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Realizing competitive advantage with slow-motion single-production goods

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Slow-motion single-production goods differ from the medium-motion single-production goods.

They imply a degree of little specificity that is even lower. The half life of these goods in general is much longer.

Even though pop music, for instance, can be more or less up-to-date, different customer groups usually demand a particular song over a longer period of time. The same is true for downloadable videos, books or software.

Slow-motion single-production goods do not imply a high degree of interaction going beyond a specification of the personal wishes as outlined for the goods categorized in the groups of high-velocity and medium-motion single-production goods.

Time specificity does not play a major role. Storability is highly relevant for these goods. In addition, non-rivalry as well as non-excludability problems combined with the characteristics of these slow-motion single-production goods as indestructible and reproducible have to be solved.

This leads to the following situation: goods such as downloadable movies, music or software are only valuable to the customer if they can be stored and consumed again and again.

If value is created in this way the good has to be copied, and if it can be copied it is also able to create value for other customers.

This situation leads to a problem for the providers of such goods via the Internet because no high time specificity is existent.

Via the Internet, it is easily possible to coordinate the redistribution of these intangible web goods for third parties, hence preventing value appropriation of the actual good provider.

The development of the (illegal) redistribution of music files on the Internet is an example of this problem.

Internet technology has broadened the opportunities for distributing music via digital and network-based channels.

Providers that exploit the Internet parameters are challenging the supremacy of the major record labels.

Most notably, the so-called peer-to-peer (P2P) networks have altered the rules of competition in this area.

The established players in the music industry have reacted by filing lawsuits against Internet piracy and introducing certain copy protection mechanisms for CDs.

It looked as though the record labels were gaining the upper hand when they achieved the de facto closure of P2P-pioneer Napster.

Nonetheless, the majority of Napster users switched to other, more decentralized P2P services, including KaZaA and Morpheus.

By the third quarter of 2002 KaZaA had already achieved 9.4 million average monthly home users, thereby filling the void left by Napster.

Three to four million users of KaZaA are online, offering more than six hundred million downloadable files free of change 24 hours a day.

The pioneer in enabling the exchange of MP3 music files was Napster. Napster used a central server listing music files available and users online.

Nevertheless, with the content generation of P2P sites, of which KaZaA and Morpheus are the most popular, there is no central server.

These providers supply the necessary software, but the individual user sends out searching signals to all other computers locked into the system, which makes legal prosecution more difficult KaZaA and Morpheus do not only offer MP3 music files, but also other slow-motion single-production goods such as videos, e-books and software.

The record labels are trying to react to these challenges by introducing more attractive online services themselves.

Slow-motion single-production goods are further characterized by a high extent of experience good characteristics, quasi-commodity characteristics and indirect network-effect characteristics.

They offer a high potential for economies of scale. These features lead to a complex analysis with regard to value-creation possibilities.

While experience good characteristics and indirect network effects as outlined previously, have the potential to lead to resources and capabilities that are hard to imitate and immobile, the characteristics of quasi-commodity and especially the storability in combination with copying possibilities – as shown in the example of online music distribution outlined above – lead to an unattractive situation for firms in this area.

The Internet makes an easy price comparison possible for these intangible web goods.
Because of the quasi-commodity character of these goods, the following situation occurs.

After the customer decides on one specific piece of music, he or she can search for the place on the Internet where this piece of music is offered at the lowest price.

Since it is easy to copy the piece of music, as shown above, the customer can often attain these goods without paying at all.

The actual provider of the good (that owns tile property rights) is not necessarily the only one to offer the slow-motion single-production good in the market.

It becomes obvious that the main problem with regard to value creation with slow-motion single-production goods lies in the opportunities to redistribute these goods illegally.

The Internet is not responsible for this; copying was possible before the Internet era as well.

Nevertheless, with the advent of the Internet, illegal copying reached new dimensions because it is easily possible to coordinate the redistribution of illegal copies to tens of thousands of other users.

In general, slow-motion single-production goods should be sold to the customer because they are made up of proprietary content that is valuable in the eves of the customers.

However, since it is very easy to copy such a good once bought and easily distributed for free to many other customers via the web, the willingness to pay for these goods is very low.

Only if intangible web-good providers find ways to protect their goods against illegal redistribution can this situation be changed.

