Death of a Sales Model, my latest article on The High Fidelity Report
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Not everyone finds my analysis off. John Atkinson of Stereophile weighed in on Audio Asylum:
And some wisdom from audio consultant Bill Leebens further underscoring the attractiveness of crowd funding:
And some wisdom from audio consultant Bill Leebens further underscoring the attractiveness of crowd funding:
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One more comment to the detractors here. You may quibble with my numbers, you may disagree with my analysis and/or my recommendation on how the high end community should embrace this new change for under a $1K components.
However, I can tell you as an informed marketing strategist (yeah I do this for a living) that the technology change is indeed coming and there is nothing you or I can do to stop it. We are seeing this happen in ALL industries and those who embrace it are winning.
We have seen just today Neil Young's Pono be VERY successful at raising money on kickstarter ($2 million and climbing)...we have seen Geek both successfully raise money and deploy it to build products that it has now delivered.
The direct to consumer model and its offspring crowd funding have worked very well.
We will see more of this because it creates so much value for both manufacturer and customer.
The customer will not give a damn if a distributor or dealer hates it and pines for the old days. They will laugh at the dinosaur-like attitude and enjoy the cost savings.
The Customer is King. Welcome to the new world.
However, I can tell you as an informed marketing strategist (yeah I do this for a living) that the technology change is indeed coming and there is nothing you or I can do to stop it. We are seeing this happen in ALL industries and those who embrace it are winning.
We have seen just today Neil Young's Pono be VERY successful at raising money on kickstarter ($2 million and climbing)...we have seen Geek both successfully raise money and deploy it to build products that it has now delivered.
The direct to consumer model and its offspring crowd funding have worked very well.
We will see more of this because it creates so much value for both manufacturer and customer.
The customer will not give a damn if a distributor or dealer hates it and pines for the old days. They will laugh at the dinosaur-like attitude and enjoy the cost savings.
The Customer is King. Welcome to the new world.
Lee,
The "abusive use of jargon audiophile" refers to the LH literature, not to your article.
AFAIK, no one complained against the musical enjoyment of young people. What is being addressed is this particular case of crowd-funding audio development and its consequences to the high-end industry.
Isn't there a connection though? Crowd funding or other direct to consumer options will help more young people enjoy music with high end sound. This will in turn create more chances to get them to visit a dealer.
Based on my experience in examining consumer behavior, I believe it is harder to get folks in the door to buy that first high end product than it is for a dealer to step up a customer from a $2K item to a $5K item to a $10K item. Once you hear the benefit of good sound, you naturally want to explore more options and experience better sound. Its addicting.
Crowd funding is a chance to get more folks exposed to high end sound. Lower that $600 DAC down to $300 and get more people in the door.
There are three big paths for new customers - computer audio, turntables, and portable audio.
A Geek Out might lead to a Geek Pulse which might lead to an Aurelic or Berkeley which may lead to an MSB Analog.
A U-Turn turntable might lead to a VPI Traveler which might lead to a Classic 3 which might lead to a TW Acustic.
A Pono might lead to a Woo Fireflies which may lead to an Aurelic combination of amp and DAC.
I'm not Gary, but I would like to give you my take on it.
My product is very expensive, so most assume there is a lot of profit built in. By the time everything is considered, it is a break-even deal, however. Some years, it is a losing proposition. So why do I make what I make, and why don't I deploy my time and capital to another endeavor? In my case, the answer is a simple one. Mine is a passion driven business.
My observation is that audio manufacturers fit several categories. Some are mass marketers who treat their products like any other product you might care to name. Some are guys who may have done something in the past, but now they just punch the clock because it is their job. Others are charlatans who prey on the audio community with way more hype than actual substance.
The last category is made up of a significant number of small manufacturers who follow their dreams with the hope that others will appreciate what they make. For them, it isn't so much about profit as it is a love for audio. Fortunately, they have the staying power of the others, and I am proud to be in that group. I am proud to have friends who have the same sentiments, too. We may lose money at times, but we sleep well knowing that we have done our best.
Nothing wrong with loving what you are doing and having passion for building a reference product. Not every business has the opportunity to do that. Some have to show a return to shareholders.
Years ago, I was working the Sub-Zero booth at a National Kitchen and Bath Show in Atlanta when I overheard two GE designers commenting on a new Sub-Zero model. "This is what we could do, if they would let us." is the comment I will always remember. There are upsides to having shareholders, and having money to work with is one. The downside is not being able to produce your best work because of the creative constraints imposed.
My cards have been dealt, and I'll stick with this hand.
I have no doubts that the data was 'observed' and is 'real world'. The problem is, you choose the wrong research sample. I'm not the first in this thread to tell you that. I'm not a distributor nor a dealer, but have a friend who is, and I have seen manufacturer's price lists. Not sure who you sampled, accessories manufacturers maybe, but definately not a hi-end speaker manufacturers or electronics manufacturers.
If I go to the premium golf club to research the cars people drive, I have no doubts that my concluson, based on 'observed real world data' would be that most popular cars people drive are Porsche, Bentley and Range Rover.
I guess I have a lot of concerns about this:
1. What happens when people lose interest --and that will happen--in the product? And at that point, what happens to the people at the end of the line who have last ordered the product? It might only be me, but this crowdsourcing seems to me to be a giant ponzi scheme. Don't be the last one on line. IN fact, don't be anyone after the beginning.
