The structure of the music industry
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A blog by Barry Flanigan |
James McQuivey is an analyst at Forrester Research, where he serves Consumer Product Strategy professionals. James blogs here.
The most important outcome of this week’s emerging tussle between Apple (NSDQ: AAPL) and Google (NSDQ: GOOG) is that we are about to have an intense and financially difficult conversation about what a fair price is for delivering customers to developers, publishers, and producers. Economically, this is one of the most critical issues that has to be resolved for the future of electronic content. Very soon, a majority of consumer experiences (that which we used to refer to as the media) will be digital. But not until the people who will develop those experiences have unambiguous, market-clearing rules for how they can expect to profit from those experiences.
The question comes down to this: Is 30 percent a fair price for Apple to charge? I do not employ the word “fair” the way my children often do. I am not whining about Apple’s right to charge whatever it wants. Apple may do whatever is best for shareholders in the short- and long-run. I argued yesterday that Apple’s recent decision does not serve its shareholders in the long run. Google announced One Pass yesterday – hastily, I might add – in order to signal to Apple and its shareholders that monopoly power rarely lasts forever. But none of that questions the ultimate morality of Apple’s decision or its rights.
I use the word “fair” to refer to a state of economic efficiency.
A fair price is one that maximizes not just individual revenue, but total revenue across all players. Such revenue maximization cannot be achieved without simultaneously satisfying the largest possible number of consumers with the greatest possible amount of innovation.
It is on that basis that I declare Apple’s 30 percent pricing unfair. How do we know what a fair price is? In an efficient market, fair prices land somewhere close to the cost of delivering services. This happens thanks to competition: As long as there is excess profit in the system, a rational competitor will lower prices to attract more customers until margins are thin enough to survive on but not amply so.
Right now there is no competition in this market. Apple owns more than 90 percent of the tablet PC business and is therefore immune to the effects of competition, at least for now. But as we’ve seen in the phone business, it only took Android a few years to catch up and I expect the same to happen in tablets. When it does, Apple will have to reevalute its 30 percent price. But will it land on Google’s 10 percent?
In the short run, maybe, though I don’t expect Apple to counter price directly, it’s just not in keeping with the company’s style. More to my point, however, in the long run, even Google’s 10 percent is too much to ask of experience providers.
Some will disagree with me, vehemently. They’ll raise examples like newsstand sales of magazines, where the publisher only gets a minority of the newsstand price. Or any physical retail business, where a 70 percent cut of the sales price would seem like a boon from on high. But none of those examples are relevant.
In the world of retail – including physical media distribution on CD, DVD or even in movie theaters – margins are slim for everyone in the supply chain. The producer, distributor, wholesaler, and retailer. Because everyone has physical costs to bear in a competitive market, they all offer their services at just above their own costs.
In the app world, however, the biggest incremental cost of a content experience is its creation. Once it is created and properly formatted for delivery – costs both born by the publisher or producer – the distribution of the digital asset is nearly free. Managing the customer relationship, maintaining secure login and credit authorization processes, delivering the bits to the device – these are all negligible costs that the platform operator bears as a service to the market. Any claim that these costs are burdensome is exaggerated.
Arguably, the biggest cost an app platform developer endured was building the device and creating the developer tools. These companies deserve to recoup that investment. And they do: Apple charges a fabulous premium for all of its devices. Plus, it expects the user to pick up the last mile of distribution costs. In other words, Apple paid for its investment already, many times over, and only has small residual expenses left to cover. This is why Apple’s stock is so popular. The device owner pays for all of Apple’s investments. Any cash Apple gets from developers is just gravy.
Again, there is nothing morally wrong with this. Apple can do this all it wants (though eventually, someone will call a Senator or two and the FTC will get involved; it’s just inevitable, even if there is ultimately no finding of fault).
