Uncertainty is increasingly central to all aspects of economic and social life.
ELECTRONIC COMMERCE
One important element of how new media have impacted on ways of doing business has been through electronic commerce.
Electronic commerce can take a variety of forms, depending on the degree of digitisation of (1) the product or service sold; (2) the transaction process; and (3) the nature of the delivery agent or intermediary. (ESSENTIAL THOUGHT!)
Buying a book through Amazon.com is not pure e-commerce unless one purchases an e-book,(DEFINITION OF E_COMMERCE)
Buying soft wafe online, acquiring a song from the Apple iTunes site, or purchasing an airline ticket online may constitute pure e-commerce, as the product, process, and agent all exist in digital form.
Andy Grove, the former chair of Intel, said that by the mid-2000s all companies will be Internet companies, or they won't be companies at all (Economist 1999).
The benefits to business of developing an e-commerce
strategy have been identified as being:
expansion of the available marketplace from geographically defined, local markets to national and international markets reduction of the costs of creating, processing, distributing, storing, and retrieving information, both within the organisation and between the organisation and its clients (both suppliers and consumers)
ability to develop highly specialised businesses, able to target particular 'niche' consumer groups reduction of inventory and overhead costs, through a move to towards 'pull-type' supply chain management, where processes begin with customer orders and enable just-in-time production
ability to better customise products and services to client and consumer needs, providing competitive advantages based on 'first mover' advantages and brand loyalty (Turban et aJ. 2000: 15).
For consumers, the advantages of e-commerce are:
- Ability to undertake transactions 24 hours a day, all year round, from any networked location
- a vastly increased range of products and services ability to compare prices online, and find the lowest-cost provider with minimal search cost
- Quick delivery of products and services, particularly if they are in digitised form ability to interact with other consumers in virtual communities, and exchange ideas and experiences
- ability to participate in virtual auctions (Turban et al. 2000: 15-16).
One consequence of the rise of the Internet and new media has been disinte17uediatio71, where a more direct relationship emerges between the creators/producers of content/products/services and their consumers. Another outcome has been reintermediatioll, where intermediary functions remain, but are conducted by organisations whose operations are driven by the new e-commerce marketing logics, such as a shift towards partnership with consumers,'permission' advertising, product and service customisation, and multiple modes of communication with consumers (Shenton & McNeeley 1997; Turban et a!. 2000).
Anderson argues that digitisation of content has completely transformed the distributional models of the media and entertainment industries, as the availability of content is no longer constrained by the distributional bottlenecks such as theatres, radio, and television channels, and shelf space in bookstores and record outlets. This challenges the assumption that only 'mass appeal' media content is profitable, as it reveals that when a wider range of content is made more easily available through online distribution and retail, consumer tastes and preferences for books, movies, music, etc. are far more diverse and niche-oriented than the media and entertainment industries have traditionally assumed. Anderson 2006:24 (
Traditional media industry didn't have the tools at hand that consumers now use to share.)
Two research questions have been central to these discussions. The first concerns the nature of digital goods to the new economy. Quah (2003) defines digital goods as 'bitstrings, sequences of 0s and 1s, that have economic value', and identifies them as including 'ideas and knowledge, computer software, digital images, lllusic, databases, video games, blueprints, recipes, DNA sequences [and] codified messages' (2003: 289, 293). Quah argues that digital goods possess five characteristics that challenge conventional understandings of the economics of goods and services. For Quah, they are:
- non-rival: use by one agent does not degrade its usefulness to other agents
- infinitely expansible: every user can make and distribute as many copies of the digital good as they choose
- discrete: they show indivisibility, so that only the whole digital good contains all of its value (i.e. the whole of a film such as Titanic has value over and above that of its component parts)
- a-spatial: they exist in cyberspace, and are both everywhere and nowhere on the digital network simultaneously
- recombinant: they arise in part from drawing together existing elements in new forms that have features that were absent from the original, parent digital goods.
Romer (2007) proposes that 'economic growth springs from better recipes, not just from more cooking',
Brown and Duguid (2000) point out that, a knowledge economy is different not only from an industrial economy but also from an information economy, they emphasise how 'the importance of people as creators and carriers of knowledge is forcing organisations to realise that knowledge lies less in its databases than in its people' (2000: 121).
Knowledge is embodied in persons and practices, whereas information is captured and stored in databases and is readily accessible and increasingly reproducible tbrough tbe Internet. Howells argues tbat, in contrast to information, knowledge requires 'cognitive structures which can assimilate information and put it in a wider context, allowing actions to be undertaken from it' (Howells 2000: 53). (
Knowledge vs. Information = Learning vs. Education).
