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Michael Jennings talks failing businesses

Patrick Crozier recently did a podcast interview with our own Michael Jennings, on the subject of businesses that are now failing, which I heartily recommend. Michael zeroed in, in particular, on bookshops, spectacles, newspapers and – very topically for today (although the conversation itself took place a short while ago) – postal services.

A particular point which Michael emphasised was how the same technology can start out by helping a particular business, but then turn round and smack it in the vital organs.

The dead tree press, for instance, thanks to the lead given by men like Rupert Murdoch, at first thrived on computer technology. Now look at it.

Computer technology also started out by making postal communication a better deal rather than a worse one. Junk mail, without the e- at the front, was, after all, an early bastard child of computers. And postal services the world over, like most businesses, have enthusiastically applied computer technology to their various activities, making old-school physical communication that much quicker and cheaper and thus more attractive to users than it would otherwise have been. But again, now look at the predicament of post offices, and in particular, today of all days, our own Royal Mail. Note how easily the Royal Mail itself is managing to communicate with us all, despite not being able to send out any letters.

I found particularly interesting what Michael said about the book-selling trade. Once again, the same pattern repeats itself. Early computer technology helps the old-school businesses, in this case the big book-selling chain stores like Borders, by making them more organised. But the big Borders expansion has now gone into reverse, with, for instance, the Oxford Street, London, manifestation of it having just now closed.

Book selling works well on the internet because books are a standard product that you don’t necessarily need to smell, fondle, weigh in your hand, and so on, like you might want to do with something like a camera or a laptop computer. But a product doesn’t have to be generic and standardised to work well as an internet purchase. It just has to be easy to describe with complete accuracy. Most pairs of spectacles are a bespoke product. You just have to know exactly what you want. But this is doable. So high street opticians are a good candidate for execution any year now. I am sure that the Samizdata commentariat will be able to suggest more candidates for imminent death.

Patrick and Michael ended their conversation by agreeing that they didn’t think that the bad economic conditions we’ve been having lately are going to go away any time soon, which means, as Michael pointed out, that people are not going to stop being highly price-conscious, which is one of the big drivers of computerisation and internet-isation, and failure for all the businesses that can’t adapt to these processes.

I’ll end this by recycling an interesting comment that Michael has just added to Patrick’s posting:

As Patrick said, we recorded this over Skype. I was in my home in South-East London talking into my laptop and Patrick was in his home in South-West London conversing with me and replying. This may be another example of what we were talking about. In the late 1990s the traditional former telco monopolies had a huge boom, due to their being seen as the companies that would provide this bold internet future. Now, where are they? BT is now a company that one barely notices, although they do admittedly own the copper that our conversation was going through between my flat and the exchange (although not the equipment in the exchange). Mobile carriers themselves are probably next in this regard.

Like I say, recommended.

16 comments to Michael Jennings talks failing businesses

  • Anon

    I’ve never understood why every high street needs 17 mobile phone shops.

    Re: bookstores, the situation is worse than you think. A couple of well known book shops apparently believe that selling e-books and their associated readers is going to save them. But just wait until

    a) ebook reader hardware drops to £100 or so


    b) it becomes commonly known that your favourite author’s entire output is available for pirated download on P2P networks….

  • Jen

    the fact that tons of paper will be saved each year is reason enough for some to think the PO’s need to be closed. not sure what my stand on the issue is yet as i don’t see myself being able to let go of my postal needs just yet.

  • The PO strike will probably push a few more people into digital options but the real winners are people like TNT, UPS, FedEx etc…

  • cjf

    I still feel it is as much social engineering and economic social engineering as it is pure “economic conditions”

    If the supply cannot be increased, the demand can be decreased. The movement of large money causes both.

    The ultimate solution would be to decrease demand by decrease in populations. Or, modify populations to live
    with less. The Western nations become like those in the Middle East. Tech for elites, fleas for masses.

  • Dale Amon

    You beat me to the punch on this one… I was thinking of an article much like this after receiving a text message from Vodafone giving me the URL at which to pick up my bill since their bills might get stuck in the mail strike. I already get almost all of my other bills through email and web anyway.

    Could it be the BPO will have a strike and no one will even notice?

