This Goes Beyond Tablets: Apple, Amazon & Google Are Betting On Economic Philosophies

from the different-bets dept

Amazon's recently-announced tablets are interesting for a variety of reasons, including that Jeff Bezos made it quite clear that he's taking a very different approach to the market than the one Apple has taken. Lots of attention was (quite reasonably) paid to Bezos' key line:

"We want to make money when people use our devices, not when they buy our devices."

It's a great line in so many ways, because it highlights the different philosophies of Amazon and Apple. John Gruber's summary of those differences is a really worthwhile read (you should read the whole thing). His take on that particular line is dead-on:

Bezos's we want to make money only when you use it framing works two ways. First, it explains the Kindle Fires' noticeably lower retail prices in a way that doesn't make them seem cheaper, only less expensive. It frames Apple's prices -- and profit margins -- as greedy. Second, it works as a sort of guarantee -- if you don't actually use it, we won't even make any money on it.

Later Gruber made a second point that got me thinking (and rethinking...)

Apple's goal is to sell as many iPads as it can. Amazon's goal is to sell as many Kindle Fires as it can to a specific audience: active Amazon.com customers.

I've talked in the past about how Apple's digital goods sales have really been about being the "low margin" leader (if not the loss leader) to drive more sales of the hardware. The digital goods -- content and apps -- make the hardware much more valuable and help drive up the amount people are willing to pay. And that tends to fit with the basic economics I believe in: focus on using the "abundant" (digital) to make the "scarce" more valuable, for which people will pay a premium, especially since that "scarce" can't be "pirated." Apple has, in many ways, put that particular economic concept at the center of how it does business, even if I'm uncomfortable with the closed nature of its overall setup around that.

Amazon, however, has flipped the equation. Their "low margin leader" is the hardware, and they basically appear to want to make their money up on the digital goods purchases. Just as Apple doesn't lose money on selling digital goods (it just makes a very little amount), it appears that Amazon will be making only a little bit on the hardware, but hopes to make the big money on selling the abundant: digital goods via the Kindle store.

I will admit that I struggle with this a bit. I find it hard to bet against Bezos, because on an awful lot of things I think he makes the right bet. Plus, frankly, I'm a lot more comfortable with Amazon as a platform than with Apple. Finally, from a consumer standpoint, I think Apple's hardware seems really overpriced, but Amazon's new prices are really compelling. But economically speaking, there's a voice in the back of my head that says that Apple has this right and Amazon has this wrong. Apple is betting on using the abundant to increase the value of the scarce and then selling that. Amazon is betting on using the scarce to increase the ability to sell the abundant. Perhaps it works because of Amazon's closed Kindle platform and its dominance in the market allows it to make this counter-economical bet. Artificial limitations allow for such things, and Amazon's got the power to control a large segment of the ebook market, which really helps the company out.

In the long run, though, if a competitive market is truly created, it seems more likely that there will be more pricing pressure on Amazon's bet than on Apple's. But, in the short term, Amazon's flip-flopped market certainly could make a lot of sense.

Of course, if you really want to make this fun, just add Google to the equation. It, like Amazon, seems to be focusing on cheap, barely profitable hardware, a la the Nexus 7. It's also put a big effort (recently) into selling digital goods via the Android "Play" store. But Google's business has always been about ads, so it actually adds a third factor to how it views the world, and which part of the business subsidizes which other parts of the business.

In the end, you're left with three big bets on tablets, with very different underlying business models*:

• Apple: High margin hardware (scarce); make just a little on digital goods (abundant).
• Amazon: Low margin hardware (scarce); make the real margins on digital goods sales (abundant)
• Google: Low margin hardware (scarce); make some margins on digital goods (abundant), but cross subsidize both with the ad business.

* Yes, there's also Microsoft Surface tablets. For the life of me, I can't figure out where they place in this particular chart. Which may say something all by itself.

Which strategy works in the end may say a lot about how you view the world economically.

Filed Under: abundant, business models, economics, scarce, subsidies, tablets
Companies: amazon, apple, google

YouTube Now Helping Artists Sell The Scarce

from the good-for-them! dept

About two and a half years ago (soon after I did my first presentation about CwF+RtB), I was asked to stop by the YouTube offices, to talk about what things they might do to help artists earn more money. And the key suggestion I made was -- add more features that would allow artists to sell scarcities with their content: let them sell concert tickets, merchandise, access, whatever. I was thanked... and never heard from them again. So it's nice to see that, years later, it appears that YouTube is finally doing exactly that:

We’re launching a feature called the Merch Store that will allow YouTube partners to offer fans merchandise directly on your channel. Fans will be able to buy artists’ merchandise, digital downloads, concert tickets and even unique experiences like meetups. These features are made possible through affiliates like Topspin for merchandise, concert tickets and experiences; Songkick for concerts; and iTunes and Amazon for music downloads. We’ll be rolling out the Merch Store to music partners globally over the coming weeks

As YouTube has become a bigger and bigger source of music listening and discovery, I think this is fantastic. It will be interesting to see how well integrated it really is. As musicians get to test this out, we'd love to hear about their experiences, which they can provide over at Step2.