So if we can’t compare Apple’s 30 percent or Google’s 10 percent (or Amazon’s 30 percent Kindle bounty, by the way) to other media or retail distribution businesses, what can we compare it to? The most direct analog is the credit card processing business. It’s similarly structured: One entity acts as a secure platform on which millions of consumers can transact with thousands of businesses. What do these companies charge? From just below 2 percent to as much as 5 percent for low-volume, high risk merchants. How do they justify this charge? Easily: They have to have a large physical and labor infrastructure to manage the process. Some of this infrastructure is paid for by partners and customers (your annual fee or the cost for a merchant to buy a credit card reader), but most is not.
This system works well. In fact, it works too well and we overuse it, a problem the last recession hopefully curtailed at least for a while.
Seen in this light, you can better understand why I argue that the long-term resting point for these kinds of platform fees is going to end up below 10 percent. It won’t happen until after 2012, when there’s enough competition among platforms and enough people going around the platforms altogether using HTML (expect Amazon (NSDQ: AMZN) to be among the first). That competitive pressure will lower prices and encourage more innovation. Apple will still have billions in the bank and its shareholders will still be very happy. But the happiness of other companies (measured in revenues) will also have risen and so will the enjoyment level of the end customers who will have better content experiences at more efficient, market-clearing prices.
That’s why Google’s announcement is so important. Because it signals the eventual arrival of this future and provides frazzled content companies with some hope that they can someday return their focus to generating the best content. That’s why they’ll sign up for One Pass, even if they dislike Google as much as they now distrust Apple.
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Posted 11 February 2011 09:53am by Kim Tasso with 0 comments
Social media is now a proven and important element of most digital marketing campaigns and the majority of marketing practitioners will be comfortable with how it integrates into their existing communication programmes.
However, there is still a dearth of information on how social media integrates with and supports selling and engagement activities.
During 2010 I worked closely with Peter Abraham of Econsultancy to research the subject, and we focused on one of the most complex high value service markets, that of professional services (lawyers, accountants/consultants and surveyors).
Whereas in many companies it is common for marketing to be separated from sales, the problem is exacerbated within the professions as often the marketing and business development professionals are often not allowed to get involved in direct selling as this is undertaken by the lawyers, accountants and surveyors themselves.
Furthermore, these professionals are often unsophisticated and reluctant in their approach to selling and relationship management. However, the professions are well known for leveraging the close personal relationships that they develop with their commercial clients and for the long sales cycle.
We developed a series of best practice guidelines for how lawyers, accountants and surveyors could integrate various social media tools (and LinkedIn and Twitter turned out to be the most popular) depending on whether they were social media newbies, average users or “star” performers.
We also provided guidance for various stages of the sales cycle and the relationship management process and pulled all the elements into a preliminary model which is presented in the White Paper "The use of social media in relationship development in the professions (Lawyers, accountants and surveyors)".
Six of the main strategic lessons learned:
- Understand the sales and relationship development processes used by the organisation, teams and individuals before you attempt to see how social media might support them.
- Develop standard policies and procedures to ensure that you protect against inadvertent problems with client confidentiality, brand and reputation management, disclosure of valuable know-how and the ownership of critical contacts and network.
- Assess which vertical markets externally and which professionals internally are most enthusiastic about social media, and work with your champions in a pilot project.
This allows you to bring the early adopters (and potential mavericks) under the umbrella of the organisation’s criteria for effective use. Particularly cautious firms might explore social media by using an internal tool such as Yammer for internal communications campaigns.
- Look at existing marketing, sales and account plans and try to develop some measures by which social media activity, when incorporated into other traditional activities, can be assessed.
- Provide introductory training on appropriate social media tools, which may involve working alongside the professionals as they perform their day job and delivering new layers of complexity in bite sized pieces.
- Monitor activity and results carefully, be patient, provide regular support and encouragement, promote successes (however small or anecdotal) and allow social media use to develop in line with experience and update the best practice guidelines and systems regularly.
