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Given today's information overload, Atma Business Blog takes a broader approach to topics such as emerging trends and companies, market-based philanthropic efforts, and the impact of business news/topics on society. Leveraging experience in corporate, startup, and consulting environments, We... More
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  • Will We Own Anything Ever Again?
    With Amazon's announcement of its Kindle Lending Library this week, it got me thinking about the broader perspective of how we now  consume products and services.  Are the days of owning anything gone? We are moving towards a model where we license products at the time of usage instead of buying them.  I wrote about the end of the free business model a while ago; companies, particularly emerging ones, now charge us in new ways whereby we we will no longer own things that we used to.  That might not necessarily be a bad thing, but is that what consumers want in the long-term?  Or are we being forcefully led by businesses that favor recurring revenue streams over of one-time purchases?

    Let's stop to think about some of the things we use on a daily basis.  We all hated to pay 15 bucks for a CD.  ITunes came around and offered us easier access to buying music.  Pandora and Spotify give you even more breadth.  Guess what, you stop subscribing, you lose access.  The streaming media trend for  movies, TV, and everything else is certainly the wave of the future will result in no ownership rights for consumers. There are certainly advantages to this distribution model, but it is also changing the game.  Fee for Service, not fee for product.  This might not be a big deal, but what if you want to dial up that old Milli Vanilli track that you thought you had ?   

    Even our own stuff is in jeopardy.  For things like pictures and video, we used to just throw in new hardware to back up all of our files.  With files sizes getting increasingly larger, we now offload these services to Amazon Cloud and Mozy.  But what happens if they triple their rate and we stop subscribing ?  Will Mozy burn 150 DVDs of our pictures and send them back to us?  What about all of the content on our Facebook pages or our own blogs?  Do we get to keep it?  How? Aren't these our conversations and data?  Kind of scary to think we might lose all of those insightful AtmaBus articles, huh?  While these services are in their infancy, this is certainly where we are headed.  None of these sites (including this one) make it easy to back up.  Those photo albums don't seem so irrelevant anymore.

    Lets also look at our consumption in the physical world.  For the past decades, we've all lived under the guise of home "ownership."  The reality is that most of us owe more to the bank than we have equity into it.  Either way,  the trends point to a large movement towards renting.  Cars have generally been owned - but new services such as ZipCar may have some legs even outside of metro cities if they can get the logistics right.  We all like to own gadgets, but most of these have useful lives of under 2 years, so its not much of an ownership story.   Most everything else we consume are services that require replenishment after some time.

    We're turning into an "asset-light" society in which we pay for things we want right now but end up not owning any of them in the end.  You see similar trends in the corporate world as companies with hoards of cash refuse to invest in the business and embrace outsourced services like SaaS.  Perhaps the era of tweets and a limited attention span has led us in this direction.  But I wonder if consumers will only notice this when its too late or when the switching costs are too high?  Philosophers often say that we are born with nothing and end with nothing, so perhaps we are moving towards a higher moral ground.  Maybe it's just the fading memories and the pictures that we no longer have access to that are all that matter anyway.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Nov 14 10:57 AM | Link | Comment!
  • Southwest's Expansion M&A
      M&A can work, just not for the elephants in the room. This week, I intertwine two topics I've discussed before in light of major events announced last week in the airline industry.

    First, the good. I like to write about admirable companies; those that are profitable, well run, culturally hip, and leave a positive footprint on society. I wrote about Starbucks in great detail; and certainly Southwest Airlines is one that tops my list.

    I've always had a soft spot for Southwest Airlines. They are the only airliner that hasn't lost money, filed bankruptcy, or use that awful hub and spoke model. They've posted profit every year of their existence, never had a single layoff (they didn't use their employees as pawns during the 9/11 crisis as others did), and still let your bags fly for free. Sure they make you find your own seat and sing showtunes every now and then. But its their playbook, and it works well. And they've done right to all of us. Have you ever priced out fares in markets that Southwest is in versus ones they aren't?

