By Tom Gerbe
Strategic Internet Design Consultant
The retailing system of Today is based on a poor communications network and geographic sensitivity.
With this article space, I hope to add a different view on Digital Television, specifically Advanced Television, Video on Demand and software driven, distributed DTV services. Since 21st also addresses cross-industry issues within the Digital Television community, I will write under the premise that our readers have at least a basic knowledge of High Definition Television, Advanced Television Services, and distributed networks. If you feel that you're a bit behind in these areas, E-mail me and I will put something together to bring you up to speed.
I work for a company called Digital Planet, which designs distributed software applications for the Advanced Television Services (ATS) market. It is our belief that ATS and High Definition Television can enjoy the same audience as one can greatly enhance the other. Our concentration is in examination and reconstruction of business models to fit the new millennium of distributed communications. This is the first installment of a collection of articles discussing different aspects of ATS and it's affect on corporate America and the consuming public.
ATS and it's affects on consumer markets
The telecommunications industry is spending a combined $300 Billion on infrastructure to support Advanced Television Services and Data transmission. With this continual investment, and growing companies like Qwest installing Fiber all over the world, we are currently utilizing only 5% of America's available Fiber capacity. Considering the substantial investment in infrastructure, these companies are gearing up for the ATS marketplace, purchasing Set Top Boxes by the Millions. The Set Top is the consumers gateway to the new network that will spawn off of this infrastructure and customer base, giving every home access to low cost, distributed computing power.
It is our belief that initially, Set Top Boxes will exceed HDTV sets in acceptance due to their low cost and high potential returns. This belief is shared by companies like Microsoft, Sun, Compaq and PC manufacturers, who almost all have some type of Set Top designs on the table. If the software is designed well and the service of a distributed ATS network is marketed properly, the potential profit of such a network far outweighs the costs. Incorporate Moore's law and the declining cost of computer hardware and in a few years we will see the cable companies offering packages similar to the cellular telephone industry, whereas the user gets the box for free because it's just too expensive to not have them on the network.
If such an audience can be generated, which is likely considering the global cross-industry investment, and outstanding revenue possibilities, it will change the face of retailing forever. Such a system will create millions of new jobs, while eliminating entire industries in a single sweep. The possibility of a direct relationship between manufacturers and consumers allows for lower prices, faster delivery and better quality products. The appeal of such a system to corporate America is just to strong to be ignored.
The first example of this would be Brokers. In America alone, there are millions of people who make a living connecting buyer with suppliers. From stocks and commodities to consumer products and services, brokers are an integral part of our global economic system. Their major value in the distribution process is not their ability to sell, but the contacts of whom they sell to. When such information is available in a centralized, indexed, categorized, continually updated database, the need for brokers is virtually eliminated.
On the retail side, companies will have to restructure their business models to suit the new age. Media companies like Blockbuster and Hollywood Video are the most affected by this revolution. Blockbuster Video, a company that has over $4 Billion in annual revenues, claims to have a retail location within a 10 minute drive of every major populated area in America. It employs over 80,000 people in it's 4,438 retail locations (July 1998).
Telecommunication service providers including Satellite, MMDS and Cable have all announced a desire or intent to provide Video on Demand services within the next 5-10 years. Since Blockbuster's agreements with their suppliers are based on a system of profit sharing and are obviously not exclusive, this means that with the correct software, your local cable provider could become a digital video rental store. As a result, the consumer can get the same video they get at Blockbuster delivered directly to their TV, with all the functionality of a VCR, at less than 1/4 the cost. With an offer like this, who would be getting into their car to drive to the video store? For that matter, Who needs a VCR?
The economics of an event like this are astounding. With "Beyond Critical Mass" penetration of ATS in the market, a company like Blockbuster could lose their advantage of availability and name recognition to a system that is more efficient, user friendly, less expensive and very well funded. The cable company's cost for video distribution doesn't include the overhead of Blockbuster's new $10 Million duplication and distribution center, blank media costs, trucking, retail overhead and human resources. This allows the cable company to price Blockbuster out of the market. After witnessing Sumner Redstone from Viacom's "Iâll Believe it when I see it" public statements, I can see this happening in the near future.
The above example is extreme, but ATS will have an influence on every company that deals with a customer base. Although people like to shop, the concept of shopping is obsolete. The customer still likes to browse, and will always want to touch a tangible item before buying, but the decision process of what to buy and where to get it will be greatly affected. For example, why do I need to be surrounded by 75 different car dealerships within a 30 minute drive of my house? Are there 75 different car manufacturers? Of course not. Yet every time I want to buy a car, I have to go dealer to dealer to find the right color, features and price. Add on the frustration of being lied to and a greedy salesmen who just want a fat commission, and you have the American car buying experience in a nutshell.
When I want to buy a car, I have a general idea of what kind of car I want. I don't want a Saturn because it's too small and slow, Mercedes is too expensive, and I don't like trucks. I keep seeing a nice car on the road and decide that I am interested in that car. The first step is the investigative process where I gather information on the vehicle, turning to my ATS set top for the new cars section.
I don't know the name of the car, but I can match up the picture from a database of new cars. The system can satisfy my request be giving me all of the specific information on the car that would be critical to my decision, more than likely provided by Consumer Reports or some similar organization for a small fee. I then compare this car to all other cars in the same class/price range and decide which one I want. I then send a request directly to the manufacturer and set up an appointment to see the car.
Since the average consumer buys a car every couple of years, it's not too much to ask a consumer to drive 30-45 minutes to the central Ford warehouse to see the exact car they've selected on screen. It's one Stop Shopping. Especially if it's going to save them $3,000-$5,000 from conventional buying practices. If it is profitable to the manufacturer, special arrangements can be made to deliver a test drive directly to the consumer. This eliminates the problem of my last car buying experience where the dealer told me that there was no car fitting my description in New York State, when the dealer five miles away had the exact car I wanted. It eliminates commission salespeople, dealer overhead and allows consumers to respond directly to the factory, allowing them to improve upon their products more quickly.
Customer relations can be enhanced by building a car support section within the companies corporate online entity. Information from how to set the clock to what size wiper blades should all be made easily accessible. A system can be put in place to effectively deliver personal service to every individual who has purchased a car, increasing the possibility that that person will return to buy again.
The concept of ATS and it's effect shouldn't be seen as the destruction of industries, but growing pains for a technologically evolving society. Just as in the past with the introduction of electricity, or the horseless carriage, the public evolved into a new age where the benefits far outweigh the losses. There aren't as many Blacksmiths' around as there were in the early 1900's, but the invention of the car could be considered an enhancement on modern life. Distributed Television will eliminate many of the repetitive jobs and replace them with more challenging employment. This new breed of job offerings will require a more educated society which might not be a bad thing after all.
We have only scratched the surface of what we can do with ATS in redesigning corporate business models and I look forward to the next installment. Blessings of better customer service, lower cost of living and the elimination of Voice Mail are only the beginning of the revolution. The days of price gauging, per minute long distance and the middle man are about to end. Are you ready?
Copyright 1998, Tom Gerbe, All Rights Reserved
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