[kFW] RE: [kNews] Convergence: supply (no) and demand (yes) +meeting up date...

[Rupert Baines <rupert@xxxxxxxxxxxxxxxx>]

> Daniel Harris >  Live from sunny Nice... Let's recap: Convergence needs
> interoperability needs us all to find common ground with our "like-link"
> peers but also agree on interfaces to other links along the whole content
> value chain (between consumer and content owner inclusive). Resistance to
> convergence could be caused by lack of profitable business models.
> Hopefully revenues will increase...
> 
> Daniel Harris >  But what if it's worse than that? What if, with all this
> convergence and standardisation, overall revenue does go down and not up
> for any given market. And what if everyone's market share is reduced? Wont
> the ease for new companies to enter a given market greatly increase? And
> then there's unrelenting, unstoppable consumer. Wont they be in a far
> better position to change to a new supplier the instant their current one
> isn't the cheapest or most convenient (depending on their priority)? And
> doesn't that mean that what we can charge consumers will fall through the
> floor?
> 
> 
> 
> 
> Rupert Baines adds....
> 
> Perhaps I'm not using words in the same way,  but here goes:
> 
> 
> 
> Most analyses show that interoperability & standardisation drive the total
> revenue in a market up significantly, and the total profit can go
> (substantially)  faster  .
> 
> There are three reasons:
> 
> - Simple economies of scale. As you make more,  each one gets cheaper. In
> manufacturing, that's because of "learning effect" (BCG) eg with IC
> manufacture every doubling in cumulative volume drops cost by ~20%. In
> software it is because your cost is all upfront & additional units are
> "free".  Most technology involves both effects, so cost falls *fast*  with
> volume (whether /how much  that benefit gets shared with the consumer is a
> different thing ! )  =>    standardisation is a good thing.
> 
> - Metcalfe's law: the value of a network is proportional to the  * square
> * of the number of users. ("Who bought the first fax machine ? Who could
> you talk to?").  As more people get connected, the network is more
> valuable, so more people want to connects, etc etc. But this only works if
> they can talk to each other, so interoperability helps too (not strictly
> the same as standardisation but  highly  relevant here).
> 
> - Quality improvements  (I think the technical term is "hedonic" ?)  If
> you get different people competing on a shared standard, there is a drive
> to better quality: they have to improve on differntiated things, but
> co-operate on shared things - which everyone benefits from .
> 
> 
> My favourite example is european mobiles with a standard (GSM) and
> succesful market, versus the slower & less succesful rollout in the US,
> where despite more money, more phones & an initial lead the fragmentation
> between AMPS, TDMA, CDMA & PCS1900 has seriously stalled the market. (*) 
> 
> 
> You can model all this quite nicely. Yes, in prionciple it leads to
> ever-increasing spiral of usage until every one is connected... ;)
	And wouldn't that be nice for a CDN ?

> Here's a link to the classic Increasing  Returns paper:
> http://www.santafe.edu/~wba/Papers/Pdf_files/HBR.pdf     
> There are others and there are lots of discussions around it, but the
> basic principles are pretty-thought provoking.
> 
> 
> Whether that leads to lots of entrants, and how it affects prices &
> profits gets more complicated...   
	+  You might get a nice open free-for-all with plummetting prices
(for a while...) like with ISPs or manufacturers of V.90 modems;  
	+ you might get a co-operative open source dominating (Apache? ); 
	+  you might get a stable oligopoly with a few succesful players
(mobile phone networks; mobile phone manufacturers); 
	+or you might get Micro$oft monopoly dominance.

> Quite happens next depends on a lot of other stuff: the law, licences, how
> hard it is to develop the stuff, etc etc
> 
> 
> But convergence, interoperability, standardisation are good ;)
> 
> 
> 
> 
> (*)    I know there are other reasons too, but that is an important
> factor.
> 
> 
> regards
> 
> Rupert
> 
> Rupert Baines
> Partner
> Pond Venture Partners
> www.pondventures.com
> 
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