Being Digital: Adding Value

Nicholas Negroponte, Professor of Media Technology at MIT's Media Lab, is somewhat of a hero of mine, not the least because in his 1995 book Being Digital (Alfred A. Knopf), he mentioned specialty magazines as being a paradigm (of a sort) for the information-rich future. The role of a magazine such as Stereophile is to act as an intelligent (we hope) filter applied to the breadth and depth of human activity. Those who define themselves by their interest in the publication's specialty can therefore go to just one source to find everything of relevance.

I'm not suggesting that Negroponte was telling the digerati to go buy paper magazines! However, in all the acres of ink I have seen spilled on the subject of how the Internet was going to make paper publishing obsolete, it was only Negroponte who—correctly, in my view—defined the need for filters to be applied to the increasing, and increasingly unmanageable, mass of data to which we are exposed in our waking hours. And having one's avocation—what else is an editor if not an information filter?—affirmed by a third party always gives you a case of fuzzy warm feelings toward the one doing the affirmation.

In Being Digital, Negroponte compares the past, where information had to be stored on a physical carrier ("atoms," in Nicholas-speak) which was then "pushed" at the consumer, with the future, where the information itself ("bits") can be pulled from the Internet without any physical media being involved. The implications of this difference for society are enormous.

Compare, for example, the infrastructure of discrete and different businesses involved in getting the bits representing a musical performance into your hands in the form of a CD, with the ease of downloading from the Internet the MPEG Layer 3-encoded bits that represent the same performance. MP3 may not offer the claimed "CD quality" described by Paul Roeber in this month's "Letters" column, but there are sure of a lot of financial margins (and livelihoods) missing from the chain once you remove the need to push atoms around the world.

Negroponte developed this theme in his column in the July 1998 issue of Wired. He took a hard look at the future of retailing, writing, "You enter a store. You see something you like. You write down the product name and manufacturer. You go home and order it over the Internet. As a result, you didn't have to carry it, you probably got a better price, and you may have avoided sales tax....Have I just described the exception to tomorrow's retail, or the rule?"

To me this scenario, using a dealer's facilities to decide what to purchase but buying elsewhere for less money is nothing more than theft. In his column, however, Negroponte develops the case that for many kinds of goods, this is the logical way things will happen. He does point out that "manufacturers of toys, cars, and clothes, etc., seem less than eager to advocate that [the customer] disintermediate [lovely word!—Ed.] the middleman and instead buy directly from them." Why? "Though [disintermediation] would be more profitable for the producer and less expensive for the customer, it would also alienate the single largest outlet for toys, cars, clothes, etc.—the retailer!" he explains.

And how! I thought to myself as I read that Wired paragraph. And as high-end audio is also like "toys, cars, clothes, etc." in that it is almost exclusively available from retailers with storefronts, I could just imagine the reaction of one of those retailers to a would-be customer who decides what to purchase in his soundroom but then buys it over the Internet. The Tasmanian Devil would be a gentlehearted soul by comparison!

If you read Barry Willis' August "Industry Update" piece on the attempts by some manufacturers to prevent retailers from selling outside of their "designated" areas (Vol.21 No.8, p.33), you will have realized that high-end audio retailing already departs from the ideal of allowing consumers total freedom of choice (though the traditional consequence of this restriction, the fixing of artificially high prices, does not seem evident). But given that Negroponte's look into the future (if any) of specialty audio retailing assumes total freedom of consumer choice, what will keep our favorite hi-fi huts in existence?

Again Negroponte supplies the answer, and echoes the conclusion drawn at a seminar on the future of retailing that I attended at the 1995 Conference of the Professional Audio/Video Retailers Association: The Internet purchasing scenario will apply to commodities or something where the retailer cannot add value to the product. But if the retailer can add value, that retailer will continue to flourish. Take books, for example. If all you want is the book itself, then ordering it online from is the sensible thing to do. But if you want to browse, make book discoveries, have coffee with friends, or, as I did last week, listen to Stereophile Copy Editor Richard Lehnert give a public reading of his superb poetry, that is why you go to the bookstore. Negroponte argues that the social aspects are the bookstore's real service, not the selling of books, which merely provides the financial infrastructure.

In The Art of War, Sun Tzu warns of the dangers of fighting your enemy on territory he already occupies. High-end audio retailers who merely trade in sealed equipment boxes, who do not add value to everything they sell in return for their margin, are doomed. They cannot compete with the warehouse chains who specialize in merchandizing packaged mediocrity to undiscriminating consumers, with price being the only factor affecting a purchase decision. But retailers who realize that what they're actually selling is their experience, their component knowledge base, their skill at setup, their love of music, and the ability to make their customers' audio purchases sing in their homes—these enlightened souls have no need to fear the future.

When the retailer adds value to what he sells, price is reduced to a still-important but not the most important factor affecting what a customer buys. And a retailer who adds value is no longer a fisherman dependent on a new catch of customers each day from a possibly dwindling pool, but becomes instead a farmer, preparing the ground with this year's customers for next year's business.