EU Will Do More Harm Than Good In Banning The Incandescent Bulb

from the backwards-thinking dept

The EU has now followed the US and Australia in coming up with plans to ban incandescent lightbulbs in favor of more efficient bulbs, such as compact fluorescent bulbs or LED-based lighting. I understand why these bans are being put in place. The incandescent bulbs are inefficient and wasteful, and the thinking is that forcing the move to CFLs or other types of bulbs will be good for the environment.

However, this doesn't take into account the unintended consequences of this move. Already, there's been a big push to move people to CFLs, and that's created a situation where the makers of CFLs have worked hard to improve the quality of the bulbs (a big complaint) as well as add in features that used to not be found in CFLs, such as dimming. It's also pushed the makers of CFLs to find efficiencies by which they can make the bulbs cheaper. They're doing this because they know they need to compete with incandescent bulbs -- and in many cases it's working.

Yet, banning incandescents from the market place means that the makers of CFLs now have a lot less competition. They don't have to work as hard to make the lights better. They don't have to work as hard to make them more efficient and cheaper. They've basically been given a gift that means they can slow down the process of making those bulbs that much better for the environment. That seems like a mistake.

Filed Under: cfl, competition, incandescent lightbulbs, led, lightbulbs, markets

Piracy Is A Part Of The Market

from the it's-not-the-enemy...-and-it-may-not-be-competition dept

Out-law.com has an interesting discussion with a so-called "anti-piracy expert" where he tries to make the point that pirates are not the "enemy" but are "competition." This is a step in the right direction -- though, one ignored by many industries threatened by unauthorized file sharing. As the MySpace Music offering shows, very little thought is given to actually competing with piracy. Most of these solutions simply try to pretend it doesn't exist -- which is a pretty difficult way to compete.

But it's important to recognize that the market shift goes further than just seeing unauthorized file sharing as competition. To succeed in the marketplace, it shouldn't even be viewed as competition, but as a tool that can be used to your advantage. The business models that embrace file sharing and use it to drive business to other parts of a business model are doing great, realizing that file sharing isn't the enemy and isn't competition, but is a great, efficient distribution mechanism that reaches a lot of people very quickly and effectively. Ignoring ways to make use of that seems pretty dangerous.

Filed Under: competition, markets, piracy

Google Isn't Unique In Embracing The Economics Of Free Complementary Markets

from the open-your-eyes,-Nick dept

We've pointed out for years, that Nicholas Carr is one of the smartest, most astute thinkers out there -- and he always writes interesting articles, that make interesting points and get you to think about things in a different manner. However, it's frustrating that he continually makes all these great observations, and then at the end jumps to a totally bizarre and often outright incorrect conclusion that isn't supported at all by the points he made earlier in the article. Yet, because he leads people down the garden path so beautifully, many people take that fanciful leap with Carr, missing the fact that there's really nothing holding up the structure on the other side.

He did this about a year ago, in pointing out that Google's main business was in driving all sorts of complementary businesses forward by making them cheaper (or all the way to free), such that they helped its main business (getting eyeballs to sell to advertisers). That's a good, and important observation -- but where Carr went wrong, was to claim that building up complementary businesses was somehow unique to Google, and couldn't (and shouldn't) be replicated by most other businesses. That's simply incorrect. As we've been pointing out, if you want to succeed in today's digital market, you absolutely need to recognize the complementary markets that impact your business -- because all markets have those complements.

Yet, it appears that Carr liked his mythological Google-uniqueness scenario so much that he's trotting it out again, suggesting that Google is in a dangerous position because as it drives prices in those complementary businesses down, it's apparently wreaking havoc on all sorts of other companies and business models, even if the end result is better for consumers.

