Bad Competitors and Cherry Pickers - a lethal combination
As more and more business products and services become digital, they become vulnerable to what I call "cherry pickers." Competitors can target highly profitable businesses because those businesses provide a high price umbrella.
IBM for example, spawned a massive "IBM mainframe compatible" industry three decades ago, because of its high price umbrella on mainframes.
Those companies with highly profitable business groups are sometimes using those profits to help support less profitable, sometimes rarely profitable, business groups.
Hewlett-Packard, for example, has over the years managed to use its highly lucrative printer business to help it support its PC business, and its information technology business. It could be said that H-P's sales of printer ink, at various times over the past decade, have subsidized its other business groups for many years.
And that's why H-P's most valuable intellectual property is the design of its printer ink cartridges--which prevents copycats providing printer ink at sharply lower prices.
H-P has managed to stop cherry pickers from running off with its printer ink business and allowed it operate large, rarely profitable business groups. Those business groups have provided a lot of value, to customers, to employees, and to their surrounding communities around the world.
But other companies, other industries, haven't managed to stop the cherry pickers. That's especially true for the media.
Google News is a good example of a media cherry picker. When launched in 2001 Google News quickly became a fabulous success. It was the first aggregation of news stories copied from thousands of news organisations, and published in a very accessible user interface. Google News scans thousands of mainstream media news sites, copies and publishes the headline and the first paragraph and a photograph. It is a very good service.
It's an extremely low cost for Google, the news stories are harvested by machines, and they are presented by machine. At the bottom of the Google News home page you will find this text proudly displayed:
The selection and placement of stories on this page were determined automatically by a computer program.
Google News was one of the first services it launched, one of many dozens today, yet it does not monetize this service. At last week's GOOG press day, its executives were asked if they would monetize news, the answer was that it was on the list, but that there were some more important projects that would be monetized first.
One of the journalists asked, where on that list is Google News? Eric Schmidt showed a little exasperation when he answered, saying, that it is obviously below the cut off point...