Explicit knowledge is knowledge that is codified (i.e. written or recorded in some form as data), that can be formally taught and learned, and readily transferred from one context to anotber. (Definition)
Tacit knowledge is knowledge derived from direct experience, and the processes through which it is required are often intuitive, habitual, and reflexive, best learned tbrough practices of doing sometbing and the trial-and-error processes associated witb learning-by-doing. (Definition)
(On the above definitions...)Bob Leadbeater (2000) and Romer (2007) refer to the significance of cooking in this respect, as an activity that involves both the application of explicit knowledge, codified in the form of recipes, and forms of tacit knowledge, such as knowing when pasta is al dente, or the quantity of a dab of butter or a smidgen of salt.
Incremental knowledge creation is knowledge that is embodied in organisations, into which those who enter the organisation are inducted, and gradually add to. (Definition)
Radical knowledge creation is based on extensive experimentation and testing, and explicit recognition of the likelihood of ideas failing. Leadbeater argnes that large companies will find it hard to dominate sectors such as computer software, communications, and biotechnology, because the speed with which new ideas are being generated exceeds the capacity of such large companies to adopt new processes and unlearn previous practices. (Definition)
(On the above definitions...)"What is apparent is that the latter category, radical knowledge creation based on tacit knowledge and unproven assumptions, is unlikely to thrive within large organisations, but is increasingly important to competitive strategy in the new economy, particularly in knowledge-intensive industries: 'Big companies in knowledge intensive fields will resemble a mother ship with a flotilla of smaller companies around it. To be creative a big company needs to be linked into a knowledge creating network outside it, which gives it access to the places where counter intuitive, unconventional ideas are being created' (Leadbeater 2000: 105).
Companies such as Microsoft and Nokia possess few physical assets relative to their market valuation as measured in their share capital, as compared to established manu facturers such as General Electric, General Motors, or Boeing, since much of their wealth creation arises from product innovation.
The technology S-curve takes the shape that it does for two reasons. First, from the point of view of technological innovators, early applications of the technology may possess significant 'bugs' or faults, or the relationship between the tecbnology and its applications may remain unclear, but there is a threshold point where improvements are rapidly made to the technology as dominant standards emerge with the coalescence of product characteristics and consumer preferences, until the technology matures in a mass market stage as most users find its performance to be 'good enough' and the energies of researchers go to other, newer technologies.
The second factor in the technology S-curve relates to users, and the fivefold distinction noted in Chapter 3 between enthusiasts, early adopters, mainstream adopters, late adopters, and laggards, where, again, the bulk of the user population tend to sit in the middle rather than at either end of the spectrum, generating a bell-curve distribution.
What is known as first-mover advantage can become first-mover disadvantage, or second-mover advantage as competitors who sub sequently enter the market learn from the first mover's mistakes (Tellis & Golder 1996).
Netflix Or Just Another Joost?
The second innovator's dilemma is a more complex one, and relates to the growing disjuncrure over time between tlle trajectory of performance improvement for technologies, and the expectations of users over time as products and services become more mass-market commodities.
EXAMPLE YOUTUBE vs JOOST
(Comment: While Youtube is still growing, Joost has been declared dead although the Joost homepage (www.joost.com) still exists. Joost was launched by the developers of Skype and Kazaa, Niklas Zennstroem and Janus Friis. Friis meanwhile has moved on to create VDio, a product similar to Joost, but this time launched in the UK and only available to UK and US members (www.vdio.com)).
Further readings:
Joost Edges Closer To Death | Becoming White Label Video Provider Amid Multiple Changes
Joost Dead As It Sells Out To Adconion | So, Where Did The Venice Project Go Wrong?
Mysterious Vdio Confirmed, But Is It Serious Competition For
It has been increasingly apparent that users are keen to access their media content through personal computers, particularly when they are able to rate, reuse, and distribute this content among their peers.
YouTube was a disruptive innovation in the sense discussed by Bower and Christensen (1999), because its developers identified that the Internet had made it far less costly to distribute audiovisual content, but this was not being exploited by established film and television industries because they had to recoup the high costs of production of their content through managed distribution via their existing channels.
