His answer was, he will go into the Internet business. He said eMachines will create its own ISP, lock down home pages to its portal, and program up to 29 keys with the sites of "marketing partners."
The strategy reminds me of those scrolling ads behind home plate in today's major league ballparks (the ones that keep you from seeing the pitch). They started on the low end (County Stadium in Milwaukee, and free machines sold for ISP service), went into the high end (Yankee Stadium in New York, and Gateway.Net), and now they're all over the place.
This is not innovation. This is what got Microsoft in hot water with the government . I call it predatory bundling. Microsoft saw popular utilities rise from the market, copied them, then put them inside the operating system.
Predatory bundling only illegal, however, when you control a market. If consumers have choices (even among bundles) this is normal business practice. It's hard to buy a car without air conditioning (that's part of every carmaker's bundle) - why expect a word processor without a spell check?
Assuming Windows is separated from the rest of Microsoft (which would actually be best for Microsoft shareholders ), the situation will change . Bundling new capabilities would be out and building a tight system worth a premium price would be in. You'll pay more for Windows (its price might be held down if Linux ever gets its act together) but it will be a smaller system that loads faster (which is really what we want).
The bundling strategy, however, won't die. It has already moved, to Office, to the hardware sector, and to the Internet space. It will be the heart of "Interactive TV" in which the business model is to offer a few sites that pay for carriage, tie them to the tube, and maybe add some e-mail. It's basically AOL's business model - everyone pays to play before anyone gets a return.
We'll see in a few years that these deals represent a significant barrier to entry for any Web merchant, as significant as the need for advertising, for a database-driven site, for scaled fulfillment operations. As this pushes into smaller niches, it will impact more players.
How can you deal with this? Don't be afraid to talk to these folks - they may not have anything in your niche and may cut you a break. Don't be afraid to walk away from a deal - lots of companies who thought AOL was their savior were sadly mistaken. Remember that your satisfied customers are your best advertisement - make sure they have after-the-buy incentives to boost you to friends. (Better to bribe them than strangers.)
Remember that bundles are not just a way to add value, they're a method for forcing choice. Poorly run Internet companies have a problem with unlimited choice - they want a way to lock your choice in. There are often idiots on both sides of any bundling deal. Also note which side holds the "whip hand" in any bundling deal. It's those doing the bundling, who may want to capture control of what's being bundled and (if the bundle is powerful) get the bundle-ee over a barrel.
You won't like this Clue, but it's true. Be careful out there.
Enjoy one of my latest efforts, the Advertising Age Interactive Timeline. The folks at Crain did a marvelous job bringing this look back at technology to life. And this week I'll see you at the Ad-Tech show in San Francisco .
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I write daily for ClickZ, and weekly at Andover.News. I write monthly for NetMarketing, Boardwatch, and Intellectual Capital. I've been in Advertising Age and the Chicago Tribune .Once every other month I'm in CLEC Magazine. You can always buy my book . Subscription instructions are at the bottom of each issue.
Remember that it's journalism that keeps the Clues coming...
Takes on the News
The Mobile Internet
The mobile Internet is hot. Buzzwords like E911, WAP and PCS data are the rage. Everyone is predicting big things and looking for investments that guarantee their profit on this new plane.
Here's where I place my money. Voice portals like Tellme Networks , TelSurf Networks, and ShopTalk are going up the right technology road, but they're aiming at the wrong market.
Instead of trying to get housewives to abandon keyboards for yelps that can't be heard over their soap operas, what's wrong with putting that on a DSP chip as a cell phone interface. In this way E911 and database look-ups combine to provide location-based shopping and entertainment data, which would be heard and not seen.
Next time I'm in San Francisco, my guide would combine my profile with the power of the Internet to tell me which way to turn. It would know my questions as well as the answers, which are quite different from your questions and which change depending on where I am.
Big Internet Speaks
One trend worth watching is the growing divide between the interests of "Big Internet" companies and what I call the "Little Internet."
"Big Internet" consists of dominant businesses that, like the Business Roundtable, take a long view and aim for stability. "Little Internet" companies, like members of the National Federation of Independent Businesses, target the main chance and hate any government action that might take it away from them.
In the real world, big companies accept the idea of health and pension benefits, which smaller outfits denounce as "mandates." Big companies accept minimum wages as a cost of doing business -- little companies fight them as "interference." The same is true for pollution controls, land use rules, and worker safety issues. Big businesses will deal, while little ones will fight because big businesses aren't threatened while little ones are.
The merger of AOL and Time Warner puts Steve Case squarely into the "Big Internet" camp, and the phrase dividing the two sides may well be "social responsibility." The organizational mouthpiece for the Case philosophy is the Global Business Dialogue on Electronic Commerce. Case now wants China in the WTO, he wants stricter laws on privacy, and he wants technology companies to give to the developing world.
Read the GBD site closely. If you have yet to earn your first million, chances are you won't like it. That's your membership card in "Little Internet." When groups like the GBD try to force their views on U.S. policymakers, it's your cue to fight.
Stability vs. the Market
Liberty, capitalism and democracy are always under threat from two sides - stability and anarchy. I believe the market is the best balance between the two, but few national governments totally agree.
When criminal courts get involved in what's clearly a market dispute, capitalism's friends become its enemies. New sentencing guidelines from the U.S. Sentencing Commission will, in the hands of record companies, turn college students into major felons. Democracy must balance the scales, but as the record industry keeps piling up wins while technology goes marching on a collision (and casualties) remains more and more inevitable.
Fortunately the same tools that turn on the market can understand it and respond. That's the song the Supremes sung in tossing attempts to make ISPs liable for actions of their members. The use of the National Labor Relations Act to fight against employer control of email could accomplish the same goal.
In fact (as in the Microsoft case) the law may be the best protection a market can have - even if its insiders don't like that. That's why the Federal Trade Commission's investigation of business marketplaces is so overdue. In autos, hotels, and countless other industries, big players are trying to force everyone else to use "digital marketplaces" they control and profit from. That would cause all the benefits of Internet rationalization to flow one way - up. That's not good for liberty, democracy, or capitalism.
Is there a philosophy here? No, there is not - I distrust -isms too much for that. Eternal vigilance and balancing are the best we can do. Accept mistakes when they happen and work to correct them. It's not a perfect world, but a perfect world would be no fun at all.
Clued-in (it turns out) is Oprah Winfrey , who waited to launch her Oxygen.Com until her cable channel (featuring a crawl constantly beckoning to the site) was ready. She also brought her capital together just before the collapse of stock prices. What this means is the "first mover" advantage of iVillage is worthless, and the short-term values of its top officers are exposed as they desert the sinking ship. (Don't throw 'em a life raft.)
Clueless is convicted hacker Kevin Mitnick . Given three years' probation by a Judge who had bragged at sentencing that he'd be lucky to get minimum-wage employment, Mitnick complained about being ordered to stop giving paid lectures. "Probation is not supposed to be punitive," he complained. Ah, but it is, Kevin, it is.
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