Vijay Anand | The Startup Guy.

Posts Tagged ‘economics

You could be this crazy economist turned entrepreneur, and can have a gazillion keywords and phrases to explain every phenomenon under the sun, but the funny thing about economics is that they usually explain everything that has happened, and can even explain what is happening, but could never quite explain whats going to happen. You cannot, with a set of symptoms predict what the next step is going to be like – It could be a boom, inflation, a market correction or just another dull boring day, any of which might be just around the corner.

If you want to understand timing, economics is the wrong subject to pick. Intuition, and your own observation of the markets is what will save you. Nothing else usually helps.

After you have laid out your financial planning and operations chart for your company, and God forbid taken investor money (read more accountability), you could cook up a million reasons during the board meeting as to why you did not or were not able to meet the project sales plan. None of them will stick. The only valid reason that you could ever get away with an acceptance, is if the market changes.

When a market flips, its boom time for a startup which is looking to ride that wave, and usually spells death for every company out there which was riding the previous wave – unless you anticipated the second wave and were prepared with your next line of products and surfers to ride that one as well. Or if you were a big enough corporation, you could just with sheer muscle power create a wave (Apple does it all the time).

There’s also the other unfortunate incident where you take your hand-carved board into the waters, and sit on it for days, years and decades and realize that thanks to Global warming, you are no longer in the shore, but in the middle of the ocean and there are no tides there, just still waters.

Timing, is a very crucial issue for Startups. Most of them do ride the waves to gain that momentum and catch that hockey stick growth. There are some who just focus on everyday problems, everyday solutions and don’t care for the tides, the waves nor the water at all, and go on living. Know where you stand, and if you are in the water with your surf board ready, be sure you get your timing right, and better well be sure about it with all the stats. The markets, when they change, are never forgiving and take no prisoners.

You know, for the sheer amount of noise and echo that used to be carried around under the tag of “Long Tail”, things have mellowed down quite a bit lately. But I think there is an increasing awareness among internet startups on the 3P model (Product x Price = Profit) which is looking at means of revenues beyond just Advertising. Not all services can be free. It simply cant be so. While providing the service for Free to the end-user and charging someone else is one model, its just that – just one of the models.

Unlimited creation, creates unlimited consumption. That was what was spoken about the Long tail. If we have to cut through the middle and divide the “people” of the long tail, they are essentially the 80% of the people who arent contributing to the top of the pyramid. They are producing content which is probably not upto par yet. They are major consumers of alternate products. They have their own way of doing things – cult / opensource etc etc.

All of these are opportunities to monetize, while you are serving this segment.

Point #1: Consumers are the ones who really benefit from the Long tail.

Search Youtube for just about anything and you would find it. Because the range of production is so vast, any consumer has the option to consume what he wants. Look at blogs. There are blogs ranging in the millions out there which amount to a significant chunk of content that is getting churned out – including this very one. Anyone who is looking for stuff to read, has plenty of options. The concept of the “long tail” greatly favors the consumers in terms of options, and drowns the producers taking away attention.

Point #2: Consumer options, dont translate to revenues.

So what if there are 250 million blogs out there? Most blogs dont even get a single person visiting them. So from a producer perspective, the long tail does not benefit by much, if it has to be for monetization.

Point #3: There is plenty of hope.

If there are 80% of the folks within the long tail who are “producers”, its actually very very good news, and the best chance for monetization. The rule is simple. Anyone who can help any segment of this 80% – higher or lower, to “professionalize” their service to move into the higher 20% and make more money, will be more than happy to depart from some of that revenue as service fee to you. So build a product or service that enables these masses to make money, and out of that money, take what is yours.

Thats a reason why makes sense.

More to follow on this.

PS: Do a search on “The long tail” and you will realize that the long tail concept applies to everything from digital media, to internet voice applications, to the sale of wallpapers, to chip making companies, etc etc etc. The applications are wide as the options in the long tail itself.