My own experience of this feedback loop came during the English cricket team's tour of Australia in December 2006 to January 2007, where a blog site covering the tour revealed that Australian fast bowler (and sometime musician) Brett Lee had done a duet with the leading Indian singer Asha Bhosle on a 'Bollywood-themed' love duet ('Haan Main Tumhaara Hoon') that had screened on MTV India. Over the course of ten days, I was able to follow the passage of this video from a link on the UK Guardian's website to the websites of Australian online news media, to becoming a lead story on television news, to being a feature of the websites in Australia devoted to the cricket tour itself.
(Going viral).
It is in this context that the development of Joost (www.joost.com) can be understood. Established by Niklas Zennstr6m and Janus Friis, the Netherlands-based founders of the Intemet-based telephony service Skype (www.skype.com). their aim is to work with established media content providers, such as Warner Music, the television production com pany Endemol, and Viacom (which owns the Comedy Company and MTV networks), to distribute their licensed content over the Internet. Joost represents an archetypal case of second-mover strategy in this area, in that YouTube has created the demand for audiovisual content distributed through the Intemet, but is vulnerable to the reaction of incumbent media providers who can use copyright and intellectual property laws to their own advantage. If US Supreme Court judgments are adverse to YouTube, as they were to Napster in the online distribution of music in 2000, then Joost has positioned itself to exploit second-mover advantage, as Apple was able to do with its iTunes music distribution network soon after the demise of Napster.
Jaim Hawkins, author of The Creative Economy, has captured this shift in thinking from an information society to a creative economy and society in a 2002 presentation to the London Development Agency:
I define an IS as a society characterised by people spending most of their time and malcing most of their money by handling information, usually by means of technology.
When I say I have an idea I am expressing a more personal view, and malcing a different claim, from when I say I have some information . . . We need information.
(Howkins 2005: 1 1 7-88; emphasis added)
(The following text I commented with HEAR HEAR!) Mitchell and colleagues (2003) have argued that this requires a shift in the focus of policies to promote lCT development and measure its influence to move beyond productivity-based indicators, and to understand more fully the relationship between lCTs and new forms of creative practice.
Culture can be seen as the key to success in the Information Economy, because for the very first time in the modern age, the ability to create new ideas and new forms ofexpression forms a valuable resource base ofa society ... Cultural wealth can no longer be regarded in the legacy and industrial terms of our common understanding, as something fixed, inherited and mass-distributed, but as a measure of the vitality, knowledge, energy, and dynamism of the pro duction of ideas that pervades a given community. (2005: 395-6)
Richard Florida: 'creativity has come to be the most highly prized commodity in our economy-and yet it is not a "commodity" (2002:5)
Also (2007:29): the creative sector accounts for 47 per cent of wealth generated in the US economy, so the creative class \ makes a disproportionately large contribution to contemporary economic growth .
References
Anderson, Chris 2006, The Long Tail: Why the Future of Business is Selling Less of More, Random House, New York.
Bower, Joseph, and Christensen, Clayton 1999, 'Disruptive Technologies: Catching the Wave', in Harvard Business Review on Managing Uncertainty, Harvard Business School Press, Cambridge MA, pp. 147-7 3 .
Brown, John Sealy, and Duguid, Paul 2000, The Social Life of Information, Harvard
Business School Press, Boston MA.
David, Paul, and Foray, Dominique 2002, 'An Introduction to the Economy of the Knowledge Society', International Social Science Journal 171 : 9-23.
Florida, Richard 2002, Tbe Rise of the Creative Class, and How it's Transforming Work Leisurte, Community and Everyday Life. Basic Books, New York.
HarperCollins, New York.
Howells, Jeremy 2000, 'Knowledge, Innovation, and Location', in ].R. Bryson, P. Daniels, N. Hentry, and J. Pollard (eds), Knowledge, Space, Economy, Routledge, London, pp. 50-62.
Leadbeater, Charles 2000, Living on Thin Air: The New Economy', Penguin, London.
Legrain, Philippe 2002, Open World: The Truth About Globalisation, Abacus, London.
LeiSllre, C071l1Jumit)' and EVeJ)'day Lift, Basic Books, New York. --2007, Tbe Fligbt of tbe O'eative Class: Tbe New Global Competition for Tnlem,
Quah, Danny 2003, 'Digital Goods and the New Economy', in D.C.Jones (ed.), New
Economy Handbook, Elsevier, Amsterdam, pp. 289-321.
Romer, Paul 2007 'Economic Growth', in D. Henderson (ed.), The Concise Encyclopedia of Economics, <www.econlib.org/library/enc/EconomicGrowth.html>, accessed 14 February 2007.