In terms of PEST factors with regard to the customer’s willingness to pay, technological developments play a crucial role which on the one hand are to be found in the area of appropriate copy protection, and on the other lie in the technical capacity of the Internet access for the individual user.

A study of 10,000 European Internet users has come to the conclusion that more customers are willing to pay for slow-motion single-production goods if they have faster broadband access to the Internet.

Nevertheless, the same study finds that 59 percent of Internet users are still not willing to pay money for such goods at all.

Hence revenue generation with these goods, especially because of the easy copying and redistribution via the Internet, is a problem for the providers.

Providers have to find ways to convince customers to pay for the good, which technically is hard to achieve.

It is definitely not sufficient at the moment just to rely on traditional selling, even though there seem to be some customers who are willing to pay.

Traditional selling only seems to lead to success if intangible web-good providers can somehow differentiate themselves.

In the context of relevant technological determinants for slow-motion single-production goods, standards play a crucial role.

For instance, for downloadable music MP3 has become a de facto standard that allows users to obtain, decompress, exchange and burn music files.

Its use by the above-mentioned P2P sites has greatly contributed to their dramatic popularity and growth.

In 1998, about 200 American and European companies from both the recording industry and the technology sector formed the Secure Digital Music Initiative (SDMI) with time intention to develop an open and compatible standard which would ensure a secure digital distribution of music files (Stähler, 2001: 270).

In mid-2001, however, the initiative was declared a failure, since the partners could not agree upon a standard.

A new attempt at imposing a rival standard to MP3 has been undertaken by the firms participating in the download-sites pressplay and Music Net.

In this attempt the major record labels support Microsoft’s rights-protected WMA (=Windows Media Audio) format, which might dominate Real Networks due to its liberal licensing policy.

For slow-motion single-production goods, a broad focus is possible and probable. Since marginal costs of production ale near zero, immense potential for economies of scale arises and has to be exploited on as broad a basis as possible.

Goods like music or software have the relevant features to make such a broad area of activity possible; they are often of global interest, sometimes with certain language-specific adaptations.

Slow-motion single-production good providers usually select the Internet as a complementary channel of distribution.

The Internet has the inherent technical possibilities to offer slow-motion single-production goods efficiently from the perspective of the customer.

Nonetheless, revenue generation for the slow-motion single-production good provider is problematic, leading to a situation where firms to use this channel actively.

They are, though, forced somehow to become more active on the Internet since their goods are increasingly distributed via this channel without their authorization.

In terms of the developed generic positioning options for intangible web-good providers, broad positions are especially appropriate that are based on complementary traditional selling combined with innovative marketing.

Summarizes the preferred generic positioning options for slow-motion single-production good providers by highlighting the particular fields of the adherent matrix in gray.

The analysis makes it obvious that even though the Internet implies immense opportunities to distribute slow-motion single-production goods, it is difficult to earn revenue with these goods on the Internet with traditional selling because the willingness to pay still is low.

Innovative marketing as a source of revenue creation might be a complementary source of income.

However, it is questionable whether innovative marketing can make up for revenue otherwise attributed to the provided content, especially because there are usually immense costs to create the first copy of a slow-motion single-production good such as software or a movie.

Both sources can theoretically contribute to revenue generation with these kinds of intangible web goods.

Building on that, it has to be analyzed now whether and how a firm providing such a good can realize competitive advantages with regard to its competitors.

In a first step, the relevant competitive forces that influence the market attractiveness for intangible web-good providers are taken into account’ to be integrated with relevant internal factors.

The business environment for firms providing slow-motion single-production goods on the Internet shows decreasing attractiveness as opposed to the traditional environment, even though the firms in this area are still well protected by some competitive forces. The power of suppliers in this area is low.

Suppliers here are providers of content (e.g. films or music) or software. Their power would be extremely high if they were firm-external properties.

Usually, though, it is not the case that these suppliers are external to the firm providing the slow-motion single-production good.

Often these content suppliers are either employees (e.g. software developers) or are attached to the firm via long-term contracts (e.g. artists with long-term contracts with music companies).

Firms that were already established in the same areas in the real world (like music, film and software producers) have successfully decreased the power of these supplier groups.

However, now they have to accept that the Internet can be used easily to distribute their goods, whether with their permission or without.

