Before anyone yells at me for implying that Skype has not grown in the past two years, let me clarify that I am talking about revenue growth not subscriber growth. From some cobwebby nether region of my brain, a factoid pops into my head that Skype's current revenues are only about $20-30m. But they have put in place a superb platform for real revenue growth to take off.
Skype today announced the further development of its strategy, creating business opportunities for its thriving community of developers and partners by launching its Voice Services Program for third party content providers. The Skype Voice Services Program developed in partnership with industry leaders like Tellme Networks enables any content provider, large or small, to become a part of Skype’s new marketplace for either free or chargeable voice services. Content providers will join Skype’s ecosystem of more than 400 Skype developers worldwide who are already offering hardware and software products to Skype’s 53 million members.
Skype callers will pay for chargeable voice services from their Skype Credit account with a percentage of the fee going to the content provider who created the service.
Obviously, if this platform takes off, Skype will be sitting on a cashmine.
One little feature of this model that I thought was a particularly marvellous idea was that customers will pay for voice services using their Skype Credit accounts. So Skype controls the cashflow. This means that Skype could actually have negative working capital -- taking cash from customers up front and releasing it to voice service providers only later.
Reminds me of Dell. We have all heard about Dell's super-efficient supply chain and distribution model. But someone explained their financial model to me and I found that just as impressive. Dell stores supplier components in its warehouses so that they are handily available when a PC order comes in but the title to the components is only transferred from suppliers to Dell when Dell actually puts the component into a PC. So Dell pays suppliers at the end of their credit cycle -- probably a month or two after they've been paid by their customers. Hence, negative working capital!
Another thought, albeit half-baked: could Skype Credits eventually become the phone equivalent of PayPal? Just as PayPal is used to transact over the web, could Skype Credits become the de facto currency of phones? This might actually seem a step backward to some people ("Leave the web and return to phone transactions?") but I think this might help open new markets such as:
People who have access to phones but not to the Internet
People who don't like using the Internet to transact
Cross-posted to OpenMoodle: the Oxford University Next Generation Mobile Applications Forum.
Scott Anthony writes on Innoblog about a new venture launched by McDonald's that provides DVD rental via unmanned kiosks. He wonders why this is significantly better than alternatives (stores, online rental, download).
A colleague pointed out an article in The Boston Globe ("Like Coke machine for DVDs") describing a new way to rent DVDs. The service is provided by a company called Redbox, which is a subsidiary of McDonald's. The concept is simple. Go to a kiosk, swipe your credit card, and receive a DVD. You don't have to be a member and are charged a dollar a day for each day you have the DVD. You can return the DVD to any Redbox kiosk. Color me a bit skeptical about the viability of this approach.
There are a few quite insightful comments on his page, which explain why this is such a powerful model but there's one thing that no one picked up on. Three friends of mine started a company called Cinenow in Singapore that does the same thing as Redbox. They stress two major points about why their model works better than both stores and online rental:
DVDs at kiosks are available instantly (unlike online) and 24/7 (unlike stores). This was was highlighted in the Innoblog post.
Their pricing model, which charges customers more the longer they hang onto their DVDs, ensures that customers have an incentive to return the DVD as soon as possible. This means that most DVDs are in stock most of the time. This is the point that no one mentioned on Innoblog and I think it is quite a powerful idea. Note that Cinenow (don't know about Redbox) doesn't impose absurdly small time limits. I think their minimum rental price is valid for 4-hour rentals, which is more than enough time to rent the DVD, rustle up some popcorn, watch the movie and return it.
The belief that variety is good "is not always true," argues Harvard Business School professor John Gourville in "Overchoice and Assortment Type: When and Why Variety Backfires." The research paper, co-written by professor Dilip Soman of the University of Toronto's Rotman School of Management, demonstrates that sometimes offering too many choices prompts the confused consumer to defer a purchase or run to the arms of a competitor with a less cluttered product line.
This makes sense. But I disagree with one of his conclusions. Gourville argues that "overchoice" implies that companies with mile-long product catalogues should reduce the number of products in their stable. As a Long Tail devotee, I don't like that idea, whether applied to mutual funds or toothpaste.
I much prefer his second idea, which is to retain the mile-long catalogue and help consumers find what they need within the catalogue. (After all, the more niches there are, the more likely it is that I will find something that is tailored to my own tastes.) Building this hand-holding capability will help companies build sustainable competitive advantages for the future.
Reducing 25 toothpaste flavours to 5 only makes each of those 5 more easily imitable by others. The maker of toothpastes has no control over which brand the consumer chooses. Conversely, helping a consumer find what he needs --either overtly by providing access to a product expert or labelling products as Gourville suggests, or covertly by using technology to automatically recommend the product most likely to be useful to the consumer or by building a platform that facilitates conversations between consumers-- builds a capability that cannot be replicated by a competitor. You alone have access to each individual consumer and possess knowledge of that consumer -- things that no one else possesses. This is a long-term sustainable competitive advantage, which can in fact even strengthen over time as the company learns more and more about its consumers.
The Long Tail is probably the best source for learning more about how one could help consumers navigate one's product catalogues. This page is a particularly good read.
So: too much variety? No. Not enough hand-holding.
To me, this shows another crack in the traditional producer-distribution-audience models. It is obvious that scholars and professionals were not the audience. The two Beethoven enthusiasts were first doing what they wanted to enjoy and couldn't find and now they are hoping to reach the mainstream in a way academicians and virtuosos can't. As Doc Searls points out, this is the demand side supplying itself. Sure, enthusiasts and amateurs have achieved feats that impressed the official experts and professionals but now, thanks to an unparalled distribution system that the internet has become, they can go directly to the audience. Some consumer-generated content that is scaring those who grew comfortable with the model and the control it gave them.
She calls this "long tail for producers" because of the obscurity of the compositions in question. But I prefer to focus on another aspect of this phenomenon that she identifies above -- that of consumers producing their own content and thereby rejigging the producer-distributor-consumer model. The demand side can also supply itself in non-long tail situations.
I think this phenomenon also goes well beyond music. At the consulting firm where I work, we are working on a new way to think about the world. We call this the C2C Future. Consumers talk to each other. Companies co-opt them into the process of producing a product or service. Consumers get personalised offerings as a result. Increased value results, which, depending on the industry, is either captured by existing firms or by new start-ups or accrues directly to consumers themselves. These things apply to a lot of industries, not just music or media although those are obvious the first places to look.
(There are many other aspects of the C2C Future that I want to talk about but this isn't the place, and certainly not the time -- I'm going to bed!)
I went on a beginners' paragliding course recently in Malaysia. Fun like you won't believe. I'll be writing about my experience. Here's the first installment hosted on www.murli.net/pics (where I've begun sharing photos and things).
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