The fact that Facebook spent $1B for mobile phone photo share company Instagram less than a week after it raised money at half that valuation shows the growing importance of mobile apps in today's economy (and the limitations of FB's net-centric model). Since most are free or 99 cents, how will the economics ultimately work out for the people that develop them? Is app development a viabile business or are we heading down the same path as the first e-commerce bust (remember Pets.com)?
For one, host companies like Apple don't care and aren't even focused on the standalone business. When you dive into the numbers in an interesting article on the iOS economy, Apple made an astounding $300M last quarter (and growing) from its 30% cut of app downloads. Despite it being a meaningful number, the hardware sales driven by the App Store is what's most critical to them. Google doesn't care about making money on apps as its mobile search revenue is expected to more than double to $5.8B in 2012. In the long-term, these companies should care. If you charge a 20% interest rate to loan money and noone can pay you back, how long will the party last ?
How does this translate to the typical developer? The average selling price for an iOS paid app is about $1.55. But once you take into consideration the ratio of free to paid downloads (~4.5x) and Apple's cut, it nets the average developer close to about 23 cents per app per user. I'm not sure what business model can survive on a quarter a sale, but certainly there has to be more behind it for the channel to thrive.
If you are a developer for corporations, it doesn't matter. Schwab and Fidelity are using apps for customer retention and account access. Pepsi uses it to build brand loyalty. As with most marketing budgets, traditional media dollars are moving to more relevant channels with mobile apps being one of the fastest growing. I would surmise that a corporate app developer is one of the hottest jobs around right now.
But what about the guys trying to make a living or a business? Jeff Bezos built a website and they came; can that happen in the mobile app world? Certainly Instagram was a monetary success, but only because they sold the promise (eyeballs versus cash flow). The other folks that are collecting a 23 cent toll for their niche app won't stay forever. Ultimately, the crowd of creativity will dissipate unless they can find a way to make it worth their while.
You can see similarities in the blogosphere. There used to be millions of people writing their thoughts in hopes to monetize it in some shape or form (present company excluded of course). Many have turned off the lights and went back to diaries. Only a few blog sites have really generated a significant following. And even with sites like Huffington Post or Seeking Alpha, I doubt they are tremendously profitable. There are probably a few niche businesses in the blogsphere, but there is no Google.
So will Apps just become a cost center as many creative things do? Areas such as gaming and micro-transaction based models are gaining steam. I imagine affiliate programs from FB and other mobile commerce efforts will continue to add big dollars to the pie just as it did on the web. Perhaps it is too early in the cycle for a large scale disruptive business model to have emerged. As much as I want the guy who created the tongue salivating Ilickit make a living, I might be better off with a couple of shares of Apple.
13 April 2012
20 March 2012
Where is the Next Job Growth Engine?
While many will debate Apple's recent claim that its gadget ecosystem has created over 500k US jobs, its actual base (47k) is less than a tenth of General Motors at its peak in the 1970s. Although the markets are up and companies are sitting on piles of money, we have seen very little meaningful improvement in the unemployment situation. Significant employment bubbles such as finance and real estate have come and gone. Given the US's knack for marrying innovation with commerce, where should we look to find the next great employment vehicle?
It's great to see the bubble back, but it is not making a big impact on the situation. Michael Dell recently claimed that tech startups will plug the hole (ironic given its mass layoffs over the years), but it hasn't moved the needle that much. The big 4 2011 IPOs (P, LNKD, Z, GRPN) have a current combined market cap of $32B but only employ 11,000 collectively. The $100B juggernaut Facebook? Just 3,000. To add to the trend, the increased usage of crowdsourcing and contract help has created an on-demand labor pool without the steady paychecks to go with it. Simply put, tech companies do more with less.
We can't really look to the government for help. The post office is on the verge of collapse. Every agency from local counties to the Federal government can't cut fast enough to stave off budget shortfalls (political angles aside). Even if the administration's plans to build employee pools around infrastructure and energy were sound, the government is the last place to find market-based, sustainable industry growth. I don't think another interstate system will solve our woes in the long-term.
