Fo r example it is o f ten suggested that the

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Unformatted text preview: e Chapter 4 "Netf lix in Two Acts: The Making o f an E-co mmerce Giant and the Uncertain Future o f Ato ms to Bits". To ugh co mpetitio n, but it gets wo rse because CD sales aren’t the o nly way to co nsume music. The pro cess o f buying a plastic disc no w f aces substitutes as digital music f iles beco me available o n co mmercial music sites. Who needs the physical ato ms o f a CD f illed with o nes and zero s when yo u can buy the bits o ne so ng at a time? Or do n’t buy anything and subscribe to a limitless library instead. Fro m a so und quality perspective, the substitute go o d o f digital tracks purchased o nline is almo st always inf erio r to their CD co unterparts. To transf er so ngs quickly and ho ld mo re so ngs o n a digital music player, tracks are enco ded in a smaller f ile size than what yo u’d get o n a CD, and this smaller f ile co ntains lo wer playback f idelity. But the additio nal tech-based market sho ck bro ught o n by digital music players (particularly the iP o d) has changed listening habits. The co nvenience o f carrying tho usands o f so ngs trumps what mo st co nsider just a slight quality degradatio n. ITunes is no w respo nsible f o r selling mo re music than any o ther f irm, o nline o r o f f . Apple can’t rest o n its laurels, either. The co nstant disruptio n o f tech-enabled substitute go o ds has created rivals like Spo tif y and P ando ra that do n’t sell music at all, yet have garnered tens o f millio ns o f users acro ss deskto p and mo bile platf o rms. Mo st alarming to the industry is the o ther widely ado pted substitute f o r CD purchases—thef t. Illegal music “sharing” services abo und, even af ter years o f reco rd industry crackdo wns. And while exact f igures o n real lo sses f ro m o nline piracy are in dispute, the music industry has seen album sales dro p by 45 percent in less than a decade.K. Barnes, “Music Sales Bo o m, but Album Sales Fizzle f o r ’08,” USA To day, January 4, 2009. All this cho ice gives co nsumers (buyers) bargaining po w er. They demand cheaper prices and greater co nvenience. The bargaining po w er o f suppliers—the music labels and artists—also increases. At the start o f the Internet revo lutio n, retailers co uld pressure labels to limit sales thro ugh co mpeting channels. No w, with many o f the majo r music retail chains in bankruptcy, labels have a f reer hand to experiment, while bands large and small have new ways to reach f ans, so metimes in ways that entirely bypass the traditio nal music labels. While it can be usef ul to lo o k at changes in o ne industry as a mo del f o r po tential change in ano ther, it’s impo rtant to realize that the changes that impact o ne industry do no t necessarily impact o ther industries in the same way. Fo r example, it is o f ten suggested that the Internet increases bargaining po wer o f buyers and lo wers the bargaining po wer o f suppliers. This suggestio n is true f o r so me industries like auto sales and jewelry where the pro ducts are co mmo dities and the price t ransparency o f the Internet co unteracts a previo us inf ormat ion asymmet ry where custo mers o f ten didn’t kno w eno ugh inf o rmatio n abo ut a pro duct to bargain ef f ectively. But it’s no t true acro ss the bo ard. In cases where netwo rk ef f ects are stro ng o r a seller’s go o ds are highly dif f erentiated, the Internet can strengthen supplier bargaining po wer. The custo mer base o f an antique dealer used to be limited by ho w many likely purchasers lived within driving distance o f a sto re. No w with eBay, the dealer can take a rare go o d to a glo bal audience and have a much larger custo mer base bid up the price. Switching co sts also weaken buyer bargaining po wer. Wells Fargo has f o und that custo mers who use o nline bill pay (where switching co sts are high) are 70 percent less likely to leave the bank than tho se who do n’t, suggesti...
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This document was uploaded on 01/31/2014.

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