  • Robert

    Opticians have a safe niche, because they also do the eye tests needed to find the right prescription. You can already pick up glasses with standard prescriptions elsewhere, but that’s only viable for the simplest problems. Anyone whose eyes need different prescriptions, or with astigmatism, needs lenses making to measure – and while the shop is measuring you up it might as well sell you all the accessories it can.

    However, opticians are the only made to measure suppliers found on the typical high street. The other shops have no such job security.

  • Anon: There are five mobile phone networks. These companies hate middleman sales companies that they have to pay commission to, so each network has set up its own shop. However, these are telephone companies, so they are pretty much terrible at retail, and few people actually buy their phones from the company stores, although they do a reasonably share of upgrades and some after sales service. (The phone companies inability to realise that they are terrible at retail means that they keep the stores open and somehow think business will come to them soon, but it never does).

    Because the company stores are terrible at retail, you need other stores that people will actually buy phones from. You have Carphone Warehouse for the mid market, and Phones 4 U for the spivs. You used to also have the Link, which belonged to Dixons group, who thought they should have a chain of phone stores as they were a chain of electronics stores, but they did eventually figure out that they were also terrible at retail and close the chain down. A high street might also have a (possibly franchised) outlet of a smaller chain, and/or one independent for people who don’t like the sales tactics of the larger chains. Tesco have been very successful catering to this market by opening phone stores in/attached to its larger stores.

    Plus you will have one or more independents providing phones and services catering to the communications needs of ethnic minorities. (This market has been created by the fact that the large chains and networks charge for international services on the assumption that people who use them are businessmen who are not paying their own bills, and a whole parallel industry has come into being providing services for people who make international calls and are actually price conscious – ie ethnic minorities).

    I think this explains about ten.

  • lukas

    Opticians? No way. Before I buy it, I want to see what the one thing I will have to wear every single day will do to my face. You might as well claim that retail clothes shop are due to fail.

    Record stores and movie rental shops on the other hand… doomed, all but the best of them.

  • pete

    I currently wear a pair of £5 glasses (£8.50 inc p and p) bought over the internet. They seem robust enough and I’ve ordered another 2 pairs.

    They seem at least as good as the £25 range that Specsavers are currently doing.

  • RRS

    The “whole story” here is about distribution.

    There are still the issues of production, or the adaptation of production completion as part of distribution.

    Continung improvements in production techniques will give clues to where the changes in distibution will accelerate. The same is true to a differing extent with services (whether or not attached to distribution). See, efforts to restore the Automat food service.

    There is the move from ticket agents to coin fares, and now to magnetic cards, remotely rechargable – and what next of educational instructing? Philosophy courses via Sesame Street presentations and digital readers. Any hope for reduction of litigation procedures?

    Lots going on.

  • Before I buy it, I want to see what the one thing I will have to wear every single day will do to my face. You might as well claim that retail clothes shop are due to fail.

    Surprisingly large amounts of clothing and particularly shoes are being sold online, but the basic point there is probably fair enough. There is a very big difference though. There is no shortage of low margin clothing stores. Go to Primark (or for higher quality stuff, go to Zara) and you will find stores that are working on large volumes and relatively small profits per item.

    On the other hand, go to an Optician, and there is a two stage process. The first is measurement. They sort out how your eyesight needs to be corrected and measure how far apart your eyes are, basically. Then they go into the “fashion sales” side of things and try to sell you expensive options of various kind and tell you how great you look with these expensive frames, probably going to a lot of trouble to try to avoid telling you the price until you have decided what you want and feel embarrassed to ask if they have anything cheaper.

    At this point, they have the lenses made and fitted into the frames you have chosen. It’s extremely unlikely that they do this themselves – this is likely outsourced to somewhere far away and the glasses then airfreighted in. The cost of the glasses including precision made lenses to them is tiny – probably only $20 (although it obviously depends on how complex the case is, what glass you order, etc, etc). Then they have a huge mark-up before they sell them to you – thousands of percent are common. It is this huge mark-up that makes this industry so vulnerable. Separate the measurement process and the ordering process, and this markup is no longer necessary. Opticians in the US are obliged by law to give you your prescription if you ask them for it – I am not sure of the situation legally in the UK but it is not that hard to obtain.

