[opendtv] The 7% solution
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Mon, 15 Sep 2008 09:21:42 -0400
http://en.wikipedia.org/wiki/Network_effect
Network effect
In economics and business, a network effect (also called network
externality) is the effect that one user of a good or service has on
the value of that product to other users.
The classic example is the telephone. The more people own
telephones, the more valuable the telephone is to each owner. This
creates a positive externality because a user may purchase their
phone without intending to create value for other users, but does so
in any case.
The expression "network effect" is applied most commonly to positive
network externalities as in the case of the telephone. Negative
network externalities can also occur, where more users make a
product less valuable, but are more commonly referred to as
"congestion" (as in traffic congestion or network congestion).
Over time, positive network effects can create a bandwagon effect as
the network becomes more valuable and more people join, in a
positive feedback loop.
Once again the list has exploded with the same old discussion about
the technology behind DTV. In an interesting aside, Bert also posted
a story about a panel at IBC, where Leonardo (of MPEG fame) created a
new acronym: WIM-TV, and the broadcasters present exploded into a
discussion of whether content or technology is king.
Frankly, I still believe that the consumer is king, and the success
or failure of products and services is determined largely by consumer
behavior, hence my quote from Wikipedia about the "Network effect.'
Perhaps an analogy is appropriate here. Once upon a time, Sony
dominated the world of portable music players. Unfortunately (for
them) they rested on their laurels and missed a huge technology
shift, which played out in an ugly war between consumers and the
music industry.
Apple saw an opportunity to build a new ecosystem for consumers to
leverage their existing investment in media content, and to create a
new marketplace for content. They started with music for two major
reasons:
1. It was technologically easy - relatively small file sizes, not to
mention the fact that Apple led the way with the conversion of
professional tools for music production more than a decade earlier;
2. People love to collect and share music and there was a huge
opportunity to help the consumer organize and leverage their
investments in music content.
Many companies, including Sony, have tried to attack Apple's hegemony
in digital content and personal media players; none have succeeded.
Even mighty Microsoft cannot buy their way into this market.
So was it technology or content that drove Apple's success?
Or was it Apple's ability to take advantage of the Network effect to
build an entirely new infrastructure to replace one that was sub
optimal, treating the consumer like a common criminal?
The recent DTV discussions, which sound much like 10th or 20th
harmonics of a decade old debate, miss the point entirely, as did
many of the participants in that IBC panel discussion.
Leonardo seems to understand many of the factors at work here - but
he has had little success with ventures aimed at creating open
standards to drive a rapidly evolving marketplace. To his credit,
most of these efforts were sabotaged by corporate interests -
companies trying desperately to hold onto the status quo; companies
using the standards process to build barriers to competition. This
was the case with MPEG-4 and his digital music initiative. It was
also the case with his greatest success - MPEG-2. Thes success of
MPEG-2 was based largely upon the co-option of the MPEG process by
broadcast oriented CE companies, trying to slow the advance of a
digital revolution driven by the ease with which content can be
turned into bits and moved across " A Network-of Networks." They had
the ability to control the network externalities in a period when
they still held dominant market share.
Let's turn the Network Effect upside down. For decades, we have been
told about the critical 7% market share threshold for CE products;
the point at which the Network Effect kicks in and the masses adopt
the new product/technology.
Is there a reverse network effect? Does a mass market product DIE
when 7% or less of consumers use it?
When it comes to products the answer is almost always YES.
Sony Walkmans are now primarily available as collector items on E-bay.
When it comes to services the answer is less clear. Broadcasters are
rapidly approaching the point where less than 7% of their audience
uses the OTA network. They survive today primarily because of archaic
business relationships and the support of politicians who keep them
on life support via regulations like re-transmission consent, that
prevent the marketplace from working.
Frankly, I could care less about a battery powered TV for
emergencies. I have plenty of alternatives that serve me well. I can
now access information on demand almost everywhere I go.
Why would I want to rely upon TV broadcasters who keep trying to get
me to consume their content and information using a worn out business
model based on scheduling my time to see their content (or waiting
until they get around to providing the information I want)?
Arguing about transmission technologies completely misses the point.
The real issue is when less than 7% of consumers are living in the
past like Bert...
Regards
Craig
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