So perhaps we should follow the money trail to find an answer? Last year, VC's poured $28B into new companies. Roughly half of the investments were in software and "internet" companies which we know are employee-lite concerns. Industries such as manufacturing or retail which traditionally could employ large quantities were nowhere to be found. Some large investment areas such as energy, bio-tech and medical devices might be fruitful depending on their level of success.
What about the mass benefit of US corporations' export efforts? They are flushed with cash generated abroad as economies around the world have opened up their markets. While a boon for bottom lines, a WSJ article suggests that these companies have actually reduced their staff in the US while increasing bases overseas. Worldwide offices in Asia and South America are growing at a torrid pace. The now infamous Foxconn sweatshop employs over 1.3M and climbing. While there is no question the US has benefited the most from globalization, it doesn't seem US-based employment has seen a similar level of benefit.
There are many factors which explain unemployment figures (participation rates, skills gap between jobs and employee base,etc..), but there doesn't seem to be a simple answer for the next engine of job growth. We will definitely need small businesses to start hiring again. Hopefully, we'll see growth as emerging companies start to scale and spark new support industries. Health care, technology and energy continue to look like strong prospects for the future. Given past history, it will more than likely it will come from someplace that we are not currently contemplating.
It's great to see the bubble back, but it is not making a big impact on the situation. Michael Dell recently claimed that tech startups will plug the hole (ironic given its mass layoffs over the years), but it hasn't moved the needle that much. The big 4 2011 IPOs (P, LNKD, Z, GRPN) have a current combined market cap of $32B but only employ 11,000 collectively. The $100B juggernaut Facebook? Just 3,000. To add to the trend, the increased usage of crowdsourcing and contract help has created an on-demand labor pool without the steady paychecks to go with it. Simply put, tech companies do more with less.
We can't really look to the government for help. The post office is on the verge of collapse. Every agency from local counties to the Federal government can't cut fast enough to stave off budget shortfalls (political angles aside). Even if the administration's plans to build employee pools around infrastructure and energy were sound, the government is the last place to find market-based, sustainable industry growth. I don't think another interstate system will solve our woes in the long-term.
So perhaps we should follow the money trail to find an answer? Last year, VC's poured $28B into new companies. Roughly half of the investments were in software and "internet" companies which we know are employee-lite concerns. Industries such as manufacturing or retail which traditionally could employ large quantities were nowhere to be found. Some large investment areas such as energy, bio-tech and medical devices might be fruitful depending on their level of success.
What about the mass benefit of US corporations' export efforts? They are flushed with cash generated abroad as economies around the world have opened up their markets. While a boon for bottom lines, a WSJ article suggests that these companies have actually reduced their staff in the US while increasing bases overseas. Worldwide offices in Asia and South America are growing at a torrid pace. The now infamous Foxconn sweatshop employs over 1.3M and climbing. While there is no question the US has benefited the most from globalization, it doesn't seem US-based employment has seen a similar level of benefit.
There are many factors which explain unemployment figures (participation rates, skills gap between jobs and employee base,etc..), but there doesn't seem to be a simple answer for the next engine of job growth. We will definitely need small businesses to start hiring again. Hopefully, we'll see growth as emerging companies start to scale and spark new support industries. Health care, technology and energy continue to look like strong prospects for the future. Given past history, it will more than likely it will come from someplace that we are not currently contemplating.
09 February 2012
How Big Can Crowdsourcing Get?
By all accounts, the consumer submitted Doritos commercial that aired during the Super Bowl was a hit. People liked its authenticity (cost $20) and Frito Lay saved millions in production costs. More and more companies these days are turning to crowdsourcing techniques to help solve business problems by soliciting solutions from the general masses. VC's poured almost $300M into crowdsourcing startups in 2011 as the industry is expected to explode in the coming years. But how big can it get? Will it be the next outsourcing phenomenon that will revolutionize existing corporate structures? Or will it merely be a niche offering used in more modest contexts?