    For the cost of one set of glasses through a high street optician, you might be able to buy ten pairs to the same prescription online. You might not see what they look like, but if you buy ten pairs you think you may like, there is a good chance that you will like one a lot. Plus you have avoided dealing with pushy salesmen. Online businesses which allow you to avoid the pushy salesmen often go online quite well, because people like avoiding pushy salesmen. (Buying new cars online is popular, because you can shop for price without having to suffer attempts to sell you the tinted windows and extended warranties).

    The point is that the rules have changed. You no longer care so much about “the one thing I will have to wear every single day” because the cost of getting a replacement is much smaller and you may well have many pairs to choose from and you can make a decision based upon mood.

    It is of course very important to get your vision measured properly before doing this, but in my experience the people who are the very best at doing this are more likely to work in hospitals and medical clinics than in high streets anyway.

    This is of course the internet impacting the manufacturing process as well as distribution. The internet works great for bespoke, made to order products where the product can be defined very precisely. It works particularly well when the made to order product is complex, as long as it can be defined very precisely. I don’t think the “made to order” aspect of opticians means that they are less vulnerable than other businesses on the high street – I think it makes them more vulnerable.

    See here, here, and here, for instance.

  • Marty

    The whole optician thing has some similarities to drugs for pets, where you can mail or internet order whatever your veterinarian says you need. Drugs were a huge financial benefit for vets, who could take a big markup, but with competition from places like PetMeds, those margins are suffering. If you can get an Rx and you know the frames you want, internet- or mail-order becomes an option. Still some advantages to doing it locally, but much smaller and the question becomes whether the new competitive situation leaves enough of a margin to support that function.

    One of the big things that the internet has done, generally, is ease the unbundling of goods and services and allow the end-user (this is even more common in B2B than in consumer goods) to do their own vertical integration

  • pete

    The best way to lessen the effect of technology your income is to work for the government. More and more people do.

    If I’m forced to pay ever increasing taxes to safeguard the wages, pensions and jobs of state employees then internet shopping helps me economise in other areas.

  • One way of looking at the last couple of decades is that government has been stealing an ever greater portion of our wealth, but at the same time technological advance has been changing our lives in positive ways very rapidly, and this makes up for the negative effects of the growth of government to a sufficient extent that most people are still satisfied. The ability to buy cheaper and/or more personally customised goods is part of this (although some of this has been due to an unsustainable credit bubble, also). Statistics don’t capture this well. Measuring GDP growth assumes that the economy this year consists of different amounts of the same things bought last year. Relatively small changes in composition of the economy are factored in by adjustments such as taking things out of the basket of goods used for the CPI deflator (crucial to measuring economic growth) and adding other things of similar value, but this is imprecise at the best of times, and completely meaningless when the goods change too rapidly. So perhaps although we are in deep recession, life is still getting better quite rapidly for most of us, or at least for some of us.

    There are various possibilities as to where this might lead. Perhaps I am reading it wrong. Perhaps the state will continue to grow to such an extent that this technological advance and consequences of such will slow or stall. Perhaps the growth of the state will lead to the advanced economies fragmenting or failing, and we then find ourselves in a world of disfunction and poverty surrounded by an enclosing enclaves of technological wonder. (Yes, that sounds like an 80s cyberpunk vision, and I don’t really believe it. Technological wonders filter down, and so so incredibly fast). Or perhaps the trend will continue, the state will simply become irrelevant to what is actually going on – ie the real economy becomes detatched from the state. Certainly the state becomes irrelevant once technology has reached the point where I have been beamed up to a higher plane of existence. At least it does until the state turns off the electricity.

  • Laura

    A surprising number of people have one ear slightly lower than the other, etc., so I don’t see in-person service disappearing.

    Here in America, I don’t see any reason why the U.S. Mail can’t be delivered two or three times per week instead of 6 times per week, with maybe more frequent service in the two or three weeks before Christmas.

  • Here in America, I don’t see any reason why the U.S. Mail can’t be delivered two or three times per week instead of 6 times per week

    Oh, I can. Basically such a service would require half as many workers as they have now. Try to think how to get there from here, given that these people are public sector workers, with all the sense of entitlement that this involves. Private sector companies have difficulties evolving when changes are this great, and generally they go bust and are replaced by a new generation. In the case of the public sector…..