Oman Data Park And Cloud Acropolis Overview

Services and Products Offered by Oman Data Park

Discuss about the Software and Services Company Overview.

Oman Data Park is an IT services provider Company that delivers a well rounded portfolio of  Information Technology(IT)  services such as Web Hosting, Managed Cloud and Non-cloud  services, real time infra managed security services.(Oman Data Park 2018) Etc. Founded in 2012, Oman Data Park, is a subsidiary of Oman Telecommunications Company (Bloomberg LP 2018) and is located in Muscat, Oman. Oman Data Park has over 50 employees that help in provision and operation of all aspects of the data centre (Oman Data Park 2018) T he company has the most up-to-date portfolio of services to be able to deal with any IT challenge that could be thrown at it. (Oman Data Park 2018)   In the year 2014, Oman Data Park had revenues worth US Dollars (USD) 7.8 million or 2 million Omani Riyal(OR) and received investment worth 7 million OR or 18.1 (USD) million USD. (Oxford Business Group 2016)

Some of the Key areas that Oman Data Park is looking at, for future growth are banking and transportation. (Oman Data Park 2018). The Company also provides e-commerce services through a subsidiary, Omania E-commerce LLC  (Thomson Reuters Zawya 2018)

Figure 1 Services and Products Offered by Oman Data Park

Source:(Oman Data Park 2018)

Cloud Acropolis is a new firm , found in 2016 that offers more or less the same services as Data Park Oman. The new data firm, although has fewer than 10 employees, is hiring fast and proving to be a tough competition for Data Park Oman. It is growing fast. This privately held Company started it’s operations by taking over an already established state of the art data centre and hence, is able to provide a similar range of services as Data Park Oman with more or less similar quality. .(Cloud Acropolis 2018)

The Company provides a full range of Data Center services and has big and well established global and local partners that help it provide software, networking and cloud based services and solutions. (Cloud Acropolis 2018) The Company also, provides specially developed software solutions such as enterprise software for schools and other specialized solutions. However, these are the fringe business offerings while the core business of Cloud Acropolis is the same as Oman Data Park.(Cloud Acropolis 2018)

The two firms compete in the same market of Oman and are located in Muscat. Thanks to its strategic investment in the well established infrastructure and a host of partners, cloud Acropolis is emerging as the single largest competitor. IT services are usually more or less homogenous and there is little differentiation in the services provided. For example, all cloud hosting services provide the standardized services of cloud storage, repair and maintenance and security.(Oman Data Park 2018)(Cloud Acropolis 2018) . This implied that product differentiation is low in the market.

Services and Products offered by Cloud Acropolis

There are other service providers in the market but none compare to the two Companies, in terms of the range of products they offer or in terms of price. Hence, the given market is a duopoly. A duopoly is a market where only two competitors exist. (Samuelson and Nordhaus 2004)

In a duopolistic market such as the current one, all major business decisions would be made bearing in mind not just the consumer demand but also the strategy or the game expected to be played by the competitor. In order to maximize revenues, it would be best to take the decision based on Game Theory.(Samuelson and Nordhaus 2004)

Game Theory describes a series of decisions take, for the purpose of strategy, by different sellers in order to maximize their ‘profit’ or pay-off. Even a decision taken by a single firm for its own internal revenues could affect all parties in the market, especially the competitor’s revenues. Hence, these decisions are, most often, met with retaliatory actions. (McNutt 2014) Retaliatory actions may not necessarily mean that the competitors will follow the same path. For example, a competitor can decide to compete, on a non-price basis as a retaliatory measure if the other competing firm slashes prices below a sustainable level. (McNutt 2014)

The firms will probably offer competitive prices and each firm would have to reduce its prices if the other firm follows that part.(McNutt 2014)  As mentioned earlier, most products and services offered by Data Park and cloud Acropolis are similar in nature and the pricing levels are currently similar. In order to engage in non-price competition at a firm level, Data Park can offer more specialized solutions such as enterprise software for hospital services that Data Park is currently developing. However, these will take time and are not a part of the core business of Data Park. In order to be competitive, the core business of Data Park, highlighted in Figure 1, must become more competitive.(Oman Data Park 2018)

According to the Game Theory, pay-offs can be maximized if both parties are willing to collude. Collusion can help both sellers achieve monopoly profits as it will allow them to act as a single seller who has a monopoly price. (McNutt 2014) Hence, best decisions for the firms would be to collude at OR144.

Competitive games would come into play, if Cloud Acropolis refuses to collude. In such a situation, the Data Park will either have to indulge in price reduction to gain market share first or non price competition.(McNutt 2014)

Competition and Game Theory

The Price Based Competition is mostly related to cutting prices. (McNutt 2014)     However, specialized solutions developed as property of the Oman Data Park are not in competition. Hence, the prices for those solutions will remain the same, and are not a part of the competitive games.

