Google is well known for its capabilities in advertising, search technology and web-based software. However it is weak at developing desktop-based software (its successes on the desktop, like picasa, are acquisitions). It’s interesting that sometimes, its weakness in one area affects its strength in another area. Here’s an example: google video. While trying to upload to google video, I learnt that the “uploader” software doesn’t work. It fails to login, and even when it does, it ends up spending a long time uploading, after which those files do not actually appear online. Lots of people have had problems with it. Now it may surprise you that a multi-billion dollar company cannot write software to do this simple task, and hasn’t been able to fix it despite user complaints over the past 2 years, but again this is desktop software that Google isn’t good at developing. You might ask why I wouldn’t just use a browser-based uploader? The reason: Google’s browser-based uploader is limited to small files, while its youtube service imposes a 10-minute limit, not enough for an academic lecture, in this case last week’s IPRIA Conference. Google has now decided to give up, and will soon stop offering uploads of videos altogether. It is therefore ceasing to compete in the market for longer videos, which include higher-resolution HD videos, as well as video-hosting of lecture-length. So, Google’s weakness on the desktop in this case is contributing to the failure of its strategy on the web. Me? I’m handing my money over to vimeo.
Category: Strategy
Psst, no one has ever sold information
This is one of those posts that is a speculative thought written as fact. That said, it may actually be true. It starts with a conjecture: no one has ever sold information. Well then, how does one explain the payments people make for (physical) newspapers, books, and all manner of other stuff? I am going to contend that what people are paying for and have only ever paid for is delivery (or more broadly, something other than information).
[DDET Read on]
I am writing this in the context of the recent debate regarding micro-payments for newspaper articles. This is something I previously commented on, was a lead story in Time, objected to by others, and discussed here and here. That debate notes that (a) people value information and (b) it is costly to produce that information and so that means people can and surely will fork out to cover information costs. Fair enough except that it doesn’t appear to happen when it should and maybe, as I will argue here, ever.
Let’s start with books. Books represent a collection of information. But in pricing books publishers and booksellers take into account various factors including the quality of paper and binding as well as timeliness — charging more for books closer to the time of release in many cases. So the same information is sold for differing prices depending on how it is delivered. And we see this being expanded to electronic books too. And all this occurs when books can be easily borrowed from others. So what book sellers are competing with are those other modes of delivery. That is why, except in extremely rare cases, households only tend to buy one book.
Now, let’s move on to music. Previously, the issue in delivery was quality (albums to CDs) and portability (cassette tapes). Then came digitisation (actually that came with CDs) and supposedly every thing changed. Yet, iTunes is able to sell music despite the fact that you can get that very same music for free (albiet illegally but nonetheless). The obvious reason is that it allows for easier delivery. Pandora radio — something that I suspect could charge for a subscription — does delivery differently but allowing tailoring and experimentation. Indeed, it works like radio that way — the obvious delivery-based competition for music sales.
I could go on but let’s get to newspapers and the current apparent dilemma. The claim is that newspapers when they lost classifieds, moved to unprofitability. In reality what happened was that newspaper content and classifieds shared a delivery mechanism — timely and regular delivery to readers. But classifieds found a better mechanism and one that made search easier as well as involved lower costs. News content could also use that mechanism. The problem was that classifieds still had their traditional customers — advertisers — while news content was now much less about delivery and more about information. According to my hypothesis, that is the problem.
So the response has been, let’s work out how to get people to pay for information. One example of this is Chris Anderson’s notion of “freemium.” You give away 99 percent and charge for 1 percent. The idea there is to charge for some premium content. But my conjecture here is that is wrong. What you need to do is charge for better delivery. Ad-free is an example of this but customisation is another way.
Now I don’t have the ‘solution’ for newspapers but my guess is that once they start thinking about giving away content and charging for delivery, payment mechanisms will come (something that Jonathan Rosenberg was groping towards).
[/DDET]
The Reliability of User Reviews
User generated reviews are one of the great innovations that came with the growth of the Internet. They are now pervasive, and cover everything from automobiles, to music, books, movies, and restaurants. I suspect the arrival of user reviews on interactive mobile platforms (such as urbanspoon and amazon) will bring upon us a new wave of interest in such content.
Yet, user-generated reviews suffer from informational problems. Firstly, why would you trust the product recommendations from an online stranger any more than you might somebody else? Secondly, user reviews are often tediously long, contain huge volumes of inconsistent information, and sometimes even degenerate into personal mudslinging matches. This imposes search costs upon the person trying to make sense of reviews. For example I was recently searching for a new lens for my SLR camera (a little hobby on the side), and it took a bit more time than I had expected to visit various photography forums to sort out which products were really good, versus other lenses that suffered quality control problems. Thirdly, there is a growing phenomenon of companies manipulating online information for their own benefit. For instance, last week Seagate was found to be deleting user postings from their website about high defect rates, while a Belkin official was caught out offering cash for good reviews.