While the term crowdsourcing has been around since a Wired article in 2006 on the disruption of professional photography industry, it seems to be ripe for growth in the current business landscape. With prolonged unemployment as the new normal, the workforce has become more flexible and open to part-time, one-off assignments. Many (like AtmaBus :) are willing to volunteer their talents for virtually nothing to gain exposure. At the same time, companies realize that it is too expensive and impractical to hire sufficient talent for every requirement. With the ease of internet distribution, companies can take advantage of the readily available cheap labor force. They can get a broad reach, diverse input, and pay virtually nothing for it. No need for expensive engineering and marketing departments, right?
Crowdsourcing hasn't deeply penetrated the business world just yet. Certainly niches like funding and sites like crowdflower have gained steam. The biggest splash was probably that Netflix paid $1M a few years ago to a team that built a better recommendation algorithm. By and large, however, corporations so far have not significantly used crowd techniques for substantive tasks. Many, in my opinion, are using it more for marketing then problem solving. The Doritos commercial successfully reached its target market; any cost savings was a byproduct. My fave Sam Adams is soliciting recipes to debut a new beer at SxSW. Gap used it to test market a new logo on FB. There are hundreds of contest/user input projects out there right now. Do these companies care more about the end result or creating a buzz for their new product? Its probably the latter as I suspect the cost of these projects are hitting marketing budgets as opposed to production ones.
Also, as I wrote about the end of all things free online, user-generated input will slowly increase in price much like traditional outsourcing has. As crowdsourcing moves out of early adoption, the intersection of demand and supply will become more meaningful. A pure play crowdsourced model is also hard to sustain - which is why sites like Huffington Post are hiring more and more writers on staff.
Crowdsourcing can certainly give companies access to new ideas, help build a social following, and optimize certain corporate tasks. Like all outsourced activities, crowdsourcing comes with its own limitations that must be weighed. While there is no question crowdsourcing will move into the mainstream in a big way, I don't expect the next corporate structure to be centered around a free/cheap labor model as it is with offshore manufacturing. In the interim, I'll continue to train my fifteen month old how to say "Where's the Beef?" (hello Superbowl 2013!).
While the term crowdsourcing has been around since a Wired article in 2006 on the disruption of professional photography industry, it seems to be ripe for growth in the current business landscape. With prolonged unemployment as the new normal, the workforce has become more flexible and open to part-time, one-off assignments. Many (like AtmaBus :) are willing to volunteer their talents for virtually nothing to gain exposure. At the same time, companies realize that it is too expensive and impractical to hire sufficient talent for every requirement. With the ease of internet distribution, companies can take advantage of the readily available cheap labor force. They can get a broad reach, diverse input, and pay virtually nothing for it. No need for expensive engineering and marketing departments, right?
Crowdsourcing hasn't deeply penetrated the business world just yet. Certainly niches like funding and sites like crowdflower have gained steam. The biggest splash was probably that Netflix paid $1M a few years ago to a team that built a better recommendation algorithm. By and large, however, corporations so far have not significantly used crowd techniques for substantive tasks. Many, in my opinion, are using it more for marketing then problem solving. The Doritos commercial successfully reached its target market; any cost savings was a byproduct. My fave Sam Adams is soliciting recipes to debut a new beer at SxSW. Gap used it to test market a new logo on FB. There are hundreds of contest/user input projects out there right now. Do these companies care more about the end result or creating a buzz for their new product? Its probably the latter as I suspect the cost of these projects are hitting marketing budgets as opposed to production ones.
Also, as I wrote about the end of all things free online, user-generated input will slowly increase in price much like traditional outsourcing has. As crowdsourcing moves out of early adoption, the intersection of demand and supply will become more meaningful. A pure play crowdsourced model is also hard to sustain - which is why sites like Huffington Post are hiring more and more writers on staff.
Crowdsourcing can certainly give companies access to new ideas, help build a social following, and optimize certain corporate tasks. Like all outsourced activities, crowdsourcing comes with its own limitations that must be weighed. While there is no question crowdsourcing will move into the mainstream in a big way, I don't expect the next corporate structure to be centered around a free/cheap labor model as it is with offshore manufacturing. In the interim, I'll continue to train my fifteen month old how to say "Where's the Beef?" (hello Superbowl 2013!).
