Smart Phone Future

In an earlier blog post here, I argued that Microsoft Corporation had chosen to expand its business into devices. Apple's success with devices gadgets which include the iPod, iPad and iPhone (the 3 IPs) on which it has based its strategy for dominating the technology industry. It is now known that Microsoft is planning to take the competition into the smart phone and tablet businesses.

With the forceful entry of Microsoft into the smart phones markets, I have been wondering how much growth is reasonably expected. The main barrier to entry into the smart phones businesses is the costs because these gadgets command a premium price. Mobile Business Briefing reports that Smart Phones reached the 1 billion milestone in the third quarter of 2012. According to the report, the milestone is reached after a period of 16 years. In addition, it proves that smart phone owners are still a minority and with increasing  competition, prices will fall sufficiently to generate new demand.    

Is Microsoft Copying Apple?

Conventional wisdom held it as a given that Microsoft's hold in the realm of technology and especially software was almost unassailable. In the last decade, it has become very clear that this assumption was not neither well informed nor justifiable. In the last decade, both Google and Apple have gained substantial recognition through innovation and emerged not only as Microsoft's primary competitors but also the leaders in the industry. Part of the evidence for this is seen in reports such as this in the Irish Times, which showed that Google surpassed Microsoft in the equity markets. Certainly, stock market valuations alone do not mean  that one corporation is more innovative than another but valuation is a sensible barometer by stock buyers about the expected revenues of one corporation.

Notably, the leading corporation has been Apple, whose valuation has been rising and is the recognized leader in the technology industry. Microsoft's CEO, announced in this article in the Irish times that it is changing strategy and will commence reorient itself to go into production of gadgets in addition to software. As argued, this will involve the integration of software and gadgets in order to compatibility in products with high margins and huge demand. Any person who follows the industry understands that that path is one that Apple has taken with spectacular results. This state of affairs is empirical demonstration of the fact that competition is  a major driver of innovation.

To my mind, this entry of a large firm with a great background in innovation into the integrated gadget and software business forebodes further innovation and efficiency. That means that the consumer surplus will only expand. Competition makes capitalism and capitalism thrives on competition.        

Harvard Responds to Monopoly Publishers

Reading this article by Ian Sample of the Guardian reminded me of a conversation that I held with a professional economist who studies competition policy. I asked about his most recent research area and he mentioned to me that like many other micro-economists, he was concerned about the cost of academic journals in the discipline. In his view, many of them received the input of working professionals at low cost and then charged well above the marginal price. Going ahead,  he asserted that this state of affairs would only get worse because the main journals in the subject of economics were each a monopoly in its area and therefore had no incentive to charge as close to the margin as possible.  

Coming down several years later, it seems that the market power of major academic journals has persisted and that the academic institutions are reacting to the overall cost in addition to the relentless rise in prices every year. Harvard University's Librarian, has issued a memorandum to its staff suggesting that they ought to reconsider and possibly cut their relationships with leading publishers of academic journals. It takes the power of a a top university with other clout of its own to bring his issue to the fore. 

In my view, the fact that universities and scholars contribute most of the content alone does not mean that the pricing policy by publishers must favor them. The really interesting part for a student of economics is the realization that these institutions are using their understanding of their contribution to journals to try and bargain for lower costs. I also think that it is not enough to merely withhold association with the publishers. It would be a far more interesting point if they brought to fruition the idea of open access to academic knowledge. this would force a tactical response from the publishers and the competition would without lead to a reduction of the price of knowledge towards the margin.    

  

Walmart Cashing Checks Now

Because of my enduring fascination with how retail markets generate value within economies, I am an unqualified admirer of businesses such as Amazon and Walmart. Indeed, my admiration of these two is most evident in the fact that they remain the most cited business institutions on this blog. Of the two, I am especially enamored with the creativity of the Walmart as mentioned here, among other spots on this blog. It has gone beyond its classical business model of low cost retail products and logistics to ensuring that it plays a role in competing against banks in reducing the banking charges that greatly irk many low-income earners.

Andrew Martin and Stephanie Clifford file a piece in the NYT detailing how Walmart utilized customer feedback on their real costs of banking charges. this information was directed towards ensuring that the check cashing costs offered by Walmart are sufficiently competitive to ensure that its share is growing in that area. In my view, the retailer has responded well in not only demonstrating that the fees are not close to the marginal costs as they should be, but also that the competition is adding value by saving money for clients who may save it or use it to acquire more groceries.

