“We’re only 10,000 years out of the caves,” he said. “Humans like to go out and get stuff and bring it home — we’re just wired that way.”

From this article on Redbox:

In 2005, Redboxes were in 600 locations and rented 24,000 movies a week. Today, they’re in more than 15,600 locations, renting 7.5 million movies weekly, Redbox says, not far below the 10 million-plus weekly rentals claimed by Netflix.

Netflix offers more than 100,000 unique titles. Each Redbox kiosk has slots for 600 discs, but the average number of titles is just 200, accommodating multiple copies of the most popular.

via Digital Domain – Kiosk Power – Redbox’s Video Rentals – NYTimes.com.


For Symantec and McAfee, ‘Arms Race’ for Security – NYTimes.com

Not sure if I posted this before, but it’s interesting to read that this account is grappling with how marketing costs are handled by these companies.  You can either capitalize or expense them and it seems like he takes issue with capitalizing them because it’s more aggressive accounting and opens up more levers to manipulate the numbers.

“I think they are taking a very interesting view as far as trying to match their PC arrangement expenses with the deferred revenues they expect,” said Nick Gibbons, an analyst with Gradient Analytics, which sells forensic accounting research and has given McAfee a failing rating. “Investors would be at less of a disadvantage if management would disclose more about the deals.”

Mr. Gibbons argues that the partner payments add to a host of large costs at McAfee, like stock-option expenses and acquisition charges, that make McAfee’s balance sheet complex and offset the revenue gains.

via For Symantec and McAfee, ‘Arms Race’ for Security – NYTimes.com.

“Innovation policy is a probability game, you can improve the odds of success.”

Key quote if you’ve been following Michael Mandel’s thought’s on innovation economics.  Mandel now thinks innovation is more random and can’t be controlled.

The meeting offered a window onto the state of innovation policy — how it is being defined, and what countries are doing. Above all, innovation policy is an attempt to bring some coordination to often disparate government initiatives in scientific research, education, business incentives, immigration and even intellectual property.

via Unboxed – Governments Embracing a Role in Innovation – NYTimes.com.

Microsoft Vs PC Makers- Capturing Most Value In The Chain

Here’s a story about the value chain in the PC industry and how Microsoft is trying to capture the most value.

The tangle between Microsoft and the PC makers is over who wins and who loses as profits get squeezed. PC companies typically pay $60 to $150 for Vista, but they can use the older Windows XP for roughly $15 for netbooks. Acer, HP, and others often make only about $20 in profits on a $400 netbook. If Microsoft raises the price of the operating system for such machines to $50, the PC maker has to raise prices or watch profits get wiped out. “These are issues we still need to work out,” says Phil McKinney, chief technology officer for HP’s PC group, who declined to comment specifically on future Windows pricing.

via Windows 7: Microsoft vs. the PC Makers – BusinessWeek.

To make this more industry, Microsoft is aware of the presence of Linux.  If it puts too much pressure on the PC makers, it actually incentivizes the ecosystem to improve and invest in alternative platforms:

The situation puts Microsoft in a quandary. If the company lowers the price of Windows 7, it could hurt revenues and profits. If it keeps the price high, PC makers might bolt to alternatives, such as the free Linux operating system.

Google Searches for Ways to Keep Big Ideas at Home – WSJ.com

Google is addressing organizational issues– it’s grown too big to keep on using a laissez faire approach to new product development.  The article also addresses improving retention of best people and ideas, mitigating groupthink,

Google can no longer afford to let promising ideas fall by the wayside. The Internet search giant’s once-torrid growth has slowed. At the same time, it faces fresh competition from Microsoft Corp.’s new search engine, Bing, and start-ups such as Twitter Inc., which was founded by former Google employees.

In response, Google has recently started internal “innovation reviews,” formal meetings where executives present product ideas bubbling up through their divisions to Mr. Schmidt, Google founders Larry Page and Sergey Brin, and other top executives.

