Saturday, August 29, 2009

Personal Consumption Set to Soar

Personal Consumption Expenditures soar right at the end of recessions.  As you can see from the following chart, the move appears to have started.

PCE took a heck of a plunge during this recession and the bounce back will be equally strong.  What do you suppose consumers are going to buy?

Hint: the trend is already in place....

In the past year, it is estimated that Apple has taken in over 2.5 Billion Dollars in revenue for mobile software programs called apps.  Do you have a guess at what the hot sellers are?  Hint:  Sony just lowered the price on the PlayStation by $100.  Hint #2: Microsoft is lowering the price on the Xbox.  Hint #3: Wii just reported slower sales for the first time in the products history.    

Twenty-five percent of all mobile apps sold have been game apps.  Surprisingly, 36% of all Blackberry apps have been game apps.  Android sells a higher percentage of game apps than Apple but less than Blackberry.  Google has increased its production of apps an average of 50% per month for the past 6 months!!!!

Facebook continues to grow like Jack's magic bean stalk and one of its fastest growing vines of late has been its game applications.  What do we make of this trend?

In a related development, the hourly rental car business is soaring.  Those who rent vehicles by the hour drive about 40% less miles than those who own a car.  Even so, even in places where hourly rentals are not common, total vehicle miles driven are falling.  The trend is to be entertained electronically while staying put.  Mobile phones allow one to play a game where one happens to be, without traveling to a friends game room.

Those frightened by the "evil" of social networks think that friendships maintained at a distance are not as strong as those made in real life.  Of course, the reality is that most Internet friendships are a supplement to friendships made in real life.  Friends at school do not feel as great a need to meet with others at the mall if they can stay in touch electronically.  The benefits are many.  For example, one can multi-task electronic friendship relations.  One girl can text multiple boyfriends while watching the tube.  Indeed, total TV viewing has not suffered nearly to the extent that Internet consumption has grown.  TV is yet another stay at home activity, but it is quickly becoming available on mobile devices.  Since Hulu typed TV viewers work like TiVo recorders, one can watch a few moments of a show and pause the remainder for later viewing.  

The hot product this fall will be hand held readers.  Mobile games are selling like hot cakes largely because they are so efficient and cheap.  Serious students are among those who are playing mobile games.  The owner of a mobile phone can pause a game to respond to a text message faster than Doc Holiday could draw his 6 shooter.  But, what if this student needs a book from the library?

Think about the total time it takes to go to the library to find the book you need, check it out and take it back home.  Now think about how quickly one can search online for the book and check it out.  In the last few months, pundits have discussed ad nauseum about how many $9.99 online books one must buy to justify the purchase of a $359 electronic reader.  The typical answer of 40+ books leads to the conclusion that electronic reader sales will be slow until prices fall dramatically.  To an extent, this is an accurate conclusion but it implies that we are looking at next year or the next.  Reader prices are falling now.    

The last three versions of the Sony Reader sell for $199, $299 and $379.  The answer to the above question at $199 is 25 books.  The problem with this analysis is that it ignores the huge convenience factor and the huge delivery cost savings of electronic books.  Plus, it ignores the library factor.  The paper library book and the electronic copy library book are both free to use, but the convenience and delivery cost savings are far more important to those who borrow rather than buy.  When pundits make their analysis based on price of books, they think in terms of buying a book while you are out and about anyway.  As the paragraphs above show, local travel is being avoided.  The cost of going to the library and back is real and it is an unnecessary expense.  Recessions cause unnecessary expenses to be reduced or eliminated.  Once a reader is owned, the marginal cost of a real library book is extremely more expensive than the marginal cost of the electronic book.  

If a parent takes his child to the library once per week for the next 30 weeks, if each of those trips take an hour, and if the parent values his time at $10 per hour, then the cost in time value is $300.  Thus, the mid priced reader has a payback of only one year, not counting anything for the cost of travel.  Pretty soon the prestige factor will kick-in; Johnny will want a reader because Billy Jones has one.

What if that reader included access to Google Reader?  What if every student in a class had a Google Reader in hand?  The teacher might assign a selection of key words and ask the students to learn about the keywords and to write a critical commentary about information found.  The teacher might ask the students to electronically trade papers from home and to write a critique of the other paper.  

Instructional designers are fond of saying that new teaching methods can accomplish only two of three goals, FASTER, BETTER or CHEAPER.  Universities and schools across the country are experimenting with electronic readers.  Educators are realizing that a rare opportunity is upon us.  We can substitute a good that is FASTER, BETTER AND CHEAPER!

A better mouse trap has been made.  Late this year or early next year, another big player will begin battling Amazon and Sony for market leadership.  Sales of electronic hand held communication devices are already soaring in the form of advanced cell phones.  The addition of AT and T as a vendor will certainly increase visibility.  Personal Consumption Expenditures are going to bounce very high!