The Race to the Bottom
Let me tell you a story about a man named Jim and his piano shop. It was called Jim's Fine Pianos and it sold only the most luxurious pianos. Many people would come to visit the store just to see the beautiful grand pianos. It was known as the best place to shop for the best pianos.
Now Jim liked having such a prestigious shop, but one day his brother Bill suggested they should take a closer look at their business. Bill had noticed that the majority of their sales were of their less expensive pianos. Even with a slightly higher profit per item on the pricier pianos, it was still more profitable to carry a lower-end piano than higher-end. Jim had always liked having the really nice pianos in his shop, but he decided Bill was probably right and they started carrying more low-end pianos and fewer high-end.
Jim's sales picked up, especially the new brands. Some of his high end customers were upset that they couldn't find their best pianos there any more, but Jim was making more money off the low-end. He offered to order in any high-end piano his customers wanted, but not surprisingly they preferred seeing and touching a piano before deciding to purchase it. Bob's Piano Emporium across town started carrying a few higher end pianos, and some of Jim's elite customers went there.
Jim was upset about losing his best customers, but he had to concede to Bill that he was making more money. Bill took another look at the books and found some more areas for improvement. The accessories were highly profitable, so Bill suggested they expand their floorspace. They did, at the expense of another high-end piano, and sales grew.
Bill had the idea to start selling CDs of piano music. He'd discovered that they had extremely high profitability, so another set of pianos disappeared. These CDs made so much money that Bill expanded into other types of music (but lost another piano).
Jim started noticing that the traffic coming to the store was declining. They were still making more money, but most customers were sad to see that there were no nice pianos left when they came to visit. Bill agreed that more foot traffic would improve sales, so he suggested they start an ad campaign. Jim had never needed to advertise before, but now Bob's piano emporium was starting to steal a lot of his customers. Bill also wanted the ads to highlight Jim's new selection of DVDs of great performances.
Bill decided it would be best to rename the store, since it didn't really sell that many pianos anymore. He renamed it Jim's Music Place.
After the ads ran with the new name, people started flocking to the store. The DVDs were selling well and had a very high profit so Bill expanded the selection into Musicals and Operas. Sales increased. Bill started selling fine wines at the checkout line, which also proved very lucrative. Unfortunately there was almost no space left for Pianos.
Jim hardly recognized any of his customers. Most customers now were from the neighborhood nearby and most came in to buy rock and roll CDs or popular movies (both of which have a very high profit, Bill pointed out). When Bill started selling snacks at the checkout line, profits increased. When he started selling cheaper wine and coolers, they sold well too.
Eventually Bill started selling beer and party snacks. They started displacing the CDs and DVDs, but they made a solid profit. Adding lottery tickets and an ATM increased sales. Cigarettes brought in repeat customers every day. The money flowed in.
Unfortunately for Bill, a 7-11 opened up across the street and drove what was now called Jim's Quick Stop out of business...
So what's the moral of the story, especially for those of us who sell technology instead of pianos.
It's ok to be the best in a small, specialized market. Don't feel bad about having a specialization. Sure there's more money to be made somewhere else, but there's more people trying to make money there.
Most of the top tech companies seem to be trying to provide everything to everyone, but they end up serving the most profitable parts and forgetting about what they're good at.
Look at the news sites: CNN, MSNBC, Fox News, Froogle, Yahoo News, ... all cover a broad range of stories. But they can't show all stories, so they focus on the most popular. They end up with a thousand hours of Anna Nicole Smith and Brittany Spears. Ugh. I'd love a news outlet that focused on covering important stories and gave tabloid type stories the 10 seconds each they deserve. On a case by case basis Spears stories beat Congress stories every time, but in aggregate a smart news channel could differentiate itself. It's advertisers would pay more because of the smarter audience, and it's viewers would be loyal simply because no-one else supplies the same selection of news.
Look at the big tech companies: Google, MS, Yahoo, AOL, ... they all try to provide everything. Instant Message (Google Talk, Live Messenger, Yahoo Messenger, AIM). Email (Gmail, Live Mail (Hotmail), Yahoo mail, ...). Homepage, Maps, Cars, Shopping, ... It's crazy. If it weren't for the techincal locking that keeps these items from inter operating, they wouldn't exist. And yet these really aren't very profitable for anyone. MS makes its money off of Windows and Office, MSN is essentially break even. Google makes money because it runs ads on practically every webpage. Yahoo has lots of customers, but really doesn't make much money off them. AOL makes it's money off of people stupid enough to still pay $25/month for dial up internet service.
So which companies out there don't seem to be afraid to specialize? The obvious one is Apple. They make high end computers and electronics. They don't compete in the server market. They don't have a web portal or search engine. They don't make PC accessories. All of those would be very profitable, but none help make Apple better at what it does best.
So is Apple being idealistic by foregoing the profits to be had in other markets? Or are MS and Google diluting themselves to the lowest common denominator? Would an intelligent news station have a chance or is Anna Nicole the only way to make money in the news?
