Technology
is seeing Trending Price Deterioration
Essential problem confronting technology companies,
especially original equipment manufacturers, is a price deterioration of
product. Anecdotally, if one prices an electronic item at a wholesaler, then
looks at same item on a major internet retailer such as E-Bay for instance, a
level of price competition can be witnessed. What is disturbing, however,
are increasing frequencies when same item will show up at impossibly deep
discounts.
Ramification of this effect across supply and
distribution chains disrupt business planning prospects from memory suppliers
to electronic retailers. This effect has been witnessed for years in
memory markets and lower value added electronics. Now, it occurs in tablets,
smartphones and equipment in general. Operating system associated with these
lower priced products often times is Android.
Lost
Value in Intellectual Property, along with Supply and Distribution Chains
Protecting product pricing typically comes from
retaining control over intellectual property rights, while also managing
business chains. Firstly supply chains need to be managed to prevent outsourced
manufacturers robbing technology. Secondly, distribution chains need an ability
to show pricing discipline to prevent flooding markets and price declines.
However, first attack to this model is putting
intellectual property into the public domain for innovation and new discovery.
Android and WebOS are primary examples. Where Android did not involve a deep
upfront investment by a single company, WebOS was held by Palm, bought by
Hewlett Packard for $1B. Now it’s given to public collaborative development.
WebOS was the intellectual property backing future
propositions for Palm. Hewlett Packard’s justification for buying Palm was
moving Palm’s technology into currently competitive products. Now WebOS is in
the public collaborative space, as opposed to Hewlett Packard’s portfolio of
intellectual property.
Apple once had a very unique product. Now Android
finds its way into various products sold by various companies. Some of these
companies look for market share by defining their products with cheap pricing.
Defining a company by distinguishing your products with cheapest price is a
losing proposition.
Strength
is in Maintaining an “Ecosystem” of Integrated Products that Improve User
Experience Across all Products
Apple’s major strength today is their “ecosystem” of
products. Which basically equates to intellectually protected products (outside
of Samsung’s win, loss or draw) a protected supply chain (again outside of
Samsung issues) and a distribution chain that is so far exemplar in sustaining
price strength.
Apple’s other major strength is its integrated
products which not only communicate with each other, but do so in a synergistic
way. For example, seeing your phone on your living room TV set….at least should
you be so inclined. And a new Apple TV system is expected.
Android teaches that once intellectual property is
released to the public domain, intellectual property value deteriorates for any
one company. Result appears that many companies compete against each other for fast
deployment of existing technology. A race then occurs to cheapest pricing. Winner in
this model becomes the company that adapts new technological creation into equipment production on the cheap. Rising labor costs in China can be a limiting factor, but other ASEAN countries?
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