The Blueprint

Charging for Digital Services

There has been a lot of focus on “charging for digital services”.  As the market becomes commoditized and margins get squeezed reprographers must find other ways to increase margins.  Look at the travel industry.  This industry has faced rapid commoditization because of online tools like Expedia, Hotels.com, and Priceline.  They have found new means of making money.  The bulk of the profits in hotels no longer come from renting rooms.  It comes from the incidentals: minibar, movies, video games, etc.  I’m currently on an airplane and the flight attendant just asked me if I’d like to buy a meal for $5.  Sure - some people complain they don’t get free food on flights anymore, but as a consumer is it really that bad.  The food was never that good to begin with.  Now that it is optional the food is much better.  There are some times when I’d rather eat before or after a flight.  If making meal optional can help airlines stay in business and offer me more options, I’m all for it.  As you walk down the path of charging for digital services, below are a couple suggestions:

1. Sometimes you need to tactfully remind your customers that you are a “for profit” business.
2. Choose chargeable services that are optional for the customer.
3. The first priority should be to condition your customer - increasing your profits will come later.
4. If you believe new charges will create issues with existing customers find ways to minimize the “shock”.

I will elaborate on these suggestions in subsequent posts.

Where is the Construction?

PLP does business around the globe  It is always fascinating to get outside of the U.S. and see what is happening in other regions.  We have customers in Dubai in the United Arab Emirates.  Here is some recent feedback on the state of construction in Dubai.

• There is currently $200 billion worth of construction projects ongoing
• 25% of the building cranes in the world are operating in the Dubai region
• UAE is roughly the size of South Carolina
• Dubai (an emirate, or "a state" of UAE) is roughly the size of Rhode Island
• The only affordable housing is north of Dubai.  All traffic must cross one bridge and two tunnels.  Needless to say traffic is a problem.
• Internet connections are so slow (2 hrs to download 200MB) that most companies distribute drawings on CD's
• Even with horrendous traffic it is still more timely to courier CD's

Lots of opportunity and plenty of challenges!

Below are some photographs showing the construction in Dubai.

The Palm Islands

Three man made islands that are visible from space.

The World Islands

Archipelago of man made islands that depict the world.  One could be yours for a mere $15M.

Burj Dubai

The world's tallest building to include residential space.  (estimated to be 2,313 ft and 160 floors)

 

 

The Dubai Marina Project

 

Burj Al Arab

The worlds first 7 star hotel.  Only $2,560 a night for a standard room.

Converging on the Best Practice

I just returned from Europe where I visited several countries.  I am always amazed at just how different practices are in different countries.  But another thing I noticed is as time goes on practices converge.  These practices are converging between European countries and also between the U.S. and Europe.  No the European's are not acquiescing to American practices!! In many cases they are more efficient and our practices are becoming more like theirs.  For example they do not create large bid sets and distribute them to every contractor who wants one.  They print sets as they are needed.  In many countries they also require the subcontractors to pay for bid sets.  Sound familiar?

We have all heard the term "best practices".  There is a reason they are called "best practices" because they are the most effective.  Over time all markets move to the best practice.  Furthermore, all markets eventually move towards a "cost plus" model.  As a market becomes commoditized the pricing will move towards a model where the price to the customer is the vendors fully loaded cost plus a reasonable profit.  If a company is giving something away they eventually run into trouble .  Their costs rise and their gross margins stay the same.  If a service has a cost associated with it you must find a way to charge for it (at least in a commoditized market), or you will feel the squeeze.

Opening Doors

At the CRA convention last week S. "Mohan" Chandramohan, American Reprographics Company CEO gave an insightful presentation.  He used a quote from Alexander Graham Bell that I use often:

"When one door closes another door opens; but we so often look so long and so regretfully upon the closed door, that we do not see the ones which open for us."

Mohan provided some additional commentary that I found profound.  He said sometimes we assume doors are closed when they have not yet closed, and sometimes we put a lot of effort into doors that are not yet open.  This is so true.  Sometimes we get so excited about something new (i.e. the Internet) that we are ready to abandon everything old (i.e. bricks and mortar).  The key to success is keeping your eye's open to new developments, but not abandoning the old too soon.  Many people fail in business because they either (1) assume that new business models will never work until it is too late, or (2) they put all their efforts into the new business models before the market is ready to accept them.

Job Description

I was once asked if I could help a reprographer find a manager for a major metropolitan market.  I sent a request to a CEO/Entrepreneurial organization I belong to.  I received many highly qualified responses.  The comment was made by the reprographer the responses may be over qualified and they didn't have any specific experience in the AEC reprographics market.  The responses ranged from former COO's of software companies to entrepreneurs who had sold their companies for millions and were looking for a challenge.  They had experience in operations, technology, and sales and marketing. 

How did I get such qualified people interested?  It was how I positioned the opportunity.  Here is my message.

A traditional bricks and mortar company that provides document management services to the construction industry is looking for an executive to manage its operations in [insert geographic area].  The worldwide construction industry is about $3.4 trillion and is in deperate need of more advanced document management products and services.  This company is investing heavily in technology and bringing new products and service to market to compliment its traditional services.  The company is looking for someone that can manage sales and operations in this highly competitive market.  Experience launching and delivering new technologies is a must.

If I would had said "a reprographer is looking for a branch manager", I would have received zero responses.  Well, I may have received a few "what's a reprographer" messages.  The company came across someone with industry experience that they knew and trusted.  They hired him.  What would things have been like if they chose one of the "over qualified" applicants I provided.  I imagine a little tumultuous.  They may have challenged the status quo, but it may be what the company needed and what the industry needs.  While some are groaning over declining revenues and shrinking market opportunity, I believe there is a large growing opportunity.  First you need to believe it yourself.  Then you need to bring people into your company that can help you achieve it.  To attract these people you need to sell them on the future and the opportunity.  You can't sell them on the way it was or even the way it is.

Feel free to use excerpts or derivations of the description above to attract people to your company.

Connecting the Dots

Apparently several readers of the blog were confused about the relevance of the previous post to the reprographics industry.  Let me try to connect the dots:

• Music Industry: Music Media
• Reprographics Industry Construction Media
• Old Model: Selling CD's, Selling Copy's
• New Model: Content Aggregation and Distribution (in multiple media formats)
• Old Revenue Model: Pay per unit
• New Revenue Model: Subscription

With the use of digital document management technologies and on-line access to this information there are many ways to provide a better service to customers.  This can be more profitable than the traditional business.

I was at the CRA show in Austin last week and heard a presentation from S. "Mohan" Chandramohan, American Reprographics Company CEO.  He provide several thought provoking quotes in his presentation.  He mentioned that giving away digital services to get more printing is like "burning furniture to warm your house".  Whether he is practicing what he preaches is not for me to comment on.  I don't have enough direct experience, but I do believe he "gets it".