thinking: relating- celebrating :-)

Had a great conversation the other week about the growth fixation of business.

The idea is that with most businesses we focus on growth all the time – however we can get to it.  As mentioned previously growing business with existing customers seems an obvious but overlooked area for most.

The follow-on idea was just imagine you can’t get the obvious growth angles like customer numbers and revenue – what would you focus on?

My guess is quality improvements for existing customers would have to be at the top of the list.

And it is getting to be much cheaper to go to market with some of the systems and processes on offer.

David Cowan has written again about the reducing cost of those systems…

“My Internet Law
The time and money required to produce (design, develop, secure, test, launch, scale) a typical data-oriented form application on the web drops in half every 2 years.
This seems to have held true since the public emergence of the web in 1994. Do you agree? I don’t have much hard data, but McCain proposes new internet laws with far less.

For example, I recall the large systems integration firms charging as much as $20 mlllion to completely outsource development of a web application. (I forget the name but I recall a DFJ-backed pay-me-to-advertise-to-me startup that spent as much in 1996 with someone like Perot Systems and the app still never worked.)

Is there any doubt that most apps today can be launched with as much scalability for $300,000? The implied factor of improved efficiency is 0.5 to the sixth power over a 12 year period.

Cheaper hardware (Moore’s Law) accounts for only a small fraction of this effect. The real gains seem to come from decoupling and automating specific steps of the process. Major disruptions that come to mind: Microsoft FrontPage, SSL, Exodus hosting, Apache, Java, ActiveX, Javascript, Shockwave, Flash, load balancers, PHP,  XML, Ruby on Rails, web service APIs, AJAX, Amazon S3, DIY communities (Ning).”

We could quibble about the significance of some of his picks but it does make sense.

Not sure you can extract a reliable formula for this but the point that development costs are roaring lower makes huge sense. I have based a business on open source.

It is the only way to compete in the longer term I believe.

Guy Kawasaki has blogged often about this idea. Marketing and sales are still going to be much larger. The analogy might be production costs for a movie going much lower but marketing costs increasing at the extreme as competition for mind-share escalates.

In the future more businesses can be competitive but will need to do much more to get noticed and win business.

There is a still a certain level of novelty around online networking now / the equivalent of “free ink” is available but it won’t last. More of us will be in the advertising and communications sector for more of the time.

The idea of a Moores laws echo is a good one for gaining attention but the math doesn’t really hold up and for the reasons I’ve mentioned the game is being played elsewhere.

So production cost are lower – marketing costs are rising.

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Thanks to the reader who spotted this paper by  Bronwyn E. Howell which was presented at a conference in Rome, Italy, September 17-20, 2008.

Abstract:
Using an efficiency-based framework, this paper analyses the performance of New Zealand’s telecommunications sector under competition law-based sector governance (the period from 1987 to 2001) and under industry-specific regulation (2001 to 2007). The framework considers the productive, allocative and dynamic efficiency effects of each regime, and the nature of the strategic interaction of sector participants.

The analysis reveals that substantial gains in all forms of efficiency were achieved during the 1990s, both compared to historic New Zealand and contemporary OECD benchmarks.

Under industry-specific regulation, however, transfers to consumers appear to have reduced, transaction costs have increased and delays are being incurred in the deployment of new applications and technologies relative to the competition law regime as participants engage in strategic gaming with politicians and the regulator and respond predictably to the range of incentives offered under the regulatory regime.

The paper concludes that on balance in the New Zealand circumstances, the regime based predominantly upon competition law appears to have outperformed the industry-specific regulatory regime, albeit due in large part to sector participant interaction shaped by contractual obligations imposed by the government on the incumbent which have prevailed unchanged under both regimes.

Keywords: Competition, Regulation, Telecommunications, New Zealand, OECD, Performance, Efficiency

by Howell, Bronwyn E., From Competition to Regulation: New Zealand Telecommunications Sector Performance 1987-2007 (August 14, 2008).
at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1227862

Is it just me or are these academic papers long in execution and way too diplomatic in their language. (Based on reading a downloadable full copy.)

It is good that someone researches the area and tries to make sense of it but it does seem like a bit of  a sideshow when the policy is being decided elsewhere – most of the time – or am I wrong about that?

Right at the end the author notes

“Pursuit of efficiency, not pursuit of competition, must be the goal.”

Uhuh… still feeling slightly underwhelmed but maybe I’m being too partisan.