Filed Under: music, scarce, youtube
Companies: amazon, apple, google, songkick, topspin, youtube

Sub Pop Leaning Towards Giving Away The Infinite And Charging For The Scarce

from the good-for-them! dept

If you like good music, you're almost certainly aware of the iconic indie label Sub Pop. Apparently, Sub Pop's creative juices aren't just focused on putting out great music these days, but they're considering how to adapt their business model to the changing music landscape, and I'm happy to see that they seem to have realized the key point that I've been making for years: infinite goods make scarce goods more valuable, so free the infinite and sell the scarce. Sub Pop is apparently considering starting to give away new music, while focusing on selling tangible goods related to the music (found via Hypebot):

"Although Sub Pop is primarily known for its many fine artists and their really very fine recordings (also grunge), we're not at all opposed to expanding into the fine world of t-shirts, hats, beer cozies, and key chains," Jaspers says. "We used to give many of these tchotchke items away for free in an effort to entice people to pay for the music, but we're considering flipping our strategy so that people pay for the toy and receive the music for free. Just a thought."

Basically, it's a recognition that people want the music, but they're also willing to pay for a physical good as something of a "souvenir" or additional scarce and valuable "art" that is made more valuable by the connection to the music. Sub Pop's art director, Jeff Kleinsmith, is apparently looking to go in creative directions with this:

Regardless of age, there's always going to be people who prefer to touch and make stuff that's like, physical. CDs may end up being little books. We've talked about this at work, where you might spend the time to do a cool package, it just doesn't have a disc in it. And instead of a disc, you've got a little piece of paper that says "go here for your download." So you're getting everything about it except for that plastic disc, you know. I would love to see that.

And that could be a magazine, it could be a shirt, it could be a sticker on a banana, it could be anything, really, that has that download. It could be a poster, a thing associated with this music.

Of course, we've seen some examples of this already. Earlier this year, we talked about a Swedish band that was releasing its latest album as a magazine. Last year, Mos Def tried releasing his latest album as a t-shirt with a download code. And, we just wrote about Kristin Hersh's latest album being released as a book. The idea, of course, is to give fans a real reason to buy beyond just the music -- which is effectively free for many people. But providing scarce value can really do amazing things.

Of course, considering it sounds like the Sub Pop folks are still thinking about this, they might want to consider that selling scarcities can also expand a bit beyond just selling tangible goods. There are intangible scarcities that go well with music as well -- including things like access and attention. Either way, it's great to see such an iconic label realizing that there could be serious value in embracing (rather than complaining) about "free" within a business model, and looking at opportunities to use it to their own advantage.

Filed Under: business models, economics, free, infinite, music, scarce
Companies: sub pop

Being Unique Is Not The Same As Exclusive (Or Scarce)

from the a-bit-confused dept

Taylor Davidson alerts us to an odd blog post with suggestions on how photographers need to adapt to the changing market place. As Davidson properly notes, there's some good points mixed in there with some really odd conclusions. The writer does a decent job explaining how the market has shifted -- with the ease of digital production and distribution, the old exclusivities have gone away. But, from there, gets confused about what to do with it, focusing on trying to build up artificial scarcities or suggesting that photographers try to ignore basic economics. That's not going to work.

The key point is that the writer seems to think that the key scarcity is uniqueness, as if there's some exclusivity to it. Uniqueness is a good thing, but it's not the same thing as exclusivity (again, a point Davidson makes). Uniqueness is what gets you noticed (promotion) and what makes your real scarcities (time, access, experience, etc.) worth more. But the writer of the post seems to think that uniqueness can only be developed by shunning others, learning from no one, and trying to hide all of your ideas. Some examples:

Hide your best work. Only your clients should see it. no one else.

I can't think of an idea any worse than this. Earlier, the writer suggests focusing on commissioned work. You don't get commissioned if you're hiding your best work. Your best work is the calling card for you to get commissioned work.

Do not share or post your techniques. You will only be popular with the ones that have no imaginations. Like leeches, they feed on others knowledge.

Yes, because all brilliant photographers are simply born brilliant, and never learned a thing from others. The statement above does not mesh with any creative process I know. Sure, there will always be some copycats and "leeches," but if you are an innovator, that's only good for you. It boosts your own reputation as being a trendsetter. Furthermore, most truly creative people use the ideas of others as a part of their own, and build on them -- taking pieces of what they find from others, but still building on them and creating something new and unique. Hiding your techniques doesn't make you exclusive or your work more valuable. It likely just means you're cut off from what is state of the art.

Never, ever ask for the opinion of another photographer. If its good, they will copy you, if it's bad, they won't tell you.

Someone's sounding a bit paranoid here. Collaboration and feedback are good things. They're what help people grow. The problem is that the writer seems to think that this market is a zero sum game, of sorts. If one photographer has a good idea, it's one less good idea for the rest of the world. That also explains the following:

Do not copy. If you have an idea, look to see if it has been done. If it has, drop it. Move on. be creative.

Of course, an awful lot of creativity is done by unique individuals looking to redo the work of others, but adding their own style and flare to it.

All in all, I recognize that it's tough for content creators in disrupted markets to come to terms with the market challenges they're facing, but locking everything up isn't the answer. Cutting yourself off from the world, and hiding your best work, is not the answer. That seems only guaranteed to make your own market dwindle. No one will recommend you. People searching for you won't find you. Your work may be unique, but you'll have missed out on valuable ideas and feedback from others. It's hard to see how that's a winning strategy at all.

Filed Under: photography, scarce, unique