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Sunday, December 10, 2006

The Economic Model Of Disaggregation

Tim O'Reilly points to The Economics of Disaggregation wherein the contrast between the benefits of disaggregation from both the consumer and producer point of view comes out so well. In essence the argument goes to say that at multiple levels this phenomenon can be observed. Look closely - disaggregation in essence refers to the unbundling of product for consumption, such as the ability online to purchase single songs rather than full albums, or individual articles from journals instead of buying the full journal/newspaper. William Bulkeley's piece in the Wall Street Journal, The Internet Allows Consumers to Trim Wasteful Purchases provides ample examples from both the music and publishing industries. Look at the way consumers were treated in the pre-internet age: the photographic film industry, encyclopedia publishers, the music industry, and the advertising industry feasted on buyers by forcing them to purchase things they didn't want - prints of all 24 shots from their camera or a whole album to secure one favorite song, for example.He writes,

Eastman Kodak and Fuji Photo Film had a highly profitable duopoly for 20 years before digital cameras came along. They never dreamed customers would quickly abandon film and prints. But customers are happy to pay for new digital cameras because the cameras let them pick the good pictures without having to pay to print out a roll of mostly mediocre shots. Now film sales are dropping 20% or more a year and Kodak has reported losses for eight consecutive quarters while closing plants around the world and laying off thousands of people

Today, the digital cameras, the Web, iTunes, and search-related advertising have simply stripped those industries of their power to charge for everything together. Joe Esposito points out that Apple and iTunes is instructive: the disaggregated $1 song requires you to purchase a $300 iPod every couple of years.

Lets look at this – what does the big guy, who just collates get out of this : The principal benefit for the aggregator of huge content is not the actual revenues of long-tail purchases, instead it’s the attraction of capturing a potential huge hit that otherwise would be captured by competition. Sandra points out that the ability of consumers to bypass high-valued homepages to individual stories from search engines means that news publishers will need to consider how they, as 'producers' can benefit from the phenomenon of disaggregation. So in essence this means that it needs to be seen as a something related to managing portfolios. Provide for including all sorts of contents and enable users to find everything on your aggregation platform. As Bulkley points out timely recognition and immediate counter action can only save enterprises to tide over and in some cases encash on the changing landscape.

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