2. How is this unit serviced when people lose interest in the product?
3. How are the people at the company paid at the end? In fact, how are the people in the company paid altogether? It seems to me that this CS only works as long as you can find a country like China or Vietnam to build something for next to nothing--and that's generally what you'll get at this price point. Caveat emptor on reliability.
4. How do they assure Q/C at this price point, esp. if they're banking on large numbers?
5. It also sure seems like a bait and switch to me. Already I'm hearing, for another $100 we can do this, for another $150 we can do that, for another $50 this is possible....and so on.
6. The margins are so small that one wrong move by a company and goodbye. And goodbye to your money.
Nine pages of people saying the same thing over and over, almost a record!
I'll take a slightly different tact; Why can't crowd funding work for higher priced audio gear?
There's lot's of evidence here on this site of people complaining about the escalating prices of gear and the types of people who buy it. Most say that the buyers of this gear don't really care about the sound it's the price, bling and the status it brings that drives sales.
Those buyers would be the perfect audience for a crowd funded campaign for high priced gear. Assuming a Kickstarter like campaign where no money is taken up front, find some type of celebrity hook and then get your act together and send out a couple of review samples when you have a "final" prototype and hope the campaign goes viral with good reviews.
There are lots of variations and it's definitely not without risk but it could work. I could even see a scenario that an existing manufacturer with say 10 dealers in the US could include the dealers in the mix. Have to have a well funded project but you could "give" each dealer one unit for demo purposes, and have any transactions done online in the store giving the dealers a cut of each sale.
Would this really work? Is it worth at least a shot? Does crowd funding work in other countries? All questions I have no answers for but I would beth that someone is at least exploring them with the success of LH and PONO.
I'll take a slightly different tact; Why can't crowd funding work for higher priced audio gear?
There's lot's of evidence here on this site of people complaining about the escalating prices of gear and the types of people who buy it. Most say that the buyers of this gear don't really care about the sound it's the price, bling and the status it brings that drives sales.
Those buyers would be the perfect audience for a crowd funded campaign for high priced gear. Assuming a Kickstarter like campaign where no money is taken up front, find some type of celebrity hook and then get your act together and send out a couple of review samples when you have a "final" prototype and hope the campaign goes viral with good reviews.
There are lots of variations and it's definitely not without risk but it could work. I could even see a scenario that an existing manufacturer with say 10 dealers in the US could include the dealers in the mix. Have to have a well funded project but you could "give" each dealer one unit for demo purposes, and have any transactions done online in the store giving the dealers a cut of each sale.
Would this really work? Is it worth at least a shot? Does crowd funding work in other countries? All questions I have no answers for but I would beth that someone is at least exploring them with the success of LH and PONO.
As I see it, the problem is the longevity of companies incorporated in this method. What type of long term product support is there? So even if you get a break, the unit is worthless if the company is out of business. Sorry but I really think there needs to be solid money backing a company for long term existence.
1. We gathered data from $2K+ component sales. We did not use data from accessory firms.
2. If you look at Vess' more conservative numbers you still get a 2X multiple.
The main point here is not that these costs at each point in the value chain are not justified in some way; it is that there is an impact to what the final customer pays. And it is our belief that on a lower cost, entry-level item the whole expensive value chain is not needed.
Magnepan has been successful selling its MMG speakers factory direct. emotiva has been successful selling a variety of products direct.
Don't underestimate the value of getting more customers into the hobby at these lower price points.
I don't know about you guys but I'm getting tired of going to meetings with 60-70 year olds listening to oldies and the same Fritz Reiner recording.
Let's get some youngsters in the door with some energy and passion.
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It is appropriate since it is an example of reaching a wider audience with a relatively affordable product with high end design (Ayre) funded by kickstarter.
It could work in some instances but the customer would have to give up more and the numbers in the value chain analysis would be different than what we saw. You would have to add back dealer margins and costs at a minimum. There would be additional costs at the manufacturer for managing dealers. So you could take some costs out but would it be enough?
There are hybrid models like what exists with mail order firms like Acoustic Sounds or MusicDirect.
The above goes for established companies\products sold through dealer and direct. also. I think of the crowd funding model as similar (but better) to buying new construction in NYC. You generally have to put down or commit $$ before the apartment is built. You are hoping that the builder/developer finishes and doesn't have issues. I bought my apartment that way. Got in early for a discount. Had some issues but over the last 10 years I corrected them. Still feel we got a great deal by getting in early. People who bought from the flippers don't feel the same but none the less have a similar "product". You obviously aren't the market for this type of product but that's fine and it doesn't invalidate the model.
Interesting analogy. And good point about product failure applying to items bought at brick and mortar stores. We have seen failures there such as Hovland, Carver, etc. which often hits most on resale value.
Lee, as you know many members on WBF are in 'the business' in one way shape or form. collectively they have many, many years of experience mfrg, distributing, selling and reviewing high-end gear. based on this thread, from what i can tell none have agreed with you thus far.
don't take this the wrong way, but the manner in which you fervently defend your position doesnt come off as some guy that just wrote an article for discussion purposes but someone with a vested interest in CF. as a "marketing strategist" are you actively consulting with other mfrs on the concept of CF? I sell for a living in the services sector, I know when i'm being pitched and i feel like i'm getting the hard sell.
don't take this the wrong way, but the manner in which you fervently defend your position doesnt come off as some guy that just wrote an article for discussion purposes but someone with a vested interest in CF. as a "marketing strategist" are you actively consulting with other mfrs on the concept of CF? I sell for a living in the services sector, I know when i'm being pitched and i feel like i'm getting the hard sell.
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