January 23, 2011
Three Ways Technology is Killing Businesses
IconBy Cliff Ennico www.creators.com . It's been over 30 years now since the first personal computers, and over 15 years since the Internet, gave us all a digital life.  Who today can remember what it was like to do business in the days before e-mail, PowerPoint, laptops, Blackberries, iPhones, iPods, iPads, mobile apps, Facebook and Twitter? Today's technology is truly a marvel - all the information in the world, in your hands, at any time.  But it is making it harder for businesses to make an honest buck. Proposition # 1:  The Internet Is Killing Jobs.   Back in the 1970s, if you ran a billion dollar (in sales) corporation, you needed hundreds if not thousands of midlevel executives running around managing the systems that made those complicated business models possible.  Many of those employees were duplicating effort, providing checks and balances to ensure that all of the key functions were executed properly and correctly. Today's information technology solutions have made most of those people obsolete.  With the right technology solutions, a billion dollar (in sales) corporation can be run by fewer than 100 full-time employees. Think I'm kidding?  In 2008 YouTube.com was acquired by Google in a $1.9 billion transaction.  At the time YouTube.com had only 72 full-time employees. By doing complicated tasks effectively, quickly and with 100% accuracy, the Internet enables today's executives to perform tasks in a few minutes that used to take a team of employees days to accomplish.  Great for productivity, but lousy for the employment picture. Greater efficiency and productivity kills jobs.  A famous British advertisement of the 1980s showed a photo of several angry-looking factory workers wielding sledgehammers, baseball bats and other weapons of mass destruction, over the caption "the lads would like to have a word with the new computer".  While the information technology industry has created some jobs, these are dwarfed by the number of jobs lost to technology in traditional industrial and manufacturing companies.   Proposition # 2:  Technology Turns Everything into a Commodity .  Today's technology creates a world of "perfect information", especially for those too lazy to spend time comparing prices.  I just read about a new mobile phone application that will tell you exactly where you can find the lowest price for just about any piece of brand-name merchandise.   Great for consumers, but think about it from a retailer's perspective.  When you can see competitive prices at a glance, and can order the items electronically in "real time" for instant gratification, why in a million years would you choose anything but the lowest price?  Retailers who provide greater service to their customers and accordingly cannot discount to the lowest levels a Wal-Mart, Amazon.com or CostCo can are bound to suffer.  People will visit these retailers to do their research, learn more about the available options, make their decision, then go online and buy the item elsewhere for the greatest possible discount.   One of the great myths of small business is that customers will actually pay more for better, more personalized service.  Baloney.  People want the service, but they also want everyday low prices.   Someone - I think a famous economist - once said that "in a world of perfect information, everything would sell for exactly one penny over cost".  Many traditional retailers have relied on the unavailability of perfect information to inflate their prices on the assumption that people are too busy or basically lazy to engage in aggressive price comparison.  The Internet, by making comparative price information instantly available, will force all retailers to congregate at the bottom of the market, turning virtually all products and services into "commodities" that compete only on price. Proposition # 3:  Technology Is Killing Margins By Eliminating "Barriers to Entry".   It costs a lot of money to publish a book in print format.  There's the cost of paper and ink, the bindings, the cover design, the shrinkwrap, the author's royalty, shipping, warehousing and fulfillment, yada, yada. By comparison it costs hardly anything to publish a book in electronic format.  You get the manuscript from the author, you edit it and lay it out in the appropriate eBook format, post it on your website, and people pay to download perfect, identical copies that live only in cyberspace. Great for the reading public, and wonderful for the environment, except for one thing . . . can you realistically charge more than a few pennies for each download when your production costs are so low?   A quick look at Stephen King's books on Amazon.com shows that his eBooks sell for a significant discount from his hardcovers and paperbacks.  What's interesting is that the eBook prices are only 25% to 30% (on average) lower than the printed book prices.  That won't last, especially for authors who don't have the industry clout Stephen King has.   By minimizing production costs and other "barriers to entry" generally, today's technology is also erasing margins.  Once something can be produced for pennies, in a competitive market it becomes impossible to sell them for dollars.  Unless, of course, you have a monopoly (for example, patented technology or exclusive rights to a popular author's novels) and can charge whatever you like. No wonder there's such a ruckus about the future of copyright protection in the publishing world . . . Cliff Ennico ( crennico@gmail.com ) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com . COPYRIGHT 2011 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS.COM

Posted by Staff at 9:40 PM