21 January 2012
The Private Equity Enigma
Much like I do with Venture Capital investments, I've often wondered how much long-term value Private Equity firms create for their portfolio companies and society as a whole. PE shops use a combination of financial engineering and operational savvy to generate the required above market returns that their limited partner investors seek. But do these companies that “go private” end up as better run companies? From an Atma perspective, do they become more sustainable as a result and create lasting value for the general public? Or is it a case of corporate raiders manufacturing gains in the short-term while leaving portfolio companies in a weak long-term position?
Many critics (and more recently, anti-Mitt Romney candidates) have the notion of "barbarians at the gate" in which these firms layoff employees in mass, burden the companies with unsustainable debt loads, and run the company merely for quick returns. A recent WSJ article, which examined the performance of Bain Capital portfolio companies during Romney's tenure, might support this view. Although creating nearly 50% return for investors, roughly 30% of the companies went bankrupt within 8 years of investment. Further, only 10 deals (out of 77) created the lion share of the returns (4 of which subsequently went bankrupt). Bain Capital claims the data is skewed as it generally invests in more troubled companies than most; Either way, it surprising that a firm anchored by strategic prowess had significantly more losers than winners in its portfolio.
The truth is that it is virtually impossible to get statistically significant data to analyze whether companies are better in the long run. So I took a different approach. I put together some hypothetical numbers to figure out what kind of financial improvement would be necessary to generate the required rate of returns (~20-30%) for PE investors within a typical investment period (five years). The result of my high level experiment: financing matters more than operational improvement.
In the heyday, firms were able to borrow almost 80% of their purchase price. In this scenario, a nominal 5% increase in operations (annualized EBITDA growth) would yield a whopping 29% annual internal rate of return (IRR) for investors five years later. Cutting back the debt to 50% would cut the return in half. In the same example, doubling the improvement in performance (ie. 10% EBITDA growth), would only yield a 12% incremental IRR. Even a slight decrease in operating performance would yield positive returns. And upon exit, the company is still left with almost four-fifths of the original debt load.
I can send anyone who wants to see my analysis, but I would have hoped that company improvement would have mattered more. Negotiations with suppliers, closure of underperforming locations, some minor changes in operations can readily achieve a 5% lift. And it is clear that as debt becomes harder to come by, PE returns have significantly dropped. It is also hard to find big successes through the PE umbrella. Even the Bain home runs like Staples have struggled post-IPO. And even if Staples created more jobs, what about the thousands of local office supply dealers that were forced to close its doors?
The fact that leverage matters most in these deals shows that investment performance has little to do with how the companies actually do long-term. We are in the midst of the second PE hangover in which overleveraged companies bought up by firms at the debt market peak have yet to restructure (remember Chrysler or Hilton?). It is clear that private equity firms will have to work harder on the operational side to generate the kinds of returns their limited partners are accustomed to. Much like governments these days, firms have to work on both cleaning up their existing debt and investing with less borrowing capacity. So if you are looking to invest in a PE firm, you may want to look at their ability to garner debt and sell companies much more than their track record of improving company operations.
05 January 2012
A helping hand in a race to the bottom
Sears' holiday season was anything but as it announced sharp sales declines, shedding of locations, and reaffirmation that the Kmart acquisition was a disaster. Sears is not alone; it is merely a recent example of a failing company that reaches for a lifeline by partnering with another struggling one. Why do companies repeatedly attempt this doomed strategy? Isn't it better to try to fix your own woes instead of inheriting new ones?
It is not uncommon for large companies that lost their way to make a strong comeback. Everyone knows the story of the resurrection of Apple and Jobs 2.0; some, like IBM, diversified their way to higher growth businesses; others like Ford kept large cash reserves to protect itself from a market downturn. Successful restructurings often require significant pain in terms of job losses, structural changes, and bets into new areas. Strong management teams and sound strategy are the keys to navigating turbulent waters.
But a successful playbook never included a buyout of the weakest competitor. No matter how cheap it is. Companies often try it because its the easiest (or sometimes only) option. Cut costs, raise prices, and hope things work out. The Nextel deal put Sprint on a fast track to brinkdom. Struggling railroaders in the 1960s were unsuccessful. Remember Alcatel and Lucent? Even dotcoms like Lycos rolled the dice and lost. There are hundreds of examples across an array of industries that have tried and failed.