What Carr's missing (and this is common to much of Carr's writing) is that these complementary markets where the price is being driven to zero isn't a bad thing, but the natural efficiency of the marketplace, driving goods with zero or close to zero marginal cost down to their most efficiently priced positions -- where they then help make many other businesses and markets (those the focus on scarce goods, such as selling attention) much more valuable. It's the same thing as Luddites complaining about technology making things more efficient. Yes, automated phone switching equipment made phone operators obsolete, but it also enabled much bigger markets and the net benefit to society was huge. Making a market more efficient, even if it changes the business model of those who lived off of the inefficiency before, is not a bad thing. That's the natural state of the market, and contrary to Carr's assertion, it's not just a few companies that are benefiting from this. Plenty of companies and individuals are understanding this every day, and using this basic concept of using infinite complements to make scarce goods more valuable. Carr does a huge disservice to his readers in suggesting that it's somehow unique to companies like Google and Microsoft. It's not.

Filed Under: business models, complements, markets, nick carr
Companies: google

Is Military Spending the Key to the Next Silicon Valley?

from the sources-say-no dept

At the end of an interesting post about the changes in the American economy during the latter half of the 20th century, Dane Stangler has an interesting aside about the role of the military in the early development of Silicon Valley. He notes that the Silicon Valley started out as a hub for defense contractors and only later became a center for the private semiconductor industry and (still later) for the software and Internet industries. Stangler suggests that a city looking to become the next Silicon Valley might want to view military spending as a key driver for regional growth. He's right that the military was crucial to Silicon Valley's early growth, and of course it never hurts to have the military creating jobs in your city, but I'm not sure a city today could repeat Silicon Valley's route to high-tech prominence. A big reason the military was so important to Silicon Valley's early development was that a lot of the technologies pioneered there were so expensive that only the military could afford them. Silicon Valley firms were building radars, guidance systems, communications systems, and other stuff that was totally out of reach for ordinary consumers. And the Internet, of course, started its life as a military research network because each connection cost tens of thousands of dollars. But prices dropped steadily, and eventually, Silicon Valley firms created commercial spin-offs that became cheap enough that ordinary consumers could afford them, and the rest is history.

Today, private capital markets are a lot deeper and the consumer market for high-tech products is a lot larger than it was 50 years ago. As a consequence, the military just isn't as important to the semiconductor and communications industries as it was a few decades ago. The military still spends a ton of money on high-tech toys, but private firms also spend billions of dollars on R&D, and their spending is more squarely focused on consumer and business markets. Smart technologists don't have to chase military contracts, they can raise capital and go straight for the consumer market. Of course, it's entirely possible that the military is currently incubating some other category of technology that will become an important private industry in the coming decades. But if you want your city to become an important center for the IT sector, luring military contractors to your area is probably not going to do it.

Filed Under: markets, military spending, silicon valley

Flexible Spectrum Markets Would Improve The Wireless Marketplace

from the spectrum-for-sale dept

Mathew Ingram notes that Google is continuing its campaign to use television "white spaces" for Internet connectivity, a promising concept that hasn't panned out so far. I think the most interesting tidbit in Ingram's post comes from an interview with Richard Wiley, the guy who chaired the committee that developed what became the current digital television standard. Ingram says Wiley told him that one of the broadcasters' criteria for the new standard is that it use as much spectrum as possible. That sounds backwards, but it made sense for the broadcasters, because they knew they'd have to give back any spectrum they didn't use. And it's consistent with past experience; we've written before about the broadcasters' spectrum-hoarding tendencies.

Perverse incentives like this are an inevitable consequence of the FCC's Soviet-style process for assigning spectrum usage. As long as the uses for spectrum are decided by fiat by the FCC, current licensees are going to play these kinds of games to ensure they get the biggest slice they can, even if they waste spectrum in the process. A better way to handle the transition (and still a good idea today, for that matter) would have been to give the broadcasters a fixed spectrum allocation and then allowed them broad flexibility on how to use it—including the right to lease or sell unused portions to third parties. That way, if they found a way to transmit television signals with less spectrum, they would have been able to lease out the unusued portions to third parties who could put it to more productive use.

In addition to promoting more efficient spectrum use in the short run, putting more spectrum on the market (as they're doing in the UK) would have positive effects on the overall telecom market. By driving down the price of spectrum it would make it easier for new firms to get into the wireless market. So far, the relatively small number of licenses that have been put on the market has allowed incumbents to snapped them up and keep out new entrants. Putting more spectrum on the market would make this strategy a lot more difficult to pull off.

