As an estate planner, it is fascinating to me to see how some have acquired their wealth. When I began my career, many “wealthy” families had earned it the standard way, through careers, businesses and salting away a significant portion of their income.
It is even more fascinating to see how the rules of the game have changed so very much in the last several years. By that I mean solid businesses and careers can implode by becoming obsolete overnight. The microchip and the technological advances it offers has changed our society. Those who keep up with technology and incorporate it into their careers and businesses prosper. Those who don’t suffer.
And that’s because the microchip has caused many businesses and careers to fall victim to the “commoditization trap.” The commoditization trap, simply put, is the perception that the goods or services that your business offers are the same (a commodity) as any of your competitors. You see this most often today when shopping for goods. You might look in the bricks and mortar store but then go on the internet to find whatever you are looking for at a cheaper price.
And it isn’t limited to goods. Services are being commoditized too. Why should I pay the stockbroker his normal commission when I can trade for $6 on the internet? Why should I pay the CPA to prepare my tax return when I can prepare my own for free using a web site? Why do I pay an estate planning attorney when I can prepare my documents on the internet for a fraction of the cost?
But there is a way for both businesses and service professionals to break free of the commoditization trap. They must first recognize the trap exists and then embrace the same technology that produces the gap in order to create unique, personalized value that consumers will flock to. Where everything looks the same, people search for someone who can provide three things – leadership, relationship and creativity. Those are elements that no computer can replicate.
Leadership, relationship and creativity enhance the consumer’s comfort, clarity and confidence. Whether the decision involves which new car to purchase or how best to balance one’s investment portfolio, those that can help the consumer zero in on what’s most important to him or her will find success.
What this means is that it is the consumer and not the producer that drives our economy. Large institutions – whether they are government bureaucracies or private enterprise – can no longer dictate how we live our lives. The old days of companies dictating what the consumer wants are over.
Take the music industry as an example. When I was a kid in the 1970s, if I wanted to buy a song that I heard on the radio, I would have to purchase the whole album for $15 or so. That was a lot of money in the 1970s. Even though I only liked the one song but had to purchase the package – this was the way that the music industry packaged its product. The consumer had very little choice. Moreover, the artist got paid a tiny fraction of the album price. The music labels, agents and distributors got the lion’s share of the profit.
Today, if I hear a song that I like on the radio, I can go onto iTunes and purchase that song for $1.29 or less. I don’t have to purchase the entire album. Moreover, the artist realizes a much larger percentage of the revenue. He or she can upload his work into iTunes without the need for a record industry label. This is a consumer-driven (bottom-up) economic model. The record labels aren’t largely the players in the industry anymore. Without the microchip this wouldn’t be possible.
Another example can be found in the travel industry. When was the last time that you used a travel agent to book an airfare, hotel or rental cars? Consumers largely drive the travel industry economy. You can easily research destinations, read reviews posted by other travelers and decide on your itinerary from the comfort of your living room sofa. All driven by the microchip.
I can customize an automobile from the internet, design my own running shoes or even order custom golf clubs and have them delivered to my home within a few days. The companies that realize we are in an individual-oriented personal design economy prosper. They have circumvented the commoditization trap by offering unique-personalized fare utilizing the same technology that drives their competitors out of business.
These can be scary times for those who don’t adapt. But they also offer unlimited economic opportunity for those who understand the challenges and are willing to use technology to their advantage.