You can't fix a broken business model by adding more of the same. Sure cost cuts can help, but surely you can do that on your own as many have done. Ford, for example, initiated tremendous cuts (and yielded concessions from union on the heels of its struggling competitors) while revamping its focus to smaller cars. A large scale integration in a time of crisis leads to a misallocation of resources, a myopic focus on cost savings, and an opportunity for competition to steal customers and strengthen their market position. The Japanese auto companies did so during the Daimler/Chrysler fiasco; Southwest significantly increased share during the airline consolidation of the 1980s. These companies had viable business models to begin with - a key ingredient that cost cutting along cannot solve.
So will Sirius and XM work ? Given all the deal talk surrounding Yahoo these days, will a combination with AOL allow it to compete with Google ? Borders + Barnes would have been a disaster. If history shows us anything, an announced merger of two subpar rivals might be a leading indicator to head for the exits. Generally speaking, at that point, it might already be too late.
GEAUX!
It is not uncommon for large companies that lost their way to make a strong comeback. Everyone knows the story of the resurrection of Apple and Jobs 2.0; some, like IBM, diversified their way to higher growth businesses; others like Ford kept large cash reserves to protect itself from a market downturn. Successful restructurings often require significant pain in terms of job losses, structural changes, and bets into new areas. Strong management teams and sound strategy are the keys to navigating turbulent waters.
But a successful playbook never included a buyout of the weakest competitor. No matter how cheap it is. Companies often try it because its the easiest (or sometimes only) option. Cut costs, raise prices, and hope things work out. The Nextel deal put Sprint on a fast track to brinkdom. Struggling railroaders in the 1960s were unsuccessful. Remember Alcatel and Lucent? Even dotcoms like Lycos rolled the dice and lost. There are hundreds of examples across an array of industries that have tried and failed.
You can't fix a broken business model by adding more of the same. Sure cost cuts can help, but surely you can do that on your own as many have done. Ford, for example, initiated tremendous cuts (and yielded concessions from union on the heels of its struggling competitors) while revamping its focus to smaller cars. A large scale integration in a time of crisis leads to a misallocation of resources, a myopic focus on cost savings, and an opportunity for competition to steal customers and strengthen their market position. The Japanese auto companies did so during the Daimler/Chrysler fiasco; Southwest significantly increased share during the airline consolidation of the 1980s. These companies had viable business models to begin with - a key ingredient that cost cutting along cannot solve.
So will Sirius and XM work ? Given all the deal talk surrounding Yahoo these days, will a combination with AOL allow it to compete with Google ? Borders + Barnes would have been a disaster. If history shows us anything, an announced merger of two subpar rivals might be a leading indicator to head for the exits. Generally speaking, at that point, it might already be too late.
GEAUX!
09 December 2011
Should Companies Be 'Good'?
I've written on several occasions about good companies(including Starbucks) and their leaders that have both built successful businesses and spearheaded creative initiatives in the social arena. This month, CEO Howard Schultz was awarded Fortune's Businessperson of the Year in part because of Starbucks' successful turnaround of the company but also because of his off the field contributions - from fighting Washington politics to building inner city programs. There aren't too many examples of this kind of bilateral success in large companies; but is it their place? Corporations are built with the sole purpose of maximizing shareholder value; Do companies have an obligation to improve society?
The argument is that for profit concerns should be focused on just that. Boards and Management teams have very specific metrics in which they are measured - generally tied to sales, profits and returns. While no one will argue that a certain level of ethical standards should be employed, the notion of adding "higher purpose" objectives may cloud the company's vision and execution plan. Moreover, it may lead it to choices down the road which no company would want to face (i.e. good for company vs. good for society). Corporations should focus on building wealth which will in turn empower their shareholders to thrive in philanthropic arenas; Bill Gates is the classic example, right ?