Figure 2 Elements of Price Based and Non Priced Based Competition

Source: Prepared by Student.

The ODP Linux Cloud Server – XL is a product that both firms offer. Currently, the Data Park offers the service at OR 144. Since a price war would come into play, Cloud Acropolis may choose to reduce prices to OR99.95. (Oman Data Park 2018) Cloud Acropolis also has other marketing channels. The price of OR99.95 will be considered as a low price since the profit margins that are expected should this price be available, will be very low. It would be best for both Companies to collude. In case, Cloud Acropolis goes ahead with pricing, then Data Park would also be forced reduce prices for the same service. This could start a price war, as each firm would have to slash prices, in order to be more competitive. Price Wars are sequential games that are the most likely results of a competition. However, the competing strategies for both are different (Cloud Acropolis 2018)

• Oman Data Park can keep prices low as it enjoys economies of scale, given the database of customers it has built over the years in operation. (Oman Data Park 2018)
• On the other hand, Cloud Acropolis is competitive due to the low prices of operation, given that its operations are small (fewer employees). (Cloud Acropolis 2018)

Both firms will probably engage in both price competition and non-price competition. Each strategy or combination of strategies will have its own pay offs. The current price for the service is OR 144, offered by Data Park whereas the price offered by Cloud Acropolis is OR134. (Cloud Acropolis 2018)(Oman Data Park 2018)Given the base of customers that Data Park currently enjoys, the loyalty and trust that people have in the brand of Data Park, there has been no effect on the new and current customers due to the difference in the price. However, this could change, if the two firms do not get together and collude to set prices. If the two firms collude, then the price can even be set higher. However, it would be in the firm’s best interest to try and keep the high price at OR134. However, if Cloud Acropolis refuses to set price, then Data Park will have to follow price and lower it to OR 134. However, this would reduce profit margins and in case of a greater inflation in the future, may be lead to losses. (McNutt 2014).

Price Based Competition: An Example

The figure given below is a pay-off matrix. A pay-off matrix describes the value or the dollar value or the gains and losses for a given player in the market, under a given strategy. The Pay off Matrix given below describes the possible prices, given a choice of strategy by a competitor. (Mankiw 2008)

Table 1 Pay-off Matrix in Case of Price Based Competition

Source: Prepared by Student

	High Price with collusion	High Price without Collusion	Normal Price With Collusion	Normal Price
Oman Data Park	OR144	OR134	OR144 (current price; Cloud Acropolis follows price)	OR 144
Cloud Acropolis	OR144	OR134	OR134 (Follows Microsoft Price)	OR134

Non price based competition are the competitive tactics they go beyond cutting prices. Non pricing competition is often related to making the product different or ‘product differentiation’ or on the basis of strategic tactics like advertising, providing discounts etc.

Some non-price competition measures would be:

• Providing free trials
• Seeking to partner with exclusive customers based on customizing the services for the particular industry.
• Advertising
• Loyalty Discounts

Free trials: Free Trials of products and services are already available for most products and services. However, the duration of free trials could be expanded from a select few to more products and services and for longer period. Currently most free trials offered by Data Park are for the period of 7 days to 15 days. This duration could be increased to 15 days and the number of services could be increased.

Seeking to partner with exclusive customers based on customizing the services for the particular industry:  All the services provided by Oman Data Park currently must be customized. All the solutions sold currently to shipping industry can be tweaked to be customized solutions for the industry itself.  Instead of selling ERP systems, the generic ERP solutions can be tweaked a little to be tailor made and ready to go for use in the air transport industry and instead of offering the generic version, Oman Data Park can offer the customized version for a premium price. This will allow the firm to deliver processes to the customers in a moreeasy manner and help provide data, in a way that makes sense to them.  (Ginley 2015)

Advertising: There are several areas of the market that are unaware of the services provided by Data Park. There is bigger opportunity for firms working in the field of air transport, shipping etc. Plenty of these clients are based outside of Oman. According to the national strategy of Oman, the Government of Oman wants to make the country a regional transport and logistics hub and is formulating a strategy accordingly. (Omar and Mawany 2017)  This could be a growth area for Oman Data Park, one that needs to be captured. Investment in advertising would go a long way of making such firms aware of the products and services offered by Data Park. Advertising would include advertising in financial newspapers and journals in select companies abroad, participating in industry expos for select industries identified etc.