OK, so why would Apple agree?
Universal Music would like a slice of every iPod pie (click here).
Universal, the world’s largest music company, owned by French media giant Vivendi, was the first major record label to strike an agreement with Microsoft to receive a fee for every Zune digital media player sold.
“It would be a nice idea. We have a negotiation coming up not too far. I don’t see why we wouldn’t do that… but maybe not in the same way,” he told the Reuters Media Summit, when asked if Universal would negotiate a royalty fee for the iPod that would be similar to Microsoft’s Zune.
I would like that slice too. (Actually, come to think of that, I get it in the form of consumer surplus.) But why would Apple give Universal that? Continue reading “OK, so why would Apple agree?”
How fair is Starbucks?
A while back I blogged about Fairtrade; the folks who try to secure growers in less developed countries better prices (click here). I worried that, while well-meaning, ultimately, any additional money consumers paid would flow away from growers (perhaps even to the very multinationals accused of paying growers ‘unfairly’). At the moment, I have a crack team of RAs working on whether the assumptions underlying my theorising are true or not and I will report on that in due course. It turns out to be quite hard to get information from the Fairtrade folks. Continue reading “How fair is Starbucks?”
The mysteries of convergence
This week’s Economist has an article by Tom Standage (“Your television is ringing” — click here, it is free access). Standage doubts consumers really want convergence — that is, things like a TV with a phone. And there is a sense in which, of course, he is correct. Continue reading “The mysteries of convergence”
The iTunes Games Index
As regular readers of this blog are aware, I have been tracking an iTunes (Song) Index (click here for past entries). The general story there is that (apart from Canada), the iTunes Index suggests that currencies are over-valued relative to the US dollar. This is in contrast to the Economist’s Big Mac Index which has a more mixed story.
One issue in this result was the possibility that with respect to songs, Apple (or US copyright holders) may have underpriced songs in the US (and Canada) as these were the first to be introduced. This week, Apple announced that it would be selling iPod games worldwide via its iTunes Music Stores. Exactly the same game offerings would be available everywhere. This meant that the prices were (a) set at the same time; and (b) were for precisely the same products. So I decided to generate a new index — The iTunes Games Index. Here it is:
There are several interesting things to notice about this. First, the Canadian game price exceeds the (parity) price for the US; so adjusting for current exchange rates, Canadians pay more for games than people in the US. Second, now every single currency appears to be overvalued relative to the US dollar. The next chart compares the over (+) or under (-) valuation for the iTunes Songs, iTunes Games and Big Mac Indexes.
In Europe, the correlations between the songs and games results are very tight. In Australia, games appear at a relatively lower price compared to songs and in Japan this effect is marked. In general, international game prices appear to be relatively less expensive than songs. This suggests that while there was some correction in the US game price on the part of Apple, there is a distinct tendency to charge more internationally than in the US. Why that should be the case is beyond me.
Spark in BRW
This week’s edition of Business Review Weekly has its annual Young Rich List and what do you know, I am in it. Well, actually, in the magazine. To be on the list would have required an incredible drop in standards on the definition of ‘rich’ and would have been on the older side of their definition of ‘young’ (Kylie and I were born in the same week). No, I comment on the list and, in particular, on entrepreneurship. (Click here for my article)
My thesis is that those who have got on the list by being entrepreneurial (as opposed to inherited wealth, entertainment or sports) are unlikely to make it to the old rich list. The risks that got them where they are today will likely take them out tomorrow. Not to destitution just not into obscene wealth. I argue that this is nice and healthy for innovation in the economy because it reflects an environment for experimentation.
Finally, I cannot let it pass that on page 56 of BRW, there is a entire page considerable waste of paper with what is surely an unnecessary glossy photograph of a commentator. How many carbon offsets am I going to have to purchase for that one?
iTunes Album Art
The new iTunes 7 has a cool feature that will examine your music library (regardless of where you got it) and then, if you want, send the information to Apple and download the album art for stuff not purchased from the iTunes Music Store.
Just a question: why are they doing this? After all, the album art is copyright material and so they needed permission to do all of this. My thought is that the aggregated information of non-iTunes purchases is pretty darn valuable to music companies even if they can’t identify individuals.
The flow of knowledge
Nature this week reports on research by my co-author, David Hsu (Wharton), and my new colleague, Kwanghui Lim (MBS). Here is an extract: Continue reading “The flow of knowledge”
Core Economics 
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