, it should be noted that the high pricing strategy employed by Oqo is generally done to enhance the attractiveness of UPC. Thus, at a much lower price level, demand can be offset. It is also worth mentioning that UPC is a normal good because demand for it generally rises with increases in disposable income. Currently, Oqo is dealing with the rapid increase in demand for its products. The company's press release states that the company braces for demand as corporate clients has been more than eager to test the UPC (Press Releases 2007). Supply Being the pioneer in this technological innovation, Oqo has become the major supplier of UPC in the market. Thus, Oqo can be said to have a monopoly of the entire UPC market. The implication for this is the ability of the company to choose its own level of price and quantity supplied. However, it should also be noted that Oqo cannot fully exploit its power as a monopolist because of the presence of various substitutable goods like personal computers, laptops, and palm tops which are also used for the same function. Price As mentioned above, the innovativeness, quality, and image of Oqo's product commands a very high price in the market. As with any business organization in the market which invests huge capital for research and development, Oqo prices its products to compensate for these costs. The company's pricing strategy is generally putting a large premium over and above production costs. Oqo does not charge a single price for UPCs and practice price discrimination. It should be noted that the company charges different prices to each customer according to how much they are willing to pay. For example, the base price of the company's Model 2.0 has a base price of $1,499 but this can vary according to the product features and specification that the client wants to integrate in the product that he/she is going to purchase (Press Releases 2007). Production The production of UPCs are solely undertaken by Oqo which includes the assembly of components from its various suppliers. The company has a manufacturing plant where production takes place. Being a small company which is only comprised of 105 employees, it maximizes production capacity in order to cope with the burgeoning demand in the market. The total output produced by Oqo is largely influenced by the level of demand in the industry. During its establishment, Oqo has projected the level of customer demand and estimated its production according to these budgets. However, there has been an overwhelming demand which undermines the projected production level: "With all the design improvements, performance enhancements and new features packed into the model 02 computer, we've built a substantial pre-order backlog exceeding even our best forecasts. It is thus a pleasure to announce that the model 02 is now shipping in volume. Our manufacturing facility is working full tilt to deliver existing orders and keep up with the burgeoning demand for this hot new wireless handheld Windows PC" (Press Releases 2007). Cost The costs incurred by Oqo can be highly attributed to the investments needed in research and development. The business organization invests huge amount of dollars for discovering new product features which can be value-adding to its clients. Being still in introduction and growth stage of product life cycle, UPC requires strong financial muscle to support research and development as well as marketing. The high costs associated with the company's high dependence on research and development are considered fixed costs which are incurred regardless of the number of UPCs produced. Because of this, Oqo has a scalable cost structure because economies of scale can be reaped if the company is able to sell a higher number of output. As the number of output produced increase, the company's per unit average cost decreases. However, marginal cost tend to stabilize because per unit variable cost is generally the same. Elasticity As mentioned above, UPCs are products which are generally targeted for the high-end market. This implies that customers are relatively insensitive to price changes. Therefore, an increase in price generally does not generate a change in the quantity demanded. From this logic, it is apparent that demand for Oqo's products are generally ineslastic. Profits Being a new player in the market introducing an innovative product, Oqo has not yet disclosed financial reports for public scrutiny. During 2005, Yahoo Finance reports that the business organization generates a total revenue of $3.90 million. This is very high considering the company's length of stay in the industry. However, it opted not to reveal its profits for the fiscal years of its operation. It can be speculated that Oqo is still suffering from losses or minimal profitability because of the high costs incurred in developing its products and bringing to the market. Conclusion The discussion above identifies the problem of Oqo in term of profitability. The company's profitability is being eroded and eliminated because it incurs high level of costs allocated for research and development. Economically speaking, this problem can be remedied either through the generation of higher revenue or minimizing the costs incurred in its business operation. With the analysis of economic variables above, this paper recommends that Oqo maximizes its profit through the generation of a higher revenue. Revenue, in turn, can be enhanced by charging a higher price or increasing the quantity sold. Oqo should take these two actions together. The company should market more efficiently in order to sell more units of UPCs. Doing this can generate more revenue while increasing the company's profit margin by generally lowering the level of each UPC's marginal cost. As bulk of UPCs cost is fixed, the company derives more profit from the sales of larger volume through economies of scale. Oqo should also consider charging a higher price for its products. As discussed above, UPC's image are enhanced through high mark-ups. In the information technology industry, products with higher prices are generally considered as superior in term of quality. This is also a viable marketing strategy by which Oqo is able to gain the preference of the high-end market. The customers, on the other hand, are relatively price insensitive making demand inelastic. Thus, Oqo can charge a high price without hurting the level of quantity demanded. References About Us 2007, Oqo.com. Retrieved 08 May 2007, from http://www.oqo.com Oqo 2007, Wikipedia: the Free Encyclopedia, Retrieved 08 May 2007, from http://en.wikipedia.org/wiki/OQO Press Releases 2007, Oqo.com. Retrieved 08 May 2007, from http://www.oqo.com Read More