To my mind, the move by Walmart in providing an alternative avenue for check cashing is demonstrably useful but also highlights the inefficiencies in the banking charges. The high degree of automation in the financial services industry makes me to think that Walmart may still have a margin even after lowering the costs. Predictably, the banking institutions against whom this new move presents a rising threat respond in a manner that betrays their callousness by asking for Walmart to be regulated too. This posture is baffling to me because one would expect that they would instead ask to be released from regulations in order to be able to compete even further. instead, the argument for regulation in the piece is one that would raise Walmart's costs as opposed to a response that would reduce the banking institution's costs and ensure that costs would stay low. Walmart is beating these banks at their game.           

Random Error By Random House

The Internet makes publication of information easier but also exposes authors and corporations to full public glare for small but potentially embarrassing errors. I received a link to read an excerpt of John Grisham's latest book, the Litigators and noticed a very odd thing. Looking at the price stated for the Hard Cover version of the book on the website by Random House here today led me to wonder whether a novel would really be on sale for US 250 per copy, when the paper back is less than US$ 10 and the large print at US$ 29. I had to compare prices and looked up the cost on the Amazon website and confirmed my bet that there is an error on the Random House site. Now, if the webmaster for Random House would just make the correction. This is creating the impression that the the publisher's pricing mechanism is poorly informed as Amazon's price at US$ 15.22 is several times cheaper.

Walmart's Final Frontier

Many households in sub-Saharan Africa are especially vulnerable to shocks generated by rising costs of food and fuel. the reason for this is that in spite of the recent economic growth registered in many African countries, the majority of people still live on very low incomes. That the south African competition Commission and the Tribunal have allowed the formal entry of Walmart to take over a leading grocery chain in that country is both fascinating and portentous of good things to come. As argued here, South African unions may be concerned about the entry of Walmart into that country but its lower income people would benefit immensely from this.

The entry of Walmart in a continent that requires serious retail market development is understandably causing concern but increased competition in retail markets is a precondition for further growth. let African urban centers be the final frontier for Walmart. I hope to follow its progress in future blog posts.   

Competing Through Public Relations

In the quest to understand the nature of competition in technology markets, I have been following keenly a number of corporations including Google, Facebook, Apple, Microsoft and a couple of others. I am not writing any apers on this but trying to see for myself how technology transform markets, which in turn transforms technology. My not very insightful hunch is that the mechanism for that transformation is through the instrument of competition. This is because while Google and Facebook started with a different view to the services they provided, there's been an unintended convergence on audiences and space that they are now rightly seen as one another's competitor.

Coming back to competition, I have to state that I have been completely unimpressed with the approach taken by Facebook as described by Josh Halliday in the Guardian. Its easy to sit back and say that competition does not need to take place in such ways but one cannot help but be concerned that even corporations run by very intelligent people cannot save their time and concentrate on what they do best. And I am thinking that the same PR firm being involved in this game shows something about the firm more than its clients. Unfettered competition is really a public good.

  

Louisiana Monks Take On the Casket Cartel

For a country as free as the US, I still get surprised by the degree to which even the state governments try to regulate economic behaviour and choices. The WSJ reports that the Louisiana State Board of Embalmers and Funeral Directors has sent a subpoena to St. Joseph's monks for violating a state regulations by independently manufacturing and selling caskets within the state. I reiterate that regulatory institutions with such long names tend to be useful for nothing. However the membership of this institution set to regulate the sale of funeral merchandise is comprised overwhelmingly of persons with direct interest in the business.

Its nice to see the St. Joseph's trying to bust the casket sellers cartel under the guise of protecting the public and enforcing standards. That the colluding undertakers are so brazen is a sound lesson that the board is largely a conspiracy against the bereaved. These monks should and must win and be allowed to compete.

The Changing Books Market

When the iPad was launched with aplomb accompanied by serious media reviews, some commentators suggested that it would probably displace the Amazon Kindle. At the time, my guess was that it was not possible for the iPad to fully supplant the Kindle largely because the latter was a highly specialized product while the former was a more general and flashy gadget. To be honest, that assessment was based on my experience with the Kindle and reading of reviews and Steve Jobs' presentation on the capabilities of the iPad.

