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Tom Foremski at Silicon Valley Watcher has a post which takes on one of my favorite subjects -

The Internet Devalues Everything it Touches

Here are a few choice excerpts -

Anything, any service, business, that can be digitized is open to disruption because of the Internet. The Internet devalues everything it touches.

I define “devalues” in a monetary sense, dollars and cents because clearly it creates tremendous amounts of value. But that value often cannot be quantified or measured, or recovered, in a financial sense.

Mr. Formeski points out that if you are government regulated (like the Telcos) you can keep competition away (except for the Net Neutrality people ). And he adds (his bolding) -

But if you are in the music industry, movie industry, journalism, software services, cloud computing, if you are a software engineer, if you are a web designer, if you design logos — if you do any kind of digital work you are exposed to a huge amount of competition, you are exposed to the lowest cost provider in your sector — thanks to the Internet.

There are two key statements here -

1. The Internet Devalues everything it touches.
2. If you do any kind of digital work, you are exposed to a huge amount of competition and to the lowest cost provider in your sector.

Mr. Formeski holds out hope that we’ll figure it out. I disagree.

It’s not a given that Industries can figure out how to get back Value

Take the newspaper industry. They’re dying – not very slowly, either.

It’d be interesting to know what percentage of ebook sales were Apple, what were Kindle and other eReaders, and what were over the Internet for on the PC reading. My guess is that without the Kindle and the iPhone App Store eBook sales would not be growing.

The key thing with the Internet is that it maximizes value for the customer and kills the provider i.e.

1. You have a ton of competition. 
2. You face the lowest cost provider.
3. You face other industries.
4. You have to deal with customers trained by the Internet to expect value for free or unsustainably cheap.

Very few digital work based industries are going to survive the Internet.

Instead of figuring out how to get value back from the Internet, it’s time to consider alternatives.

The Internet is not conducive to running a digital business

Take eBooks.

If we go online, this is what we get -

1. Music is free. Books should be too.
2. eBooks should cost $2.
3. If you have DRM that’s a dis-service and we’ll pirate instead.
4. If you don’t price books at a price we like that justifies us pirating it.

These are people trained by the sharing and caring ethos of the Internet to expect everything for free.

Sites that don’t charge at all, like Craigslist and Wikipedia, and Companies that make money off of Advertising i.e. Google, Facebook, etc. are training people to expect value for nothing (or for some hidden cost).

The Devalue Everything concept is spreading to Mobile too

More and more mobile services are becoming free. Mobile is becoming more open and soon the Internet is going to spread and totally disrupt Mobile Businesses and the ability of businesses and people to make money off of Mobile.

That only leaves us with a handful of clean channels – avenues to still make money.

Kindle Store and Apple iTunes and Closed Eco-Systems are the only option (apart from Physical Retail)

While people are clamoring for these to be opened up, any company or person providing digital services should be pleading for them to remain closed.  

Open is a different business model. Open means money made through support and advertising and targeting.

This is the difference between Closed and Open -

With Closed eco-systems and up-front payments you know what you are paying and you know it right at the beginning.

With Open you do not know what you are paying, and often you don’t know how you are paying it.

Another, more significant difference is that Closed Systems let people make money off of their core competency – off of their product.

1. It’s easy to say that an author or a publisher should figure out how to compete against ebooks subsidized by advertising. However, they’ll lose that battle 99% of the time.

The 10-20 year View

Everything is getting devalued and it’s not going to stop.

We’re basically headed towards a world where entire industries will shift away from the Internet completely. They don’t have another option.

In a way that’s what eReaders are.

Each eReader is a clean, unpolluted channel for readers and authors. It might not stay that way for long. However, at the moment it is.

• All the authors and publishers who are railing against Kindle and/or Apple and want an open channel or one that promises to give them a better cut are going to regret it a lot 10-20 years down the line.
• Why? Because Open channels turn the provider/content creator into nothing more than a crab in a basket of crabs.
• Profitability keeps going down because if you figure out some way to improve some other crab is going to drag you down out of spite or to take your spot.

It seems really counter-intuitive – However, an open channel lets the platform (or the strongest, smartest company) make everyone else irrelevant.

All the Publishers complaining about a 30% cut or a 50% cut are not going to have anything left to give a cut out of.

Free and Pay Later (in some as yet unknown way) is going to win and the customers who are so happy for it right now will deserve what they get. Quite frankly it’s playing on human greed.

The concept of free and pay later is just another form of Debt and people don’t realize the downside until it’s too late.

Any smart industry will know to regulate and stay away from the Debt of Free.

We might curse Germany and its regulated eBook prices. However, if we are to save reading we only have two options -

1. Channels that are unpolluted by the Debt of Free. 
2. Regulated Markets.

The Internet is not just devaluing everything, it’s creating a completely different sort of Debt Catastrophe.

Filed under: thoughts Tagged: | free, lack thereof