We Accept Visa, MasterCard and… Smartphones?

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We definitely live in a world dominated by technology and information. Internet access has become a basic need for most people over the globe and technology has taken over telecommunications, entertainment, social life, commerce and education, among many others. In a few words, every aspect of our lives and every need are being attended with technology inventions.

Every now and then some innovations show potential to really change the way we work, relax or shop and do business.  Right now, the idea of people paying in stores, restaurants or for their phone bills using solely their smartphones is starting to materialize.

Accordingly, PayPal has become one of the pioneers with BlingNation, an application for the iPhone and iPad that let customers pay for their purchases using these devices, after attaching a small Bling chip to their phone.  Additionally, Starbucks has made available a new version of its Starbucks card application, which generates a barcode on the display that is then scanned at checkout in order to pay for your morning coffee. The payment method is already available in their outlets inside Target stores, and in their locations in Seattle, Northern California and more recently over 300 stores in NYC-Long Island area.

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But, is this new payment way a trend that will just dissipate in time or will it become a steady way to pay for your purchases? Will it extend to every type of store and retailer or will it just be available on some establishments? Will it replace credit cards? These are not easy to answer questions; however it is interesting to check out some facts.

First of all, smartphones are a phenomenon that has attracted the attention of millions of U.S. consumers and the number of people buying any of the many “smart” devices offered in the market is increasing. In this regard, The Nielsen Company estimates that by the end of 2011 smartphones will overtake feature phones in the U.S. One in two Americans will have a smartphone by Christmas of that year, compared to just one in 10 in the summer of 2008.

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According to The Nielsen Company, this acceleration responds to the increased application availability, better native features and the declining prices for smartphone devices.

Another issue to look at is how smartphone users are using their devices. Below is a chart developed by The Nielsen Company that provides insight about this topic.

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According to the graph, smartphones are mostly used for entertainment purposes (games). However, smartphones users show also a lot of interest for functional features such as maps, navigation and search in the web (50%), banking and finance (28%), Dining/Restaurant (25%), Shipping/Retail (21%) and Food/Drink (19%).  It reflects that the adoption of an application for paying for your shopping with your iPhone or Blackberry, among others, is highly certain.

Additionally, in the case of Bling the new system not only report advantages for consumers but also for retailers since the fee charged is about 1.5%, about half the usual credit card fee.

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However, there are still a number of issues to overcome. The readers have an estimated cost of $200; therefore, a retailer such as Sears Holdings with 3,900 stores and approximately a dozen readers per location will have to invest in 46,800 readers, resulting in $9.4 million.

Additionally, the concern about how secure will be the system and the possibility of frauds and thefts is always present. In fact, some sources claim that researchers at Cambridge unearthed a design defect in the Chip and Pin system over a year ago, which enables a fraudster to make unauthorized payments using any valid (or cloned) Chip and Pin card, without needing either a Pin or a signature.

So, will smartphones mean the end of credit cards? In my opinion this new technology brings a situation in which everybody wins (except for credit cards companies, obviously!). However, time along with factors such as the security of the new system, costs and the receptivity of consumers will tell.

The Test of Internet to Almighty Music Labels

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How compatible is music and business? This is a question that could be answered using examples of musicians dealing with almighty music labels. All sort of situations have emerged from this relationship: musicians “selling out” to the wishes and requirements of labels in order to make music more “commercial” to sell more or labels retiring support to musicians who do not give in and have to move from one label to another. Additionally, labels have always been criticized for absorbing most of the profit generated by the sale of records.

Nevertheless, a new reality that has changed the way we live and make business has been created by Internet and big labels and artists have not escaped from this new environment. The advent of the World Wide Web has maximized possibilities for the artists and labels and also for other undesired markets, such as those benefited from piracy, through an innovative distribution channel of unpredictable magnitude.

In regard to musicians, artists such as Radiohead and Trent Reznor (frontman of Nine Inch Nails or “NIN”) have already taken the initiative. Accordingly, Radiohead announced on its 2007 Web-Site that fans could pay whatever they want for the band´s new album for that year “In Rainbows”, as long as they purchased the digital version. Additionally, the band offered a deluxe box-set including two 12-inch LP´s and two CD´s with artwork enclosed in a customized sleeve for about $80. EMI used to be the label of Radiohead until 2003, when their contract expired.

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In relation to Trent Reznor his non-conforming position about the way music reaches the audience and how the business is handled is so determined that he even told his fans in a concert in Australia to steal his music.

As Radiohead, Reznor uses the Internet to deliver his music to fans. Hence, anyone who wants to get a copy of his most recent release (a LP) “The Slip” only has to access NIN website and download the free tracks. Additionally, Reznor offers limited digipacks in the conventional physical format but also including a DVD, extra tracks and the traditional booklet.

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For label companies the new Internet distribution channel offers obvious advantages, allowing them to reach more customers using digital formats (.MP3, .MP4, among others). Naturally, the digital advantage has caused the disordered spread of files in the Web and has led to file sharing, person to person distribution and illegal copying and burning, among others, opening a huge door to piracy.

The music industry has tried to counteract this by selling “protected discs” which set limitations for copying the tracks, which has resulted in consumer dissatisfaction since the access to the CD files is totally restricted, limiting the transfer of the tracks to devices such as iPod´s.

Piracy has also flourished in third world and poor countries, since the prices of records and movies are so high that make impossible for the average class person to buy original products. Again, label companies bear some responsibility on this matter, since they set the prices of the releases.

In this regard, Reznor has also criticized the way labels set prices. He claims that after visiting a HMV store in Australia and noticing that the price of every NIN release was six, seven and eight dollars higher than other albums and DVD´s he spoke to a few executives of his label to get an explanation about such this surcharge. The executives stated: “[NIN has a] core audience that’s gonna buy whatever we put out, so we can charge more for that. It’s the pop stuff we have to discount to get people to buy it. True fans will pay whatever”.

All these cases depict situations in which the weak intermediary got expelled out of the distribution channel. This time, it was the turn of the powerful and almighty music labels.