david.boxall at hunterlink.net.au
Mon Sep 5 14:28:23 AEST 2011
Software sends profits down the YouTube
September 5, 2011
I have been showing my kids music film clips from YouTube on television.
It's pretty easy. The iPad downloads the stuff over the home Wi-Fi
network. Then you use a cable to hook the iPad into the back of the
Then you listen to the music.
And in the background, if you listen closely, you can hear the sounds of
the business models coming crashing down.
There goes the profit margin for the record industry. My kids are
listening to this stuff for free.
And as the music plays there is another small incursion into the
ad-driven profit margins of commercial free-to-air television. We're
watching television all right, but we're not watching commercial television.
And, while I'm at it, all forms of traditional commercial media are
suffering as my kids watch YouTube on television.
We aren't sitting around listening to the radio, watching movies or
reading newspapers. Our time is being diverted by free content
downloaded from the internet.
(We also aren't sitting around playing board games and enjoying more
carefree pursuits, but I will leave the topic of poor parenting to
In a recent article in the Wall Street Journal, the co-founder of
pioneer internet browser Netscape, Marc Andreessen, went much further
with this kind of analysis, boiling his argument down to the pithy
one-liner: ''Software is eating the world.''
Andreessen spells out a collapse in the costs of providing services over
the internet. Such radical reductions allow software challengers to
emerge in all sorts of industries previously seen as the preserve of
traditional ''real-world'' companies.
In the challenger camp - and companies Andreessen discloses he has
invested in through his venture capital firm Andreessen Horowitz - are
online coupon business Groupon and online telco Skype.
Andreessen's argument is familiar because we have seen it happen before
He cites the by now familiar examples of Blockbuster's video hire
business knocked over by online order business Netflix, and
bricks-and-mortar bookseller Borders knocked over by online bookseller
Andreessen also gives the almost obligatory nod to Joseph Schumpeter and
his much-celebrated observation about entrepreneurs and their penchant
for creative destruction - old businesses making way for aggressive
(Funny how the entrepreneurs always focus on that remark of Schumpeter.
They never seem to give much weight to some of Schumpeter's other
observations, such as his prediction about the end of capitalism,
because the society produced by capitalism fosters values that do not
allow capitalism to be sustainable.)
John Hempton, an indefatigable blogger, fund manager with Bronte Capital
and fraud buster, agrees with Andreessen's argument, and raises the
notion that the world is becoming ''appified''.
I know, it's a terrible word, but it attempts to convey software doing
jobs as an ''application'' that used to be done by something in the real
world. For example, using the map function in an iPhone rather than
leafing through the Gregory's.
In a recent post, Hempton inspects the case of hardware firm Cisco
talking about 50 billion devices in the world needing to be connected to
the internet - but failing to convert that astonishing figure into sales
of the hardware routers it manufactures.
The reason? Because software is ''appifying'' Cisco's hardware business
- software is doing the job that its routers used to do.
''If the output of your hardware is information or the manipulation of
information then you are going to get eaten. If the output is something
else then you are not,'' Hempton writes.
And that's also Cisco's business model you can hear crashing down in the
background of the YouTube music my kids and I are listening to.
And just for the record, we were listening to Gotye's Heart's a Mess. I
might buy the record from iTunes.
Not all business models are collapsing.
David Boxall | "Cheer up" they said.
| "Things could be worse."
http://david.boxall.id.au | So I cheered up and,
| Sure enough, things got worse.
| --Murphy's musing
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