Filed Under: markets, spectrum

The March Of Mobile Phone Progress Isn't Always Smooth Or Direct

from the be-patient dept

Tim Wu is discouraged. Writing in Slate last week, the telecom expert lamented the terms he's facing as an aspiring iPhone 2 owner: a two-year AT&T contract thanks to the handset's newfound inability to be unlocked and a move toward a more conventional subsidized handset model. Wu sees this as emblematic of a shift in the mobile industry:

The fact that someone like me is switching to AT&T is a sign of the times in the telephone world. The wireless industry was once and is still sometimes called a "poster child for competition." That kind of talk needs to end.

He's right -- but then, that kind of talk shouldn't have been started in the first place. The mobile market was defined by long contracts, locked handsets and a lack of prepaid options long before Apple arrived on the scene. Now it appears that it'll remain that way long after Apple.

Admittedly, this is a disappointment. Many looked at Apple's choice of a second-rate carrier -- one they could bully around -- as a sign that everything was about to change. Finally a handset manufacturer had arisen that was powerful enough to break the industry's self-serving revenue model and empower consumers! With the recent declaration of the iPhone 2's retreat toward conventional industry shadiness, those counting on Apple's benevolent technological dictatorship have found themselves disappointed (as they have before, and no doubt will again). They were fooling themselves anyway: did anyone really think Apple was going to tolerate phone unlocking forever?

But the outlook isn't all grim. As Wu notes, the Google-led Open Handset Alliance is trying to follow in Apple's footsteps with its own game-changing, must-have handsets -- only this time there seems to be a more expressly ideological slant to the effort. And Verizon's Open Development Initiative, while less than perfect, is perhaps even more encouraging in that it shows the industry has begun to acknowledge the market's need for more flexibility in data services.

And that's the real reason for hope: the march of progress. Anyone who tries to paint the mobile industry as the picture of efficient market competition is either in denial or deeply dishonest. But wireless services will inevitably become more important and more available, whether thanks to WiMAX, revived municipal wifi projects (now without capital costs, thanks to the magic of bankruptcy!), spectrum freed by digital broadcasting, or some other wireless technology. The mobile carriers haven't been great at competing amongst themselves, but you can bet they'll begin responding once consumers have reasonable alternatives.

Filed Under: competition, markets, mobile phones, monopolies, tim wu

Bad Ideas: Instituting Artificial Scarcity To Annoy Fans Into Buying Now

from the economics-of-destroying-value dept

The more you look at the economics of abundance, you realize how ridiculous it is to ever artificially create scarcity. It only serves to shrink a market and leave open huge opportunities for competitors to wipe you out. Most of the time, though, we're talking about things like copyrights and patents -- which many people (who haven't considered the matter thoroughly) don't think of as artificial scarcity. However, it's quite rare to see someone be totally open in defending artificial scarcity as a smart business model option. Reader Mart writes in to point to just such an editorial, over at Gamasutra, where Matt Matthews tries to make the case for why video game makers should create artificial scarcity in an attempt to have more control over their markets.

Specifically, he suggests that games should only be released and available for limited times before being pulled, with the idea being that this artificial scarcity would cause people to rush to buy now. This is part of the common misconception about artificial scarcity. It assumes a somewhat static market, where all the scarcity does is make the same number of people want to buy in a smaller window. That's simply untrue, and plenty of economic research in the space has shown that to be false. It's not difficult to understand why either. A purchase decision involves a variety of different factors, and if one of those factors is that the company selling the product is toying with you by putting extremely annoying limitations on the product, that's going to turn a lot of people off. It also opens up much wider opportunities for competing companies who don't toy with their customers and offers a product to whoever wants -- embracing the wider opportunities of the long tail, rather than shutting them off. The whole point of the long tail is that it expands your market -- whereas Matthews seems to want to destroy that expanded market in favor of additional control over a smaller market.

What seems to really get Matthews are two things, which he notes as being the core of the problem: "An infinitely long tail gluts the market, confounds the consumer, and commoditizes developers." As for "gluts" the market -- that's not a problem that you solve by artificial scarcity (limiting choice), it's a problem you solve by having better filters and better recommendation systems. As for commodtizing developers, that's shorthand for "I don't want to compete." But, of course, the second you do something so silly as limiting the timeframe in which your fans can buy your games, the faster you hurt your own business by letting your competitor get their business. That seems a lot worse than having to actually compete.

