Economics of the Business of Term Paper

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Total Length: 881 words ( 3 double-spaced pages)

Total Sources: 7

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99

Peer Avg: 12.99

Peer Avg: 12.66

EMC Corp. (MA)

11.6

11.6

12.15

Microsoft Corporation

15.42

15.42

13.51

Oracle Corp.

11.94

11.94

12.33

Fixed and Variable Cost Analysis

The following table defines the fixed and variable costs associated with the new venture. At a minimum to create an enterprise-wide content management system that has the ability to manage per-content transactions, it costs approximately $1.5M. SG&A at $200K and Marketing at $120K are all fixed as this is needed to launch the company. Variable costs are all defined on a per customer engagement model.

Next, benchmarks comparing the dominant competitors in the web content management arena who could easily move into the monetization market are analyzed in Table 2.

Table 2:

Financial Analysis of Enterprise Content Management Systems Competitors -- Industry benchmarks

Company Name

Operating Income - 2008

Net Income - 2008

Gross Margin % - 2008

Inventory Turnover - 2008

Net Profit Margin % - 2008

Revenue per Employee - 2008

ROA % (Net) - 2008

ROE % (Net) - 2008

ROI % (Operating) - 2008

Peer Avg: $6,427,989,800

Peer Avg: 4,946,464,400

Peer Avg: 73.79

Peer Avg: 279.36

Peer Avg: 19.

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28

Peer Avg: $426,696

Peer Avg: 11.88

Peer Avg: 22.38

Peer Avg: 26.18

Autonomy Corp Plc

$191,634,000

$131,749,000

87.18

26.18

10.36

12.41

17.35

EMC Corp. (MA)

$1,568,936,000

$1,345,567,000

55.27

7.74

9.05

$352,388.00

5.81

10.5

9.64

Microsoft Corporation

$22,492,000,000

$17,681,000,000

80.8

57.06

29.26

$662,142.00

25.94

52.34

66.58

Open Text Corp

$100,379,000

$53,006,000

67.92

7.31

3.83

9.11

10.89

Oracle Corp.

$7,787,000,000

$5,521,000,000

77.79

24.61

$265,558.00

13.46

27.57

26.43

C. Operating Leverage and its Implications

The cost structures of this enterprise are primarily variable as they are reliant on client engagements to make the entire business model work. There are important lessons to be learned however in the structure of the business. First the ability to reward customers for their loyalty of purchase, discounting comparable content is critical (Hall, 2010). As the business model has low leverage the TCO and ROI of the model needs to concentrate on recurring revenues (Ives, 2009) as opposed to a "gold rush" mentality (McCormick, 2009)......

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