Six of the top operational tool tips were:
- Using social media as a method to learn more about markets, organisations and individuals. A targeted form of market listening in order to gain insight into trends, needs and opportunities and map client-side relationships.
- Using location based social media, particularly those providing information on different aspects of individual’s preferences, habits and places frequented, to learn about and connect with different members of the decision making unit.
- Consider how to integrate social media contacts and connections with traditional “centralised” databases, sales automation and CRM systems.
- Ensure that corporate and personal brands (business and self profiles) are aligned and that consistent key messages about specific strengths and expertise are promoted through all channels.
- Using the traditional networking advice of “Giver’s Gain” and using social media to add value to every interaction with existing and potential clients through a careful shared content strategy.
- Use status updates, particularly on professional and business networks such as LinkedIn, on a regular basis to ensure that you remain “on the radar” of a large number of contacts with ease – and provide hooks to prompt interaction.
Learn more...
The use of social media in relationship development in the professions (Lawyers, accountants and surveyors is free to registered users (bronze Econsultancy members and higher). Inside, it contains the latest market trends, best practices, statistics, useful resources and case studies relating to social media and the professional services industry.
Other social media resources, from Econsultancy's vast content includes the Social Media and Online PR Report, produced in association with bigmouthmedia, which is the most comprehensive study of its kind around the strategies, tactics and websites companies are using to harness social media for marketing, sales, customer service and other business objectives. Econsultancy has also released a specialist 90-page guide, How to create amazing Facebook Pages, which will provide you with all the detail you need to build - or overhaul - a Facebook Page.
Kim Tasso is Managing Director at Practical Marketing Consultancy Ltd and a guest blogger on Econsultancy.
http://econsultancy.com/uk/blog/7141-six-top-tips-for-integrating-social-medi...
Starbucks, Mazda and Argos sign up for Facebook Deals
By Ed Owen, marketingmagazine.co.uk, 31 January 2011, 09:40AM
The UK version of Facebook Deals launches today (31 January), offering Facebook users who "check in" using the Facebook Places feature on their mobile app, access to special offers and other deals.
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Facebook Deals: UK version launches today
People using the Facebook app already have the opportunity to check in to show friends where they are, and restaurants and shops are already popular check-in spots.
Once checked in, users will now gain access to deals offered by third parties.
Starbucks will give away 30,000 cups of coffee to people who check-in today.
Debenhams will give away 1,000 sets of mascara and makeovers.
Mazda will give away 5 cars for 5 months, and those who check-in will get a 20% discount on certain models. Those who check in at Alton Towers on 18 February will gain free access.
Argos and Benetton will have deals linked to charitable donations. YoSushi will give away 1,000 free plates and O2 have also signed-up, and will offer Playstations on Saturday.
Theme park Alton Towers will be offering free entry to all users who check-in on Friday 18th February; there will also be 100 free rooms at the park’s two themed hotels available for the first 100 people who check in.
Joanna Shields, vice-president of Facebook for Europe, the Middle East and Africa said: "For the first time in history we can make these deals at scale, at real time and for free."
Gap, Starbucks, McDonald's and H&M are some of the brands to have partnered with Facebook for the US launch of Facebook Deals, each offering something to users who check in at their stores.
The Facebook Deals service initially launched in November in the US, but for iPhone users only. Facebook released an update for Android users on Friday.
The service will roll out in the UK, France, Italy, Spain and Germany today.
Facebook Deals combines the mass-buying potential of Groupon with the location-based gaming of Foursquare, and the Facebook launch should prove a major challenge to both services.
Facebook has yet to announce whether it will enter into mobile payments services, but redemptions of Facebook offers will be only be fully trackable once mobile payments systems launch through Orange and O2 later this year.
Dan Rose, vice-president of platforms and product marketing for Facebook, said last week that it was investing equally in both its own digital space and developing tools for third parties.
This article was first published on marketingmagazine.co.uk
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