Posted by: nickgerlich | October 19, 2007

Paying the Piper

I remember (and that’s something you do a lot more of when you get older) back in 1985 when I made the executive decision to start buying CDs. I already had a sizeable LP collection, along with some cassette tapes. I labored long and hard over this decision, because it involved not only buying the more expensive discs for my listening pleasure, but also a CD player. On a grad student budget, this did not leave much for playing around.

The CD was first introduced in 1982, making it 25 years old this year. By 1985, CD players had dropped from $1000 to a mere $200. Discs, though, were a little hard to find. Record stores usually just had a small bin off to the side for this emerging format.

CDBut I made that decision, and never turned back. Yes, there was expense…doubly, so to speak, because I still had to maintain my turntable in order to listen to those old LPs. I loved the clarity of the CD, as well as the ability to skip around the disc at will. I figured this innovation would take off quickly.

But it was not until the early-1990s before CDs had a 50% market penetration rate. Apparently a lot of people thought the idea of format switching was just too much to swallow.

And so it goes. Earlier this week we hashed out the PC vs. Mac issue, which is also one of format. Sometimes the debate is over just a brand, but more often than not, there is some basic incompatibility issue between brands, making the costs of brand/format switching all the more potent.

Which may explain why all of my many bicycles have Shimano components on them. It’s not that bikes with the Italian-made Campagnolo components are’t any good; it’s just that the two systems are as far apart as PCs and Macs. And to change now would cost me dearly in acquiring spare wheels and parts that would work with the other system. I am firmly entrenched in the Shimano paradigm, hooked for life.

I see the high cost of format switching play out repeatedly, especially in high-tech products. Sometimes, though, the changeover is faster, like with DVDs (introduced in 1997). It took only a few years to achieve 50% penetration. Of course, I suspect the previous transition to CDs for music made it easier for people to justify the switch from VHS tapes to DVD movies. We made a similar decision in 2000 to no longer buy VHS movies for ourselves or the kids.

Still, there are a lot of people who are slow to switch (perhaps even never). It was up until just a few years ago that new cars sported both cassette and CD players. Talk about trying to be all things to all people.

We are going through another one of these transitions right now with our TVs, but this one is mandated. On 17 February 2009, all TV stations must turn off their analog transmitters, and use only digital. At present, most stations are broadcasting in both formats. The transition was to be completed by now, but there was an escape clause that was exercised.

Another part of the problem is that few people owned televisions sets that are capable of receiving the digital signal. But when February 2009 rolls along, we will not have a choice: We will either have to buy a new TV, or a set-top converter box. Either way, this forced compliance has a cost attached to it.

Not counting forced changes like digital TV, the adoption rate for innovations, format changes, etc., will be a function in part of the perceived cost of doing so, as well as whether the individual consumer is an innovator or not. There will always be the select few opinion leaders who leap at the sound of anything new coming down the pike. A more reserved (and larger) group waits in the shadows to see if it’s for real, and then takes the plunge. But then there is a little over half the market that is either in the late majority, or worse yet, a laggard who never changes. Still, if the perceived cost of changing is high, the consumer can put on the brakes in a heartbeat.

Perhaps Apple would sell more computers if the price differential (and associated costs of switching) were not so great. Software and learning expenses are also a big part of this. It takes time to unlearn Windows and start over with the Apple system.

But for folks who bought into the CD concept many years ago and have yet to go digital, there are perceived costs that be even higher than the cost of music or gear. It’s not that the price per song (99 cents) is too much. No, it is the idea of not actually possessing the recording in tangible form. Digital property is a pretty new concept, and many have yet to embrace it.

Of course, we could all go back to our LPs and hope the world never changes. It’s pretty safe and secure amid the snap, crackle, and pop of those old recordings.

Dr “Anyone Want To Buy Some Old TVs?” Gerlich

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