Aftermarket means maturity, changing
buyers
An aftermarket speaks of an established commodity and a broad base of users.
This is becoming the fact in the CD-ROM market. The research firm Inteco Corp.
now expects to see 11.4 million users of interactive multimedia titles on Macintosh
and MPC (Multimedia PC) computers in the home by the end of 1994, surpassing
estimates of 10 million predicted earlier this year (see "Understanding the
Interactive Home," p. 8). The market will probably reach 25 to 30 million multimedia
computers in the home by the end of 1995. Thirty million is certainly an established
market. But even in the early 1980s, new PC technology did not change as fast
as the multimedia market must now be able to anticipate. Major shifts occur
in technology and distribution channels every six months, and the multimedia
community of producers and customers must shift with it. The flea market channel
is the first viable outlet for aging technology. The flea market channel also
indicates that the typical multimedia buyer is changing. Typical buyers are
no longer early adopters. Their average income may now be $25,000 per year,
rather than the $70,000 per year which described buyers of 1992 and 1993. They
are less technically literate, but avid learners. Plus, it may be multimedia
that has excited their new or renewed interest in computing.
A new life cycle for titles
The computer and CD flea market is the home of a new product bundle from Sirius
Publishing called the "5 Ft. 10-Pak." These collections of ten CD-ROM titles
from different publishers come packaged in a flip-flop case which is five feet
in length when extended, reminiscent of wooden Chinese puzzles. An aging best-seller
anchors the bundle, with less-popular titles filling out the rest of the pack.
The packages sell for $39.95 at computer flea markets and at CompUSA for $29.95,
or at an average price of $2.99 per title. This is a bargain and a major change
in the way publishers think about pricing and distribution of CD-ROM products
throughout their life cycle. When a title is two years old, its production values
are rarely comparable with new products. These products have been seen and sold
for long enough to be old news. Lack of sizzle (dictated by old authoring environments
and the lower cost of development appropriate to a smaller market) keeps them
from being competitive with current products. Why would a publisher release
a product for $2.99 a piece in a five-foot ten-pack? These are old titles. This
bundling strategy is clearly an end-of-life cycle strategy, further implying
an established market with product which has emerging, maturing and ending life
cycles. This end-of-life cycle bundling most resembles the remaindering of books
in the bookstore channel. It's a way to extend the life cycle of a product just
a little longer to reach the broadest, least-aggressive buyers. "In Aris's 10-disc
SuperPack, the favorite titles pull along the slower sellers," explained Diane
Heppting, CEO of Aris Entertainment, now part of Softkey Distribution. "The
SuperPack adds `legs' to a collection of older product, giving the titles a
`last hoorah' in the retail channel."
Small change? Better than no
change at all
At the launch of a new product, a publisher can commit to bundling limited quantities
of a title with hardware or sound cards for a limited period of time to gain
exposure and word of mouth. However, the publisher must pull back from bundling
too many units for too long to avoid eroding retail sales. That changes at the
end of a product's retail life. Software bundling will move the final inventories
of products into the hands of users who have seen the product at retail stores
or at flea markets, but not yet purchased it. A publisher whose title is bundled
in a five-foot-ten-pack makes about a 10 percent royalty on the $2.99 represented
by that one title in the ten-pack -- perhaps a whopping 29 cents per
disc. But it is a pure royalty, with no cost of manufacturing or packaging incurred
by the publisher. One publisher I know grossed about $40,000 from the sales
of these bundled units over approximately five months. This check represented
138,000 units sold. Only 29 cents? Not a bad way to finish the life of a title.
The change that's significant is not in quarters and dimes; it is in the market
itself. The very existence of the computer flea market, of the aftermarket of
new software bundles, reveals that there is a new profile for users: an established
buying crowd, well-versed in what they are seeking and quickly creating the
mass market that the industry has been preparing for since its emergence. It
is a big story for 29 cents to tell.
Joey
Tamer refines the vision, strategy and success of companies --
Fortune 1000, capitalized start-ups and investment fund.
www.joeytamer.com
(310) 245 5310 joey @ joeytamer.com