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No Friction, No Profit. No Profit, No Job

by JRoyale

2000-10-20 13:41:00

This is a really good this piece by Scott Rosenberg over at Salon. He clearly identifies one of the major fundamental flaws in the premises that most e-Commerance sites are built on.

His main point is that what he calls "friction" in the market is where many, if not most retailers make their money. Remove all the friction, remove all the profit. Thing is, one of the fundamental tenets of most e-Commerance sites is that they remove the friction for the buyer. Which is way buyers should (according to the e-commerance sites) use the web instead of visiting a traditional brick and mortar store

I'm gonna cut out more of this article then we typical do here that the PDJ. If Mr. Bad and Tjames get pissed off... well, fuck'em, I break the rules here all the time and they're just gonna have to get used to it. This is a good quote and you should read it.

As the bankruptcies and closures mount in the e-commerce universe, it's apparent that investors and consumers alike are beginning to understand viscerally what skeptics have long outlined as the grim, iron paradox of e-commerce. Either e-commerce doesn't deliver much in the way of reducing friction, adding convenience and lowering prices, in which case there's no reason to embrace it; or it does manage to do so, in which case the consumer's gain is the industry's loss.

Friction, it turns out, is the parent of the profit margin. The more you move toward a perfect market mechanism the fewer opportunities there are for anyone to make money.

What's the ultimate embodiment of friction-free economics? A marketplace in which everything is free, instantly available and infinitely duplicable, with no cost of goods, no transaction costs and no inventory depreciation: in other words,

Napster. Napster, unsurprisingly, turns out to be hugely popular with consumers -- and anathema to producers and distributors. The one thing that's missing from its model is cash. No friction? No revenue, and no profit. Whoops!

I just love the point about Napster. Whoops is right.

In this reality check world, where profits are once again considered essential to any business strategy, if you're in a Dot-Com trying to reduce market "friction", you should really...

Over.  End of Story.  Go home now.

jared@pigdog.org

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