More good news from the world of capitalism. There is a bidding war going on for your eyeballs, and, frankly, I couldn't be happier about it. Competition and innovation are changing the way we use and pay for some pretty pervasive services, and the winner, without question, is you and me.
Mail Pride
Yahoo! Mail today announced yet another increase in the amount of free storage space they give their subscribers since Google Mail launched their free 1GB email service last year. I don't know if anyone remembers but, before Google Mail launched, Yahoo! Mail's free subscribers got about 6 MB of free storage space for their email. That's just enough to send/receive one MP3 file (one song) before maxing out your storage allocation. Then Google came along and announced 1GB of free space - roughly the equivalent of an iPod shuffle, or enough space to send/receive about 240 MP3 files. That's a big difference, as it allows people to not only send and receive, but keep files and important emails indefinitely, and not have to delete them to make room for future mail.
Which service do you think people would choose? Yahoo! (and Hotmail and others) realized this, and in May 2004 bumped up their free storage allocation per user to, get this, 100 MB. About 14 MP3s. Gee whiz. Didn't change many minds. Then, about 6-8 weeks ago, Yahoo quietly upped the storage amount to 250 MB of free space - about 50 MP3s. Since they didn't really tell anyone about it, and it still wasn't even close to what Google was offering, the service was still bleeding subscribers. Finally, they realized that, if they want to stay competitive and not lose any more subscribers (hopefully), they have to be on par with the new service that is taking all of their potential revenue.
A duel to see who will go out of business last
Another area where we see intense competition and innovation improving the consumer experience is the DVD rental wars. For more years than I can remember, Blockbuster had a stranglehold on the stagnant movie rental market. Not only did they dictate the only way to rent movies - get in your car, go to the store, hope they have what you want, wait in line, show your membership card, rent the movies, get in your car, go home - but they wiped out many mom-and-pop stores and homogenized the market.
Then a little company called Netflix came along and offered not only a more convenient way to rent movies (order from home over the Internet, have movies mailed to you, mail them back in a prepaid envelope), they also unleashed a subscriber model that meant you knew exactly how much you would pay a month for rentals, regardless of how many movies you rent - WITH NO LATE FEES. Plus it virtually guaranteed a predictable revenue model for the company, something shareholders love.
This is great for consumers. Who hasn't watched Blockbuster get humbled and try everything under the sun to stay competitive?! First it was their worthless rewards program - where you had to PAY an annual fee to get anemic rewards, and one free rental a month. Woo. Didn't last. Then they unveiled their own subscription model, but it was in-store only (not online) at first, without the convenience and choice of Netflix. Then, after going online, Blockbuster undercut Netflix's monthly subscription price. Netflix in turn dropped their price, and offered a second service option with an even lower cost. So Blockbuster, in a move that shows how desperate they are, put an end to the late return fees that were the high-margin bread and butter of their revenues for so many years.
Now, Blockbuster is rolling out yet another new service, an "All you can watch" monthly subscription model, to compete with Netflix once again. In the meantime, Wal-Mart and others are trying to horn in on the online monthly subscription rental service. Everyone wants a piece of the recurring-revenue pie, and we benefit from the competition.
Missing the point
The real problem for them is, in less than 5 years, the need for these services will be long gone, thanks to competition and innovation. Long story short - in the very near future, you will be able to order any movie ever made, on demand, right through your cable, satellite or telephone service provider. You won't have to go to the store to get it. You won't have to wait for it in the mail. You won't have to wonder whether or not it is in stock. And it will most likely be priced as part of your monthly subscription, not on a per-movie basis, as it is now. Again, competition, I think, will eventually force this, and subscription revenues are much better for predicting annual revenues.
Unless Blockbuster and Netflix figure out a way to start providing their content over broadband, they are fighting a battle no one will care about. I'm sure they have something up their sleeves but, right now all they own are a bunch of DVDs and a subscriber list. They have no online delivery model and own zero rights to the content.
Then again, with all the free email storage space we will have, maybe we all soon just be emailing to each other bootleg copies of the movies we want to see, for free. That's a joke.
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