Culture/Management - Tech Management - 2005/06/11
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Pricing is a Handful for Internet Business
It's only natural that Internet means cheaper prices.
[+] Consumers are empowered by access to information
Prior to the advent of the Information Technology, information is a nearly inaccessible commodity that comes, when it does, with a high price. That is, few have the luxury of making decision based on ample info. In fact, monopoly of information and lack of transparency have more often than not caused power and fortunes to converge on a few elites, who have grown to enjoy a huge edge in society, an edge built on asymmetric information.
Sociologists have foreseen many years ago that in an time and age when information flows at nearly negligible costs, a shift of power will take place to give rise to consumers who can have their way every time and a competitive landscape extremely harsh for enterprises.
Those who are used to shop on the Net are usually also in the habit of comparing prices of all major online stores before they make a purchase. That is, the Internet is like a coliseum in which prices compete with one another for survival. But in the end, whatever sellers have up their sleeves to court buying, the decision is consumers' and consumers' only.
This has led a several outcomes. First, few big-time
brand name vendors would risk having their product marketed over the Internet. At a time when
eCommerce is where it's at, we still have a hard time finding European fashion/apparel/accessories brands loading their product onto the Internet for sales.
Sellers of these boutique items are keen on holding on to their elite status and are highly reluctant to engage in price warfare, which will inexorably debase an otherwise prestigious brand name. In the end, there are left on the Internet certain individual traders who can get things cheap in small quantities and put them up for sales on the Net. As it turns out, buyers have no resistance for these offerings at cut-throat prices.
Second, infectious price-cutting has resulted in razor-thin profit margins for every one. At a time when information flows like the wind, price advantages prove ethereal, thereby forcing
operators to speed up change of strategy, and what they come up with usually involves cost-cutting, which in turn, usually involves tax evasion and questionable sourcing of merchandise.
What would be more recommendable includes building of own-brand operations and maintaining of customer loyalty. Own-brand means consumers get one-of-a-kinds in a particular online store, which instantly nixes the case for price comparison; loyalty, because having old buyers back is easier than capturing new ones.
[+] Change of meaning of "basic services" What new paradigm the advent of Internet has brought along is that basic services are supposed to be free of charge. That, however, leads us to wonder what basic services really mean. It used to mean the services one supplies only he/she get paid. To the dismay of website operators, it now means the services I must gladly serve up without the slightest glean of hope of being financially rewarded.
The business model of
portal sites is the quintessential example the aforementioned situation. That is, peer competition finally gave way to a so-called "balance of terror," in which nobody was willing or, if you will, could afford to fall behind, meaning one must bulge in first and then try to come up with a viable business model.
The current Blog maniac is reminiscent of that craze, with an innocent start turning into a feeding frenzy. But any field-trip/on-site researchers would tell you that none of these Blog Service Providers (BSP) have been logging any hard cash. When asked about the business pattern they had in mind, the answer was a uniform "hasn't seen anything yet, but there is full of hope ahead." They were fooling nobody but themselves. But who can blame them? What is there to do expect following the lead blindly?
This is hardly unthinkable, since the exact same thing is happening to the ever-larger storage of free email service. That is, the definition of "basic service" has been involuntarily stretched too thin out of an unhealthy whim to please users (note: they are not consumers). In sum, with Internet comes the paradigm that money lies only with
value added services.
You can get your web-based email account free, but for anything more (i.e. bigger storage, anti-virus features), you must pay; Blogs are free, but the gratuity ends strictly at
blogging; Search for news during the past seven days is free of charge, that for news eight days from now or older is not.
Even the
VoIP giant
Skype, which is all the rage right now, dares not challenge such business model. As a result, what could have been a service that charges a fee by the minute is now a freebie. In its defense, Skype said it will seek to profit from such voice-based value added services such as voice mail or fortune-telling over Skype and other content services.
Despite everything, we are in no position to accuse Skype of defaulting on its responsibility as market leader to build a business model that carries higher profits. If Skype does not want to offer the service gratis, some other players will. In the end, competition will twist Skype's arms hard enough to force it to offer VoIP service free again. Most who came before did not have a choice; neither does Skype right now. That is, the name of this
game is now officially "surviving on micro-profit."
[+] Bidding farewell to era of monopolizing lucrative business Once online, all businesses must first and foremost deal with the pressure of price competition, and I am talking about a great deal of it. Now that one can only charge a fee for extra services, all the companies other than LV and Gucci should find this issue highly relevant.
By the time iMusic, a licit Taiwanese music download website, decided to close down after 18 months of operation, it has only logged a membership population of 100k-strong. This shows how reluctant consumers have become when it comes to paying for online music. After all, why pay when you can easily get it for free?
Unless what you sell is one-of-a-kind, or else the traditional wisdom of "product out, money in" is a law of gravity that no longer applies on the Internet. And the lesson in it is that music labels should now rethink whether they want to approach the issue of
digital music authorization with the same old stuffy logic that have not induced any happy tune from any one.
What record labels can lay their finger on is but websites selling music online. The reality remains that consumers are free to download whatever rap, hip-hop, or teen pop they want. The deeply resented
P2P might be beleaguered for a good reason, but what good does it do to vanquish it? One way or another, consumers will be able to get music free. It's what Internet is all about after all. Time to face the music, if you ask me.
(
2005/06/11
- By
Digitalwall.com - Way to
China Internet/Telecom )
- Read More
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