Smith, Anthony 1991, 'Towards a Global Culture?', in M. Featherstone (ed.), Global Culture, Nationalism, Globalization and Modernity, Sage, London, pp, 171-92,
Turban, Efraim, Lee,]ae, Kung, David, and Chung, Michael 2000, Electronic Commerce:
A Managerial Perspective, Prentice-Hall, Upper Saddle River NJ.
Howkins,John 2005, 'The Mayor's Commission on the Creative Industries', inJ. Hartley (ed.), Cnative industries, Blackwell, Oxford, pp. 117-23.
Mitchell, William, Inouye, Alan, and Blumenthal, lvlarjory 1003, Beyond Productivity: Information Technology, Inllovation, and Cnfltivity. National Research Council of the National Academies, National Academies Press, Washington DC.
Venturelli, Shalini 2005, 'Culture and the Creative Economy in the Information Age', in]. Hartley (ed.), Creative Indllstries, Blackwell, Oxford, pp. 391-8.
http://www.webtvwire.com/joost-edges-closer-to-death-becoming-white-label-video-provider-amid-multiple-changes/#more-6496
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Michael Rappa - Business Models on the Web (2005 audio file no longer available:
http://digitalenterprise.org/podcast/business_models.mp3)
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Michael Rappa - Managing the Digital Enterprise (
http://digitalenterprise.org/models/models_text.html)
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Anderson, C. (2004, October). The Long Tail. Wired.
Retrieved from http://www.wired.com/wired/archive/12.10/tail.html
oe Simpson wrote a book called Touching the Void, a
harrowing account of near death in the Peruvian Andes. It got good reviews but,
only a modest success, it was soon forgotten. Then, a decade later, a strange
thing happened. Jon Krakauer wrote Into Thin Air, another book
about a mountain-climbing tragedy, which became a publishing sensation.
Suddenly Touching the Void started to sell again.
What happened? In short, Amazon.com recommendations. The online
bookseller's software noted patterns in buying behavior and suggested that
readers who liked Into Thin Air would also like Touching
the Void. People took the suggestion, agreed wholeheartedly, wrote
rhapsodic reviews. More sales, more algorithm-fueled recommendations, and the
positive feedback loop kicked in.
People are going deep into the catalog, down the long, long list of
available titles, far past what's available at Blockbuster Video, Tower
Records, and Barnes & Noble. And the more they find, the more they like. As
they wander further from the beaten path, they discover their taste is not as
mainstream as they thought (or as they had been led to believe by marketing, a
lack of alternatives, and a hit-driven culture).
The first is the need to find local audiences. An
average movie theater will not show a film unless it can attract at least 1,500
people over a two-week run; that's essentially the rent for a screen. An
average record store needs to sell at least two copies of a CD per year to make
it worth carrying; that's the rent for a half inch of shelf space. And so on
for DVD rental shops, videogame stores, booksellers, and newsstands.
In each case, retailers will carry only content
that can generate sufficient demand to earn its keep. But each can pull only
from a limited local population - perhaps a 10-mile radius for a typical movie
theater, less than that for music and bookstores, and even less (just a mile or
two) for video rental shops. It's not enough for a great documentary to have a
potential national audience of half a million; what matters is how many it has
in the northern part of Rockville, Maryland, and among the mall shoppers of
Walnut Creek, California.
In the tyranny of physical space, an audience too thinly spread is the
same as no audience at all.
[...] we forget that the 20 percent rule in the entertainment industry
is about hits, not sales of any sort. We're stuck in a hit-driven
mindset [...] We assume, in other words, that only hits deserve to exist. [...]
"misses" usually make money, too.
[...] a miss sold is just another sale, with the same margins as
a hit.
The second reason for the wrong answer is that the industry has a poor
sense of what people want. Indeed, we have a poor sense of what we
want. We assume, for instance, that there is little demand for the stuff
that isn't carried by Wal-Mart and other major retailers; if people wanted it,
surely it would be sold. The rest, the bottom 80 percent, must be subcommercial
at best. (Comment: I do not agree with this analysis. While this might be
the case for one part of western society, it cannot be generalised. This would
mean that no one is interested in shoes size 10.5 and bigger. But the reality
is that superstores such as Wal Mart buy bulk to reduce the purchasing price.
You can't buy bulk what is not demanded in bulk. While the number of people
with big feet and 'stronger growth' is increasing, they still don't match the
average sizes. I believe that the traditional music industry has worked in the
same way. They told their customers what to wear, watch and listen to, because
the audience had very limited means of looking elsewhere. Physical constraints,
in particular distance and limited reach buy specialist shops kept both groups
apart. The Web connects all parties and provides for a space that neither knows
distance nor time. The following Rhapsody example confirms this)
Chart Rhapsody's monthly statistics and you get a "power
law" demand curve that looks much like any record store's, with huge
appeal for the top tracks, tailing off quickly for less popular ones.