Human resources play an important role here with regard to creating the good. However, the goods are usually made up of the contributions of many different actors which are bound into specific firm structures.

Often one specific actor alone does not have a central influence; rather the good is a team product, and whole teams are better attachable to a firm than individual human resources.

Supplier power is thus not the competitive force that leads to the low attractiveness of this intangible web-good segment.

Entry barriers that protect slow-motion single-production good providers are relatively high.

For new entrants, it is hard to create a valuable content such as a film or software. Software providers, for instance, have to deal with indirect network effects.

For the customers it is better to use software that many others also use with regard to learning advantages, exchanges possibilities and availability of complementary goods.

Hence, for new entrants it is difficult to enter these businesses in the real world. Without entering the business in the real world, it may be difficult to enter it in the Internet.

Even though entry barriers are relatively high, the attractiveness of the business massively declines because of the possibilities of the Internet (which makes it even less attractive for new firms to enter the market).

Buyers of slow-motion single-production goods are not concentrated, and thus cannot put direct pressure on the providers.

Nevertheless, the problem is that many buyers do not want to pay for slow-motion single-production goods but search free access to them.

Because of the structure and the characteristics of the Internet, the customers can come together -virtually and enable distribution to many others – for instance, the music exchange platforms Napster, KaZaA and Morpheus show that operation without the authorization of the music providers and enabling customers to gain free access to the wanted slow-motion single-production goods is possible.

The bargaining power of advertisers only plays a role when innovative marketing is used as a source for income generation.

The firms providing slow-motion single-production goods such as downloadable music or software are, though, usually very big and influential entities connected to probable advertisers in many other ways with regard to distribution channels other than the Internet.

This situation decreases the possible bargaining power of advertisers with regard to slow-motion single-production good providers.

No relevant substitutes exist. Music or software on CD or films on video cassette sold in a real world shop are no different from slow-motion single-production goods with regard to their functionality, and are thus not substitutes but merely the same goods provided over a different distribution channel that makes copying more difficult and also does not provide the opportunity to redistribute the good to thousands of other users easily.

The Internet is thus endangering the business rather than improving it in the current state with regard to technological possibilities.

At the same time it often is not a decision option for the slow-motion single-production good provider whether to use the Internet or not because, as already explained above, others might deliver the good via the web without authorization.

Complementary products or services often play a dominant role as competitive forces for slow-motion single-production goods.

Specific formats and software applications are needed to be able to download and listen to online music as outlined above; downloadable software has to fit with operating systems, etc.

Only firms that are successful in providing these complementary goods can stay in this business in the long run.

The indirect network effects and the high entry barriers usually smooth the degree of rivalry between firms of this group.

Nonetheless, because of the Internet possibilities the firms in this business are under higher pressure owing to decreasing customer willingness to pay for these goods on the Internet.

Besides, the Internet has led to even stiffer competition between different providers on a global basis. Globalization because of the goods’ specificities has increased even more with the new Internet possibilities.

From the above reasoning it becomes obvious that, for slow-motion single-production good providers, the Internet has made it more difficult to erect valuable isolating mechanisms to gain competitive advantages.

The most promising area to change this situation is to invent effective measures either to control illegal use or to design tools against copying.

This is a difficult task. The only value-creation possibilities of the Internet at the moment lie in the fact that certain customer segments have been identified that are willing to pay, and these then have to be served and possibly bound to the firm.

In addition, more insights have to be gathered as to how the web can be used as an effective means of marketing in this area.

Insights have to be gathered to use the Internet for effective marketing purposes and so to convince customers to buy the good in the real world in another format, or to pay for a complementary product or service of the same firm.

Taking these features together in terms of dynamic strategies possible for slow-motion single-production good providers, there are clearly valuable resources and capabilities that are firm-specific in this context to be identified.

However, it is hardly possible to create value on the basis of these in terms of appropriating the resulting rents, because of easy copying and redistribution possibilities on the Internet.

Therefore valuable resources and capabilities cannot protect the provider from imitation. Because the content is proprietary and less dependent on the actual human resources but firm-specific, the aspect of mobile resources is less elementary in this case.

The dominant strategies to achieve and sustain competitive advantages for these firms are thus to create barriers to copying by building technical capabilities with regard to that issue, and to use the Internet better for marketing purposes to achieve firm advantages. Highlights these insights by the gray field of the matrix.


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