I personally think its the wrong perspective. First, I think companies that are so myopic to only their interests often get blindsided by changes in the market around them. I think taking a look at the big picture, for example the impact of operations on its local footprint, allows for a broader vision that will help the company adapt to the fast pace changes of today's climate. Second, it can serve to build employee morale and social capital for the company. Its hard to hate Starbucks when they buy fair trade beans and treat their employees right. While some of these positives are hard to measure, I think these can be viewed as long-term investment in the business. Maximizing profit and helping the world are not mutually exclusive. It just takes a little more effort.
Companies have resources, people, and connections to make society better. Given their reach and their business savvy, they are better positioned to do so efficiently and effectively compared to governments and individuals. Given tax havens and huge benefits from global sourcing, I think there are plenty of built-in subsidies that allow companies to do so without adversely impacting their bottom line. Nonprofits definitely have a place, but don't have nearly the scope that corporations do. You see time and time again that capitalistic solutions, such as microfinance and for-profit management techniques, achieve better results than traditional philanthropic models.
Its frankly a shame that you dont see more Starbucks in the big company world. I like SalesForce's 1/1/1 model; I have written about some other innovations in the tech space. But these are few and far between. I wonder how many of the Fortune 500 can truly build sustainable companies while focusing solely on their own interests. But more importantly, corporations are uniquely positioned to solve the world's problems. If it were just money that was needed, I might think differently. So as we sip our $4 Christmas flavored lattes this season, let's tip our hats to the companies that have achieved on both the profit and non-profit fronts.
The argument is that for profit concerns should be focused on just that. Boards and Management teams have very specific metrics in which they are measured - generally tied to sales, profits and returns. While no one will argue that a certain level of ethical standards should be employed, the notion of adding "higher purpose" objectives may cloud the company's vision and execution plan. Moreover, it may lead it to choices down the road which no company would want to face (i.e. good for company vs. good for society). Corporations should focus on building wealth which will in turn empower their shareholders to thrive in philanthropic arenas; Bill Gates is the classic example, right ?
I personally think its the wrong perspective. First, I think companies that are so myopic to only their interests often get blindsided by changes in the market around them. I think taking a look at the big picture, for example the impact of operations on its local footprint, allows for a broader vision that will help the company adapt to the fast pace changes of today's climate. Second, it can serve to build employee morale and social capital for the company. Its hard to hate Starbucks when they buy fair trade beans and treat their employees right. While some of these positives are hard to measure, I think these can be viewed as long-term investment in the business. Maximizing profit and helping the world are not mutually exclusive. It just takes a little more effort.
Companies have resources, people, and connections to make society better. Given their reach and their business savvy, they are better positioned to do so efficiently and effectively compared to governments and individuals. Given tax havens and huge benefits from global sourcing, I think there are plenty of built-in subsidies that allow companies to do so without adversely impacting their bottom line. Nonprofits definitely have a place, but don't have nearly the scope that corporations do. You see time and time again that capitalistic solutions, such as microfinance and for-profit management techniques, achieve better results than traditional philanthropic models.
Its frankly a shame that you dont see more Starbucks in the big company world. I like SalesForce's 1/1/1 model; I have written about some other innovations in the tech space. But these are few and far between. I wonder how many of the Fortune 500 can truly build sustainable companies while focusing solely on their own interests. But more importantly, corporations are uniquely positioned to solve the world's problems. If it were just money that was needed, I might think differently. So as we sip our $4 Christmas flavored lattes this season, let's tip our hats to the companies that have achieved on both the profit and non-profit fronts.
09 November 2011
Will We Own Anything Ever Again?
With Amazon's announcement of its Kindle Lending Library this week, it got me thinking about the broader perspective of how we now consume products and services. Are the days of owning anything gone? We are moving towards a model where we license products at the time of usage instead of buying them. I wrote about the end of the free business model a while ago; companies, particularly emerging ones, now charge us in new ways whereby we we will no longer own things that we used to. That might not necessarily be a bad thing, but is that what consumers want in the long-term? Or are we being forcefully led by businesses that favor recurring revenue streams over of one-time purchases?