Filed Under: business models, markets, scarcity, video games

How Long Until People Start Worrying About The Decline Of The MP3 Player Market?

from the convergence dept

We've been pointing out for a while that analysts who try to measure "the PDA market" are wasting everybody's time. The addition of personal organizer functionality to mobile phones (or we could just as easily say, the addition of wireless telephony features to PDAs) meant that phones and PDAs were now part of one big "mobile communications device" market. The next step in that trend, already underway, is the gradual merging of the smart phone and MP3 player markets. An analyst is predicting that half of all cell phones will double as MP3 players by 2011. The cell phone market is getting close to saturation in the developed world, which means that manufacturers have to keep adding new features in order to convince customers to upgrade. I really hope this doesn't mean we'll have to spend the next five years debunking silly stories about the decline of "the MP3 player market."

Filed Under: markets, mp3 players

Can You Create A Market For Privacy? Would Anyone Care If You Did?

from the artificial-scarcity-isn't-a-business-model dept

David writes in to point us to Jim Manzi's guest post at Andrew Sullivan's Daily Dish suggesting that a way to deal with privacy issues is to create a market for private info. This is not a new idea, though it's not clear if Manzi knows about those who have tried it before. Root Markets has been trying to do this for years without getting that much traction. Manzi's idea is that right now people are lax with transaction data because they really have no choice: "When the choices are (1) opt out of modern life, or (2) implicitly surrender all of this info, pretty much everybody picks door #2." His description of the solution, however, should immediately ring some bells on an analogy that shows why his plan will almost certainly never work:

"But what if I had the practical ability to charge commercial entities for access to or use of information of this sort? It would, first, go from a free good to a scarcer resource, and second, I could protect those parts of my transaction history that I feel to be most sensitive. In effect, we need a functioning market into which I can sell my transaction history."

Yes, he's basically saying that we should take an infinite resource (data about our transactions) and forcibly create artificial scarcity, and then create a market around that artificial scarcity. It sounds nice in theory, but given how just about every market that's based on artificial scarcity is disintegrating as we speak, it seems unlikely to get very far. If there's one lesson that we've learned from watching the entertainment industry implode over the last decade, it should be that artificial scarcity doesn't last. Basing a business model on artificial scarcity is incredibly risky.

Given how little attention Root Markets has received from users, Manzi may not be correct in estimating where consumers' feelings lie on this matter. As they've shown time and time again, it's not that people want to keep their transaction data private and just don't have the means to do so -- it's that very few really seem to care at all.

Filed Under: abundance, markets, privacy, scarcity

Lawsuits Don't Create New Markets

from the kicking-and-screaming dept

The RIAA has apparently been getting a lot of negative publicity for its six-figure judgment against a single mother for file-sharing. RIAA president Cary Sherman has a taken to the Web to defend his organization's actions. Personally, I don't have a great deal of sympathy for Jammie Thomas given the strong evidence against her, but I did think Sherman made a couple of misleading arguments. First, Sherman claims that the lawsuits have "created a legal marketplace" for music. But the primary way you create a "legal marketplace" for your products is to offer better products. The market is growing because services like Apple's iTunes make it convenient for consumers to get the music they want in a convenient and flexible format. But the major labels can hardly take credit for that, since they had to be dragged kicking and screaming into signing on to the iTunes store. Sherman says he'd rather be "helping artists make great music that we can distribute in lots of exciting new ways that music fans want." But for the most part, their approach has been the opposite: doing their best to sue new music technologies out of existence and sharply limiting the ways consumers can listen to the music they want. Secondly, Sherman repeatedly equates copyright infringement with theft, going so far as to say that the jury found Thomas "liable for copyright theft." But of course there's no such thing as "copyright theft." As the Supreme Court and others have pointed out, copyright infringement and theft are two different crimes, and it's misleading to treat them as if they were identical.

Filed Under: business models, cary sherman, lawsuits, markets, recording industry
Companies: riaa