Web warps convention

The IT sector has known for years what the internet is proving now – the demand/supply equation has been turned on its head. Where does your business sit? PAUL WALLBANK

Paul Wallbank Tech Talk blog

By Paul Wallbank

Last week was a bad one for the Australian IT industry. Administrators decided to put Sydney computer assembler Optima into liquidation and online retailer SecretNet announced it would cease trading.

The reason for both of these closures lies in some fundamental changes to the economics of many industries, not just the box moving end of the IT sector.

Seth Godin, in his book Meatball Sundae, describes the traditional mass market as based on a bell curve tracking demand against scarcity. The peak is near the centre of the graph where a middle of the road product attracts the most buyers.

In these sectors suppliers and marketers can pitch “average products to average people” and catch the bulk of consumers who sit under the fat peak of the curve.

Seth illustrates how the internet, among other factors, has flipped the curve over. Now customers want either cheap or prestige and there are few takers for “average” products.

In the computer business this situation has been with us for some time as the middle of the market has been squeezed out and customers have moved to cheap systems or prestige equipment.

Both extremes of the market are tough places to be. If you are going for the big margins at the prestige end, you need to have a compelling pitch with products and services to back it. But the commodity end is even tougher.

In the words of one of SecretNet’s founders, Andrew Macks, they struggled to compete with “new cut-price hardware vendors which we cannot compete with on price by any legal means whatsoever”.

That’s always tough in the computer hardware market where the fast moving consumer goods model of “stack em high, sell ‘em cheap” always struggles. For those providing services, which don’t even have economies of scale going for them, the going is even tougher.

Yet, despite the experience of hundreds of companies like Optima and SecretNet, it never ceases to amaze me how many entrepreneurs try to sell at suicidal price points.

It’s worthwhile considering what shape Seth Godin’s demand/scarcity curve looks like in your industry, and where you want your business to be on that curve.

 

Paul Wallbank is Australia’s most heard computer commentator with his regular computer advice spots on ABC Radio. He’s written five computer books and just finished the latest Australian adaptation of Internet for Dummies. Paul founded and built up a national IT support company, PC Rescue and has a free help website at IT Queries. Today he spends most of his time consulting and advising community and business groups on getting the most from their technology.

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