    Southwest announced last week its buying Airtran for $1.4B. Its the largest risk in the company's history. They plan on eliminating many of Airtran's ancillary fees, increase flight routes, and adding 2,000 jobs over the next two years. The merger is predicated on growth and achieving greater scale. I think its smart. It's not too big that it's unmanageable, they can pool their plane orders, and Airtran's cost structure is actually almost comparable to Southwest. Despite my skepticism of large scale M&A, I think Southwest is looking at this as expansion M&A. An area that has at least has a chance to succeed.

    Now the bad. They are the legacy, inefficient companies that look at M&A differently. They do deals despite the pitfalls I outlined in a prior post mostly for defensive measures. In this case, I'm referring to the United and Continental's $3B merger closing announced last week.

    These companies, on the other hand, use lots of red ink (lost a combined $7B in 2008 and 2009), filed for bankruptcy 3 times, offer a customer experience that rivals governmental agencies, and require a 10 page manual to decipher all their fees. With their merger, they plan to cut heads, rationalize routes (i.e. delete), and try to somehow squeak out a profit in an obvious business model that doesn't work. Eliminating peanuts was the answer to your financial woes? Really ?

    Who will prevail in the airline wars? I believe that the faster, nimbler horse will stay on top. Southwest has a sustainable business model based on efficiency, giving customers what they want, and treating their employees better than their executives. Southwest is looking to grow while UA/Continental is looking to retrench. Cutting costs is not a gateway to success, building a sustainable business model is. The basic rationale behind a deal will generally dictate whether they will work or not; Ones that attempt to defend market share, generally don't. Ones that are more offensive minded have a shot, in my opinion, if executed by a quality company.

    Disclosure: none
    Tags: LUV
    Oct 05 8:28 PM | Link | Comment!
  • Keep Fair Trade Fair.
    I've always been a huge proponent of capital-based social ventures. Since free-market systems generally result in more efficient allocation of resources, it only makes sense that the same principals would extend to the non-profit/community realm. For years, self-made billionaires have used market based strategies to combat poverty, eradicate diseases, and create world class educational institutions. The Gates Foundation is a perfect example as their lofty goals are being realized utilizing a rigid, corporate-based approach to management (They are also quietly building an elite club to encourage the wealthy to give away their billions). The hope is that business rigor will result in superior results versus traditional non-profit entities.

    For years I've been tracking microfinance, social VC's, nonprofits and other social ventures. Something i've been hearing about recently are so-called Fair Trade companies. There are national and international standards that ensure compliance to ensure the production of goods are fair-wage, eco friendly, and a whole host of other goals. There's one I really like called the world of good that recently sold to ebay; the founders spent most of their time traveling the world to buy products directly from local artisans. They helped the poor of the poor with access to worldwide consumers while ensuring the artisan the lion's share of the profit on a sale. From a consumer standpoint, it gives them a clear alternative to mass-produced, homogenized goods.
    A win win win.

    But i get a bit skeptical when i hear new buzzwords being quoted everywhere. And "fair trade" seems to be the mot du jour. Just this morning I heard a story on NPR about an African born, US raised man go back to Africa to build a factory and sell "fair-trade" t-shirts. Is this becoming just a marketing ploy (vis-a-vis "green" technology) ? Has it become merely a new entrepreneurial opportunity? Will the altruistic focus lose out to an extra $1 of profit per product?? Let's hope not. For the artisan's sake. And for the sake of poverty alleviation.

    You are already starting to see this in other social entrepreneurial realms. You hear about usury interest rates and unfair lending practices in microfinance. This sector has now become so profitable, that all big banks are jumping into the fray. The first microfinance IPO took place with SKS in India. When push comes to shove, will a publicly traded company succumb to the demannds of investors or of the small business owners ? I think the answer is obvious.

    Let's be optimistic and hope that Fair Trade blows up just like microfinance did. Let's hope millions of small artisans and entrepreneurs around the world gain access to the worldwide consumer. And let's hope the flailing Fair Trade companies do not think profit first, fair trade second. Let's hope they keep Fair Trade Fair. The beauty is the consumer ultimately decides. It should continually demand transparency and rigorous standards.

    Disclosure: No positions
    Sep 01 7:46 PM | Link | Comment!
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