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Lesson 12Results of Technology Trends
Objective Discuss the results of the technology trends.

Results of Technology Trends

Three Market Trends have emerged

As a result of communication tools, information tools, and product technology, three market trends have emerged:
  1. Customer information and relationships are increasingly important
    Information on purchase habits is allowing companies to manage the selling process more efficiently and respond to customer needs
  2. Pricing strategies are under pressure
    Companies in other industries are moving from a product pricing approach (where margin is realized through markup), to a service pricing approach where customers pay for the services involved in delivering a product.
  3. Channel structure is fragmenting
    Not all channel relationships will unravel, but the breakup of the current structure will cause a great deal of confusion.
Observations of market trends supporting these trends include:

(ASP) Application Service Providers

The increase in network bandwidth, the growth of computing server performance, and the growing acceptance of the Internet as communication medium has given rise to a new software distribution model: 1) application outsourcing and 2) software leasing.

Application Outsourcing

Application outsourcing refers to the emerging trend of deploying applications over the Internet, rather than installing them in the local environment. Application outsourcing shifts the burden of installing, maintaining, and upgrading an application from the application user to the remote computing center, henceforth referred to as application service provider or ASP.

Software Leasing

Software leasing refers to the emerging trend of offering applications on a subscription basis, rather than through one of the traditional software licensing models. In the ASP model, system administration and application management is performed entirely by the provider. It thus becomes possible to charge a user on a pay-peruse basis, differentiable on a very fine-granular basis. This fine-grained differentiation can go as far as taking the specific functionality required by individual customers into account and metering, for computation consumed, the resources for exact billing. Thus, rather than selling a software license—giving a user "all-or-nothing" of a product—the software may be leased to the user, offering a "pay-by-need" and "pay-on-demand" model. The customer only pays for the actual functionality used and resources consumed.

Market EffectsObservations
Pricing Strategies are under pressure
  1. Growing competition will continue to force the average selling price of a business PC down by 25% by 2002
  2. With manufacturer costs remaining flat, and market expenses rising, PC margins will be cut in half to 4%
  3. eTailers are subsidizing product margins with market cap and advertising revenue
Channel Structure is fragmenting
  1. eCommerce is having a dramatic effect on channel structure and creating significant efficiencies for channel participants
  2. Manufacturers are communicating directly with channel users and end-users
End-User and channel relationships and the data they generate are the focus of competitive advantage
  1. "Competitive advantage is driven less by WHAT you sell and more by HOW you sell,
    Michael Dell, Founder of Dell Computer Corporation
  2. "HOW you market has become more important than WHAT you market"- George P. Orban, CEO Egghead