To Artists, Apple: Flat World, Round Profit

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“The Indians are coming.  The Indians are coming.”  In The World is Flat, Thomas Friedman warned way back in 2005 that geographic market separation was a thing of the past: your jobs are not safe from cheap outsource to India.  But what if you look at it differently?  Instead of a cheap labor source, what if India represents a massive expansion of the marketplace at large?

This sounds initially like a good thing.  Bigger markets = more people to buy stuff.  But consider for a second where the purchasing power lies.  India can produce goods (and even more so services) cheaply, but lacks the economy to be a purchaser.

This is the converging market.   In essence, as the internet flattens the world, it really converges all markets into a single global market, a big problem for status quo businesses.  The old truism that an overwhelming lion’s share of profits goes to the #1 competitor in the market is still true.  Also true is the precipitous decline in market-share to the runners-up.  When there were more markets, there were more winners.  Bring all those markets together: the winners profit to Google levels, but there are way, way more losers.

This is an especially big problem for retailing.  Since there are so many sales venues in a global market, almost every single purchasable item becomes a commodity.  The only variable between one retailer and the next is price.  As one retailer offers a discount to gain market-share, each retailer must respond with a discount to protect its own.  Profit margins approach zero.  As this happens across a wide variety of products, it means bad news for retailers.

Will The Long Tail save us?

Chris Anderson without directly putting his finger on why, identified a good way to profit in this new global economy.  Selling niche items that aren’t commodities is the only sure way to profit.  You can no longer build a business on the best-sellers.

There is certainly some truth there, but the big winners in the next decade won’t be retailers.  Success will befall manufacturers.  Take for instance Apple.  The tyrannical price-controls over who sells Apple hardware have enabled the company to prevent its products from becoming commodities.  Apple even engages heavily in direct-sales through their stores.  This is something that will certainly grow as the cost of doing so diminishes in the internet world.  The bottom line is simple: Apple has created its own categories to dominate.  And with domination comes profit.

But enough about Apple (Apple discussion is somewhat of a commodity).   Etsy is among the fastest growing web-markets on the planet where artists from all over the world sell all over the world.   Whereas most individual geographic markets are too small to support a decorative flatware creator, in the global market, such an artist can thrive.

Both Apple and the artist created a new market.  They leveraged the size of the global economy to appeal to a niche, just as retailers did when applying Long Tail principles.  By cutting out retailers, both were able to keep bigger profits for themselves.  By creating their own product categories, they entered a sub-market with virtually no competition.

What are you doing to keep your product from becoming a commodity?

Flickr credit: Sunshinetalia

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