Markets as conversations
December musings


Given the confusion generated by its intended $6.9Bn acquisition of Scientific-Atlanta, I wonder if CISCO is on its way to sharing the fate of a former undisputed leader of networking, Novell. Through this purchase, Cisco wants to become the leader in TV, telephone and Internet. At an operational level, CISCO and S-A have been as different as they come (markets, profit margins, support, pricing, etc.). At another level, it is interesting seeing there are still incumbents thinking of revolutions in terms the most successful application(s) of the prior medium. It could be argued that this is more a problem for Yahoo! and AOL than for the infrastructure provider itself, yet I am skeptical about this version of Nirvana consisting of 500 VOD channels. The relevance of the model's viability is clear to those who recall the many billions worth of infrastructure equipment CISCO had to write off after the last boom.


When did problems start showing up at Dell? When Michael Dell left the top position, when Mark Hurd succeeded Carly Fiorina, or when some Central-Texas star lost its shine? It could be all or any of the above and something more. Anyone recalls Dell's exiting the Chinese retail market? Somehow, Lenovo was able to do better in that market, despite all Dell's patented processes and such. And that was only punch #1 in the series. The second came shortly after, when Lenovo acquired IBM's PC business. Optimists still call this progress, however, when considering the success of Lenovo's first ThinkPad, progress is in the eye of the beholder. I would say, this was just the most recent punch...
The point of the whole story may well be that Dell, by deciding to put its money in processes, has been, by and large, about lower prices and little else. When a canny competitor, (e.g. Lenovo) that spends on R&D and somehow beats Dell's processes, shows up what's left to keep Dell in the customer's grace?


Will there be a time, in the enterprise software market, when Oracle and Microsoft are the only players? On the one hand, Oracle has to do prove it did not bite off more than it can chew. On the other, success at Oracle will push SAP and Microsoft in the same place. I should add that I cannot see how a third option, represented by online offerings (e.g., can resist the giants. Such option is limited by the need of enterprises for back end integration of their applications. By the time is able to add one more enterprise application to its own offering, the big players will have developed their online versions as well.


In theory, the music and print industries are best suited to make the most and fastest out of the potential of markets as conversations. Here would be some of the reasons:
  • Their contents are either digitizable or in digital form already;
  • People often base their buying decisions on advice from others;
  • The current cost structure is extremely inefficient;
  • The costs of producing (digital) content have been lowered dramatically.
On the flip side, these same industries fear:
  • The proliferation of pirated (digital) copies;
  • Changing of their tested, however imperfect, revenue system with something uncertain at best, if not disastrous.
What are the driving forces?
  • Digital piracy that cuts on the profit margins;
  • Newcomers such as Amazon, Google;
  • Decreasing revenues from the traditional channels;
  • Perceived lack of fairness on the part of consumers who, say, have to pay up to $20 for a CD.
To illustrate the concept of markets as conversations, how many times have you checked product reviews with Amazon or Epinions before making an on/off-line purchase? What do you trust more, an advertisement or several reviews? Moreover, the reviewers are being rated themselves. Is this step, of checking online reviews, going to become part of your purchase making process? If so, why not make content producers out of what are still being perceived as channels by traditional content producers? Alternatively, given the reduced price of production, why wouldn't content makers bring their products to a place like

To conclude, the challenge in the music and print industries is about finding the next business model. DRM or legal interventions can help the incumbents only dream a little longer. It is essential to stress out that, no matter how one looks at it, consumers must pay for content. However, supporting bloated industries cannot be anybody's goal. Question is: How much to pay? Hint: Follow the evolution of telephony pricing!

What do you think?


fCh said...

Preemptive move from Random House:

Announced the same day but independent of Amazon's project, Random House was the first publisher to put out a baseline price for the digital content of its inventory, at 4 cents per page. The customer's end cost will likely be higher--though exactly how much higher has yet to be determined--but a sliding scale might be used, based on the number of pages and the type of content being ordered. Still, at 4 cents per page that's $20 for a 500-page book, which is in the ballpark for discounted bestsellers in most bricks-and-mortars bookstores.

"We've had conversations with both Google and Amazon over the past few months" about their search and purchase systems, said Richard Sarnoff, president of Random House's corporate development group. By creating a financial model under which the Amazon and Google programs could work, Mr. Sarnoff said Random House was "planting a flag, trying to establish some ground rules that we are comfortable with to create this new kind of commerce around book content."

The Random House model calls for consumers to be able to buy access to a book for, say, 5 cents a page for most books and higher amounts, like 25 cents a page, for cookbooks and other specialty publications. It calls for users to gain online access, though not to be able to copy or print the page. But "if consumers absolutely demand certain kinds of access," like the ability to print, Mr. Sarnoff said, "it would be important to provide that."

Credits: Chris Kraeuter with Digital Media

Obviously, this model is too indebted to the old one to the point it's a mere extension. While it addresses some of the problems, given the price per page, will it pass muster with customers? Somebody should probably impart to these folks the concept of "micro-" in micropayments. On the other hand, $.05/page may not be a problem if publishers adopt a model whereby prices change with time, volume or other criteria.

Anonymous said...

RealNetworks plus a rating system like Amazon's/Epionions would also make a killer!

fCh said...

Here's an extra angle: