Tuesday, April 28, 2009

Beg, steal or borrow

The NY Times published a disturbing article that highlighted the growth and quasi-legal status of the handset black market. Adding to the pricing pressures of chip commoditization, intense global competition and innovative R&D, legitimate companies are increasingly facing IP rip-off's.

These pirates have captured a 20% market-share in the worlds largest cell-phone market and are now exporting to other major markets. Safe to say that state sponsored IP piracy won't be limited to phones, movies and music. In practice, this is a form of globally exported deflation. Unfortunately, it also probably represents a growth market.

A few thoughts jump to mind:

1. I have focused previously on the trend towards permacheap. By this I mean that we are not in a short-term economic cycle that's reflected in downward pricing pressure. We've hit the reset button for a long term trend to lower prices. Perhaps, permacheap isn't enough and there's room for a permacheap(er) category.

2. IP investment is necessary, but not sufficient, to create value on its own. Iterative value, in the likely form of community, brand or support are critical to mitigate permacheap pressures

3. Current trends probably shifting the risk/reward for investing. Traditional VC looks at either investing to create a new market or investing to alter an existing market. If a company can harness permacheap (e.g. Craigslist or Skype) it's compelling to enter, and destabilize, an existing market.

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