Posts Tagged ‘Amazon’

Facing an inevitable bust?

March 19, 2010

I was a little alarmed by the comments from the head of the Australian operations of the Blockbuster video store operations this week.

In response to inquiries about the viability of the local concern in light of the likely bankruptcy of their US parent (well sort of parent – it’s pretty much an international franchising setup with the distinct Aussie entity using the US mob’s brand, systems etc), Paul Uniacke indicated (in effect) that he saw no significant threat from alternatives to his bricks and mortar operations. This is despite the US version experiencing a 16% sales drop in the last quarter.

His argument is that Aussie consumers haven’t embraced mail-order DVD delivery offerings from startup competitors, nor have they shifted to streaming/download options.

I would think the missing word there is “yet“.  Surely it is only a matter of time before wandering up to an understocked, inconvenient video store becomes as quaint and antique an idea as using a phone box or sending a telegram?

He is right that the actual decline in store-based DVD rentals hasn’t happened here yet, but I am certain growth slowed a while back, and that decline is just around the corner.

Mail order might not the threat its proponents hoped for, but streaming will be (as demonstrated already by the utilisation of illegal and legal download services).  The much vaunted upgrade in Aussie broadband infrastructure will greatly facilitate this.

The strategic lesson: just because technology and socio-cultural effects haven’t kicked in yet, don’t fob them off as irrelevant.  Learn lessons from similar and more advanced markets.

Blockbuster Australia should be looking very, very hard at web-based video delivery (although, I must say, I can’t see that much in their existing resources and capabilities that would see them out-perform Amazon, Apple or even Telstra on this front). Alternatively, they’ve got to find something interesting to do with all of the stores.

As an aside, my local Blockbuster has halved in floorspace in the past year, and still looks empty every time I walk past…

Has Amazon caught the forward integration bug?

December 8, 2009

Every time I think I’m done with this vertical integration obsession another example pops up.

Rumours are flying around the news sites that the giant of online retailing Amazon might be bringing a portion of its delivery process back in-house.

They are reportedly considering opening old school bricks-and-mortar shop fronts in the UK where buyers can pop past to pick up their purchases.

This would represent a substantial shift in the business model of the firm, and also a convergence back with various other high street retailers (most notably in the UK Argos) who also have a strong online presence.

It is also an interesting example of adaptation to the quirks of infrastructure and custom from location to location. Parcel deliveries may be less practical in the UK given different living arrangements, and customers are more densely situated meaning such distribution points could be viable.

Disruptive technology amplified

February 18, 2009

I’ve posted on here before about the changing dynamics of the music industry. This interview with marketing guru and bigtime blogger Seth Godin highlights a raft of substantial and probably irreversible shifts that continue to bewilder the big record labels (See also his rearticulation of these ideas on his blog).

Godin has a neat take on the changes too:

This is the greatest moment in the history of music if your dream is to distribute as much music as possible to as many people as possible, or if your goal is to make it as easy as possible to become heard as a musician. There’s never been a time like this before. So if your focus is on music, it’s great. If your focus is on the industry part and the limos, the advances, the lawyers, polycarbonate and vinyl, it’s horrible.

Music disruptive technology iPod beats CDLet’s put this into the language of strategic management ..

Disruptive technologies (internet, low-cost recording and dissemination of audio and increasingly video, filesharing) have diminished considerably (if not almost absolutely) the power of previously dominant players in the field. This includes not only the record labels but also radio, MTV and their cohort channels, bricks and mortar retailers, and producers of CD players and CDs.

Massive shifts in distribution channels away from many of the aforementioned mechanisms. Indeed we have seen almost a polarisation whereby there a few huge-scale outlets for buying digital recordings (i.e. iTunes, Amazon) and small ranges available in large scale retailers (WalMart, Target etc), and then an enormously lengthy tail for buying digital, CD or even vinyl, often directly from the artists, from indie labels or well-conceived aggregators (like CD Baby). And, of course, a huge proportion of the product is exchanged for free through filesharing.

These two phenomena have indeed changed the world of music as we know it. This is a fascinating case of disruptive technology, as it remains very unclear which businesses have gained from this huge shift in the nature of the value chain. You could argue that Apple has through its i-empire, but I’d hazard a guess that their revenue gain does not outweigh the losses of income to the record labels etc. Similarly, it does not look like the innovators (i.e. those responsible for MP3s, file-sharing protocols etc) have reaped much in return.

moroccan-musos-djamaa-el-fnaAs Godin indicates, it would seem it is the musicians who hold much of the power now. The major barrier to entry of olden days – a major label recording deal – has fallen.

The marketing requirements have shifted considerably, with much less uniformity in the approach taken. Mainstream music has faded from our culture as smaller and smaller niches open up as viable and vibrant communities of interest.

It is unclear that major record labels have any competitive advantage at all in such domains. Indeed their credibility is highly questionable, and, with integrity and uniqueness so highly valued, their patronage may well be a burden for new acts. Indeed it appears possible to build a substantial following without a label or indeed much pay-to-listen product (as exemplified by the case of Aussie outfit Short Stack or US singer Corey Smith).

Musicians face considerable diversity of possible revenue streams, many of which are not subject to extreme bargaining power (merchandise, live performances, personal CD sales (i.e. at performances/appearances)), or offer considerable returns for limited effort (licensing of songs to video games, movies, advertisements). Increasingly there is little need to utilise the record label to tap these streams. I’ll finish with another quote from Godin which should remind artists where the gold may lie:

The idea that you could have a micro-market of 250, 500, 1,000 copies of a CD every night is a totally different way of thinking about what you do for a living, rather than making one album a year marketed with payola and promotion that reaches a certain group of people and ignores everybody else.