The Rhapsody demand, however, keeps going. Not
only is every one of Rhapsody's top 100,000 tracks streamed at least once each
month, the same is true for its top 200,000, top 300,000, and top 400,000. As
fast as Rhapsody adds tracks to its library, those songs find an audience, even
if it's just a few people a month, somewhere in the country.
This is the Long Tail.
You can find everything out there on the Long Tail. There's the
back catalog, older albums still fondly remembered by longtime fans or
rediscovered by new ones.There are foreign bands, once priced out of reach in
the Import aisle, and obscure bands on even more obscure labels, many of which
don't have the distribution clout to get into Tower at all.
What's really amazing about the Long Tail is the sheer size of it.
Combine enough nonhits on the Long Tail and you've got a market bigger than the
hits. more than half of Amazon's book sales come from outside its
top 130,000 titles.
the potential book market may be twice as big as it appears to be, if
only we can get over the economics of scarcity. Venture capitalist and former
music industry consultant Kevin Laws puts it this way: "The biggest money
is in the smallest sales."
This is the power of the Long Tail. The companies
at the vanguard of it are showing the way with three big lessons. Call them the
new rules for the new entertainment economy.
Rule 1: Make everything available
Bollywood alone accounts for nearly 100,000 rentals each month. The
availability of offbeat content drives new customers to Netflix - and anything
that cuts the cost of customer acquisition is gold for a subscription business.
Thus the company's first lesson: Embrace niches.
Netflix [...] has, in short, broken the tyranny of physical space.
What matters is not where customers are, or even how many of them are seeking a
particular title, but only that some number of them exist, anywhere.
Rule 2: Cut the price in half. Now lower it.
If it clearly costs less for a record label to deliver a song online,
with no packaging, manufacturing, distribution, or shelf space overheads, why
shouldn't the price be less, too?
Surprisingly enough, there's been little good economic analysis on
what the right price for online music should be.
What if the record labels stopped playing defense?
For a popular album that sells 300,000 copies, the creative costs work out to about $7.50 per disc, or around 60 cents a track. Add to that the actual cost of delivering music online, which is mostly the cost of building and maintaining the online service rather than the negligible storage and bandwidth costs. Current price tag: around 17 cents a track. By this calculation, hit music is overpriced by 25 percent online - it should cost just 79 cents a track, reflecting the savings of digital delivery.
Rhapsody did an experiment in elastic demand that suggested it could be a lot more. For a brief period, the service offered tracks at 99 cents, 79 cents, and 49 cents. Although the 49-cent tracks were only half the price of the 99-cent tracks, Rhapsody sold three times as many of them.
[..]free has a cost: the psychological value of convenience. This is the "not worth it" moment where the wallet opens.
as the networks improve, the comparative economic advantages of unlimited streamed music, either financed by advertising or a flat fee (infinite choice for $9.99 a month), may shift the market that way. And drive another nail in the coffin of the retail music model.
Rule 3: Help me find it
In 1997, an entrepreneur named Michael Robertson started what looked like a classic Long Tail business. Called MP3.com, it let anyone upload music files that would be available to all.
The problem with MP3.com was that it was only Long Tail. It didn't have license agreements with the labels to offer mainstream fare or much popular commercial music at all.
Offering only hits is no better.
[..] the front screen of Rhapsody features Britney Spears, unsurprisingly. Next to the listings of her work is a box of "similar artists." Among them is Pink. If you click on that and are pleased with what you hear, you may do the same for Pink's similar artists, which include No Doubt. And on No Doubt's page, the list includes a few "followers" and "influencers," the last of which includes the Selecter, a 1980s ska band from Coventry, England. In three clicks, Rhapsody may have enticed a Britney Spears fan to try an album that can hardly be found in a record store.
(Summary Comment: What does this all have t do with historically relevant, physical items? Why keep them when you can view/hera them online? What about limited versions of physical music carriers (vinyl, tape...) or very old well kept books? Are we moving away from physicality all together? In the past old media were replaced, because they wore out. But on the Web things are added instead of replaced. What goes on the Web stays on the Web. Are we slowly making ourselves redundant by replacing our time and space limited being by an omnipresent virtual being?)
*Youtube does the same, as does discogs and amazon interrelating siggestions based on search experience with customers that indicate certain patterns.