My reasoning that the Kindle would not be wiped out completely by the iPad seems to be borne out by the fact that both have grown in sales over that time. NYT's Claire Cain Miller writes that Amazon has reported that the sales of books for the Kindle have outnumbered sales for hard back books. That seems to suggest that e-book readership is expanding at the same time as ownership of the gadgets is spreading.    Analysts quoted in the story are making the inference that this is an inflection point at which e-books are acquiring stature as an important market for literature. I think that its too soon to say that but the trends suggests that as the prices of e-readers continue fall, the place of hard back books and other printed material will change fundamentally. The gadget of choice for most people will be revealed but I do not expect a single dominant gadget for reading.  

Is Monsanto Price Gouging on Seeds?

Many people who are suspicious of genetically engineered organisms (GMOs) regularly mention that the commercial seeds industry is an area to watch. The argument being that most of the genetic modification on seeds is motivated by the quest by the largest firms to establish substantial market power and to use this to keep farmers forever beholden to them. On my part, I think that it is unjustifiable to impute malicious intent on firms just because the possibility of future dominance of a market is possible.  

Richard Neumann of the NYT reports that the US Department of Justice has commenced an investigation on the dominant player in the seed industry because of the unrelenting rise in seed prices. While a rise on its own is insufficient evidence to support a finding of dominance and abuse of the same, I too think that the rise in prices well beyond the Consumer Price Index is a curious fact about the seeds market in the US. Indeed, any student of economics would think that such a sustained price rise is only possible for a corporation with solid market power. 

Needless to mention, the corporation under investigation is Monsanto, a leading biotechnology innovator with lucrative licenses and patents on seeds such as cotton, corn and soya beans.  While the story suggests that Monsanto's managers are not worried, the market behavior of this firm will be under especial scrutiny since it has been the firm that faced the most strident, if often unfair, criticism on GMO innovation and marketing strategies. Indeed, a large number of organizations seem to exist merely to attack this firm. While Monsanto may correctly ignore the majority of its detractors, it will again be in the limelight given that the DOJ investigation will attract new concerns about its behavior towards its customers and the competitors. I hope that the firm receives good regulatory and political risk advise because if the farmers quoted in the piece accurately represent the views of many, then Monsanto seems to have lost the support of its most important constituency. That would be make the winded investigation and any court cases unbelievably difficult.  

Kindle or the Ipad?

A  couple of weeks ago, Steve Jobs of Apple Corporation introduced his audience and other techies to the the new gadget called the iPad. As a prelude to that fantastic presentation, he confirmed that Apple has evolved into a mobile devices corporations since it ships MacBooks, iPods, iPhones and the rest. Among the many amazing things that the iPad can do is to act as a mini computer that can handle the word processing and other applications that would include games, email access, photo storage and retrieval, music and an electronic reader. Because this blogger comes late to this issue, I will not try to sum up the many wondrous other things that the gadget is capable of.

However, the conventional wisdom of the Apple enthusiasts is that the Kindle is nearly dead because the iPad is certainly bound to replace it as the e-book reader of choice. As someone who has just recently acquired the Kindle 2 and is just reading the first book on it, I am inclined to disagree with these flowery assessments of the iPad's inevitable conquest of the market for electronic gadgets for readers. 

Judging from my considerable research and limited use of the Kindle 2, I am wont to disagree with the idea that this will completely bring Amazon's Kindle to an abrupt stop. First, I agree fully that the iPad as demonstrated by Steve jobs here is impressive because it can do a lot of things and is therefore not a dedicated instrument for readers. Instead, it does many things out of which reading e-books is merely one of them. To my mind, dedicated readers who are attracted to the Kindle for the reason that it makes reading easy and convenient will not all be impressed with the bell and whistles on the iPad. 

Additionally, my comparison of the prices for the Kindle 2 and the iPad leads me to the thought that the added features of the iPad  places it at a disadvantage in respect of the e entry-level Kindle 2. I must add that apple rarely gets its pricing wrong and that this price will predictably fall when the gadget reaches some critical mass within a couple of years. Still, at US$ 499, the price signal is that this is an Apple product that has wonderful graphics and aesthetic appeal but serious readers are used to the white page. 

In essence, I wager that the iPad will not wipe out the Kindle and that the effect that the former will have may be overstated because of the aesthetic appeal of the gadget and the surefooted legacy of the Apple corporation. As the gadget for a serious book reader, the Kindle is still the standard. I think that what this competition is a mere trumpet call to the publishers to take the industry seriously enough. I am certain that publishing will not be the same again.