Loyalty Discounts: Special Discounts for companies that buy at least 3 products or services from Data Park can be offered to thank customers for their loyalty

Assuming that Data Park does not lower prices in retaliation, it stands to lose market share and hence, must engage in non-price competition as mentioned above. Advertising will allow Data Park to attract more customers. (Mankiw 2008) This will have a ripple effect as the firm will be able to stay profitable and even, if possible, realize economies of scale. In such a situation, it is expected that Cloud Acropolis will follow suit and advertise, which may increase the costs of Cloud Acropolis further. According to market research, Cloud Acropolis will not be able to keep the unit price low, if it engages in advertising. The unit price will rise to the same price as that of Oman Data Park.

In order for, Oman Data Park to bear the costs of advertising, or other non-price competition, it must raise prices to OR 175 for the same service mentioned above. However, it could lead to a significant market again.  The Pay off Matrix above can, therefore be extended as further.

Table 2 Pay Off Matrix for Price and Non -Price Competition

Source: Prepared by Student. Adapted from (Samuelson and Nordhaus 2004)

	High Price with collusion	High Price without Collusion	Normal Price With Collusion	Normal Price
	Advertising Non Advertising	Advertising Non Advertising	Advertising Non Advertising	Advertising Non Advertising
Oman Data Park	OR175 OR144	OR175 (New strategy.      Cloud Acropolis        follows strategy OR144 (current Strategy.)	OR175 OR144	OR175 OR 134
Cloud Acropolis	OR175 OR134	OR175 (New strategy. Cloud Acropolis        follows  strategy OR134 (current Strategy.)	OR175 OR144	OR175 OR 134

In the above matrix, advertising with collusion will help gain the highest price. Hence, it is the best strategy.

Conclusion

Data Park must talk to Cloud Acropolis, in order to set the prices at the high price of Oman Data Park.  In such as case, both firms can offer the same services at the same price and would be able to differentiate only based on non-price competition. This will help both companies avoid price wars and focus on building to their own strengths. Consumers will be able to benefit too. Low prices will imply that the firms may have to compromise on the quality of the products and services provided. Higher prices can improve quality. The other, possibility, would be that either of the firms could be priced out of the market or outsource some of its operations, if possible. In both possibilities, the nation loses. 

• In Case of collusion, Oman Data Park and Cloud Acropolis should set the price. Collusion will help both firms achieve monopoly profits. This means that both firms will be able to charge at least the high price or may be more.

Figure 3 Profits for the two firms if there is collusion

Source: (Samuelson and Nordhaus 2004)

The equilibrium in this case (in Figure 3)  will be achieved at a level of output where marginal cost (MC) equals marginal revenue (Q). At this point in production is the point where, each producer will or should stop producing given that this is the point of maximum profits. Here onwards, the profits continue to fall (to Q₁. )

Both firms will enjoy Monopoly Profits. The point where AC meets MR are normal profits. All profits above the point are supernormal profits.(Samuelson and Nordhaus 2004)

• In case on non-collusion, instead of engaging in a price war, Oman Data Park should engage in advertising, as a price war is likely to affect profits further.

The services offered by Oman Data Park are fairly generic and any Company can offer the same. (Oman Data Park 2018) There will be increasing price pressures on Oman Data Park, in the future as competition builds up. (Oxford Business Group 2016) Hence, Oman Data Park must seek to invest in Research and Development and develop its own solutions. A software for medical practices is an example of such a solution. This strategy can be implemented towards tha banking industry too. This will help Oman Data Park possess proprietary products and services and would take the pressure off from the core business.

References

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CLOUD ACROPOLIS (2018). Cloud Acropolis. [online]. https://cloudacropolis.com/

GINLEY, Terry (2015). Customizing ERP Software: Why and How Is It Done? [online]. Last updated 27 May. https://www.velosio.com/blog/2015/05/27/customizing-erp-software-why-and-how-is-it-done/

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OXFORD BUSINESS GROUP (2016). Oman's ICT use to expand. [online]. https://oxfordbusinessgroup.com/overview/strategic-thinking-increased-demand-connectivity-and-government-led-initiatives-combine-expand-ict

SAMUELSON, Paul and NORDHAUS, William (2004). Economics: Seventeenth edition. 17th ed., New Delhi, Tata McGraw Hill. ISBN 0-07-231-488,

THOMSON REUTERS ZAWYA (2018). Oman Data Park Acts as Platinum Sponsor of the New Age Banking Summit Oman. [online]. Last updated 6 May. https://www.zawya.com/mena/en/story/Oman_Data_Park_Acts_as_Platinum_Sponsor_of_the_New_Age_Banking_Summit_Oman_-ZAWYA20180506054621/

THOMSON REUTERS, ZAWYA (2017). FAST FACTS. [online]. Last updated 11 September. https://www.zawya.com/mena/en/company/Oman_Data_Park_LLC-11011161/