The meetings are designed to “force management to focus” on promising ideas at an early stage, Mr. Schmidt said.

Google has also begun to give a few engineers broad leeway to start big projects of their choosing,

via Google Searches for Ways to Keep Big Ideas at Home – WSJ.com.

Vegas Strip Club: CPA goes up to $100 from the usual $30

Strip clubs in Las Vegas have long paid bounties to cab drivers who deliver customers, but Rick’s didn’t grasp the payments’ importance when it bought the former Scores strip club in September. By February, its Las Vegas club was registering only $257,000 in sales.

Moving to reclaim its share of the slumping tourist trade, Rick’s boosted its payments to as much as $100 a customer from the usual $30.

Eric Langan, Rick’s chief executive, blames the bounty inflation on other clubs’ recession-induced desperation. “The pie got smaller, and everyone started trying to steal each other’s piece,” he says.

via Some Gentlemen’s Clubs Strip Down Upscale Offerings as Business Slumps – WSJ.com.

Right on most points: Gary Hamel on Managing Generation Y

Hamel under appreciates a few things in his post–

1. On best days, the web is a meritocracy, but often, it breaks down to mob rule.

2. Credentials still matter (although they may matter less). I doubt Hamel is familiar with the phrase “A-list blogger”.

3. It’s possible to create a perception of influence and power on the web.

I never thought I’d be this misaligned with Gary Hamel on a position.

Gary Hamel on Managing Generation Y – the Facebook Generation – Gary Hamel’s Management 2.0 – WSJ.

The more apropos question: how does one “break” the economics of the consumer web?

I was a bit skeptical when I first saw this blog post on the microeconomics of the consumer web. However, I was surprised by how it combined a sound understanding of economics with a deep knowledge of the consumer web space– it’s actually hard to find this combination in the industry so I really enjoyed this reading.

Here’s my summary and analysis of it.

The first section provides an economic framework to analyze online media under perfect competition. Economists like to use this model because it’s a very simple (and perfect) model that’s very easy to understand. Of course nothing in this world is perfect, so to make this model more real, we have to make additions to (complicate) it but doing so would make working with the model more unwieldy.

The second section discusses how technology costs continually fall over time and how this phenomenon drives marginal costs to zero. This reverses the slope of the supply curve because the perfect model we discuss above assumes that the unit cost generally rises as you produce more.

As an aside, this is why technology investments are all so front-loaded. It’s better to be closer to infinity than to zero on this curve so that’s why you see hundreds of millions being plowed into the Facebook and Youtubes of the world even when they aren’t making money yet.

If you’re doing business in this space, you want to (or believe that you can) break this economic model or else you’re toast. So how do you break it? And again, the answer is a simple economic concept: preventing commoditization.

This is the driving force behind why the AP doesn’t like Google or why Viacom wants Youtube to take down their clips. Although these firms value the traffic that Google provides them now, they understand that they are mortgaging the future if they make the tradeoff.

Can consumer web products and services be differentiated enough to stave off commoditization? Will the traditional modes of differentiation work online? (via Wikipedia):

* Differences in quality which are usually accompanied by differences in price
* Differences in functional features or design
* Ignorance of buyers regarding the essential characteristics and qualities of goods they are purchasing
* Sales promotion activities of sellers and, in particular, advertising
* Differences in availability (e.g. timing and location).

Although the writer says that:

“perfect competition” … is generally held [by economists] as the goal for all markets

it wasn’t for Michael Porter, who realized that imperfect competition should be the goal for all businesses, and became one of the leading economists to (academically) champion that goal.

Indeed, the writer concludes by saying that the only way to win online is by using strategies which fall under the three strategies Michael Porter recommends in his Competitive Strategy book— first point addresses differentiation via quality, second is cost leadership, and third implies a market segmentation approach.

Don’t misunderstand this– these strategies won’t save your business or the status quo, but they will help you compete in an increasingly competitive environment.