Tuesday, December 22, 2009

Deflationary Business Models

I was interested to read a story about deflation in Japanese coffee dispensers in the FT http://www.ft.com/cms/s/0/d0bad846-ed91-11de-ba12-00144feab49a.html. This made me think about the tremendous amount of capacity overbuild in Western economics on the back of artificially low interest rates, and the concomitant excess in capacity. Would that not tend to suggest that we should also be seeing some interesting deflationary dynamics? What is novel is that unlike the deflation in goods that we have experienced in the past years - enabled by cheap Chinese imports - the new deflation might come in the form of services, which have for the most part resisted such tendencies. Some of the groups that have captured on this trend include players such as Groupon.com - who just snagged $30M from Accel and is based in Chicago, and Buywithme.com, which is based in Boston.

3 comments:

John Caddell said...

Dominic, I think there's no doubt that deflation is coming (has come) to services. Thinking about what Craigslist has done to newspaper classified ad revenues is one example. Attorneys moving to fixed-fee structures is another. Open-source software and web services will continue to make computerized services cost less.

regards, John

charlotte gordon said...

ok, dominic. If I start reading this maybe I will understand the world of business, your business, a little bit! Maybe--

Luis Sisamon said...

Hi Dominic, long time. Yes deflation is coming to the services sector for sure.
Consulting is a prime example, on the supply side content is getting packetized and new entrants mostly from South Asia have started eroding the commodity projects that were our old firm's bread and butter.
We are doing our bit on the CVM area, and people like WirelessFederation can provide you with an Industry Benchmark for just a fraction of the cost, probably other people are "democratizing" PMO.
On the demand side I believe clients have changed their buying behavior, and consulting premiums are harder to justify.What started as a cyclical adjustment will more likely become structural
We are an example of the first wave but I am sure more people will follow and eventually someone will get the model right.
Let see how many second tier consulting firms are standing in 5 years.