Let's stop to think about some of the things we use on a daily basis. We all hated to pay 15 bucks for a CD. ITunes came around and offered us easier access to buying music. Pandora and Spotify give you even more breadth. Guess what, you stop subscribing, you lose access. The streaming media trend for movies, TV, and everything else is certainly the wave of the future will result in no ownership rights for consumers. There are certainly advantages to this distribution model, but it is also changing the game. Fee for Service, not fee for product. This might not be a big deal, but what if you want to dial up that old Milli Vanilli track that you thought you had ?
Even our own stuff is in jeopardy. For things like pictures and video, we used to just throw in new hardware to back up all of our files. With files sizes getting increasingly larger, we now offload these services to Amazon Cloud and Mozy. But what happens if they triple their rate and we stop subscribing ? Will Mozy burn 150 DVDs of our pictures and send them back to us? What about all of the content on our Facebook pages or our own blogs? Do we get to keep it? How? Aren't these our conversations and data? Kind of scary to think we might lose all of those insightful AtmaBus articles, huh? While these services are in their infancy, this is certainly where we are headed. None of these sites (including this one) make it easy to back up. Those photo albums don't seem so irrelevant anymore.
Lets also look at our consumption in the physical world. For the past decades, we've all lived under the guise of home "ownership." The reality is that most of us owe more to the bank than we have equity into it. Either way, the trends point to a large movement towards renting. Cars have generally been owned - but new services such as ZipCar may have some legs even outside of metro cities if they can get the logistics right. We all like to own gadgets, but most of these have useful lives of under 2 years, so its not much of an ownership story. Most everything else we consume are services that require replenishment after some time.
We're turning into an "asset-light" society in which we pay for things we want right now but end up not owning any of them in the end. You see similar trends in the corporate world as companies with hoards of cash refuse to invest in the business and embrace outsourced services like SaaS. Perhaps the era of tweets and a limited attention span has led us in this direction. But I wonder if consumers will only notice this when its too late or when the switching costs are too high? Philosophers often say that we are born with nothing and end with nothing, so perhaps we are moving towards a higher moral ground. Maybe it's just the fading memories and the pictures that we no longer have access to that are all that matter anyway.
Let's stop to think about some of the things we use on a daily basis. We all hated to pay 15 bucks for a CD. ITunes came around and offered us easier access to buying music. Pandora and Spotify give you even more breadth. Guess what, you stop subscribing, you lose access. The streaming media trend for movies, TV, and everything else is certainly the wave of the future will result in no ownership rights for consumers. There are certainly advantages to this distribution model, but it is also changing the game. Fee for Service, not fee for product. This might not be a big deal, but what if you want to dial up that old Milli Vanilli track that you thought you had ?
Even our own stuff is in jeopardy. For things like pictures and video, we used to just throw in new hardware to back up all of our files. With files sizes getting increasingly larger, we now offload these services to Amazon Cloud and Mozy. But what happens if they triple their rate and we stop subscribing ? Will Mozy burn 150 DVDs of our pictures and send them back to us? What about all of the content on our Facebook pages or our own blogs? Do we get to keep it? How? Aren't these our conversations and data? Kind of scary to think we might lose all of those insightful AtmaBus articles, huh? While these services are in their infancy, this is certainly where we are headed. None of these sites (including this one) make it easy to back up. Those photo albums don't seem so irrelevant anymore.
Lets also look at our consumption in the physical world. For the past decades, we've all lived under the guise of home "ownership." The reality is that most of us owe more to the bank than we have equity into it. Either way, the trends point to a large movement towards renting. Cars have generally been owned - but new services such as ZipCar may have some legs even outside of metro cities if they can get the logistics right. We all like to own gadgets, but most of these have useful lives of under 2 years, so its not much of an ownership story. Most everything else we consume are services that require replenishment after some time.
We're turning into an "asset-light" society in which we pay for things we want right now but end up not owning any of them in the end. You see similar trends in the corporate world as companies with hoards of cash refuse to invest in the business and embrace outsourced services like SaaS. Perhaps the era of tweets and a limited attention span has led us in this direction. But I wonder if consumers will only notice this when its too late or when the switching costs are too high? Philosophers often say that we are born with nothing and end with nothing, so perhaps we are moving towards a higher moral ground. Maybe it's just the fading memories and the pictures that we no longer have access to that are all that matter anyway.
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