Found this quote from Thomas Hawk blog and thought it rather amazing - hat tip to The Long Tail. Speaker was the CFO of Netflix Barry McCarthy: "Historically Blockbuster has reported that about 90% of the movies they rent are new theatrical releases. They do a great job of fulfilling demand, created by the studios who spend $4 billion per year marketing new theatrical releases and the studios own the gross margins associated with creating that demand . . . Now they have a slightly different mix online. A couple of quarters ago they said that about 70% of what they rent online is new releases and about 30% is back catalog. That's not true in our business and it's never been true in our business. The day we came public and in the most recent quarter about 30% of what we rent is new releases and about 70% is back catalog and it's not because we have a different subscriber. It's because we create demand for content and we help you find great movies that you'll really like, we do it algorithmically and we do it with recommendations and ratings."
Business needs and consumer needs are similar in kind. Businesses have several major needs and 1000s of small ones. We all like to see the flick that wins the Oscar, unless it's The English Patient - sorry but that was a lousy movie - but there are so many other good movies that sometimes don't even make it to the local cineplex. The way that Netflix serves this market is through a value approach, they are adding value to a process - looking for a movie - that is just a pain in the neck at the local video rental. Then I came across a very interesting post by Vinnie Mirchandani on The Discipline of Market Leaders: Price leadership is being set from the bottom of the market and consumers increasingly do not tolerate huge premiums.
And Again: I see so many technology vendors talk about "value selling" and hiring consultants who promise to teach them about continued high margins. Get real. If you are HP, remanufactured cartridges are the new benchmark. If you are Sun, it is Linux servers. If you are Oracle or SAP, it is third party maintenance firms for support pricing. If you are Siebel, it is SaaS pricing. If you are Accenture or IBM, it is Wipro pricing. That plus a max of 20 to 25% - if you can show some unique customer intimacy or product leadership.
The combined message here is that IT Consulting, long used to very high margins, has been brought back to reality recently by the glut of professionals and the scarcity of large implementations. The way out is to serve the long tail of business needs, short IT projects with very measurable ROI, and serve them with a lot of added value; not just consulting but bundled training, training guides, other documentation, quality audits. Vinnie is right, we are in a new era and there is no way forward unless you are agile and driven by value and customer service. | 