What do you think?
Now Jim liked having such a prestigious shop, but one day his brother Bill suggested they should take a closer look at their business. Bill had noticed that the majority of their sales were of their less expensive pianos. Even with a slightly higher profit per item on the pricier pianos, it was still more profitable to carry a lower-end piano than higher-end. Jim had always liked having the really nice pianos in his shop, but he decided Bill was probably right and they started carrying more low-end pianos and fewer high-end.
Jim's sales picked up, especially the new brands. Some of his high end customers were upset that they couldn't find their best pianos there any more, but Jim was making more money off the low-end. He offered to order in any high-end piano his customers wanted, but not surprisingly they preferred seeing and touching a piano before deciding to purchase it. Bob's Piano Emporium across town started carrying a few higher end pianos, and some of Jim's elite customers went there.
Jim was upset about losing his best customers, but he had to concede to Bill that he was making more money. Bill took another look at the books and found some more areas for improvement. The accessories were highly profitable, so Bill suggested they expand their floorspace. They did, at the expense of another high-end piano, and sales grew.
Bill had the idea to start selling CDs of piano music. He'd discovered that they had extremely high profitability, so another set of pianos disappeared. These CDs made so much money that Bill expanded into other types of music (but lost another piano).
Jim started noticing that the traffic coming to the store was declining. They were still making more money, but most customers were sad to see that there were no nice pianos left when they came to visit. Bill agreed that more foot traffic would improve sales, so he suggested they start an ad campaign. Jim had never needed to advertise before, but now Bob's piano emporium was starting to steal a lot of his customers. Bill also wanted the ads to highlight Jim's new selection of DVDs of great performances.
Bill decided it would be best to rename the store, since it didn't really sell that many pianos anymore. He renamed it Jim's Music Place.
After the ads ran with the new name, people started flocking to the store. The DVDs were selling well and had a very high profit so Bill expanded the selection into Musicals and Operas. Sales increased. Bill started selling fine wines at the checkout line, which also proved very lucrative. Unfortunately there was almost no space left for Pianos.
Jim hardly recognized any of his customers. Most customers now were from the neighborhood nearby and most came in to buy rock and roll CDs or popular movies (both of which have a very high profit, Bill pointed out). When Bill started selling snacks at the checkout line, profits increased. When he started selling cheaper wine and coolers, they sold well too.
Eventually Bill started selling beer and party snacks. They started displacing the CDs and DVDs, but they made a solid profit. Adding lottery tickets and an ATM increased sales. Cigarettes brought in repeat customers every day. The money flowed in.
Unfortunately for Bill, a 7-11 opened up across the street and drove what was now called Jim's Quick Stop out of business...
So what's the moral of the story, especially for those of us who sell technology instead of pianos.
It's ok to be the best in a small, specialized market. Don't feel bad about having a specialization. Sure there's more money to be made somewhere else, but there's more people trying to make money there.
Most of the top tech companies seem to be trying to provide everything to everyone, but they end up serving the most profitable parts and forgetting about what they're good at.
Look at the news sites: CNN, MSNBC, Fox News, Froogle, Yahoo News, ... all cover a broad range of stories. But they can't show all stories, so they focus on the most popular. They end up with a thousand hours of Anna Nicole Smith and Brittany Spears. Ugh. I'd love a news outlet that focused on covering important stories and gave tabloid type stories the 10 seconds each they deserve. On a case by case basis Spears stories beat Congress stories every time, but in aggregate a smart news channel could differentiate itself. It's advertisers would pay more because of the smarter audience, and it's viewers would be loyal simply because no-one else supplies the same selection of news.
Look at the big tech companies: Google, MS, Yahoo, AOL, ... they all try to provide everything. Instant Message (Google Talk, Live Messenger, Yahoo Messenger, AIM). Email (Gmail, Live Mail (Hotmail), Yahoo mail, ...). Homepage, Maps, Cars, Shopping, ... It's crazy. If it weren't for the techincal locking that keeps these items from inter operating, they wouldn't exist. And yet these really aren't very profitable for anyone. MS makes its money off of Windows and Office, MSN is essentially break even. Google makes money because it runs ads on practically every webpage. Yahoo has lots of customers, but really doesn't make much money off them. AOL makes it's money off of people stupid enough to still pay $25/month for dial up internet service.
So which companies out there don't seem to be afraid to specialize? The obvious one is Apple. They make high end computers and electronics. They don't compete in the server market. They don't have a web portal or search engine. They don't make PC accessories. All of those would be very profitable, but none help make Apple better at what it does best.
So is Apple being idealistic by foregoing the profits to be had in other markets? Or are MS and Google diluting themselves to the lowest common denominator? Would an intelligent news station have a chance or is Anna Nicole the only way to make money in the news?
What do you think?
posted by Ze Ace at
3:37 PM
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