0:02 in our second episode we'll be talking
0:04 about economics of scale and how this
0:06 principle defines the cost of your other
0:12 services stay tuned for the second
0:13 episode let's start with learning
0:16 objectives the goal of this episode is
0:18 to help you to understand the principles
0:20 of economies of scale and how this
0:22 principle explains the cost of other
0:25 services and to explain that principle I
0:28 will use a simplified example using a
0:30 delivery company that delivers a
0:32 packages to its customers and you start
0:34 your own company you usually start at
0:36 very small scale for instance by
0:39 purchasing free delivery trucks when you
0:41 do that you will need to first of all
0:45 buy them and since the company is very
0:47 small and you're just starting you most
0:49 likely make individual purchase for each
0:51 of those cars let's imagine you paid
0:54 $10,000 for each regardless if those
0:56 cars are used or not you will need to
0:58 spend some money on the maintenance of
1:01 those cars because your company is very
1:03 small you cannot make any contracts you
1:05 will need to pay individually for each
1:07 repair each maintenance that you need to
1:10 perform on your own cars each car of
1:12 course needs to be insured so that's
1:13 additional cost that you need to make
1:15 individually and as you can imagine
1:17 there will be plenty of other costs that
1:18 you will need to incur when running your
1:21 own company based on the cost that you
1:23 need to incur and the amount of the
1:25 customers that you have you will need to
1:27 calculate the price of your service in
1:30 order to stay profitable and stay on the
1:32 market what price is called price per
1:35 unit so at price that you need to charge
1:37 for the delivery of your package or your
1:40 company to stay profitable - let me
1:41 explain to you what happens if your
1:45 company grows in size if your scale will
1:48 go from free cars for instance 300
1:50 because your company is already big you
1:52 might be able to buy your house in bulk
1:54 on the dealership at the discounted
1:57 price instead of buying them for 10,000
1:59 maybe buy them for nine again for
2:01 maintenance you will be able to sign
2:03 some contract with some car repair shop
2:05 again lowering the price of the
2:08 maintenance required for your cars same
2:10 goes for insurance because you can buy
2:12 insurance in bulk
2:13 and if you have some shared services
2:15 maybe hire some additional stuff to
2:17 maintain your company you will be also
2:20 able to reduce price per car that is
2:22 required to maintain your company
2:24 because the scale of your company is
2:26 much greater than before you are now
2:28 able to handle many more customers
2:31 without sacrificing the quality of your
2:33 service allowing you to lower the price
2:36 per unit do you get more benefits
2:38 internally by having large company you
2:40 are more efficient operationally and you
2:42 can share those benefits with your
2:45 customers by reducing the price per unit
2:48 in this case this will also make your
2:50 company much more competitive on the
2:53 market making sure that you grow even
2:56 further so to quickly summarize as your
2:58 company grows your price per unit lowers
3:01 because companies aren't getting more
3:03 efficient at what they're doing to have
3:05 a small company your price per unit will
3:07 be quite high if you have medium company
3:10 your price per unit will be better but
3:12 still at quite medium range and if you
3:14 have very large companies your price
3:16 will be quite low and very competitive
3:18 on the market and this principle
3:20 perfectly describes what is happening
3:23 with the cloud as the cloud grows and it
3:25 has more customers the price of their
3:27 services will go down because big
3:29 companies like Microsoft will get more
3:31 efficient at what they do in case of
3:34 Microsoft it will get more efficient on
3:36 building new data centers getting better
3:38 prices for the hardware there of course
3:40 will be Hardware advancements which will
3:42 again lower the price and when this
3:44 happens and my crystal wants to stay
3:46 competitive the prices of the services
3:48 that it offers will also go down and
3:50 that's really it this is how economies
3:52 of scale work and how they drive the
3:54 cost of your other services or this
3:57 episode again go to my website - episode
3:59 2 check out the study cheat sheet and
4:02 maybe take a practice test and that's it
4:04 for this episode thank you guys for
4:06 watching if you like what I do support
4:08 the channel by subscribing liking and
4:09 commenting or showing this to your
4:11 friends if you want to see the next
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4:15 hit the icon on the side and see you there
4:17 there [Music]
