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Wednesday, February 2, 2011

How I changed the world.

I do not own an iPod.  I have no grudge against Apple or its products.  In fact, many years ago I did own an iPod mini.  But today I do not have one because of competition.  "How so?", you ask (if I may presume to know what you are about to say).

For all of you who possess an iPod, as soon as you got it, you went into iTunes and began to sync your music.  Where did this music come from?  It came, much like the music of my younger days, from albums or singles purchased and songs borrowed (copied) from your friends.  Perhaps some of the music was a present or was lifted with sticky fingers at the mall.  (Don't worry, no judgement here - I'm just sayin)  After syncing your music, that iPod was ready to go, insert earplugs, begin music and cue the dancing.

But for me, that state-of-the-art iPod left me stuck in the 80's.  Truth is, I don't buy CDs or mp3s.  At least, not unless absolutely necessary. As a teen, I spent every last dime on music.  Even in college, I was a habitual buyer. But as I began raising children and was forced to buy a seemingly infinite supply of diapers along with the (cutest) little shoes every other week with my CD money.  My once trendy music collection soon became classic oldies.  Then several years ago, the internet brought subscription services into my life.  I had never felt comfortable with the music sharing sites like Napster (before it went legit) where it seemed to be stealing (because it was).  But with the legal subscriptions I was able to start getting all the music I wanted, for a low set price.  It was a really great deal for someone like me.  In fact, now that I have teenagers of my own, it's an even better deal.

Which brings me to the iPod.  I could not sync my subscription songs to the iPod.  It sat there and mocked me with nearly 500 songs I didn't want to hear, pulled from old CDs lying around the house.  My children who were tweens at the time, would play with my new high-tech toy, then ask why my music was so lame-o.  The iPod was cool; their dad was most definitely not.

Mercifully, that particular iPod model had many problems and died a quick death.  So I then asked my subscription service (Rhapsody) what I could use that would allow me to use music from their service on a player without the need to purchase the actual music.  I went shopping online and soon had an mp3 player (Creative Zen:M) that worked with the service for only a few bucks more per month.  It worked so well, that my girls had their own mp3 players for Christmas filled with songs from the same plan.  Several upgrades later we now have 2 adults and 3 children jamming to unlimited music, all for the price of one CD each month.

A few weeks ago, as I was comparing phones before upgrading, I was happy to find that the new smartphones will now allow me to stream music from my plan.  Unexpectedly, I also found that my Rhapsody subscription could now be used with Apple's newer iPhones and iPod touch.  The great new gizmos from Apple could finally be allowed back into our world.  My little girl's dreams of an iPhone might yet come true.  Which (finally) leads me to the following conclusion.

I changed the world!

Again you say, "How so?"  By utilizing my purchasing power in such a manner within a competitive environment, I, along with others who made similar choices, coerced two large corporations to make a radical change to their infrastructure.  Let me restate this so you get the full effect.  A bunch of nobodies, with no coordination or communication amongst ourselves, by simply using the power of our consumption, so cowered the mighty Apple, giver of the cool Christmas gifts and Rhapsody, able provider of affordable music, that they have chosen to submit to our collective will.  If that doesn't fly in the face of the notion that big companies wield all the power, I don't know what does.  But why?

Apple's business plan was simple.  To make the iPod the must have tech toy that everyone would have, but then force the buyers into their iTunes interface where they would continue to profit as you bought music.  iTunes was as big a part of the success for Apple as the player itself.  So for them to allow another media provider into their environment is a BFD.  But that is competition.

So how did this work?  Competition works for several reasons.  One company may offer something not offered by the other or make it cheaper or better.  One company may offer better customer service while another has a better celebrity endorser.  The truth is that there is no limit to the ways that companies may compete.  Just ask 'Crazy Bob' what he's prepared to do to sell you a new stereo.

There are several things that can inhibit competition.  But contrary to what you may think, size isn't one of them.  Surely you've seen the commercials for Geico and its gekko.  With a unique business model and some catchy advertising, this insurance company has moved from near insolvency to become one of the major auto insurance companies in America. 

For two decades Apple held about 20% of the PC market when it developed the iMac, then the iPod, iPhone and now iPad.  Apple currently dominates the tech gadget category.  Microsoft on the other hand, dominated the PC world to the extent that under Clinton an anti-trust suit was brought against them.  But when they made their move into the music player arena, their Zune and music store were a failure.

Size can be an advantage, but having a good idea along with a leadership team agile enough to change directions to meet consumer demands is imperative in the open market place.  Imagine Reggie Bush trying to score a touchdown against a 300 lb lineman.  In the open field my money is on Reggie.  But if you close down the available field, the advantage tips to the big guy.  Which brings me to our most anti-competitive problem in America - regulations.

To carry our football analogy further, a football field is 360 feet by 160 feet as stated in the rules.  As such, there is a balance between the size, strength and speed of the players.  But if you begin to change the boundaries, you change that balance.  Close down on the dimensions and speed becomes less important.  Open them and the need for size takes a hit.  Even when both teams are playing by the same rules, changing the rules does not affect both teams equally.

That is where we have to be cautious in regulating our open markets.  While its thought we are implementing consumer protections, in truth we are changing the balance of competition on the field.  Every new rule that eliminates a patch of turf from the playing area gives more power to the big corporations and makes it that much harder for the small companies to compete.

Yes, we need a basic regulatory framework, just as a football field has a standard dimension.  And anti-trust laws work to make sure that we have at least two opposing teams on the field of play.  But licenses, taxes, wage laws and other startup burdens can keep teams off the field.  Fewer teams equals less competition.  Restrictions on how companies compete will often aid big corporations because their lobbyists may help write the regulations.

And have you wondered why there is no Geico-type company providing health insurance in new and different ways, helping bring the healthcare costs down?  Because each state has its own set of rules and regulations, a company would need to replicate Geico's success 50 times to have the same effect on the industry.  This is one area that needs to be deregulated so that a company can offer health insurance across state lines to all 50 states.

Finally, the worst thing we expect our congressman to do is fix a problem when someone breaks the law.  Anytime we seek a new law to prevent a criminal from breaking a current law, we need to re-evaluate what we're asking.  Yet I've seen it happen time and time again.  We yell that the Enron guys broke the law and stole our money, so congress should do something so it doesn't happen again.  Helloooo, if some business man wants to steal your money, a new law will not stop him.  He will just find another way to do it the next time.  If you want to keep people from stealing your money, make sure the last guy that did so is punished severely as an example to the next guy.  Enforcing the laws and rules we already have to their fullest extent is far superior to making new laws and rules. 

If someone steals your money without breaking the law, then perhaps we may need a new rule, law or a loophole closed, but even then we should tread carefully.  Once new rules are in place, they are rarely removed no matter how ineffective they are.  When a thief goes to jail, then the law has worked.  You may rightly say that this doesn't bring your money back.  I acknowledge that while noting that putting a murderer in jail doesn't bring the victim back either.  That's life.  No one said it's fair.  Most of us play by the rules but some will choose to lie, cheat, steal and kill.  Our most effective move to eliminate unfair play in commerce, is the one that adequately punishes those guilty of breaking the rules.

I didn't need a new rule to change the world.  I just needed $15 per month.

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